Brian Moynihan, Bank of America CEO, spoke with Bloomberg Television’s David Westin today about the risks facing the banking industry and the state of the global economy.
Moynihan on U.S. consumer spending: “October is probably one of the strongest months this year relative to October of last year…It’s a strong economy…Unemployment levels are down, and wage growth is picking up. That’s all good. Now the question is, what can derail that. And that’s what we have to pay attention to.”
On cyber attacks and how often Bank of America experiences attempts to break in to the system, Moynihan said: “You should assume that we get hit on occasion, and more than rarely. And what we do is defend it well.”
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BofA CEO Moynihan: Consumer Spending Strong in October
DAVID WESTIN: So we are here with Brian Moynihan, Chairman and CEO of Bank of America. Thank you for joining us, Brian.
BRIAN MOYNIHAN: It’s great to be here, David.
WESTIN: So we’re here for a panel that you graciously did with Michael Chertoff, the former head of Homeland Security, for the Bloomberg Year Ahead Conference. We just were talking about risk, and particularly cyber risk, and how much that is on your mind at Bank of America. Give us a snapshot of what you do to manage that risk.
MOYNIHAN: Well it’s always hard with Secretary Chertoff to stay ahead of him, the good news, we use his firm to help us. But hire good people. We are willing to spend the money it takes because it’s our customers and our trust at risk.
And then we have to have good governance processes with how we behave internally and how we manage the risk. And so I think we’ve, Cathy Bessant and the team have done a great job of staying ahead of it, but with — you can never sanguine here. You always have to be moving forward and think about what could happen next.
WESTIN: Yes. One of the points you made is it’s not just a mechanical problem. This is not just machines and digits. It’s also people.
MOYNIHAN: And it’s behaviors. It’s people. It’s people using devices, how people go out to the internet and to out in the world. It’s what we call personal hygiene. I mean it’s like nothing else. And we have a security card to get into the buildings. Then you have to have great security around people use the internet.
And so all that has to work, and you have to have a set of rational policies, but you have to be very disciplined about it. And then you have to be willing to invest the money and make it work so that on the rare occasion when it doesn’t work you can fall back and get in shape.
WESTIN: Now there was indictment announced just today, or unsealed, really, by Preet Bharara on the southern district that fortunately did not involve your bank, but did involve another bank and some other financial institutions, but it’s not for lack of trying that people are trying to get into Bank of America systems. How often do you experience some attempts to break into you?
MOYNIHAN: We don’t talk about those because we just don’t. We — but you should assume that we get hit on occasion, and more than rarely. And what we do is defend it well. And in terms of the indictment and things, I think one of the things I see going forward, David, is the cooperation between institutions and government has to just to continue to move forward so we can find the people who are not good people, and take care of it.
WESTIN: Is that particularly the United States government, or foreign governments as well?
MOYNIHAN: All over the world. I mean this is a worldwide problem because it doesn’t know boundaries. You can find a place to get to people from anyplace. And so, like anything else, it’s easy to — like anything, like different than physical space, you can usher the resources with a relatively few number of people, and a relatively few number of dollars and you can do it from anywhere. Hence that means that the amount of cooperation and work that has to go on is far different than the traditional we think about war or terrorism, which is less — is more physical, and more people, and it takes big money and it takes ships and things like that. This is — can be mounted fairly quickly.
WESTIN: To what extent do you and other financial institutions share some experiences and just tell them what you’ve learned to try to develop your own defenses?
MOYNIHAN: Well through our trade groups we have a financial services round table. Through the other trade groups we have forums where we compare notes. And so our chief technology officer, and then more importantly even the people who work on this specifically have industrywide groups that are sponsored by the industry trade groups, but also the government calls us together periodically to make sure that we — that we know what they know that they can share so that we’re ahead of them. And so there’s a pretty good amount of cooperation.
WESTIN: So let’s move to what I hope is opportunity. Let’s stay with the U.S. economy for a minute because Bank of America is in a particular position to have an insight into the U.S. economy, given your retail operation and you’re dealing with so many customers throughout the country. Where do you think we are in the economy right now?
MOYNIHAN: Well it’s been very interesting to watch this September to October term, because if you went July, August, September in the third quarter, what happened is July and August were pretty strong on consumer spending. And it slowed just a hair, largely because of what was going on in the world. It picked right back up in October.
So October is probably one of the strongest months this year relative to October of last year. The benefit from low gas prices, people are spending that money, aggregate spending probably near five percent, not taking into account the benefit from gas prices, four percent without that. So it’s a strong economy. And as we see that translate in that consistent move by the consumer to spend, and the unemployment levels are down and the wage growth is picking up, that’s all good. Now the question is what to (INAUDIBLE) that. And that’s what we have to pay attention to.
