WHEN: Today, Wednesday, July 14, 2021
WHERE: CNBC’s “Closing Bell”
Following is the unofficial transcript of a CNBC interview with Bank of America Chairman & CEO Brian Moynihan on CNBC’s “Closing Bell” (M-F, 3PM-5PM ET) today, Wednesday, July 14th. Following is a link to video on CNBC.com:
All references must be sourced to CNBC.
WILFRED FROST: But let’s get to one of today’s biggest stories and movers, Bank of America’s, Citi, Wells Fargo all reported earnings before the bell. Bank of America shares getting hit the hardest of that group, down about 3.3%. Low interest rates did cause revenue to come in slightly below estimates so Bank of America Chairman and CEO Brian Moynihan joins us now in a first on CNBC interview. Brian, a very good afternoon to you. Thank you for joining us.
BRIAN MOYNIHAN: It’s good to be here, Wilf. Good to see you again.
FROST: We want to kick off on the economy, we’ll get to the earnings in just a moment but hot off listening to Chair Powell there, I wanted to see what you’re seeing in the economy. Clearly credit quality metrics were pretty good and another reserve release was possible. How much of that do you think is down to the stimulus that’s out there compared to fundamentals and this growth and bounce back being sustainable?
MOYNIHAN: Let’s back up and talk about the broad economy. Bank of America’s securities research team which is one of the best in the world has a 7% GDP growth predicted for 2021 and about 5% for next year. So, it’s a strong growth rate in an economy that’s gotten nearly back to where it was pre-pandemic and so that’s the backdrop. What we’re seeing in our consumers is they’re spending about 20% plus more money in ’21 than they spent in 2019 in the second quarter and that’s been growing, as we’ve gone on, and you know that’s going to be a clearly a record amount of spending. You’re seeing that shift a little bit more to travel, entertainment as things have opened up and that’s good news. And on the commercial side, well actually on the consumer side just staying with that for a second, the other thing, the stimulus you referred to in the consumers’ accounts, there are multiples especially in accounts of maybe $2,000 or $3,000 average balance which is the money coming in and out. They are three times, four times bigger than they were during a pandemic, there’s a lot of cash still in the consumers’ accounts and so if you think about that then you go to the commercial side, low line usage which means plenty of dry powder if the opportunities present themselves and it’s all about can I get employees and can I get goods through the shipping process to sell and so you’re seeing the economy set up to, operate very nicely and that obviously brings up the inflation debate and where prices go up because of supply shortages and labor shortages and will those be permanent and all the things that Chair Powell talked about today, I’m sure.
FROST: What, what, what is your view on that? I mean, clearly optimistic outlook on the economy, plus those inflation prints we’ve had in the last couple of days and months, do you think the Fed’s at risk of being a little bit behind the curve?
MOYNIHAN: Well, as was said earlier by I think it was Steve, you know, there is no playbook here but what the data is showing you and they’re gonna be data dependent is that you have a recovery that’s, you know, gained steam, the spending is there, people are out then the whole thing’s gonna come down to the vaccine, the virus, the vaccines and the variants and really how that will ebb and flow in their job I think is what Chair Powell has said is to make sure that those three V’s don’t affect the full recovery and then the ongoing growth of the US economy. And I think, you know, they and the fiscal policy have done a great job of blending the effect of this and winning the war against the virus in nine states and I think they’ve got to let it play out but they got to be careful not to be premature. When you look at it from what we see, you’re seeing this build and we’ll find out as we come to the fall, frankly, and a lot of the one-time stuff runs off and you see the fundamental economy come out the other side over the next, you know, 60-90 days, we’ll see, we’ll see how it plays out but what we’re seeing in our consumers bodes well for the, for the rest of this year and deep into next year for sure.
FROST: Let’s talk Brian about the earnings and start with, with net interest income and margin. Clearly not as strong as you perhaps would have liked it but how confident are you that it did indeed bottom last year.
