Bank Of America CEO Sees Lots Of Room For Growth In Loan Business

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Following is the unofficial transcript of a CNBC interview with Bank of America Corp (NYSE:BAC) Chairman & CEO Brian Moynihan on CNBC’s “Closing Bell” (M-F, 3PM-5PM ET) today, Wednesday, January 19. Following is a link to video on

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Bank Of America CEO Sees Lots Of Room For Growth In Loan Business

WILFRED FROST: Welcome back. Bank of America shares off their earlier highs after rallying on earnings this morning. For more on those results, let’s bring in Chairman & CEO Brian Moynihan. Brian, great to see you. Thanks so much for joining us.

BRIAN MOYNIHAN: Wilf, good to see you and Happy New Year. I haven’t seen you since the new year and Happy New Year to Sara also.

FROST: Well very Happy New Year to you too and great to get your outlook for the year ahead but before we get to the outlook, maybe let's just touch on, on that fourth quarter that's in the books. And I guess we, we got a glimpse of what you've been talking about for a long time that when rates do rise, you see the net interest income and the revenues pick up, costs went up too, but importantly, less than revenues.

MOYNIHAN: I think Wilf just back up big picture revenues year over year up 10%, costs up 6%. A lot of that cost related to the markets related businesses, whether it's wealth management or capital markets and investment banking and trading that draw compensation based on that, but rates have not risen yet. I mean, our driver of rate increases and coming from that has not come through yet, that's ahead of us largely because, you know, we're so sensitive on the short rate side, not to get overly technical. So, the fourth quarter it really, you know, rates moved up a little bit along bond, but the real value there comes as the Fed raises the short-term rate because when you have, you know, $2 trillion of deposits and a trillion dollars plus a consumer deposits trillion four of deposits with American consumers more broadly out of our retail segment and our wealth manager segment, those stay at zero because they're not interest bearing $600, $700 billion at the transactional count. So we'll get a lot of leverage but we made a billion dollars in first quarter, fourth quarter this year without a major rate changes. In fact, they came down a bit.

FROST: And if we do get that environment that it'll benefit your top line in the year ahead and rates go up, would you expect costs in the year had to go up by the same magnitude or significantly less? As you know this quarter, there's been a huge focus from investors across all the banks on cost forecasts for the year ahead.

MOYNIHAN: Well we, we've got a decade plus history of managing the costs of this company where we do it by constantly investing improvements of what we do. And so we told our shareholders today that expect costs to be relatively flat for 2022 versus 2021. And you know, we're confident we could do that like we've been, we continue to take money from the operational process, you can automate, our customers behavior automates across all our businesses. And we take that money invest it back into growth and expansion whether it's new branches, whether it's, you know, $3 billion plus of incremental co-development every year or whether it's more relationship manager help draw that $50 billion in loan growth in the fourth quarter. We invest heavily in a franchise this year. We can do it mean this year 2022 was relatively flat to 2021. And we're confident we can do that.

FROST: Let's touch Brian if we can on that loan growth. It stood out relative to peers I guess the question on everyone's lips is can it continue in the year ahead? And if there's any factors you're looking out for that could derail it including, of course, raising rates.

MOYNIHAN: Well I think if the reason why rates are going up as the economy is going to go up 4% which is our team's prediction this year, you know, that’s good for loan growth. Think about before the pandemic, we had gotten nearly a trillion dollars of loans on the books and the consumer and commercial customers through the lines of credit at 35% just on average. That dropped to 25%. That's like $40 billion of loans. Now we've gotten about half of that back and that's coming through and the new loans we're doing in the consumer side, and we're still $20 billion off of what we had in credit cards heading into the pandemic. So there's lots of room for growth on the loan side. In the fourth quarter specifically, $50 billion of loan growth, about 15 billion in markets which can ebb and flow with securitization and some of the work that goes on in that Jimmy DeMare and team do a great job there. But 35 billion was in the core businesses in in the first three weeks of January, that's grown from there. So, we feel good about loan growth, largely due to the fact that we have this incredible franchise which is cranked back up after the pandemic got more manageable.

SARA EISEN: Hi Brian, it’s Sara. Just a follow up for me on what you just said about our economy being in a healthy place and that's why the Fed would be raising rates. You painted that picture in your earnings and we saw it in your card spending your comments on the call. My question is how resilient do you think this recovery is and can it withstand at least four interest rate hikes this year without going into recession?

