WEBVTT - Brian Moynihan Talks Interest Rates and the American Consumer

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio.

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<v Speaker 2>News alongside me, the Bank of America, Chaef Bron, Moynihan, Bront,

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<v Speaker 2>Good afternoon.

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<v Speaker 1>It's great to be here. It's a nice, nice place

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<v Speaker 1>that you.

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<v Speaker 3>Know that it's not bad. It's going to see you.

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<v Speaker 2>It's somewhat different President Macron. Is he trying to sell

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<v Speaker 2>you a French bank? What's happening here?

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<v Speaker 4>No, he's not trying to sell us a French bank.

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<v Speaker 4>What he's trying to sell us all on is doing

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<v Speaker 4>business in France.

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<v Speaker 1>Choose France.

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<v Speaker 4>And you know, we have moved from one hundred people

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<v Speaker 4>here at about seven hundred and fifty people under Vanessa

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<v Speaker 4>Holtz leadership for our European Broken Dealer trading operations, and

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<v Speaker 4>they've been great and accommodative and the rules and stuff.

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<v Speaker 4>It's been a great experience for us.

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<v Speaker 2>What have they changed? What have they done to attract

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<v Speaker 2>that investment from you?

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<v Speaker 4>Well, we needed a talent because we're locating a lot

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<v Speaker 4>of jobs here. Some people move, some people didn't. So

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<v Speaker 4>they have a lot of talent. They have a lot

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<v Speaker 4>of great people. They know the trading business because of

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<v Speaker 4>the large French banks and the regulatory framework and so

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<v Speaker 4>they've made it accommodative to bring it over, and then

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<v Speaker 4>they've made some work real changes specific to our ployees

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<v Speaker 4>and a financial services business made it easier and they're

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<v Speaker 4>always ready. Now they're trying to say can you move

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<v Speaker 4>a back office and other things here? So they're pitching

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<v Speaker 4>a different style of economic development. But they've done a

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<v Speaker 4>good job in changing France's reputation around the business community.

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<v Speaker 4>There's a few hundred CEOs out there, all of whom

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<v Speaker 4>have expand their operations in France.

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<v Speaker 3>The reputation used to be pretty terrible.

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<v Speaker 2>In fact, you know what the perception was, why would

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<v Speaker 2>you hire anyone in France when you can do that

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<v Speaker 2>in London. Was it Brexit that changed that in the

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<v Speaker 2>last ten years? Is it something else as France actually

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<v Speaker 2>got better as opposed to the UK get and worse.

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<v Speaker 1>Well, I think what they did is they made their accommodative.

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<v Speaker 4>They had the talent, they had the capability, schools could

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<v Speaker 4>expand and take people. Those are real things, But what

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<v Speaker 4>they really did is they said we need to be attractive,

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<v Speaker 4>save lower tax rates.

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<v Speaker 1>They've worked on some of the work rules.

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<v Speaker 4>Those are longer term strategies that will help the country.

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<v Speaker 2>They're trying to close the gap clearly with the United States.

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<v Speaker 2>Let's talk about the United States as well. I got

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<v Speaker 2>a note from the Bank of America Institute from Liz

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<v Speaker 2>the great work they do over there, And I was

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<v Speaker 2>looking at the average balance for a customer compared to

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<v Speaker 2>the average back in twenty nineteen, and for lower income

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<v Speaker 2>the numbers that you've got show it up close to

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<v Speaker 2>sixty percent. What on earth is going on? How are

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<v Speaker 2>the balances that much high now versus say, five years ago.

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<v Speaker 4>Well, the thing is that count that was here in nineteen,

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<v Speaker 4>lived through all the stimulus benefits and all the deposits

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<v Speaker 4>within has also been ostensibly.

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<v Speaker 1>Working since nineteen.

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<v Speaker 4>Therefore they've gotten a wage increases and will inflation is

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<v Speaker 4>tough on people, especially in the lower medium incomeing down

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<v Speaker 4>in terms of increases. The wages have been growing. They

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<v Speaker 4>just grew first, honestly, and then the prices grew after.

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<v Speaker 4>So people remember the price growth, don't remember the wage

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<v Speaker 4>growth so much. But I think, you know, it shows

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<v Speaker 4>the brasilience the American consumer. And if you look at

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<v Speaker 4>the spending through the month so far in May, they're

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<v Speaker 4>spending about three or four percent more than they did

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<v Speaker 4>last May.

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<v Speaker 1>In the first part of May April was similar.

