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Speaker 1: We are joined now by Brian moynihan. He's chair and

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Speaker 1: CEO of Bank of America. Brian, thanks for being here.

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Speaker 1: We're here for the Aspen Economic Strategy Group meetings, of

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Speaker 1: which you are apart. It is about the economy, and

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Speaker 1: last time we talked, you were projecting at Bank of

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Speaker 1: America a recession, mild recession, maybe Q four in the

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Speaker 1: Q one next year. You've changed your mind.

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Speaker 2: Why, Well, first of all, it's a great setting.

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Speaker 3: It's a beautiful setting, and there's a lot of great

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Speaker 3: people here to talk about the economy. But our team

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Speaker 3: basically has moved from a slight recession to no recession.

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Speaker 3: And so in the early next year first quarter, second

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Speaker 3: quarter they had a slight negative quarters they're now having

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Speaker 3: positive one percent and a half of percent positive. But

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Speaker 3: the more importantly behind that is what's really going on

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Speaker 3: in terms of the unemployment rate projections, they're now four

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Speaker 3: point three peak unemployment in the latter part of twenty

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Speaker 3: four early twenty five.

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Speaker 2: You're saying that's sort of an unemployment.

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Speaker 3: Was slow down, which is really what's going on, and

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Speaker 3: we can talk more about it, but that's what's really

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Speaker 3: going on.

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Speaker 2: It's people employed.

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Speaker 3: They have money, they're spending money, and a FED is

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Speaker 3: trying to slow down the economy, and it looks like

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Speaker 3: we're reaching a pretty good ego.

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Speaker 1: Aby you've said, it's hard to have a recession when

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Speaker 1: you've got unemployment in the forest. That's all they had

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Speaker 1: to do. But what are you seeing in terms of jobs?

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Speaker 1: Is there any softening in the market at all? Are

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Speaker 1: think you're seeing at Bank America or more broadly, well,

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Speaker 1: if you.

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Speaker 3: Look at if you talked to our clients, you sort

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Speaker 3: of see very specialized roles. Welders are still in high demand,

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Speaker 3: even because construction is going on in the IRA and

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Speaker 3: all the different building That's one thing, but in general,

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Speaker 3: if you take our companies example, last year this time

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Speaker 3: it was a great resignation. Turnover was back up to

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Speaker 3: fifteen percent, which was higher than pre pandemic. It's now

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Speaker 3: down to seventy eight percent. Last year, we hired thirty

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Speaker 3: seven hundred people in the month of June. This year

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Speaker 3: we hired nine hundred, I mean, and yet headcount keeps

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Speaker 3: drifting down. And so I think a lot of employers

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Speaker 3: are doing that same thing, which is managing headcount carefully.

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Speaker 2: And that's why you've.

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Speaker 3: Seen job openings drop by twenty percent in the last

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Speaker 3: twelve months or so.

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Speaker 2: It doesn't mean people laying a lot of people off.

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Speaker 3: That's happening here and there really specialized industries, but people

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Speaker 3: are being much more of conservative and employment. Last year

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Speaker 3: was your post to every job demand because you didn't

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Speaker 3: know what was going to happen. Now, with the lower turnover,

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Speaker 3: the labor market is a lot looser this year it

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Speaker 3: was last year, although the unemployment rate is still low.

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Speaker 1: One of the things you have a lot of vantage

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Speaker 1: into is consumer spending. At back of America, what are

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Speaker 1: you seeing in consumer spending? A commersumer seems to still

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Speaker 1: be spending, maybe softening a little bit. But how much

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Speaker 1: dry powder do they have, because we had thought that

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Speaker 1: a lot of excess savings that can still express we're

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Speaker 1: now hearing, for example, credit card bounces are really going up.

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Speaker 2: Yeah.

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Speaker 3: So if you think about a consumer, it's their wages

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Speaker 3: and wage growth. It's the money they have in their

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Speaker 3: accounts from the stimulus and other things that went into

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Speaker 3: their accounts during the pandemic. It's their ability to borrow,

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Speaker 3: and then it's a rate at which they have to

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Speaker 3: pay to borrow. And so if you think about all that.

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Speaker 3: What we see is consumer spending. If we were talking

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Speaker 3: last year's time, it was ten percent year every year,

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Speaker 3: and that was inconsistent with.