MOYNIHAN: Well, that's gonna be the question of, of the accommodation being taken out in a way that the economy can continue to grow. But, you know, what we see if you think about the American economy and what drives it is, you know, the American people, consumers, their wages are rising, they're spending more, new housing starts you saw today, there’s a lot of construction activities, a lot of pent up demand that hasn't been fulfilled, frankly, because of the delays in supply chain that will continue on. So the question is and there's a lot of borrowing capacity left that consumers have a lot of capacity to borrow in their home equity lines and lines of credit on the card side and the companies have a lot of capacity to borrow because they made money and they paid down their lines and paid down their debt. So I think that all boads well, but the key what we talked about today is looking at the US consumer and how they spent in the fourth quarter of ‘21 versus ‘19 or ’20 pick your things. Up 30% in dollar volume spent up, you know, 10%, 15% in transaction volume, which means consumers are out doing things. They're doing things a little differently. They may not be flying on planes quite as much as they did back then. But they're still going to hotels for the weekends, they’re are still traveling around and rental markets and stuff are strong. So consumers continue to spend and as you looked at what's happened so far this year, the rate of increase is still well above 10%. If you go back to when the Fed funds rate was at, you know, at 2% and the economy is the same size as it is now and the expectation is it’ll grow 2% That would have been about a 6% or 7% spending rate. So you're much higher than that which bodes well for the US economy going forward. Will the Fed get it right? That's the question and the markets will ebb and flow on that every day. But I think they know the how to remove the stimulus. They did it last time from 17, 18, 19 and our earnings grew stronger during that time.

EISEN: Related question, what about inflation? Do you feel like we are out of control right now on inflation or do you ultimately see this problem as manageable?

MOYNIHAN: Yeah, I think at the end of day inflation has been here since last fall. It has just now become more agreed to that it’s been there, and you hear the wording’s changed from where we were. And so, it's, it'll, this is where the accommodation has to be taken out to bring the inflation down and so rates are going to have to go up. The market says four times, will it be a 50-basis point bump versus 25. All that will be in the mix and we'll find out more as we proceed through this month, but I think, you know, the words that the word the reality is is that the combination has to be taken out. That's actually great news. Why is it great news? That means that the level of economic activities can sustain without fiscal stimulus or monetary stimulus which is good news. That means the pandemic effects are largely behind us. Now, the actual virus we're still dealing with and that is the bigger wildcard than what the Fed does is will another variant come up that causes some change in the economy, inability of customers to spend money, consumers to spend money and companies be profitable. We don't see that, the experts don't see that but that's really the worry not inflation at this point, though. They'll take it on, and it may bounce around but the world knows how to adjust to that.

FROST: Brian, I wanted to ask you about overdraft fees. I know you've been reducing and removing them steadily over the course of a decade or so. But I think it's fair to say that you and your peers have made bigger, more significant changes in recent months and years. I just wondered what the rationale for that was. Was it because of political pressure to preempt political pressure or more because of the threat you see from FinTechs who have a slightly different fee structure to traditional banks like Bank of America?

MOYNIHAN: Well, I can't talk about what other people did because I don't know. We've been on a multi, decade long, continuous process of driving down this as a percentage of fees and taking it out, putting, we have a no overdraft account 3 million plus customers have that. That's a good-sized bank on its own. We have the, we limited how many times you could do it. We had the ability to move money from other accounts. So, the big news we're moving the $12 fee, which is when merchants hit our accounts, customers’ accounts and say try to get the money, we're taking that are, taking that fee out, we're taking the transfer fees out and we reduce the overdraft costs from $35 to $10. But this is part of a schedule that we're on why don't we, why did we do it. We did it to stabilize a franchise from the time we started to the time we ended, our customer delights going up by 50% Our numbers accounts we had to close and amount of calls we get about fees and everything went way down and that's why we can operate our consumer business with a trillion dollars in deposits or 4,000 branch expense ratio is about 100 basis points a deposit, 110 or something like that which is far below than anybody in the peers. We’re a third bigger than anybody in the consumer business and we have less cost than they do that is because of all this fits together. It's good for the consumer. It helps them live their financial lives better but also pays for the shareholder at the end of day.

FROST: I wanted to ask as well, Brian, sort of related topic on the threat from FinTech, what your view was on one of the bigger players in that space so far, deciding to go out and get an FDIC bank charter and whether you think that that's something that you welcome because now they're going to have to share similar levels of regulation as you or whether it's a kind of new added step of a threat from a FinTech company getting that type of FDIC insurance and backing.

MOYNIHAN: There are two types of questions embedded in there Wilf, but the key question is, if somebody does an activity that relates to financial services for consumers or companies it, you know, takes deposits, makes loans, holds money in fiduciary, they have to regulate it. That's, that's why we have the banking regulation we have and so I think anybody coming into that brings more and more under the tent, so to speak, as they call it, and that's a good thing, whether it's mortgages, whether it's securities accounts into the SEC registration and broker dealer registration, and investment manager. When people go on and things go on outside the system that's different. In terms of any competitor, we measure what we do against all those types of competitors. Our loan growth is strong, our deposit growth is strong, our new account growth, our Merrill Edge 525,000 new accounts. The key is the average balance at that new account was $70,000 when it opened and that is multiples of, of what's going on out there and the average balance of all the accounts as well over $100,000. So, it's growing fast. And it's so that these, our competitors we pay attention to and try to figure out if we're doing something we should do better, that we can't we don't have the temerity to say, you know, they can't be valid competitors and beat us up and we have to think about it but the reality is none of them scare us either.

FROST: Brian, always good to see and thanks so much for stopping by.

MOYNIHAN: Thank you, Wilf. Thank you, Sara.