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<v Speaker 4>It's slower, it's more consistent with lower growth, lower inflation economy,

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<v Speaker 4>but it's still positive and positive means people are spending more.

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<v Speaker 1>That means our economy is growing.

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<v Speaker 4>And you know, in the rate structure, maybe higher and

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<v Speaker 4>we can talk about that, but the reality is it's

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<v Speaker 4>in decent shape. There's a thousand things that can go

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<v Speaker 4>wrong tomorrow. For right now, everything's in pretty good shape.

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<v Speaker 3>Are we living pretty well? Then? With interest rates not

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<v Speaker 3>to five percent.

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<v Speaker 1>We're living pretty well with them, and people are getting.

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<v Speaker 3>Used to it.

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<v Speaker 4>But the reality is, at some point I've had asked

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<v Speaker 4>to bring to frontend rate to get to a normalized curve,

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<v Speaker 4>because an inverted curve forever doesn't sort of economically compute.

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<v Speaker 1>But I think our.

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<v Speaker 4>Team thinks that the terminal rate, the end rate that

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<v Speaker 4>they'll get to, will be more than a three and

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<v Speaker 4>a half percent range as opposed to fifty basis point

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<v Speaker 4>range or one percent range. And we haven't really had

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<v Speaker 4>that since before the financial crisis. So there was a

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<v Speaker 4>moment in sixteen seventy to eighteen when they raised rates

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<v Speaker 4>and they already started bringing them down nineteen. So frankly

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<v Speaker 4>in our team, I say, if you're under forty, you've

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<v Speaker 4>never seen this kind of rate environment, and this is normal.

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<v Speaker 4>And so three percent front end, three and a half,

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<v Speaker 4>four and a half percent tenure, and.

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<v Speaker 1>People will get used to it because America did a.

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<v Speaker 4>Lot of economic activity prior to two thousand and seven

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<v Speaker 4>for the two hundred plus years of existed, so people

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<v Speaker 4>have been used to it. It's just we're in a

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<v Speaker 4>very unusual time and so the adjustments are taking place

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<v Speaker 4>and it's running through the economy.

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<v Speaker 2>We're hearing from some companies that maybe the ross and

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<v Speaker 2>cracks we had from Stobucks McDonald's offering a similar view

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<v Speaker 2>on the US consumer. You've got some sixty nine million customers,

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<v Speaker 2>what do you see? Do you see those cracks that

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<v Speaker 2>so we're starting to emerge this year.

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<v Speaker 1>So if you think about it, where were the cracks emerged?

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<v Speaker 4>You talked about the average account balance is there're still

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<v Speaker 4>especially for household seventy five one hundred thousand and below,

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<v Speaker 4>the account bouncers are higher than the pandemic by a lot.

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<v Speaker 4>If you think about the spending, the spending settled into

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<v Speaker 4>a more normal where it was in sixteen, seventeen eighteen,

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<v Speaker 4>the FEBEs raising raids inflation, they're pushing inflation was higher,

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<v Speaker 4>they're pushing it down or holding it steady, you know.

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<v Speaker 4>So that's normal. And then on the credit side, we're

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<v Speaker 4>just normalizing to where we were nineteen. So in twenty

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<v Speaker 4>nineteen is a fifty year low on credit customer company

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<v Speaker 4>and basically last quarter we were a little bit higher

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<v Speaker 4>than that, and so we're normalizing. So it's increasing off

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<v Speaker 4>a base and people say, oh, your charge offs are

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<v Speaker 4>going up, but they're getting back to where they were

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<v Speaker 4>in nineteen and frankly, people thought that was a very

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<v Speaker 4>good credit and it actually was. And so the question

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<v Speaker 4>is where they go next. The good news is we're

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<v Speaker 4>starting to see delinkednies flatten back out. Are you either

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<v Speaker 4>not growing anymore? They normalize and then they're staying. That's

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<v Speaker 4>good news on the consumer side, So it's all okay.

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<v Speaker 4>It's just higher rates are tough on people on a

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<v Speaker 4>mortgage market we you know, mortgage originations or way down.

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<v Speaker 4>Higher rates are tough on corporations using their lines a

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<v Speaker 4>little bit less because you know, small medium sized companies

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<v Speaker 4>because it costs more and if it costs more, you're

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<v Speaker 4>going to be more gedicious about it. So that kind

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<v Speaker 4>of adjustment, what the FED is doing with rate structure

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<v Speaker 4>is having the impact they want. On the other hand,

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<v Speaker 4>the economy's kind of there, and now we got to

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<v Speaker 4>be careful we don't overshoot the other way.

