Bank Of America CEO: Labor Markets Are Still Strong

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Following is the unofficial transcript of a CNBC exclusive interview with Bank of America Corp (NYSE:BAC) Chairman & CEO Brian Moynihan on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Tuesday, February 14th.

Labor Markets Are Still Strong, Says Bank Of America CEO Brian Moynihan

SARA EISEN: Good morning, I am here at the Bank of America Financial Services Conference with Bank of America CEO, Brian Moynihan. Thank you for having us here.

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BRIAN MOYNIHAN: Well, thank you for coming in. Got hundreds of investors and a bunch of CEOs for other companies giving their view of the future so it's good that you can be here to help put some of that out in the public domain.

EISEN: Okay, good. So let's talk about the view of the future. We got an inflation report widely discussed this morning, seventh month in a row of cooling inflation, 6.4%. What's your assessment of how fast it can come down from here?

MOYNIHAN: Well, I think the question is sort of the sticky or not sticky components and the different elements but the reality is the labor market’s still strong and you've heard Chair Powell and others talk about that because, you know, the reality is new claims for unemployment are low.

There's a lot of talk about I'm not hiring as many people or I'm slowing down my hiring. There are layoffs but you still don't see a major adjustment in terms of unemployment rate, and that job tightness, wage tightness and things is something they've got to see but it's flattened out.

And then rent is the other big one and rent sort of has a seasonal pattern to it. And you think about school, school changing in September rent starts. So you usually have a kick up, and then you have, rents come down and they came down twice the percentage they usually fall in the latter part of the year and they're down in January.

So that's coming in line but it’ll be slow to get through. So as you look forward, our team has a recession predicted. They moved it out another quarter recently to start in the third quarter, fourth quarter, first quarter next year.

They've lessened the impact and I think people are sort of coalescing around this idea that maybe this thing is a not a soft landing, i.e. no recession, but maybe a more mild recession. And the delay is due the strength of consumer and other things, but the Fed’s going to have to get inflation where they want it and that means they're going to hold rates higher.

And that's the conundrum that's going around the market but the big change was zero to 5%. You know, the next incremental is not as big and I think one of the Fed voters a long time ago described it to me, one of the great ones said it looks just like we're climbing a rock wall, it was hand hold to hand hold at points like this.

You just look into the data and see what's happening. Everyone thinks there's a grand scheme but they've got to react and right now our data sayings are it's it's softening, but it's not the it's not totaled down yet, a little more flattened out.

EISEN: But the market’s all excited. Two more hikes, then a pause, maybe even then some cuts. Is the market too optimistic there?

MOYNIHAN: We don't have any cuts this year.

EISEN: No cuts.

MOYNIHAN: Yeah, I think it's takes, you're gonna have to make sure it's choked down because it's much higher than we've seen. You've recently talked to the central bank head that's not the central bank anymore, he said we, we died to try to get inflation over 2% and so the idea is to get it back to where their targets will take some time to make sure they manage it.

EISEN: So as far as the economy is going, you said you moved out the recession call your team did. Consumer spending, you've got a good read on that. You said I think six weeks ago that January started strong. How has it been so far in early February and what are you seeing now?

MOYNIHAN: So if you take like the first quarter of ‘22 versus first quarter ‘21, the rate of increase was double digits 14%, 12%, 13% type of numbers, that's now in the fourth quarter of ’22 versus the fourth quarter of ‘21 fall into 5%.

In January, it's picked back up a little bit so year to date, 5%, 6%, which is very consistent with a 2% growth economy very consistent with a low inflation economy and that's what it was sort of in ‘17, ‘18, ‘19 it kind of ran at that level. So it's it's not going down anymore.

It's not slowing down. It's actually year to year growth off of now a high base and you actually look at it's solid and so that means consumers are in pretty good shape. They have money in their accounts, they have a capacity to borrow.

They have they're employed, you know, three, three and a half percent unemployment rate plus or minus the wage growth is still relatively strong. Inflation is tough on people who are the rate of goods is exceeding the wage growth. And that should come back in line as they choke it down. But overall consumers are in very good shape in America.

EISEN: What about loan growth? Where are you seeing it strong and where are you seeing it slow down?

MOYNIHAN: You know, right now it's kind of bumping along it because, you know, the economy sort of flattened out in terms of expectation. Businesses are being careful. And so what do they borrow for?

They borrow for to, you know, invest in people, invest in plant, invest in inventories, and all that they're trying to make sure that that they're right on that. And that's been interesting so line usage has been flattened out a little bit.

But we have mid-single digits, and we're sort of consistent with that. But the overall market sort of flattish in loans, you know, this data that comes out every week or so you see it, but it's it's kind of bumping along now. And so we're seeing a little bit of growth in the commercial businesses, flatness in the consumer businesses and then in the markets business that's that goes up and goes down depending what's going on.

EISEN: What about housing, which has been hurt by the higher mortgage rates, but some signs of maybe stabilization there as mortgage rates have come off the highs.

MOYNIHAN: Well, I mean, we're going along in housing. We got back after the financial crisis, it fell back to sort of the 3% long term rates then it spiked after in the pandemic because everybody ran for different question.