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Speaker 2: A low inflation economy.

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Speaker 3: That now is down to five percent, so you've seen

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Speaker 3: to drop by half and so year to date it's

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Speaker 3: five percent. Month of July it's four and a half percent,

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Speaker 3: So you're seeing it slow down. And what is spending

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Speaker 3: at in the month of July is consistent with a

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Speaker 3: lower inflation, it's very much. It's like it was in seventeen,

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Speaker 3: eighteen and nineteen as a FED raised rates in the

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Speaker 3: economy sort of settled in. And so I think there's

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Speaker 3: always been this battle between the consumer and the FED,

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Speaker 3: and the consumer has pushed the won the battle back

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Speaker 3: a bit, but they got to be careful of overwinning

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Speaker 3: it now. And now the risk really goes to overtightening

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Speaker 3: and slowing down the consumer too much, and then we

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Speaker 3: would have a recession.

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Speaker 1: Well, let me take the flip side of that a second.

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Speaker 1: I want to talk about soft landing. Also, some people

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Speaker 1: are saying maybe they won't won't have a landing. Now

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Speaker 1: is what's the risk actually of inflation reaccelerating here?

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Speaker 4: Because they haven't gone far enough.

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Speaker 3: Well, I think I think our economy is sincd A

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Speaker 3: chances that are low, and I think I agree that

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Speaker 3: personally and our team under canas BROWNI Platt is one

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Speaker 3: of the best teams in business and they're good at

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Speaker 3: But what they're seeing what the drag of higher rates

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Speaker 3: comes through very quickly in housing, instantaneously transmitted car purchases, things.

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Speaker 2: Which happen faster.

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Speaker 3: But with a line's share, the mortgage is half from

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Speaker 3: more hundred three percent. And you really think about only

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Speaker 3: half of the who people who live in America have

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Speaker 3: a mortgage. It tied up in our housing rent and

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Speaker 3: other things. It's rent in its new home purchases.

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Speaker 2: Those both are UNDERTA.

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Speaker 3: Those have now mitigated, So you're seeing inflation come under control,

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Speaker 3: eavening these places in great sensus. What you haven't seen

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Speaker 3: is the impact in corporate Yet that's still ahead of us.

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Speaker 3: Because corporations, barring costs went up. They're starting to their

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Speaker 3: activity is that they're using the lines less, which means

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Speaker 3: they are finding less opportunities to overcome that borrowing cost.

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Speaker 3: They're being more conservative on their debt. They've got to

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Speaker 3: refinance some stuff. Good news is a lot of finance

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Speaker 3: at lower rates and that has turned to it. But

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Speaker 3: commercial real estate, the debate is so a lot of

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Speaker 3: the fiscal drag, the drag from raising rates is still

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Speaker 3: ahead of us. And that's why I think people forgetting

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Speaker 3: that they're still a pretty constraining lending.

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Speaker 2: Conditions are tighter. They just the Senior Loan Officers survey

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Speaker 2: just said it.

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Speaker 3: So the impact is more in front of us for

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Speaker 3: some of the rate increases and behind us.

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Speaker 2: Yet you're seeing it already tip inflation flattening out, not

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Speaker 2: down yet, but flattening out.

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Speaker 3: And we still say it takes till twenty five to

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Speaker 3: get back to the target rates.

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Speaker 1: What does all that mean for Bank of Reerican the

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Speaker 1: way you run your business. You had a very strong

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Speaker 1: quarter of particularly in trading in sales last quarter. Are

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Speaker 1: you doubling down in that or are you being a

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Speaker 1: little more conservative?

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Speaker 3: Well, the trading and sales team, Jimmy and Tomorrow, the

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Speaker 3: team have done a great job and they had the

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Speaker 3: best first half they've had and we earned fifteen billion

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Speaker 3: dollars plus in the first half of this year.

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Speaker 2: The team's performing. Straw the credits some great shape.

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Speaker 3: You know, stress test just went on and our losses

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Speaker 3: were lower than they were last year. And you know,

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Speaker 3: we've been the lowest of our peers for almost every

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Speaker 3: year except for one had the last twelve or thirteen

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Speaker 3: stress tests. So you put that all together, we're well

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Speaker 3: prepared for whatever comes at us.