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<v Speaker 1>It's right now we have a no landing.

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<v Speaker 4>Honestly a two percent growth right because you can't say

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<v Speaker 4>it's a soft landing, but that's been pushed out and

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<v Speaker 4>pushed out to when it occurs, and we got to

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<v Speaker 4>be careful that we don't overshoot. Because you see the

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<v Speaker 4>consumer confidence numbers tipping download it. That's what you got

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<v Speaker 4>to be careful. The consumer leaves the game, it's hard

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<v Speaker 4>to get them restarted.

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<v Speaker 2>So when I look at your consumer and whenever we repay,

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<v Speaker 2>report on your numbers Q one, Q two, Q three,

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<v Speaker 2>Q four. We look at the average FIICO score of

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<v Speaker 2>some of the lending that happens, and it's really really high,

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<v Speaker 2>like close to way one hundreds for vehicle lending.

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<v Speaker 3>Can you tell me whether your.

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<v Speaker 2>Experience is a decent snapshot of America or whether you're

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<v Speaker 2>just catering to a much higher quality consumer.

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<v Speaker 4>On the lending side, were prime, super prime, and auto

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<v Speaker 4>for example, So there's a broader base of consumers out there.

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<v Speaker 4>Eighty twenty rule prime versus subprime, and we don't play

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<v Speaker 4>in the subprime at all, and that's because of.

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<v Speaker 1>History and how we got here. On the deposit site

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<v Speaker 1>completely different.

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<v Speaker 4>We open accounts for anybody that really wants an account,

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<v Speaker 4>and then we are a great started place for people

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<v Speaker 4>to open the first back account and then grow with us,

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<v Speaker 4>and we open a million of them basically over the

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<v Speaker 4>last twelve months a million net new accounts. They started

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<v Speaker 4>three thousand, they grow to seven thousand. So that's pretty

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<v Speaker 4>representative America. And we're ninety percent plus the corehousehold account,

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<v Speaker 4>meaning it's use for all.

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<v Speaker 1>The day to day flows. We got pretty good data there.

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<v Speaker 4>On lending side, we probably till just a little higher,

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<v Speaker 4>but it's still strong.

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<v Speaker 1>But eighty percent of America is prime space, so it's.

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<v Speaker 4>Not like it's so the difficulties you're hearing about I

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<v Speaker 4>can't really reflect on, but there tend to be in

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<v Speaker 4>the subprime space.

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<v Speaker 3>That's the consumer.

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<v Speaker 2>Let's talk about businesses seeing a ton of debt issuance

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<v Speaker 2>supplies for the roof that you want, what do you

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<v Speaker 2>think that is. We've been trying to work out whether

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<v Speaker 2>that's pulled forward from the back end of this year

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<v Speaker 2>or catch up from the back end of last year.

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<v Speaker 3>Which one is it.

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<v Speaker 4>Well, I think if you did a lot of financing

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<v Speaker 4>and it's coming up in the next couple of years.

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<v Speaker 1>Your hope would be rates would follow and you get a.

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<v Speaker 4>Lot more nominal rate because you may have done it,

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<v Speaker 4>you know, in twenty twenty or something, when there's a

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<v Speaker 4>massive amount of issues. The problem is it's not clear

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<v Speaker 4>that's going to happen. So now people are saying, I

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<v Speaker 4>don't want to run to the wall and then find

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<v Speaker 4>out the market closes because some external event or something.

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<v Speaker 4>So people are just financing it forward. They're probably was

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<v Speaker 4>some pull through of the year when people said all

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<v Speaker 4>rates may not go down, that won't we just get

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<v Speaker 4>it done and.

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<v Speaker 1>Get it over with. You know. The market's business is

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<v Speaker 1>kind of fascinating.

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<v Speaker 4>The first half of the year is always much more

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<v Speaker 4>active in the second half a year, And he keeps saying,

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<v Speaker 4>there's four quarters. Why wouldn't space out. It's just natural

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<v Speaker 4>human behavior. People like to get things done. But I

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<v Speaker 4>think it's been pretty strong and we feel pretty good

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<v Speaker 4>about it. We had a good investment banking fee first quarter,

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<v Speaker 4>which reallyflects financing activity, equity and debt. But I'm not.

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<v Speaker 1>Sure there's any right answer there.

