BofA CEO Brian Moynihan on Consumers, Earnings, Deals Pipeline, AI

Oh, you just well, you just saw two statistics that I've watched carefully, which is the activity of consumer is and then ultimately what the unemployment claims are. That's that people argue it's leading or trailing, but it's actually the indicator of the health of the employment market and the 4.2% unemployment rate with new claims at 1.8 on long term claims and 208,000. Everybody looks at this as well that's, you know, in line with 19. Remember that the workforce has actually grown a lot since 2019 in terms of size. And so you argue about 160 million workers or something like that. So it's a pretty small number. It's an anomaly. It's a low number and percentage wise it's a low number. And that's good news because that means consumer spending what we see in our data as a consumer. So spending the consumer spend in America, that means economy is okay. And that probably means the rest of the markets in the construct and final demand is there. The weather for the banking industry has been shining brightly. The sun is out, the backdrop's great. The environment has been good. I want to draw a distinction between the environment and execution because fees are up everywhere. What are you proud of after that quarter on execution where you kind of market share, every single business grew, the revenue grew, operating leverage, which is critical because that means the revenues grow faster expenses and increase the returns. Every single business, it grew, the customer bases and all those things. So what you're seeing us is the power that the engine, the Bank of America, is across all the businesses. So our consumer business made 3 billion after tax this quarter. Plus you know that's half as much as Wells Fargo made. And you know it's a big number. That's one of our four businesses that we disclose in the smallest of which made a billion and a half this quarter. So these are big businesses at scale. They're accumulating new clients, accumulating new activity. The markets business had a great quarter and investment banking had a great year over year comparison. But at 2.1 billion for the quarter or 2 billion last quarter, 2.1. It looks like a huge increase because last year, second quarter, we all thought the world was coming to an end with Liberation Day. This year it's different. But what's really important is the pipeline they have is strong. The deals in discussion are strong. And you're seeing deals announced every day across all the spectrums M&A strategy, financing, all of which is important.

We've had a record IPO. Alphabet came out with a monster equity capital raise. We saw SK Hynix more recently do something similar. We're going to see more of that in the year ahead. Yeah I think you know, so if you look at we and all our peers are deploying more balance sheets, our balance sheet to the markets business went up 00 billion for the quarter over what they thought they were going to be at. Just to give you a sense. And so we had that capital base and that capability just to meet the moment. But if you look at investment banking, the deal when you talk to CEOs, because if you think about this time and the amount of things they had to think about, we've added one, with the awards, but at that time it was. Taxes weren't set yet. The immigration policy was the people were trying to figure it out trade trading, tariff policy and then deregulation. You come to the fall. They felt that that was sort of working through whether the tax and the tariff policy kind of looked at and said, that's sort of 10 to 15% of countries willing to do business with United States, and 50 if they're not. I can figure that out. Let me go figure out how to run my business. That comes with a court decision. All the work that's gone around in circles a little bit. So we added some uncertainty. But on top of that, what you added is a year's worth of growth at a year's worth of belief that this year is going to grow 2% plus next year is going to grow 2% plus. That's creating people, convincing people that despite higher energy prices, despite inflation, despite the fed having to keep rates higher, despite all that, the economy is growing through it. That's the interesting part. And I think CEOs last year got cleared on taxes, got clarity on deregulation. Got clarity on immigration and now are thinking hard about. Wait. I can do things. I can see a little more distant future. Does that mean there's a parade of possibilities of the change that's out there every day?

So if we were here a year ago, you'd say nobody is ever going to get a mortgage at 6.5%. So as people get used to environments, they start to behave differently. And so the consumer borrowing is strong. But there's a lot of capacity left. But mortgage production being up 30% is kind of an interesting statistic in a world where if you said rates were going to be a side, it'd be doing mortgage volume. If you go to the commercial side, which is where you were talking about, we're seeing good loan growth, high single digits year over year and a core middle market small business area where the largest small business lender in the United States. That's good news because that means back to John's question. That's a little bit that if I'm not going to borrow, if I don't need the money, I'm not going to borrow if I don't need to do something. Despite what people talk about, you're not going to issue debt and increase interest cost and have it just sit there because the arbitrage, if you don't issue below treasuries, which these guys, no borrower does. You're going to pay 300 or 400 basis points to let money sit there. It's just not going to work. So people are borrowing because they see opportunity where it's equipment buying, hiring, lots of building a plant, whether it's inventory build up. And so they're going to be more worried about can they get the margin on that. That's the question of inflation coming through the system later on. They're going to be more worried about will the final demand sit, that's watching the consumer behavior of the consumer side driven or if they're in supply chains. Is the demand going to stay there? So I think the markets will stay there for a company, see opportunities whether small, medium or large size. And I'll stay there as long as they have something to do with the money. Nobody borrows money just to have it sit around. It's like when people think about Sky bikes and what just happened. I mean, just say, one could say, we've got to have a view or they're going to do something, whether they just paid in the profit margins or whatever they're going to do with it, they're thinking about something.