MOYNIHAN: Let’s get back to, you know, a couple things. One is we made $9 billion. That’s a pretty good amount of earnings and part of it was a tax debate. We had some one-off expenses but in there, there’s a great core earnings story which is deposits growing very strongly in loans beginning to turn around so in the third quarter of last year, we said this would be the bottom. And I, while most banks have continued to deteriorate, their NII, ours has been flat for the three quarters subsequent that in that we’re seeing with the deposits growing consistently $80 billion in last quarter alone and the loans growing and you saw it go up each month and we showed some slides that they’re doing that, that’s what gives you a NII in the future. And then we have a trillion dollars to invest every day that is not needed to fund the loans in the company and that we could put to work in securities and other things to extract the value of that deposit franchise which is the, you know, the best in the world frankly.
FROST: In terms of that loan growth, do you think it’s continued this month as it did in that final two, three weeks of the quarter where you alluded to the fact that it picked up?
MOYNIHAN: Well, it went up every month and a quarter and it’s helped, it’s performing fine so far in July. You get some, some of our institutional clients ebb and flow to build a warehouse, a mortgage company lend to it and stuff like that but generally, the consumers’ balances keep building and, you know, the mortgage loan production’s strong, the auto balances, you know, feathered off a little bit when the new inventory started arriving as those bottlenecks go you’ll see more sales. You heard your Sara talking about the 40% increase in used car prices, that’s due to shortages and that really honestly in our commercial side, our lines to auto dealers are at all times lows and they typically are drawn so if, as these shortages straighten out, you’ll see the loan growth on one side come up but it’s fundamental now. It’s not dependent on some spot movement it’s what you’re seeing the small business, business which is less than 5 million revenue companies doing more production than the 19, not 20 but 19. You’re seeing business banking $5 million to $50 million revenue sized companies, it’s finally grown, the first month has grown since the pandemic and then the middle market grew and so those are fundamental businesses and all we have to do is go back to 40% on the draw rate and revolver versus 30. That’s $45 billion of loans that we’ve lost in the last year just by draw rate difference, the last two years, and the question is when companies see opportunity, you’ll see that go up so we feel pretty confident. Given all those economic projections some, the capital’s got to come from somewhere along the way people drive their business.
FROST: Wanted to touch on, on trading, Brian. It’s down relative to a year ago and clearly that was off some extraordinary highs but perhaps it’s down less than people expected and, and I guess my question is in 2, 3, 4 quarters time when we’re definitely past the pandemic related activity, do you think we go back to the levels of pre-pandemic or is that been a sort of structural improvement in trading particularly for the big US players and market share gains that will continue into the more medium and long term?
MOYNIHAN: So, I think two things. One, the amount of volatility last year, as you said, was sort of unbelievable as we were going through all the stress of the crisis to helping people get to the market, etc. But behind that though there’s a fundamental market shift in terms of market shares that move towards us and any other large players because it compensates skills and the cost of investment that you have to make in these platforms every year, the electronification, the fixed income market, you name it. And so, we’ve seen that share grow and so we’re pretty comfortable that we’ve been watching this build up to sort of fundamental new platforms and one of the things that we talked about last quarter, not so much this quarter, was our initiative to let the markets business push to be back to be the same size relative to the company it was earlier. It’s just the company is growing around it so we’re gonna put some more capital work, it’s good opportunity, it’s a fundamental market share but will there be less volatility? Yeah because, you know, versus last year because it was just outsized due to the, what was going on in the markets and we’re watching that come back through.
FROST: Brian, we have an interview coming up with Ark Invest’s Cathie Wood later in the show and I’m sure fintech is a topic well it certainly will come up with her. Do you sometimes lament when fintech companies get heralded and old banks don’t get included in that? You talked on the call today about some of the stunning numbers you have in growth for your digital products and Zelle included, are you a fintech company?