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<v Speaker 4>But the reality is that it was very high, so

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<v Speaker 4>the assumption would be go lower. But on the other hand,

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<v Speaker 4>there's people have to look forward and say, am I

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<v Speaker 4>going to wait till twenty twenty six to refinance that debt?

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<v Speaker 4>Or frankly they're investing. You know, there's lots of capital

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<v Speaker 4>improvements going on. People want to turn that out. There's

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<v Speaker 4>lots of M and A is starting to kick up

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<v Speaker 4>a little bit. People want to pay for those deals,

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<v Speaker 4>So there's stuff going on too that requires them to

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<v Speaker 4>raise incremental new money.

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<v Speaker 3>Can we touch on M and A.

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<v Speaker 2>We talked about this a few months ago when we

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<v Speaker 2>visited you, and you talked about the reality for some

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<v Speaker 2>companies that they can't make deals right now because they

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<v Speaker 2>don't know if those deals will close. Do you sense

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<v Speaker 2>that there is some momentum in the business now going

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<v Speaker 2>into November or is there a sense that people are

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<v Speaker 2>just going to wait to see how this washes out.

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<v Speaker 4>The activity going on in the business is very high.

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<v Speaker 4>A lot of conversations a lot of deals being signed up,

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<v Speaker 4>there's still the concern still applies of whether deals which

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<v Speaker 4>would appear to any in the past so to speak,

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<v Speaker 4>have gone through without challenge out delay. To stay with

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<v Speaker 4>the deal for a year plus takes a lot of

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<v Speaker 4>intestinal for it to A lot of things can happen

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<v Speaker 4>in your company, can happen the other company, People can

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<v Speaker 4>lose enthusiasm for the deal. All things can go on,

0:09:06.480 --> 0:09:08.000
<v Speaker 4>and so people have to sit there and say can

0:09:08.040 --> 0:09:08.480
<v Speaker 4>I do that?

0:09:08.640 --> 0:09:09.560
<v Speaker 1>Large companies can.

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<v Speaker 4>Hang on longer because they just have more resiliency, especially

0:09:11.720 --> 0:09:14.160
<v Speaker 4>if they're buying a smaller company. But a companies buying

0:09:14.160 --> 0:09:16.080
<v Speaker 4>a company might be thirty forty percent of the size.

0:09:16.120 --> 0:09:18.360
<v Speaker 4>They have to be very careful and they're cautious. They

0:09:18.480 --> 0:09:20.440
<v Speaker 4>want to do it. The questions can they get it done?

0:09:20.520 --> 0:09:22.679
<v Speaker 4>And that's one of the things we say to policymakers

0:09:22.800 --> 0:09:25.280
<v Speaker 4>is clarify the rules and let people get through because

0:09:26.000 --> 0:09:28.200
<v Speaker 4>in that men transaction, people think, well, it's just about

0:09:28.200 --> 0:09:31.760
<v Speaker 4>getting bigger. Remember, on a sales side, that's obvious. The

0:09:31.880 --> 0:09:34.120
<v Speaker 4>payment goes out to the shareholders and the employees a lot.

0:09:34.280 --> 0:09:35.000
<v Speaker 1>That's good for them.

0:09:35.240 --> 0:09:36.880
<v Speaker 4>But on a buy side, what does it mean that

0:09:36.920 --> 0:09:40.120
<v Speaker 4>companies make an acquisition, getting bigger, going to dominate the world.

0:09:40.120 --> 0:09:41.600
<v Speaker 4>We're going to go over and we're going to become

0:09:41.640 --> 0:09:44.160
<v Speaker 4>the best at X, Y or Z. Without being able

0:09:44.200 --> 0:09:45.520
<v Speaker 4>to make acquisitions, they can't.

0:09:45.320 --> 0:09:46.480
<v Speaker 1>Get that strategic growth.

0:09:46.559 --> 0:09:49.640
<v Speaker 4>So it's especially when you're talking to America. Only those

0:09:49.679 --> 0:09:52.480
<v Speaker 4>American companies are looking to be the best companies in

0:09:52.480 --> 0:09:53.640
<v Speaker 4>the world, and M and A is one of the

0:09:53.679 --> 0:09:55.720
<v Speaker 4>ways they do it. If you stop them, you're stopping

0:09:55.760 --> 0:09:57.200
<v Speaker 4>America's prosperity and growth.

0:09:57.360 --> 0:09:58.680
<v Speaker 1>And I think, frankly, the.

