Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: For our Bloomberg audiences worldwide. I'm David Weston. I'm delighted
Speaker 2: to be here with Brian moynan. He of course his
Speaker 2: chair and CEO of Bank of America. So Brian, thank
Speaker 2: you for having us here to your trading floor.
Speaker 3: Happy holidays. First, David, thank you for coming.
Speaker 1: And all these teammates have been there all day to
Speaker 1: waiting for you, so.
Speaker 2: Waiting for something probably making money for you. So let's
Speaker 2: talk with the economy first. Overall, I think it's fair
Speaker 2: to say it's doing better than most people thought it
Speaker 2: would do. Is there any cause for concern it may
Speaker 2: be overheating, particularly as we see some new policies maybe
Speaker 2: coming our way.
Speaker 1: So I think let's start on the first part of
Speaker 1: that question. If we were sitting here last year, our team,
Speaker 1: the research team, Kansas's team had a soft landing, no
Speaker 1: landing predicted, and a lot of people say, oh, that's
Speaker 1: very optimistic. And as matter of fact, we went from
Speaker 1: that would have been like a one percent GDP growth
Speaker 1: rate this quarter and we're going to have two and
Speaker 1: a half or something like that. So we've moved up
Speaker 1: from abnormally from positive but low to now higher than trend,
Speaker 1: higher than average, And so that means the economy is
Speaker 1: not having a balance anything. It's just going on as
Speaker 1: normal growth trend, which is good news if you think
Speaker 1: about it becoming over heat. I think all the policies
Speaker 1: are yet to come in. There's enthusiasm or discussion, but
Speaker 1: everything's still out there until the policy get acted.
Speaker 3: Our team, when they.
Speaker 1: Look at taras say say, well, if tarasa are set
Speaker 1: by better regulation, they'll kind of even each other out.
Speaker 1: But even given their knowledge of the Trump present, like
Speaker 1: Trump's policies, they are still predicting next years of two
Speaker 1: and a half percent GDP growth. They predict a FED
Speaker 1: cuts rates a few times, but stays three seventy five
Speaker 1: to four, and the predicted it takes inflation all the
Speaker 1: way into twenty six to get down to the target.
Speaker 1: If the inflation's moving down and we can grow this economy,
Speaker 1: that's actually not a bad place to be.
Speaker 2: Honestly, does this economy need any physical stimulus at this point?
Speaker 2: And it looks right now like the so called Trump
Speaker 2: task cuts will get extended. And also Canada, Trump is
Speaker 2: talking about a lot more tax cuts and given the
Speaker 2: fact that we're above a trend on growth and we're
Speaker 2: to full employment, do we need any more stimulus.
Speaker 1: I'm not sure you need more stimulus, just like we
Speaker 1: didn't need the stimulus probably in twenty one because the
Speaker 1: pandemic goes through the system. But the question is if
Speaker 1: you lower taxes and use it to reduce the debt.
Speaker 1: You know, there are questions how stimiative those activities are.
Speaker 1: And that's where the Terasury Secretary of appointee has got
Speaker 1: to figure it all out, because he's got to call
Speaker 1: the balls and strikes about how it all fits together,
Speaker 1: and that he's a market's orient person, he knows that
Speaker 1: if it gets too far on line. We just ran
Speaker 1: for the last fiscal year in the United States and
Speaker 1: operating deficit of one point eight trillion, which is equally
Speaker 1: the entire.
Speaker 3: GDP of the country of Australia.
Speaker 1: So we got to realize that the impact we have
Speaker 1: if we don't get this debt back in line. So
Speaker 1: I think everything on one side has to be governed
Speaker 1: with whether they're do on the other side off set
Speaker 1: it whether it has that much effect. Right now, the
Speaker 1: economy is moving along, consumers are spending it's up for
Speaker 1: a two week period around the holiday Thanksgiving holiday. It's
Speaker 1: up five percent of it last year. That is good
Speaker 1: and solid, that is not overheated at all. But that
Speaker 1: came off the lows a little bit the sum where
Speaker 1: I was a little nervous that they're going to let
Speaker 1: the consumer drift too far down. So between interest rates
Speaker 1: being cut a little bit between through his rats around
Speaker 1: the election, the market's being up. The consumers are spending more,
Speaker 1: and talents are going to spend more for the holidays,
Speaker 1: which is good for the general economy.
Speaker 3: We've got to keep them in the game.
Speaker 1: By not by overstimulating, by overdoing, by keeping the game
Speaker 1: just by getting a good core economy going with good
Speaker 1: deregulation activities, good tax policy, good immigration policy. These are
Speaker 1: hard things, but I think they're off working on it.