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Speaker 2: And that's what we do.

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Speaker 3: Jimmy and the team had done a great job in training,

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Speaker 3: but about three or four years ago, the first under

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Speaker 3: Tom Montaggan and Jimmy took over all the trading.

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Speaker 2: We increased the size of balance, the.

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Speaker 3: Scope, the capital committed to business, the talent, and they've

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Speaker 3: been able to get a good.

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Speaker 2: Payback on that.

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Speaker 3: And you know, the way they do it is, you know,

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Speaker 3: we made money every trading day. If you look back

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Speaker 3: across the last several years, it's very rare. Maybe a

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Speaker 3: couple of times a quarter we'll lose money. We just

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Speaker 3: basically the team runs a great business and they're doing

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Speaker 3: a great job.

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Speaker 1: The markets woke up yesterday to announcement of the Fitch

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Speaker 1: downgrade in the US sovereign debt and there's a debate

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Speaker 1: debate about whether that was the right timing, was the

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Speaker 1: right thing, and the bomberker now is actually responding a

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Speaker 1: little bit to that.

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Speaker 4: What's your take on that degrading.

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Speaker 3: Well, I think it's a bit of a non event

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Speaker 3: in the sense that you know, the US has the

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Speaker 3: ability to pay his debts and has shown that ability.

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Speaker 2: It's sometimes interesting.

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Speaker 3: How we get there with a debt sealing increase and

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Speaker 3: things like that, but they get there. It's the strongest

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Speaker 3: economy world by a lot. It's the biggest economy, strongest economy.

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Speaker 3: It's worth capital comes to them from around the world.

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Speaker 3: Great incentives in the US for companies around the world

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Speaker 3: to invest and grow here at the IRA, the Infrastructure Act,

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Speaker 3: that Chips Act, et cetera, et cetera. The tax rates

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Speaker 3: are lower, which makes it more competitive. So I don't

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Speaker 3: worry about the fundamental ability of PAARA debts. But if

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Speaker 3: you separate the downgrade into two paces, one is, you know,

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Speaker 3: sort of the debts that continue to accumulate and will

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Speaker 3: they start to outstrip the growth in the economy because

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Speaker 3: right now, with inflation, they've been kept at lower level.

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Speaker 2: That's question.

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Speaker 3: And then secondly, is their willingness to deal with that,

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Speaker 3: And that's that's an honest debate, But the two sides

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Speaker 3: have to have that debate, and that's a political process

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Speaker 3: and they have to have it.

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Speaker 2: But the reality is the actual downgrades.

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Speaker 3: A person holds three on billion dollars more treasuries, it

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Speaker 3: doesn't change our opinion the US's credit withiness.

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Speaker 1: Well what about that holding the US treasures? Because as

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Speaker 1: you suggest, there is an issue at some point down

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Speaker 1: the road, it's not clear what it would be. I mean,

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Speaker 1: you talk about the process, the political process, it doesn't

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Speaker 1: give a lot of comfort. That's one of the things

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Speaker 1: that Fitch set actually is you know, we got a problem,

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Speaker 1: but also we got a process. It doesn't seem to

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Speaker 1: be able to deal with it.

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Speaker 3: Yeah, and I think that goes back to the structural

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Speaker 3: changes in America, the demographics, the demands on social security

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Speaker 3: and the t you know, so called and titan what's

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Speaker 3: over time as a percentage demands. Those are serious issues

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Speaker 3: that you know, the political process and the citizenry has

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Speaker 3: to be involved in, not soluble in ten minutes. And

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Speaker 3: so that's all good, and that's what we're talking about

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Speaker 3: here at the Aspen Economic Strategy Group. You know, what

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Speaker 3: are the thought processes between balancing those outcomes better?

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Speaker 2: But you know those are long term questions.

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Speaker 3: In the near term, there's much bigger risk of some

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Speaker 3: of the things that go on outside the United States

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Speaker 3: to the economies of the world, and there is inside

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Speaker 3: United States. We're growing, people are employed, people are spending,

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Speaker 3: and that's good news, and that will get mean that

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Speaker 3: the fiscal receipts of the.