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<v Speaker 4>Theme here in Frances need business, we need labor, we

0:10:01.880 --> 0:10:04.120
<v Speaker 4>need government, we need all work together. We need green

0:10:04.200 --> 0:10:06.280
<v Speaker 4>we need oil and gas, we need nuclear, we need

0:10:06.320 --> 0:10:07.000
<v Speaker 4>all work together.

0:10:07.240 --> 0:10:09.400
<v Speaker 1>That idea of trying to figure out how it all works.

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<v Speaker 4>Together because the end of the day, the numbers of

0:10:11.200 --> 0:10:13.600
<v Speaker 4>employees for our companies and us growing on a worldwide

0:10:13.640 --> 0:10:15.280
<v Speaker 4>stage is critical to health of America.

0:10:15.400 --> 0:10:17.400
<v Speaker 3>Do you know get that message from Washington right now?

0:10:17.840 --> 0:10:18.280
<v Speaker 3>You get it.

0:10:18.280 --> 0:10:20.400
<v Speaker 4>It's mixed, It's mixed, And I think that's been the

0:10:20.440 --> 0:10:24.000
<v Speaker 4>debate is how do you America is has a chance

0:10:24.040 --> 0:10:25.840
<v Speaker 4>to win like it's never had to win because of

0:10:25.960 --> 0:10:28.360
<v Speaker 4>the resilience of our economy, So when you look at

0:10:28.600 --> 0:10:30.800
<v Speaker 4>two thousand and seven to now, you look at the

0:10:30.800 --> 0:10:33.120
<v Speaker 4>size of European economy US a conment back then roughly

0:10:33.120 --> 0:10:35.760
<v Speaker 4>the same size. Now America's fifty to sixty percent bigger.

0:10:35.920 --> 0:10:38.120
<v Speaker 4>That's the resiliency of the American economy. So we have

0:10:38.200 --> 0:10:41.319
<v Speaker 4>to have capitalism done right, and I think policies that

0:10:41.400 --> 0:10:43.840
<v Speaker 4>promote that are what's going to drive America to stay

0:10:43.840 --> 0:10:45.640
<v Speaker 4>great and be great. We can solve any problem and

0:10:45.679 --> 0:10:47.959
<v Speaker 4>get through everything if we're growing. And one of the

0:10:47.960 --> 0:10:49.800
<v Speaker 4>ways we grow is by letting them and a happen,

0:10:49.840 --> 0:10:52.480
<v Speaker 4>by letting our companies do it fairly with the consumer,

0:10:52.559 --> 0:10:53.920
<v Speaker 4>fairly with other companies, but.

0:10:54.160 --> 0:10:54.880
<v Speaker 1>Do it the right way.

0:10:54.960 --> 0:10:56.160
<v Speaker 3>You sound like a policy Mica.

0:10:57.240 --> 0:10:59.480
<v Speaker 4>I just look, I've been at this a long time now,

0:10:59.520 --> 0:11:01.520
<v Speaker 4>and I've seen ups and downs, you know. I think

0:11:01.559 --> 0:11:04.920
<v Speaker 4>it's really interesting when you think about countries companies around

0:11:04.920 --> 0:11:05.600
<v Speaker 4>the world, they want to.

0:11:05.559 --> 0:11:06.480
<v Speaker 1>Invest in the United States.

0:11:06.480 --> 0:11:10.400
<v Speaker 4>Talent work rules, uh, big market, you know, huge market,

0:11:10.760 --> 0:11:13.360
<v Speaker 4>And I think there's real opportunity for American companies if

0:11:13.360 --> 0:11:13.920
<v Speaker 4>we get this right.

0:11:14.040 --> 0:11:16.600
<v Speaker 2>Every time we talk, the interview ends in the same place.

0:11:18.160 --> 0:11:20.440
<v Speaker 2>Treasury Secretary thoughts on Washington.

0:11:20.720 --> 0:11:22.600
<v Speaker 4>I have the greatest job in the world, and I've

0:11:22.600 --> 0:11:24.319
<v Speaker 4>got a lot of work to do for Bank of America,

0:11:24.440 --> 0:11:25.959
<v Speaker 4>so I'll let somebody else.

0:11:25.800 --> 0:11:26.360
<v Speaker 1>Have that honor.

0:11:26.480 --> 0:11:28.800
<v Speaker 2>I imagine that was a bottled answer ready the guy Brian.

0:11:28.840 --> 0:11:30.160
<v Speaker 3>It's good to see it. Thank you.

0:11:30.240 --> 0:11:32.840
<v Speaker 2>Sir Brian had that the Bank of America Chief Executive