BofA CEO Moynihan on Recession, Managing Headcount

[00:00:00] Speaker 1: You have a Windows view on exactly what's going to the economy. [00:00:03] Speaker 2: How are we doing? Well, so I'll talk U.S. more because you've got all these people you're interviewing about the world. But in the U.S., our research team, which is the best in the business, has a mild recession predicted sort of mid this year into next year. They push that out. And so why they keep pushing out, it's the strength of the U.S. consumer. They have the Fed getting over, you know, 5%, 5.25. Just this week, they moved that to 325 basis point rate rise as opposed to 50, meaning, again, the Fed can slow down a little bit because you're seeing inflation go over. And so that's what we have. And so this year ends up being positive. Next year ends up being positive. But you have a little trough in the middle. And that really is reflective of what you saw this morning. Employment is still strong. People are working. They're getting paid more. But they've got to get to inflation. So they have to keep the rate structure up here for a fair amount of time until they get the services side inflation down. And the market may be misreading how fast that will take. But on the other hand, we're a heck of a lot better shaped than all these other economies that I talk to out here. [00:00:56] Speaker 1: That's for sure. So it pushed out the possible recession your research team did. Is it also looking shallower because the economy is more resilient than we thought it was? [00:01:03] Speaker 2: Well, the consumer is very resilient. And, look, new claims for unemployment were down to 190,000. Before the 2007, 2008 recession, Great Recession, Financial Crisis, they ran 330,000 each posting. So think about that difference. In the workforce, it's about 20% bigger. These are down to numbers consistent where they were 50 years ago when the workforce was half as big. So the employment is still strong. Now, are we all being more careful about hiring? Are we all trimming our head count by attrition? Are we all flatting out? And some industries are actually taking head count down. So that may change, but it hasn't changed yet. The money in their accounts is still there. And it's come down a little bit. They're starting to spend it. But on the other hand, it's multiples of where it was pre-pandemic. They have lots of borrowing capacity. Now, what's going quickly stopping? Obviously, mortgages got expensive and house purchases stopped. But the dollar value of housing that went shot up after the recovery, yes, it's come down, but still way above where it was in 19. And so people have to think about this in the perspective of long-term growth rates that fell and then shot up with all the stimulus and now are settling in. And the Fed has to bring inflation down because inflation will eat away at purchasing power. And that's really not good for especially median income households. [00:02:16] Speaker 1: You mentioned managing your workforce. And we've seen layoffs, cutbacks in some financial institutions. As I understand it, that's not the way you're going. You're going rather with essentially a freeze. Is that right? [00:02:27] Speaker 2: We managed headcount very carefully for three years. And for the first half of last year, we've been sitting here talking about great resignation. Oh, my God, everybody's leaving and everything else. So our attrition rate moved up. You know, we went from about 12% down to 6% and then back up to 15%. And that doesn't, three points doesn't sound like, that's 6,000 people. So you have to think about it in that context. So it was high. What happened during the course of 2022, it fell. Well, guess what? We overachieved on the hiring side and we went past our target headcount. And now what we can do is slow down the hiring. And that's when you read about freezes and all this stuff. I'm telling people, we're going to have enough people do a great job for our customers, but let's be careful to bring back down to that level because we were above that level. When you have 215,000 employees, when you have capabilities of repositioning people, I have a luxury that other companies may not have. And we always think about what we can do with our teammates. So people come out of the mortgage business, went down, went into other parts. And with the turnover rate, we have to have 5,000 people not to have headcount fall. Wow. So a quarter, a quarter. So this is good managers can adjust. And I told our team and they're great managers to go at it. They'll get it set. [00:03:32] Speaker 1: Does it affect compensation levels as well? Are you taking a look at bonuses and things like that? Or does it not affect that as much? [00:03:36] Speaker 2: Yeah. You're a market-driven network. And so there's a lot of talk about bonuses. It's a very discreet area. And so if you look over all our team's compensation levels, we went from $21 to $22 an hour base pay. We have, for the last four years, we've done, since the 2017 Tax Act, we've given broad-based stock compensation to all our employees and things. You know, our employees in the base raises we did, we did a 3%, 5%, 7% raise in May and June of last year. Again, about that attrition, that cap was out. So our broad-based employees will be up year-to-year on average. There's always performance questions. But in the markets, in the investment banking area, of course, when revenues are down 50%, the compensation is down. But last year they had a pretty good year. And that's like, I mean, they understand that that's the way the world works. [00:04:22] Speaker 1: So let's go back to your vantage point on the economy. I mean, you have a lot of views into the consumer. And you've talked about the consumers really holding up pretty well. Are they spending down on their little cushion in their balance sheets? Let's think about two ways. [00:04:35] Speaker 2: One is, what are they doing in terms of spending? And so $4 trillion goes out of our consumer's accounts into the economy a year. So in the beginning of the year, that was growing 14% over the prior year's first