WESTIN: And what about construction? I know you had a fair amount of participation in financing construction. How has construction been, because that’s a driver really.
MOYNIHAN: Well housing starts are now — they’ve bounced around a little here, and sometimes disappointed people and sometimes encouraged them, but the reality is they are up year-over-year about 10 to 15 percent, and that’s what’s projected in the year end. So housing is very constructive, and the multifamily housing is still very strong.
And we expect that. That’s also creating job development because construction projects can’t be imported. In other words, you have to build the house locally. You may be able to bring in some of the materials at the end of the day. And so that kind of investment in people’s homes we’re just seeing the people borrowing on home equity loans, and starting to put a new roof on, put a new air conditioning system, rehab a room. And that plus the new housing building is providing a stronger base for construction employment, which is good.
WESTIN: So are a lot of the things you just talked about, how we were under wise for the really remarkable job numbers we got just last Friday, good numbers, and yet the markets in the short-term have reacted a little in a sketchy way, I would say.
MOYNIHAN: And I never pay attention to the short term because they reacted strong, and then they reacted weak. We got something else going on, but the reality is what that really showed is the fundamental underlying strength of job formation, which is the critical thing. And unemployment is teetering right on five percent, which for a lot of our lifetimes we would have thought was an unbelievable number, and now we’re saying it may go far below that.
And so everything there was positive. People read that so that the market has the probability in its judgment of a Fed rate rise in December in the high 50s percent. And in a minute some other news comes out like in the last 24 hours or 48 hours that says there might other things, and the economy is around the world is not growing as fast, and you see that pull back a little bit. But I think those ebbs and flows, the important thing is the economy is growing.
And that U.S. economy growing is critical to the rest of the world because, at the end of the day, we consume a lot and we do a lot. And the world depends on us being strong. If we weaken, then the rest of the world will have a bigger problem.
WESTIN: There is a lot of speculation at this point, in part borne out by the treasury futures market that there would be a rate hike of about 25 basis points in December. If that happened, what would it do to Bank of America’s business?
MOYNIHAN: Well we disclosed, and we just — 10-Q within there that basically it’s $4.5 billion round numbers for every 100 basis points increase in rates, parallel rate rise. And so when you have half a trillion dollars in zero interest deposits that are always zero interest and have hit a floor, and when you have loans repriced or rates going up, it’s a good thing for a bank. And this has been a very tough environment.
Now that being said, we’ve positioned the company and rebuilt the earnings stream, have gotten through the mortgage crisis, and now have a simpler, more straightforward, highly-capitalized company, which made $4 billion-plus in the last quarter. So we’re not sitting here waiting for rate rises, but it would make our life a little bit easier.
WESTIN: So spend a minute on China. And you and I have talked about China over the years. How do you assess what’s going on in China right now?
MOYNIHAN: Well it’s a tremendous task, and so if you think about the size of change that has to go on in that economy in a given year for it to move forward. So our experts still believe it will grow in the high sixes this year, and kind of fundamentally (INAUDIBLE) that that policy rate was 6.5. But at the end of the day it’s going to ebb and flow along those dimensions, and so whether our experts are right this week or whether it turns out to be slightly different.
But in the long-term, you have a tremendous development of a billion people, and 150 million middle-class people coming into society and doing the things that people have done in this country for a long time. And that’s good for the world if it keeps going. And there’s going to be momentary ups and downs because, like anything like else with that much activity, there will be excesses that they’ll have to bring out of the system. It’s a very difficult job that — to think about the scale of which is going on.
WESTIN: How much confidence do you have in the numbers we’re looking at out of China?
MOYNIHAN: Well I rely on our experts, and they do a lot of work on their own. And they come back and say that the seven percent, 6.5 to seven percent range. And they’ve studied it for a lot of years, so you have what the government says. This team has been at it for their whole life, and they say the same thing. So you got to have confidence. And also it’s always remember it’s relative because it’s just that moving forward.
WESTIN: So we’re at this conference looking forward to 2016. As you look forward to next year for Bank of America, biggest opportunity, biggest risk?
MOYNIHAN: Our opportunity is the same this year, last year and will be next year, which is to basically with our core customers to do one more thing, whether that’s for the consumer who has a checking account to do a credit card, whether it’s a company that we have a line of credit do the cash management, or whether it’s an investor that we do equity, the capital market, equity markets, whether we do fixed income.
So our job is just to do a little bit better, or a lot better with every client one at a time. And then it builds a great franchise. We have great products, great capabilities. So the biggest opportunity is to just to focus on our customers and drive it forward.
WESTIN: All right. Thank you very much, Brian Moynihan, Chairman and CEO of Bank of America.