Speaker 2: Let's stand the consumers here, because you know so much
Speaker 2: about the consumers here at back of America, giving your relationships.
Speaker 2: How is the consumer doing. I know they're spending, but
Speaker 2: I've seen numbers that suggest they're borrowing more, and in fact,
Speaker 2: Saint Luis FED has new numbers out from it as
Speaker 2: of October. The defaults are up as well, are you
Speaker 2: worried at all about the consumer.
Speaker 1: So this is also this is go back to what
Speaker 1: you're thinking about, which is if you say the levels
Speaker 1: of consumer credit card debt are above whether we are.
Speaker 3: In nineteen, it's almost it's five years later.
Speaker 1: They should be above where they are in nineteen because
Speaker 1: economy is thirty percent bigger, So a lot is not numbers.
Speaker 3: Forget to put them relative scale.
Speaker 1: If you look at on a relative basis, it's still
Speaker 1: far below er it was nineteen.
Speaker 3: And the credit was very good.
Speaker 1: Then if you look at the defaults, they picked up
Speaker 1: and normalized the faults and delinquencies to where they were
Speaker 1: nineteen nineteen. Twenty nineteen was a fifty year low, and
Speaker 1: credit costs in our company fifty years we had to
Speaker 1: go back to find. So we got to be a
Speaker 1: little careful about what we're compared to. Everything's steady and
Speaker 1: fine now. Credit quality, consumers, the ability to borrow the
Speaker 1: household income they feel pinch them in the higher prices.
Speaker 1: Part of that is real and part of that's just mental.
Speaker 1: You know, if the price of eggs doubled, it's hard
Speaker 1: to ever tell anybody it's okay because they have more
Speaker 1: wages they're just never going to agree with us, And
Speaker 1: that's the economist viel of an economy versus human beings view.
Speaker 1: But you know, all things, if they weren't, they wouldn't
Speaker 1: be spending money the way they are in a rational way.
Speaker 1: At five percent year of the year, for the last
Speaker 1: couple of weeks, three and a half four percent for
Speaker 1: the month of November, and likewise it looks like that'll
Speaker 1: be December if they didn't feel confident.
Speaker 3: And why is that? All comes back to one thing.
Speaker 1: Four point one percent on the deployment rate, wage growth
Speaker 1: of three percent, that's the court.
Speaker 3: Now, what could disrupt that a lot.
Speaker 1: Of things, but that right now, that's the condition of
Speaker 1: American consumer. They have the ability to borrow, and they're
Speaker 1: borrowing rationally. They are employed, their wages are going up,
Speaker 1: they feel the pinch of inflation. They're trying to work
Speaker 1: that all through, and they're trying to have a decent,
Speaker 1: a good holiday season.
Speaker 3: So we'll play that. What will hurt that worse is.
Speaker 1: An unemployment moving up, and right now that's not predicted
Speaker 1: to happen at all.
Speaker 3: Next year.
Speaker 1: It's supposed to go. Our team has a four point
Speaker 1: three year end next year. You and I have been
Speaker 1: for most of our business careers. We'd been jumping over
Speaker 1: this the moon if we thought unemployment was four point
Speaker 1: three for the two or three years in a row
Speaker 1: or less.
Speaker 2: Take all that economic data, put it all together, and
Speaker 2: tell me what the Fed should be doing. They're meeting today,
Speaker 2: we'll get a decision tomorrow. Twenty five basis points seems
Speaker 2: to be baked in as a cut, but should it
Speaker 2: be cutting further? Beyont the twenty five base points given
Speaker 2: the strength of the economy and all the things you
Speaker 2: just said.
Speaker 1: If the economist view is you have to have a
Speaker 1: real rate structure across the curve of seventy five basis
Speaker 1: points one hundred basis points. If you're four seventy five
Speaker 1: four fifty now and the invition rates three point three,
Speaker 1: that's bigger.
Speaker 3: So you've got to start to bring it in normalized.
Speaker 1: We've got to get to, you know, positive soap and curve,
Speaker 1: a curve that has real rates across it. An inverted
Speaker 1: curve means something anticipatory is going.
Speaker 3: To go the other way. All that's got to happen.
Speaker 3: So I think they need to bring it down a
Speaker 3: little bit.
Speaker 1: They just have to be more careful because the economy
Speaker 1: is stronger than we thought three months ago, six months ago,
Speaker 1: but it still has potential weaknesses. You and I haven't
Speaker 1: even talked about what's going on outside the United States
Speaker 1: that can affect the United States. Not terrorists stuff, but wars.