Well it fell first and it spiked back up, and now it's tipping back down and so I think it's gonna get back into a healthier balance. The the rate structure move hits housing fast. And now you're, you know, since that started last summer, you know, in earnest of last year this time, you're now a year away from it.

And so the first big moves and mortgages started slowing down housing and now you're seeing the stability in sort of mortgage production, but it's down dramatically from where it was probably the pandemic and it should be.

I mean, that's that's what the Fed’s trying to do. Cool down housing, it's a measure of wealth and it's a measure of inflation that they need to cool down. And they’re doing that, that happens first because it’s so rate sensitive.

EISEN: So we're here at an investor conference, obviously, you're talking to a lot of investors. Over the last three months or so, the bank's stock performance is higher but you have lagged, your stock is lower over the last three months. What what is the issue? What are you hearing?

MOYNIHAN: Yeah, we're up 7% or something year to date. I think the issue is we’re the most sensitive to the interest rate predictions out there. And so we've, there was a belief that I would grow in all the industry what's happened is the balance of deposits were flattish third or fourth quarter and have drifted down industry by a couple of percent.

That's because the money is going into other investment vehicles that have higher rates and it should, and corporate balances and wealth management balances so that our company is so driven by deposits that creates more around it, but we had a big run up in the year leading up into last year into ‘22.

On higher rates and enthusiasm then the concerns but we're doing fine. We earned $7 billion in the first quarter plus after tax and credit is in great shape and we’ll keep driving earnings growth.

EISEN: What is the outlook for deposits?

MOYNIHAN: I’d say the outlook for deposits now as you've seen the H8 data and we don't look like it's down a little bit from the year end, maybe a percent or two. What we're in now is this position that happens every year in the first quarter which is people pay their taxes, people get their year end bonuses, so we'll see it settle out but they're performing exactly as we thought they would given our NI predictions for the first quarter of 14, 14 point 4 billion.

So it's happening exactly the way we thought it would you know without much variation in terms of rate paid or balances and so we'll see it play out but, you know, think about longer term, you got a backup. We did a million new checking accounts last year, 100,000 plus banking products into our wealth management business.

That's where the long-term value of our franchise is growing that core deposit base and the ebbs and flows of what's going on will happen but long term that's what provides value and that's why we grew deposits all during last fed tightening cycle.

What we didn't have was the extra stimulus and stuff and that's moving around people's accounts. We'll see what settles in but the underlying business is strong.

EISEN: And digital too has been a differentiator. Do you feel like you've gotten credit for spending I think more than some of your competitors over the previous years and you're ramping that up even more?

MOYNIHAN: The credit for that section is operating leverage which is counterintuitive, but the way you generate efficiency and effectiveness in a company is you engineer out work and digital is a fast way to engineer out work both our teammates working with each other and our customers.

And so we've been engineering out work. So in 2010 when the management team and I started together we had 285,000 people, went to 305,000 people, reached a low of 205,000 people we're up to about 215,000, 217,000 people now, managing that back down but that's all by a digital enablement throughout the franchise and customer digital enablement.

So 85% of wealth management customers are now digitally interacting with us. 70 something percent of our consumer customers half our sales are digital, more Zelle transfers out the checks written in these are major changes, but they're, they just happen consistently, you know, and the idea is everyone says, well, it's gonna change immediately.

It just takes time and it takes continuous investment, like I said, so we've invested billions of dollars in these platforms. Erica, 18 million users. Discuss about ChatGPT, Erica is an artificial intelligence, natural language processing.

EISEN: We don’t know Erica. We know ChatGPT.

MOYNIHAN: 18 million people are using ours a billion times so far so there's a lot of people using it.

EISEN: Finally Brian, we did get the stress test scenarios and there are a lot of questions, obviously 10% unemployment and how do you expect to differentiate, differentiate yourself there and how do you think about buybacks in the context of what we've learned?


MOYNIHAN: So the stress test come up every year. We've always been, I think, every year except for one the lowest loss content from the portfolios by the stress test and that's how we built the company under responsible growth.

The 10% employment has not changed in so for three or four years ago, there was a decision made that the debate was do you use 5% raise, i.e from three and a half percent to eight and a half percent employment or do you go the nominal amount 10% it was and they left it there. So that that's not a new difference.

The GDP is a change. And so we'll run through our models, they’ll run through their models and we'll come out but the reality is we should fare better because the way we run the credit side of the book and the market book and things like that, and we've done that.

Now, leave that aside. Our capital required level now is 10.4. It moves to 10.9 at the beginning of next year, we're at 11.2. We maintain a 50 basis points, half a percent buffer over the capital minimums. So we're buying stock back at all times and we bought stock back last quarter and buying back this quarter.

EISEN: But you don't expect the stress test to interfere with that.

MOYNIHAN: Last year, it went up 90 basis points. We slow down buybacks and we pick then we started them in again and it may change if we have higher capital requirements, we'll wait and see. But we'll play that out in the grand scheme of things.

We've got more capital than we need. The industry has well capitalized they've done a great job. We don't need incremental capital in this industry and not because the benefits of that are offset by economic growth. What do we need to do we need to support the economic growth of the United States and help this country do what it can do.

EISEN: I know you made some headlines on the buyback remarks in your presentation, still going. Brian, thank you so much for taking the time here today.