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Speaker 2: US will stay a little stronger on a relative base.

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Speaker 1: How much is supported simply by the strength of the

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Speaker 1: US dollar. That is to say, people tend to turn

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Speaker 1: to dollars when in doubt.

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Speaker 3: They should because it's you know, it's a safe have

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Speaker 3: and it's what commerce is conducted, and because in the day,

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Speaker 3: the consumption power of the United.

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Speaker 2: States drives economies around the world.

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Speaker 3: Therefore there's you know, US consumers spend dollars, So if

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Speaker 3: you're selling stuff in dollars, you got to be exposed

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Speaker 3: a dollar. And so I think the idea of some

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Speaker 3: of this debate about reserve currency status. It's been tightening

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Speaker 3: in the flight to quality, and the US tends to come.

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Speaker 3: Now ten year bonds moved up and everybody gets moved

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Speaker 3: on up. We're talking about the difference between you know,

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Speaker 3: three eighty three ninety and four ten, four twenty. These

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Speaker 3: are not very big moves in a grand scheme of things.

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Speaker 3: It is tapping quickly and people get excited about who

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Speaker 3: trade bonds is living from the grand or impact in economy.

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Speaker 3: Those moves are needed to get the Ultimately, the old

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Speaker 3: curve has to get back and sink or else we

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Speaker 3: aren't taming the inflation or we're going to drive into

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Speaker 3: a recession.

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Speaker 4: When you talk about the strengthen the US dollar.

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Speaker 1: Is it stronger today as a reserve currency globally than

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Speaker 1: it was ten twenty years ago?

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Speaker 4: And if so, why.

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Speaker 2: Because I think the opportunities in the US are the strongest.

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Speaker 3: And that's why, you know, with a great financial system

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Speaker 3: we have, with a great set of companies and innovation,

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Speaker 3: we have the research universities, we have the things like

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Speaker 3: if we keep investing in all that and let capitalism

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Speaker 3: and you know, United States style capitalism drive, the US

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Speaker 3: will always be a favorite place because other places are

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Speaker 3: struggling with different systems that proved not to be as beneficial,

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Speaker 3: with less innovation, less ability tackle problems. And so yes,

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Speaker 3: it's interesting from time to time all what goes on.

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Speaker 3: But if you think about, you know, think about the

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Speaker 3: late sixties to now We've doubled them amount of people

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Speaker 3: working United States. We were supposed to be taken over

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Speaker 3: by Japan inkeeers. The computers are going to get rid

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Speaker 3: of all the people. The people are still working. You know,

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Speaker 3: we had to bar in Vietnam. We had the political

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Speaker 3: constitutional crisis and Nixon presidency.

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Speaker 2: You had an oil and bark.

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Speaker 3: All that stuff happened in the early seventies and still

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Speaker 3: a dec you know, fifty years later, we have twice

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Speaker 3: as many people work in this country.

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Speaker 1: Since we talked last, Brian, we now have the proposed

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Speaker 1: regulations on capital requirements from the Federal bank regulators. We

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Speaker 1: talked before, and you said one hundred basis points, as

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Speaker 1: I recall a difference in the capital requirements, we would

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Speaker 1: amount to one hundred and fifty billion dollars less.

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Speaker 4: You want.

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Speaker 1: Now we have the proposals, what would it mean for

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Speaker 1: Bank of America and for our banking system.

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Speaker 3: Well, what it does is it's not to get too

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Speaker 3: technical in the grand scheme of things, but it changes

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Speaker 3: the calculation of risk.

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Speaker 2: Weighted assets RWA.

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Speaker 3: And so the idea is that the estimates by the

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Speaker 3: FED is it's fifteen to twenty percent of our WA increase.

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Speaker 2: When you do that, then ten.

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Speaker 3: Percent of RWA at x and ten percent of our

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Speaker 3: WA at one point one times x means you have

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Speaker 3: to have more capital, and so.

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Speaker 2: The amount of capital goes up.

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Speaker 3: That then constrains Leny because you can't do anything with

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Speaker 3: that capital. If you did, then you'd have more RW

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Speaker 3: and you have to have more capital. But I think

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Speaker 3: if you step back, this industry is well capitalized.

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Speaker 2: It just proved it again in another crisis. It's well managed,

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Speaker 2: it's well regulated.