Speaker 1: You know, what happened in the Middle East is the week.
Speaker 1: What happened in Korea, what happened, what's happened in Germany.
Speaker 1: All these political changes could impact the United States ultimately
Speaker 1: because and reverberate with them, because we sell a lot
Speaker 1: of goods in the LED countries, and by the way,
Speaker 1: we buy a lot of stuff from these countries, and
Speaker 1: so you know, we're inextra could be linked with the
Speaker 1: outcomes of some of these things, and so we.
Speaker 3: Have to be careful. But if you look at the
Speaker 3: USA out of cut.
Speaker 1: Rates, bring them our view, our teams views that bring
Speaker 1: them down to three seventy five ish type of level
Speaker 1: three more cuts from where they are today, but they'll
Speaker 1: be higher in the current context.
Speaker 3: But if you look back excluding two thousand.
Speaker 1: And eight till now, three and a half percent, three
Speaker 1: percent FED funds rate is the norm, not the exception.
Speaker 3: It's only been the exception in the last fifteen years.
Speaker 2: But it is different from what we thought it was
Speaker 2: going to be. It's higher, I think the neutral rates
Speaker 2: higher than it was. How does that affect your business
Speaker 2: if at all?
Speaker 1: Well, the question of everyone says to higher rates help
Speaker 1: high rates, the question is why they're there. If we
Speaker 1: had a normal rate curve from say three and a
Speaker 1: half percent on the front end of four and a
Speaker 1: half to percent of the ten year you know, and
Speaker 1: it was and the economy has growing two percent, that's
Speaker 1: a very.
Speaker 3: Good place for banking.
Speaker 1: The lincolns is to be low cost of credit and
Speaker 1: its availability is there. Your deposits are better suited at
Speaker 1: a higher nominal rate because when they go down, we
Speaker 1: have zero fours on a third to half of our
Speaker 1: deposits that just can't go any lower and zero unless
Speaker 1: we start charging people to give us their.
Speaker 3: Money, which isn't going to happen.
Speaker 1: So it's better force. But if the reason why they're
Speaker 1: hire is to choke off inflation, that can be not
Speaker 1: so good because that will probably lead to recession. And
Speaker 1: so the question what's the underline of and be doing
Speaker 1: less than the rate structure and the unline economy? Right
Speaker 1: now going two and a half with a three and
Speaker 1: a half to four percent fed funds rate in the
Speaker 1: four and a half percent tenure rate would be great
Speaker 1: for our industry.
Speaker 3: And that's why I just keep growing every quarter.
Speaker 1: We're thirteen nine, fourteen one, fourteen three, and you expect
Speaker 1: that growth to continue, and it's just walking up a
Speaker 1: ladder back to a level and you know, a peak.
Speaker 3: We're like fourteen eight or fifteen.
Speaker 2: So we have people out right now saying not four
Speaker 2: and a half, maybe five percent or even six percent
Speaker 2: of the tenure Do you put any credence in that.
Speaker 1: Our team doesn't see that, you know, and I have
Speaker 1: to rely on the experts that spent you know, we
Speaker 1: wrote research paper with a five thousand year interest rate
Speaker 1: low in interest rates, and I said, how do you
Speaker 1: know that?
Speaker 3: And they said, well, we went back and did research.
Speaker 1: So we have Kansas's teams, a powerful team and the
Speaker 1: best in the business. So they think it's four and
Speaker 1: a half is just kind of what it is. And
Speaker 1: as the rate structure comes in, is there potential for that, Yeah,
Speaker 1: that's probably when something else is going on that is
Speaker 1: not good and therefore there'll be at faster adjustments which
Speaker 1: might bring it back.
Speaker 3: In, but you know, you think about it. To go
Speaker 3: from a.
Speaker 1: One one and a half percent ten yure to a
Speaker 1: four four and a half percent tenure, that's a lot
Speaker 1: of movement, and it's very restrictive on activity till the
Speaker 1: activity just out of that, and that's what we're seeing now.
Speaker 2: You mentioned Donald Trump returning to the presidency next month. Now,
Speaker 2: how do you take the new account at Bank of America?
Speaker 2: I mean, what do you anticipate. We don't know exactly
Speaker 2: what will happen when it will happen, So how do
Speaker 2: you plan for that? What will it mean for Bank
Speaker 2: of America? Do you think?
Speaker 3: Well?
Speaker 1: So, I think one of the larger context is the
Speaker 1: oldest part of our company has been around for every
Speaker 1: presidential transition except for George Washington.
Speaker 3: So we've been.