Well, I think also, the investor money going into the private capital funds and stuff has slowed down. There's been withdrawals and people getting out. And that didn't slow down the activity. But I think also the questions are raised around how much leverage is too much. And I think if you looked at the average leverage of the different deals, that was different inside the banking system and out. So I think we've seen a little bit of push back to the system. And I think we also had to come with competitive responses. So we put together pools that we could, we and our peers. And it's two different pools where we could, when the opportunity was there, hit the bid for the core differences. If we do a $5 billion transaction, we tend to syndicate and get five banks. And that takes time and effort and creates a little bit of uncertainty. The other players are saying, I'll give you all 5 billion, I'll bring you the equity. Plus I bring out that we build a practice where we can do more of that for our good mid-market companies. It's still to be laid off. It just when you lay it off up front or behind. And so we put a couple things between that and the efforts, the industry and the efforts our company, you're seeing some of the market share come back. It's just a lot of factors. But great commercial loans at 8% and that's a pretty good growth rate.

Well, I think the company's been around for 242 years. So we've been around through every administration that you can name pretty much. So it affects the economy, affects CEO views of what they want to do, all that affects us. But I think, the interesting question right now is that, there's this say-do paradox is as high as ever been. If you read the consumer surveys, it says, I'm worried about the listed out. Look what you just saw in retail sales in the month of June, the money moving out of the Bank of America customer accounts was 7% high sixes. And in July, it was the same strength that's as strong as it was in May and April and March. That is counterintuitive to what the people are saying. So people are upset about high gas prices, are upset about affordability. That's a fact. That's a fact that may change their behavior. Right now the behavior hasn't changed. And I think that's sort of a parallel to all the things about policy. People talk about it and think about it. But if the underlying business conditions are fine, they just go to work and get through it. And so the question is when does it affect their things when supply chains become uncertain. Because for pricing, because of tariffs they had to slow down and wait it out. Now they've kind of figured out and they can pass it through. When the immigration policy meant they might not get workers, they had to think that through. They're used to that now and a lot less immigration. They've rearranged the work supply. You still hear that from our small businesses. That workforce availability is a big issue for, especially with new construction and things like that. And so I think we got to get that rational at some point. But right now there's enough momentum behind it that we're going through it.

But number one, they're a great team. And that's why I listen to them, because they know a lot more about this than I do. Number two is it's a big investment. So I better get you to take advantage of that investment on an annual basis. They, they, it'll, I have to say, I have this Friday they're up there. They had three rate rises this year and I think that was an outlier. And with some of these numbers they may change that. But the principle they're saying is inflation will be here longer. It'll take us into 28 to squeeze it out. That's probably a year later than they thought six months a year ago. But they've raised their, if you think about the trajectory over the last 12 months, two and a half, 2% GDP growth for 26, down to one and a half, back up to 2 to 2.3. That's showing that they're believing that the AI build out, that consumer spending consistency, the employment consistency overwhelms this. And that's why rates will stay higher because the economy is strong enough, inflation. And then you've got to wait for the second wave of inflation for gas prices. First it comes to the fast turn stuff and then the slow turn stuff. What I mean by that is this. This keyboard is produced with petroleum related products to produce the plastic. It just takes time to get through the supply chain. So we'll see that their views through rate rises. This year, I can't speak for them, but I think the numbers may change that a little bit. But we'll see that they're out there independent. They make the decisions. But the principle was inflation is going to be sticky. And we think it's a year stickier than it was six months ago. It is a piece of that.