quarter of 22 to first quarter of 21. When you get to the fourth quarter of 22, it's dropped to 5%. That's the effect of rates and slowing down, and people get a little worried about what's going to happen next. So that's good news from the Fed perspective, but that's more consistent with the lower growth economy. Interesting enough, in the first couple weeks here in January, it's kicked back up to 7%. Now, you've got to be careful jumping off over the couple weeks, but it looks like it's not going to go down further. And that then means the activity is going on. And so that's sort of, are they spending money? And the second is, do they have any money to spend? And then, of course, the unemployment level is very low. Wage growth is strong. Yes, one year, it's not real wage growth, but you go back a couple years, way outgrows the inflation rate. So, and that's what's built up in the system. And then on top of that, in their accounts, a customer from pre-pandemic to now that had an average of $3,400 an account that people had between two and four, you bring out that same group of customers, they have $12,800. They peaked at $13,400 in April. So what does that mean? They spent down a little bit, but think about the dimension. And that's all the stimulus and everything that sat there. And the question is, will they spend it? They probably will if they need it. Obviously, that's a thing. Will they spend it otherwise? They're out traveling, their experiences, they're doing things. And so that's what's good about the U.S. economy. It's also what makes the job of the Fed tougher. And that's why I think people have to listen to when they say they're going to be resolute about trying to choke off that inflation. Because service inflation is our customers working and getting paid. [00:06:08] Speaker 1: That's what service inflation is. One of the strengths of Bank of America is what you do for the small and medium-sized enterprises across the United States. You have a lot of customers in that space. Talk to me about what increased interest rates do to some of those businesses. Because some of those businesses are going to get squeezed on interest rates they haven't been in the last few years. [00:06:24] Speaker 2: Well, our research team wrote a paper, I think, last year or something. We are a 5,000-year low in interest rates or something. So I don't know how they calculated all those things. But the reality is the rate structure has been low for so long. And then it finally came up in 17, 18, 19. And before it really got sort of in the system, boom, the pandemic goes down to the floor. So, yes, mortgage rates go up. Borrowing rates for those kinds of customers go up. And that's what caused them to have to price it through. And that causes inflation on the other side. They get paid more for their cash, et cetera. So there's a balance to this. But the demand for small business loans is still very strong. Our team's doing strong production. We are the number one small business lender of all banks. And by the FDIC data, they're doing strong production. And it's good. And the delinquencies across consumer and small business are below where they were in 19, which is a very good year for credit. And at the end of a massive expansion cycle, we're half of the charge-off rate. You're saying, okay, it's going back to that. But that's still a pretty good place. So this isn't optimism. It's just sort of facts. Where it goes next, there's a lot of factors that this valley of worry can bring to you. But the reality is right now the consumer is hanging in there. Small business are hanging in there. [00:07:33] Speaker 1: One more about Bank of America. Digital. You're moving to digital. You've been very focused on that and I think proud of what you've been doing there. Give us an update on exactly where Bank of America is and the digitization of banking. [00:07:43] Speaker 2: Well, in the long-term trends, in 2008, after we did the LaSalle transaction, we peaked at 6,000 branches. We peaked at 100,000 people working in consumer and business. Fast forward today, we have 3,900 branches. Fast forward today, we have 60,000 people. And fast forward today, we actually have about 10% to 15% bigger company in terms of consumer checking accounts. So how does that accomplish digitization? So right now we're down to 14% of checks for deposit of branches. Back then it was 50%. We're with the Erica has now got a billion interactions from the time we introduced it a few years back. Think about that as saving them calling into a call center and using the things. Think about the way we can help people with fraud and by giving them notices and things like that. So that's all digitization. So right now, 60-plus percent of the money that moves out of consumer accounts is digital. This is just on the consumer side. Commercial is all digital. 85% of our wealth management customers are using digital. 72%, 74% of the general consumers are using digital. The numbers grow every year. 10% more mobile users this year than last year. It's just strong. But we are all things. Our branches are critically important to our service. Our call centers are. And our digital is. And getting it all to blend as a system is great work done by Dean Athanasian's team. [00:09:02] Speaker 1: Brian, I suspect that most Bloomberg members of the audience know you as the head of Bank of America. You have another hat that you've been wearing for the last four years. And that is chair of the International Business Council for the World Economic Forum, which is what we do here at Davos. Tell us what you've been doing there. And what have you accomplished during your four years? [00:09:20] Speaker 2: Well, we all accomplished. It's 130 CEOs, the largest companies that come to Davos, which is the largest company in the world. And, you know, we started many years ago thinking about how the private sector had to make the changes to drive the economies. And then, you know, with all going on in the public sector, with all going on in debt levels and all that stuff. And so we sat there and said, okay, what do you need to do