Speaker 1: Through this before. We'll be through it to gain. But
Speaker 1: the real fact of the matter is if you think
Speaker 1: about what the policies are that he President elect Trunk
Speaker 1: got elected on. It's inflation and immigrations, but it's also
Speaker 1: about deregulation and our industry needs to have a sober
Speaker 1: look at what the right regulation. Fifteen years ago, sixteen
Speaker 1: seventeen years ago after the financial crisis, we had to
Speaker 1: put new capital lu liquidity and restore the confidence in
Speaker 1: America Since ten twelve years ago, the people, government, the
Speaker 1: capitals about writing the industry.
Speaker 3: Yet we kept ratching it up. So we ratchet up.
Speaker 1: Capital, that draws down our ability to lend. It makes
Speaker 1: credit harder to get in, more expensive, and on a
Speaker 1: worldwide competitive basis, our capital rations are much higher.
Speaker 3: And then the data is supervision.
Speaker 1: So the idea of bringing that regulation back in the
Speaker 1: middle and then frankly for the good industry, getting is
Speaker 1: settled someplace so that we can build a model around it.
Speaker 1: What happens now is we do this and so we're
Speaker 1: hoping it brings it back to the middle. That's what
Speaker 1: our and by the way, that's what our customers like
Speaker 1: about their industry. So whether it's the FDA FTC getting
Speaker 1: deals done, the enthusiasm, it's all about wait a second,
Speaker 1: now we can swing it back to the middle and
Speaker 1: go get stuff done and make the private sector, which
Speaker 1: is the reason why America is successful, lead as opposed
Speaker 1: to the governmental sector.
Speaker 2: So when you hear about a pledge for deregulation is
Speaker 2: the main thing you hear with your Bank of America
Speaker 2: years on.
Speaker 3: Is the reserve.
Speaker 1: Requirements, capital, reserve liquidity, see Cartel.
Speaker 3: There's a thousand different things.
Speaker 1: What I really hear about deregulation is our clients also saying,
Speaker 1: you know, let's do deals, including our banking client. You know,
Speaker 1: we have our investment banking bank clients, and you've seen
Speaker 1: four or five deals past the day. The selling company
Speaker 1: in a transaction won't sell if there's a lot of
Speaker 1: uncertainty around it. No matter what the value is a matter.
Speaker 1: If I don't think it's going to get done, I
Speaker 1: don't sell. That's what was going on for the last
Speaker 1: few years. Any deal of size was going to get
Speaker 1: hung up somehow unless it was so different. It was
Speaker 1: like a private equifirm buying a company had no other firm.
Speaker 1: And that's not good for letting these American companies get
Speaker 1: more successful and grow. It doesn't mean you're going to
Speaker 1: be into competitive, doesn't mean you're going to have that
Speaker 1: there's huge price, desire to market, there's great competition, all
Speaker 1: that stuff. What it means is our companies can grow
Speaker 1: and make the kind of strategic choices that happens in
Speaker 1: the banking system. We can't do any acquisition that happens
Speaker 1: to our clients, it happens around us, that'll be good
Speaker 1: for us. But now, as it is about capital liquidity
Speaker 1: and day to day supervision, what.
Speaker 2: Is the biggest change coming up for Bank of America
Speaker 2: because of this new administration?
Speaker 1: Do you think, Well, I think it'll be the economic
Speaker 1: atmosphere of deregulation, how applies us specifically, how it applies
Speaker 1: more generally, and that will be good. Now, we got
Speaker 1: serious issues, as I said, around the outside world, serious
Speaker 1: issues or brought the right balance to get the debt
Speaker 1: back in line with our GDP and keep it there.
Speaker 1: But those issues are not new, but they have to
Speaker 1: dealt with because we've been in some ways not dealing
Speaker 1: with the debt issues or not dealing with immigration for
Speaker 1: fifteen since I've been CEO. We've been talking about solutions
Speaker 1: here and we've got to now start to implement some
Speaker 1: of those to just bend the curve of debt growth,
Speaker 1: get more and more cash in, to cash out as
Speaker 1: more rational position, and then get the Hopefully, if you
Speaker 1: get the reguatory policies, you outgrow that. And that's basically
Speaker 1: what our research team thinks. They've added a little bit
Speaker 1: to their growth since in saying that combination of policies
Speaker 1: some offset each other, some will add to it, but
Speaker 1: at the end of the day will be a little
Speaker 1: bit more growth orient We'll see what happens.
Speaker 2: Brian, thank you so much for being on Bloomberg as
Speaker 2: Brian Moneyhand, He's chair and CEO of Bank of America.
Speaker 3: Back to you,