MOYNIHAN: We are a technology company. We’re basically huge capable technology platforms, wonderful people to serve the clients and then the buildings to make it all operate and so we are completely a technology company and have been for years. We have 40 and a half million active digital customers just in the consumer business alone. They, I think last month, it was 900 million times they engage with us, you know, so that’s been growing at, you know, 25%-30% a year the amount of engagement. The usage of the stuff is going up but what we saw during the pandemic was frankly that driving through our wealth management businesses which is the biggest, the best business in the world, driving into our commercial businesses because of necessity and that is not going back at all, it’s going forward and growing even faster so all segments of customers and consumer, older people, younger people, wealthy people, not so wealthy people, all using this platform and then we can use it to help them. The fraud protection and things we do so it is a wonderful platform, tons of engagement and, you know, our Merrill Edge product is $300 billion and it’s growing 25%-30% year over year. Our life plans 4 million life plans and products only been out a year I think or something like that, you know, these are numbers, Zelle, you know, 17 million, Erica, you know, 19 million, Zelle 14 million, Erica 19 million, these are just stunning amounts of activity but what it really does allows us to make the company better for customers and better for, in terms of operations, allows us to keep, keep making the company better and investing more because of the cost dynamic and all that.
FROST: A tech company, Brian, in the finance space but not quite getting the earnings multiple as some of Cathie’s companies, of course, but that is always the case. Wanted to pivot as well to–
MOYNIHAN: I’d rather make the money Wilf and so $9 billion of earnings is a good day.
FROST: So that’s a good point. I mean, do you think some of those companies are a bit stretched on the valuation? Will they all succeed to grow into the valuations they have?
MOYNIHAN: I think that’s the age old question and you’ll see it play out based on the better ones or not so it’ll, you’ll see it play out just like you see it play out with banks over the years and you saw it play out with the .com companies. There are great companies out there and great ideas. We study them all to figure out what they’re doing for the customers is something we should be doing. We also research I believe with our customers, we are the number one bank in online and mobile as by almost all the different things and it’s growing very fast so our job is to stay with the customer, not ahead of the customers, and drive the usage and activity because that’s what actually drives the earnings of the company. Our deposit costs, so taking our retail, phones and everything in a consumer business, has gone from 300 basis points to 120 basis points over the last several years because of that digital effectiveness and that’s what we shoot for.
FROST: And Brian, just wanted to ask about return to the office as well and just get your latest thoughts on that, I guess the last time we kind of heard from you on it, it felt like you were just a couple of months behind some of your peers, like, like Goldman Sachs who will, who we were with yesterday, in terms of aiming more for September full return than early summer.
MOYNIHAN: Well, we, we are bringing people back but we’re bringing vaccinated people we, four months ago or five months ago when a vaccine started coming out, we asked our teammates to put in our vaccine tool their vaccine status. We have 75,000 teammates have told us they’re vaccinated in the United States, 12,000 or 14,000 outside the United States and we’re bringing all them back to work. And it’s, you know, it’s a, it’s a, it’s a lot of work, we, we have all our Merrill offices will be open by the end of the month, all our private banking offices open by the end of month, largely all our commercial banking offices open. But some of these big, you know, centralized office buildings, we’ve moved floors, we gave up space so you have to get them in the right condition and that takes a little more time so we’ve basically 30,000 people were given a notice in the last week or so, you know, come back, it’s time to come back, you’re vaccinated, here’s your return to office notice and, you know, that they can pick July, August because we want to take it easy during the summer let people kind of work their way into it but as of September, the rest of them come in and they’ve selected a bunch in July, bunch in August, a bunch in September, that’ll come on and all during that time, there’ll be more vaccinated people and it’s, it’s the team has done a great job of managing through this but we’re only returning vaccinated people because it’s just easier to operate in that condition right now and we can operate fine with the people being at home and over time, that’ll change.
FROST; Brian, always great to see you. Thanks so much for joining us on what I know is a very busy day for you.
MOYNIHAN: Thanks, Wilf.
FROST: Brian Moynihan, Chairman and CEO of Bank of America.