that? And what you need to do that was define a set of standards that we believe are the right standards. And then we've got to stop from having a proliferation of standards. So, you know, at one point there was going to be 600. In 2020, we were scheduled to be, I think, in North America, like 600 seminars on metrics. Yes, you know. And we've got to stop this. So we've come up with straightforward metrics that match the SDGs and these other things that people talk about. But they're straightforward metrics that say, you know, are we good for our customers? Yes. Are we good for our teammates? Yes. Are we good for our shareholders? Yes. Are we good for society? Yes. You know, that's how we drive a company. And so we're saying if you disclose those metrics, then people can see what you're doing. [00:10:20] Speaker 1: Brian, I wonder if the very name ESG, Environmental Social Governance. They're stakeholder capitalism experts. We took away ESG a long time ago. Because the S and the G, I'm not sure you get metrics on that. The E, I think, have a better sense of environment. And where are you in there? Because that's very controversial right now in the United States Congress. You know, things like do you have a diverse population in your workforce? [00:10:40] Speaker 2: That would be in the, you know, so it's people, planet, prosperity, and principles of governance. You have an independent board. You know, things like that. You know, your taxes, Steve. You have, you know, things. So it's fairly straightforward. They're done by the big four accounting firms. That's who did them. It's not done by, you know, some people like that. They did them to give people a straightforward group. Right now, you could have, land on the table, four different sets of environmental metrics in the next 120 days. Think about a multinational company like me and, like, the 130 companies in there. So we have 200 companies that disclose these metrics already. It's in their annual reports. 52 years in, another 50 or so, two years in, and the other coming on this year. It's out there. Go look at it. It's pretty straightforward. But it does enough, and we don't need a lot more. One of the summaries for one of the services we used to provide the metrics to was the executive summary is 30 pages long. That is a lot of work going in different directions. If these metrics go through that make us operate with different ways to count the beans all over the world, we're saying put it in accounting literature if you believe it's important, and then we'll implement it. [00:11:41] Speaker 1: For our Bloomberg television and radio audiences worldwide, we're talking with Brian Moynihan, Bank of America Chair and CEO. Brian, there's a lot of politics now around ESG. It's still called back in the United States. We've got something like 18 states who have considered or enacted laws about not dealing with banks, but taking into account. Has Bank of America lost any money because of what you've done in sustainability? [00:12:02] Speaker 2: I don't think so because in the year 2021, and we haven't told up to find out, we did about $200 billion of financing for our clients, about three-quarters of that around the energy transition. We also are one of the biggest lenders of oil and gas, and we get people to give us their opinion about that. And we're also one of the biggest renewable, and we get their opinions about that. What can go on? And talking to Senator Manchin and Senator Kramer, the idea is the United States needs energy, and that's good for the world. The idea is Europe and all of developed countries need energy. The idea is we have to make a transition. The idea is we're going to need oil and gas and hydrogen and electricity all to make that happen. The question is how you're going to invest in all that. Let the private sector loose. Let the innovation loose. Let the inflation reduction actually creates carriers for carbon capture storage, which, you know, we already have pipelines that people built that will take CO2 and push it back in the ground. The state of North Dakota has a net-zero commitment. So I went out there to Senator Kramer and we sat with the people. And, you know, they thought I was out there, you know, all the stuff about what banks do or don't do. No, the clients stood up and said, Bank of America is our lender, and we do. So it's much more nuanced, much more complex. And our view is the transition has to take place, but people have to have energy. People have to grow. And then you go to the developing countries, and it's the duty of us to let them develop with energy and power, or else we'll have, you know, craziness going on. And so what we, in terms of unrest and political strife. And so what we want to do is help them without having to go down the same road we did, because, frankly, we had the technology to not do that. [00:13:33] Speaker 1: Brian, in my experience, you've always been bullish on the American economy for a lot of reasons. There are issues that are bullish. What's the biggest challenge as you look forward? [00:13:40] Speaker 2: I think we're getting a lesson right now in the fact that America is this wonderful place for people to work and live and prosper. And, you know, the problem is we need more people. We just need more capacity. And the point I always say when people say this, that, everything, it says, well, it takes 18 years to get an 18-year-old. That is science that nobody can refuse. Okay. So if we're going to have enough workers to do all this nearshoring, all this on-shoring, to put up the windmills all over Texas and Oklahoma and places that are being built, to put up the solar fields, to build the pipelines, we've got to get some people in this country. And so we have to figure out a way to do it that works. And I'm not sure there's been proposals over the years, but it is acute now, because think about it. The Fed has raised rates at a pace that's almost unprecedented. The economy has slowed down, yet we still saw new claims for unemployment under $200,000. We still saw unemployment rates below mid-threes. We don't have enough people.