Bank Of America CEO Says Consumer Spending Is Strong Despite Inflation

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Following is the unofficial transcript of a CNBC interview with Bank of America Chairman & CEO Brian Moynihan on CNBC’s “Squawk on the Street” (M-F, 9AM-11AM ET) today, Wednesday, February 16th. Following is a link to video on

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Bank Of America CEO Says Consumer Spending Is Strong Despite Inflation

JIM CRAMER: This morning’s better than expected retail sales data putting the consumer spending, inflation and the Fed in focus. I don't know if anyone knows this stuff more than the man we're about to speak to, Carl. It's Bank of America Corp (NYSE:BAC) Chairman and CEO Brian Moynihan. Brian, I always love your take. You've got more sense of the consumer and the country than anybody, your stock is held up far better than any of the other major banks. Tell us what you're seeing and tell us what would happen if you got the seven rate hikes that some people are talking about?

BRIAN MOYNIHAN: Well, Jim, good to see you. And you know, I think when you look at the core spending levels of consumers, they continue to be very strong. So we went out a week or so ago and said January is up know, nearly 15 to 20%. We're seeing that continue into February. And despite what you just said, restaurant spending is up, which as it starts to normalize, so we're seeing consumers spend across the board. So number one, consumers are spending. The money moving out of their accounts, which is a lot of money at Bank of America over the course of the year – $3.5, $4 trillion is growing at 15% in February so far. It grew faster than that in January. The good news is that transaction volumes are up, so this isn't all inflation driven, which might be the question. The second thing is that consumers have more money in their accounts. So the month of January, their accounts grew again, especially for consumers that carry lower balances. That sort of belies the question of well, when stimulus runs out people going to drain their accounts. They haven't yet. They've gone up for the last six or seven months. So that's good for the economy. But also that means that the economy is very strong. Predicted to go 3.5, 4%. So the Fed’s going to have to slow it down and bring the rate structure back up to where it was in ‘19 when the economy was basically about the same size it is now.

CRAMER: But let's go to what you've done. You've done a remarkable job hiring people and have had to pay more. If we slow the economy down, yeah, it's terrific for maybe employers not wanting to pay as much but you’ve kind of got a situation at your bank right now that frankly, if it weren't – I'm just going to say it. It's the greatest time ever for your bank and I hate to see that be taken away by the Fed.

MOYNIHAN: I don't think the Fed will take it away. We make a little more money on rising rates because the core deposit franchise we have has so much embedded value in the rate structure comes down and hits the zero floor because we pay zero, but we can't pay less than zero. So that's good news. But when you think about, you know what we've done to be a great place to work, Jim, in terms of our teammates, we've continued to work this company. When I became CEO, you know, now 12 plus years ago, we had 280,000 people. We went up to 305,000. We're right about 208,000 people and that is by just applying technology over and over and getting more and more effective and efficient across all those timeframes. And as you said earlier, and Brian said it, you had to be doing this all the time. The pandemic, we had a lot of work to do to help our clients through. But you had to keep investing in technology that would provide efficiencies and effectiveness going forward. And that's how you run the company. And that's why when rates go up and economy slows down, we can still make a good amount of money.

CRAMER: All right, that's good because you do have the 14 multiples, which are the highest multiple in the majors. Before I turn it over to Carl, I'm going to go drill down more on the technology spend. You have said over and over to me, listen, we have to spend the technology we have to spend $10 million a year in technology, including new development or else we will fall behind. What I have seen this quarter was that everybody fell behind. This was the breakout quarter for all the money you spent on tech and you know what I'm talking about. There are other banks that just realized holy cow we're way behind. How did you see it? How did you know it and what has it done?

MOYNIHAN: Well, we had great leadership. Cathy Bessant had lead that for years and now is over in Paris working on some stuff for us. It was passed to Bhasin who now runs the tech and his colleagues. But it was just driven by our businesses saying, hey, we've got to transform this business. And the starkest thing would be to think about our consumer business. Had about 6,000 branches in at the high point now has 4,000 and the business is probably three times bigger. And that headcount went from 100-some-thousand down about 60,000. So just think about that turn, but it wasn't one silver bullet, it was a constant, you know. The implementation of the digital banking and pushing mobile banking, getting mobile banking implemented by the customers, showing them how easy it was. Then you did things like Zelle and Erica and life plans and you just keep building this. And so people are critically important to our execution at the branches. We are a high-touch, high-tech, but the reality is they can be working on the most important things that clients – while the technology can take care of things that can be done you know simplistically by the customer easily. And so checks deposited at the branch have gone down to like 15% from half 10 years ago and that – think of everyone is costing a lot more money than a client doing it digitally or through the ATM.