We realized that was a risk from the start. So we built optimization models on top of the models, for lack of a better term. And then we also negotiated, for lack of a better term, sort of fixed base pricing. So subscription model pricing. So, like with your firm, we pay your subscription and inside you have the Bloomberg, ask Bloomberg or whatever the AI capability with other firms. We did the same thing. And so with that hold forever, I don't know. But for right now we're not seeing a big cost increase. And so we expect to spend more on it. But it's more about implementation. And as we look across, I think two big differences in the accelerate. We've had Erica for almost a decade now, and we could talk about that and what we've learned from that. But if you think about the implementation since the ChatGPT moment type of thing, you've had one implementation where we're just spending money to get people really used to this, and that was to roll out across 200,000 people the ability to have AI and use it and do things with it. Everything else we have had, and that's a very modest cost. When you think about a $72 billion expense base, frankly, and with Microsoft and Copilot and all that stuff, we already had a big licence fee increase, but that we said it would be hard to measure the incremental return. Everything else, 110 business cases. 37 are implemented. I'll have a business case that says here's the cost, here's the benefits, revenue, expense. Whatever it is, it makes sense. Let's make the investments. 37 are implemented. We implement about one a week. 110 are approved. It's just a matter of getting the work done. And they've had a profound impact on the company. Now the reality is it's slower than people might think. It has to be done much more carefully, because the $3 billion we spend on data over the last decade allows us to have these models operate our company. Otherwise it would be a problem because we'd be picking up the wrong stuff and it'd be problematic. So you had to have your data, right. You had to have your structure right. You had to have your security right. Yeah. Isolate your data so it isn't taken into the world, so to speak. And so there's a lot of pre-work that the team got right now that allows us to go faster.

We effectively just skewed the earnings 30%, and we have a little less people than we had last year. And so that. But meanwhile, in that, it's a very subtle exchange. So 18,000 programmers using technique and AI coding. We didn't cut the programs. We just are doing more coding. We're just doing more activity. Relationship managers picking up Agent force and that's going to the system right now. We didn't change the number of relationship managers. We were adding relationship managers all the time. So if you had a 100%, the 100 we had in an example, 100 we had today could get 10% more efficient. They can do 10% more work. It doesn't mean we're not going to go 105 because we want to have more production capacity. So it really is a subtle answer depending on the activity. Our job is to handle it well and redeploy people. That last year we redeployed 14,000 people. We just hired 2000 kids that will start next week from school. We had 2000 summer interns. We agreed to hire 10,000 military veterans. We are hiring a lot of. We have to hire 1300 people a month to have neutral headcount.

I think the government, the administration looked at it quickly. Secretary, Treasurer and others said, wait a second. And so we all got started on this, and we've all been working a long time. And yet it just speeds up the pace of the work you have to do to patch systems and do this thing. So it's a serious concern. I think the so-called AI industry and industry writ large have worked together. But you can't think that we're ever going to be able to control this because there are four models that people use, or if not, everybody is going to have the same thought process that our country has, but our country has tried to handle and tried to be fairly systematic about it, but it's a big change in the amount of work that we have to go on, and the pace at which these tools will affect your vulnerabilities and your system and how fast you have to take care of that. That's the core work that's going on. And then you've got proprietary software, open source software, open source supported software, third party software. And it's making sure that third parties are doing the work and working cooperatively with the team. We have a great team there. We have 3000 plus people that work in that area, a billion plus a year in spending. And they do a tremendous job on their fellow team, Chris Fader under Hardy's leadership. And they do a tremendous job for us. And they work very cooperatively with their peers. And so you should rest assured we're all working hard on it. You should rest assured it's a serious issue.

I've only gone to one, but I'm going to some this weekend. I knew it would be one game. There's 102 of them at the World Cup. One game. We share the fun. So we have teammates. We, we. It's been an unbelievable experience. And so I got my fan band on. And we could have out about 1,000,003 of these. So far this year we've had 102 games. So yeah, under two games as a left to left, which game did you watch? I, it was in the quarterfinal in Boston, okay. Yeah. And look, it has been something that I've been very interested for a company. But the way we were, the way the team went after it, with the military tickets or the soccer fields, this is part of our sports complex, which the golf with us as the Masters and in the Gulf for this program. Kids getting on mules for five bucks. The run saw the Masters campaign. It was fantastic. But the running campaign, let's see what they did. So yeah, they went back to like legendary golf shots and the kids replicate them. It was very cool. And so now the campaign you're starting to see now is around. The World Cup is sort of the, you can do it, with David talking to the young lady. Then Carly, who's working with Street Kids United, which is a UK based charity which runs the Street Kids World Cup, that we filmed the commercials with David and Bono and U2, the new song. So it was kind of fun, but the idea is what we're trying to do is see fields and places. We're trying to put soccer in schools, we're trying to help increase the availability of a game that is massively played in the United States, but just the availability on an access basis without having to spend for travel, TV and stuff like that. We've got to pick a team, Spain, Argentina. I don't pick teams. David's a good friend. And unfortunately, that was a not so. Yes. And last night was a tough result. So, and I look, I never played the game. I have no merit to talk about the quality of any decision or anything that went on the refereeing or anything. But I played football and rugby. I have no idea how soccer is played. You could call Becks now and get his opinion. He might have an opinion. Alaska.