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Speaker 3: You've had successive FED regime of chairs and people working

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Speaker 3: in the chair supervision vice chair over the years say

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Speaker 3: the capital is adequate. Industry, it's well it's well managed

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Speaker 3: as well capitalized. They'll be banks will fail, they fail,

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Speaker 3: they failed throughout history.

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Speaker 2: That happens.

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Speaker 3: But since the financial crisis, more people under the tent

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Speaker 3: because the issue of the financial crisis, a lot of

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Speaker 3: stuff wasn't a tent.

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Speaker 2: The problem is.

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Speaker 3: If you get the capital regations of banking system too tight,

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Speaker 3: you push stuff back out sides of tent.

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Speaker 2: And that's a concern.

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Speaker 3: So as I look at it, one give a set

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Speaker 3: of rules, we'll live with it too. It won't, you know,

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Speaker 3: Bank Americal adjustice business model to make it work. But

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Speaker 3: what's been interesting about this is it's competitive position United

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Speaker 3: States versus Europe and others. This is making the bank industry,

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Speaker 3: all banks less competitive to mid sized US companies than

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Speaker 3: foreign banks are to mid sized US companies participating in

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Speaker 3: the same globe of supply chains in those countries. That's

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Speaker 3: more of a trade question and a balance of power question.

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Speaker 2: That's one.

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Speaker 3: And then second, I'm surprised by the amount of descent

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Speaker 3: that the governors of Federal Reserve. I've been working on

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Speaker 3: Federal Reserve stuff for my whole career forty years now,

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Speaker 3: and I was just surprised the amount of debate, which

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Speaker 3: shows you that you know, whether it's mortgage loans on

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Speaker 3: one side, whether it's a tax benefits and treatment for

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Speaker 3: energy clean energy investments, or whether it's the basic trading

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Speaker 3: and things like that. There's got a lot of water

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Speaker 3: that's got to go over the dam here to get

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Speaker 3: these rules right, because there's a debate even among the

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Speaker 3: governors themselves about what the right answer is.

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Speaker 1: Brian, you said there's a role for regulation, and you'll

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Speaker 1: live with regulation as you say you will with capital requires.

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Speaker 1: But what is the problem it's being addressed. That's what

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Speaker 1: I don't quite understand. You talked about the crisis we

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Speaker 1: had the back in March with the banks. I'm not

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Speaker 1: sure this addresses that well.

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Speaker 3: And that's been the debate, and that's it. Go read

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Speaker 3: the descents and the debate in the things. So strong

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Speaker 3: regulation is important, rapid growth and banks tends to come

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Speaker 3: from things that turn out to be not so interesting

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Speaker 3: after the fact, and so.

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Speaker 2: I think, you know, that's the thing they need to

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Speaker 2: sort of come to a common agreement on Basil three.

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Speaker 2: Across the world.

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Speaker 3: We're just applying it with much more rigidity and requirements.

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Speaker 3: And so if you look at the largest bank in France,

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Speaker 3: UK and Germany, they have about half the capital requirements

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Speaker 3: in the largest banks in US do.

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Speaker 2: So that that gets into competitive question, and so.

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Speaker 3: I think people just have to look at it seriously,

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Speaker 3: look at it relative to what we're trying to do here.

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Speaker 3: We want the strongest banking industry, our banking stress, better returns,

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Speaker 3: has better things. But on the other hand, our multiples

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Speaker 3: are half or less than the SMP multiples. There's a

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Speaker 3: reason for that, which as investors are saying, wait a second, if.

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Speaker 2: The capital demands don't stuck.

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Speaker 3: We aren't sure that we can continue to invest. So there's

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Speaker 3: a little bit of a counter veil here that people

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Speaker 3: have to pay attention to. And then back to your point,

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Speaker 3: every hundred base of points of capitals, one hundred fifteen

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Speaker 3: hundred billion less loans we at Bank of America could do,

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Speaker 3: and this applies across what they can't be done other places.

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Speaker 2: Those companies aren't that size.

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Speaker 1: Man, Brian, thank you so much for spending times. Really

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Speaker 1: appreciate it. That's Brian Moyne and he is the share

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Speaker 1: and CEO of Bank of America