CARL QUINTANILLA: Hey, Brian, you point out there's been a lot of wood chopped in terms of getting the market prepared for some rate hikes, but I wonder if you feel the same way about balance sheet runoff, estimates about the monthly runoff or all over the place. Fed’s already on its heels with messaging after transitory. What do you think that looks like when it happens? And do you think we'll start to get a picture of the mechanics say, for example, in the Fed minutes today?

MOYNIHAN: They're going to be clear about what their strategies are. They have been. They've been abundantly clear. And between the dialogue after the conferences, the minutes and frankly, about, I don't know, eight years ago, they said we got to be very clear for guidance. That's one of the ways they actually prepare the market for changes and they constantly do that. So they are going to bring the balance sheet down. You got to remember it really only got down to about 4 trillion if I remember right, you know, in ‘19 and so it doesn't come down back to the 700 billion it was before the financial crisis, because economy is a lot bigger and the different things that go through it are a lot bigger. So there's a sort of a fundamental stopping point. They'll run it down, but in the context of the trillions of dollars of mortgage backed securities outstanding and the trillions of dollars of treasury bonds, you know, the reality is, is that it's big news for the market, in terms of increment, but in terms of long term, you know, bringing that down, you know, it will have an impact but the bigger impact will be, you know, can they get inflation under control and can consumers feel good about having the money to spend on the future. Because that would that keep driving this great US economy which frankly leads the world and has to be successful for the world to be successful.

CRAMER: You know, I want to talk about the idea that the adults are back in the room. About a year ago and even six months ago, we heard endlessly buy now pay later. This is, this, this is the secret, not whatever Bank of America is doing. We're gonna get away from that kind of thing they're in, they have us in their chains now. Do you see post November beginning where things like buy now pay later are a little glib and maybe it’s buy now pay never?

MOYNIHAN: Well, you know, you're not in that business and we looked at as to what the consumer wanted and what the consumer wanted if you said you could buy a $1,000 Peloton bike and pay for it over four installments who wouldn't take that offer, but you know, that's not a new concept, layaway and things like that have been around for hundreds and hundreds of years. There's a wonderful article written about this as a new invention. It's 200 years old or 300 years old or something like that. So the idea is what do consumers want. So we look at what consumers want and we we try to think about that but remember with our consumers we are trying to make sure they manage their debt well. They buy, they live within their means we do a lot of financial education with the best financial education website out there. So I think the tension is, you know, causing people to overspend is one of the tensions that you have in how we run the business. So we look at our products, we have credit cards, which are great for consumers from secured credit cards on up, you know, we have auto loans, we have home equity loans, we have home loans, and we have, you know, strong production and those but the reality is we just didn't think it was a product that was in demand by our consumers because our consumers basically have the money to pay or put up on a credit card and pay it off over time and get the same dynamics.

CRAMER: Alright Brian you're the foremost in tech spending. We’ve gone back and forth and Zelle was so brilliant, a lot of these you know, I've been praising them forever. But how about Blockchain? Now there's one they tell me if you have Blockchain, you're worth more than Bank of America. Is Blockchain really new or is Blockchain I mean, you must be laughing at this stuff.

MOYNIHAN: No, we were not laughing at Blockchain as a, as a, as a technology thought process or technology we have, you know, tens of I think we have 60 patents on it already issued and things so and maybe more than that. We continue to look at that. The idea of information and money and distributed, verified ownership and things those are interesting especially especially for some cross border transactions and and heavy documentation goes and the concept is not new. Yeah, the idea of a distributed ledger that is what the Registry of Deeds is or the, you know, the or the driver's license registration and things like that. Those are, those are, those are distributed ledgers everybody knows who owns what and has it happened. The idea of cross border requires a lot more capabilities. So we've studied that, you know, there are things that are very interesting to us. We're still trying to figure out how to scale an application. So we have some work going on. And we work with various other named parties that you've talked about in terms of implementations, but you need to divorce that from the technology and the principles from some of the other things go on because there's something there they're about how you can move complex amounts of information or how you can have provenance, you know, of there's a blockchain execution in a diamond area shows the diamonds where they came from so you can be really assured that the real diamond and it's marked forever, they're sort of interesting applications. So we we focus on the technology and what it does, as opposed to you know, the the market valuations and debate around that.

CRAMER: Well, just be sure what I say I mean, you've been doing this for a very long time. And there are a lot of shysters that have come public both SPACs and IPOs that have made it sound like that one you didn't know anything about Blockchain which is completely untrue. You've been doing this long before then and to buy now pay later if rates go up dramatically, will you be on the hook? So I just think that you have analyzed these things and what I'm trying to distinguish is that at this point, I would rather own eight banks selling at 14 times earnings, it knows buy now pay laters is being dangerous, that knows all about Blockchain, you get that too. And what you've done is create the technology machine that all these other guys are claiming they have. I mean, you spent a fortune, these guys come on Brian, and they don’t know anything about what happens if there's a downturn. I think you're ready for it.

MOYNIHAN: We're ready for it because we always test ourselves. But you know, last year we were in $32 billion there's very few companies in the world that ever earned that amount of money and our team did a great job of producing those earnings and you know we’re on course to earn a lot of money this year. And so, you know, the challenge would be a big company is to have that nimbleness and just look at you know, look at our digital banking capabilities, regrew 2 million customers last year, which is a record raw number of customer growth. Look at Merrill Edge which dropped $300 billion and put on 500,000 net new accounts last year. But by the way, those net new accounts all were $60,000, $70,000 accounts in the accounts at opening and if you look at Merrill and the private bank had $170 billion in net flow. So when you're big, you got to have that flywheel turning produce that result, which is critically important, but you got to be mindful and so we have team teammates all they do is look at what's going on with all these companies that you're talking about and ensure that we know what the customer sees and adopt ourselves to that.

QUINTANILLA: And Brian, it sounds like you're painting a pretty positive picture about the house sold on the consumer side. Some have argued I think it's actually the BofA research desk has also argued that corporates have a bigger mix of long-term fixed debt going into this cycle than they did say going into the financial crisis. Are you as optimistic about corporates because we have begun to hear about warnings on the leverage loan market and smaller players who would be, who would be vulnerable to a rising rate environment?

MOYNIHAN: You're gonna, you're gonna have that discussion. By the way, we had it in ’17, ‘16, ‘17, ‘18, ’19 if you remember the same issue about zombie companies and rates going up and generally it's good business plans who can generate good cash flow, we'll be able to absorb the rate change and back to where it was ‘19 where they're making plenty of money. So we are careful about that. Frankly, inside the banking industry honestly, the rules and regulations and scrutiny from our regulators and stuff keeps the leverage sort of in the company's down and a fairly good level. We're examined constantly over and over again about the quality of our underwriting. You know, the good news is the industry really helped a lot of people through the crisis. We did some work with clients that, you know, gave them the liquidity they needed to stretch out some of those people to vary cruise industry, airline industry, things like that absolutely depended upon customers being able to move around and those companies are recovering and getting to the other side so I think the balance sheets of the corporate world, corporate America are in very good shape, yet there are leverage excesses that go on generally driven by the market and, you know, those things tend to be net asset value, i.e. the the investors losing the debt and it gets restructured, but the question, really, that we often talk about is when does that get big enough that has an impact on a core economy. If it's just a company getting restructured, you know, that stuff unfortunately happens but if it's a whole bunch of companies, you have to be careful and that’s what we kind of watch, will that if those companies have problems will that aggregate, you know, amount of restruction, retraction actually hurt the core economy and we right now we don't think so. But we got to watch that.

CRAMER: Alright, that's excellent. Brian Moynihan. CEO of Bank of America. I feel really terrific about what you're saying because January turned out to be pretty good. I was worried about January, November, December. And once again, your bank spending the technology the other guys didn't that's why you got the highest multiple. Congratulations. Thank you very much Brian Moynihan.

MOYNIHAN: Thank you, Jim.