Speaker 1: Bloomberg Audio Studios, podcasts, radio.
Speaker 2: News for our Bloomberg audiences worldwide. I'm David Western. I'm
Speaker 2: delighted to be joined now by Brian moynihan. He is
Speaker 2: indeed the chair and CEO of Mecca America. So, first
Speaker 2: of all, happy holidays, Brian. Great to be with you.
Speaker 1: Happy holidays. David. Good to see you again.
Speaker 2: So let's start with the year. It's been a very
Speaker 2: strong year for the markets, by the way, a very
Speaker 2: strong year for Bank of America. In the markets. The
Speaker 2: economy's done well, not as well perhaps as the markets
Speaker 2: might indicate. Do you think the economy is in better
Speaker 2: shape because the markets are really over predicting what's going on.
Speaker 3: Look, as you look at our team that we have
Speaker 3: a great research team, as you know, David. Their projection
Speaker 3: for twenty six is a strong economy two point four
Speaker 3: percent us GDP growth. And that's strong not only on
Speaker 3: a relative based to trend above two percent, which is
Speaker 3: the trend. It's strong that way, but it's also strong
Speaker 3: relative to the rest of the world in the sense
Speaker 3: that you see that basically, whether it's Euroa or Japan,
Speaker 3: other parts of the economy, you predict those to be
Speaker 3: flatted down. And so it's strong on an absolute basis
Speaker 3: relative of the United States history, and strong on a
Speaker 3: relative basis to the other economies. And that's because, frankly,
Speaker 3: the great American engine of capitalism, consumers are driving and
Speaker 3: the markets are valuing that future growth rate, and that's
Speaker 3: why they've been very, very constructive this year.
Speaker 2: How much of that engine that you talk about is
Speaker 2: AI investment, because that certainly is kicked in this year.
Speaker 2: How much of the growth is really attributable only to
Speaker 2: the AI investment.
Speaker 3: You know, I think you'd have to get people to
Speaker 3: parts of it. But for this year, frankly, the A
Speaker 3: investment has been building during the year. It is probably
Speaker 3: a bigger contributor next year in the years beyond. And
Speaker 3: so if you look at the data center build out,
Speaker 3: which is one of the ways that evidence itself, that's
Speaker 3: a big deal. If you look at customer or client spending,
Speaker 3: like US spending on AI that's hired it was last year,
Speaker 3: but frankly, overall spending levels are shifting towards that necessarily
Speaker 3: growing at a mid single digit rate type of numbers.
Speaker 3: So I think that's part why the reason we feel
Speaker 3: constructive for next year. We think AI spending continues. We
Speaker 3: think there's benefits the American taxpayer from tax rebates, lower
Speaker 3: taxes due to the tax bill going through and being
Speaker 3: effective for next year. And we think the expense expensing
Speaker 3: and other bonuses for businesses are good. So all that
Speaker 3: leads to our confidence that we go from basically at
Speaker 3: two percent type of growth letter level this year plus
Speaker 3: or minus up to two point four percent, which is
Speaker 3: all due to that. And AI is kicking and more
Speaker 3: and more, and so it's not all attributable to AI,
Speaker 3: but that's having a marginal impact that's pretty strong.
Speaker 2: So much of the American counomy is supported by the consumer,
Speaker 2: and you at Back of America have a really powerful
Speaker 2: viewpoint into the American consumer. How's the American consumer doing?
Speaker 2: Because it has been very strong. There have been some
Speaker 2: people saying it's starting to slow down.
Speaker 1: Yeah, and so I think you have to step back.
Speaker 3: We look at American consumers seventy million consumer putting four
Speaker 3: and a half trillion dollars plus into the American economy
Speaker 3: every year, and we've tracked the way that goes in
Speaker 3: the American countmy for many years. And so in the
Speaker 3: third quarter it was up about five percent of the
Speaker 3: last year. As we look at the fourth quarter here
Speaker 3: so far in October November, I'd say it in a
Speaker 3: four to four and a half percent, which is very
Speaker 3: consistent with a very solid growing economy. You know, at
Speaker 3: the end of the day, it's going to work against
Speaker 3: wage growth, and we see in the underlying consumers we
Speaker 3: have wage growth. Iw eive their paychecks are going up,
Speaker 3: and so the labor markets flattened out a little bit
Speaker 3: in terms of job growth and things like that. It's
Speaker 3: normalizing in terms of unemployment, but you still see underlying
Speaker 3: wage growth. So the American consumer spending at four percent
Speaker 3: more November this year versus November last year is a
Speaker 3: very solid backdrop. The credit quality American consumer is strong.
Speaker 3: And then you hear a lot about this discussion about
Speaker 3: different rates of growth among different income tursiles or third.
Speaker 1: So we look at.
Speaker 3: The bottom third, middle third, and top third American income
Speaker 3: people in the Bank of American customer base.
Speaker 1: We do see difference.
Speaker 3: Is I either higher income in middlecome are growing faster,
Speaker 3: but even the lower income third is still growing.
Speaker 1: And that's all good.
Speaker 3: And that means why is that true companies are employing
Speaker 3: people they're paying people now. The labor markets got a
Speaker 3: little soft, and as we look forward to a four
Speaker 3: point five four point six unemployment that is gotten worse,
Speaker 3: so to speak, than it was the beginning year.
Speaker 1: But frankly, this goes back to normalization question.
Speaker 3: If you look at the tenure average unemployment the twenty
Speaker 3: year to thirty year or forty year, it's five and
Speaker 3: six percent, you know, as you go back through time,
Speaker 3: and so a four and a half to four point
Speaker 3: six unemployment rate is a very strong relative unemployment rate.
Speaker 3: It's just a lot of years it's been below four
Speaker 3: and a half percent, has actually been in the last
Speaker 3: ten years. So people are very used to numbers now
Speaker 3: which were part of the tightness and labor in the
Speaker 3: twenty seventeen eighteen nineteen era, and you had the pandemic
Speaker 3: and it retightened, and so it's it's normalizing. But we
Speaker 3: feel good about all that, and the consumers in pretty
Speaker 3: good shape, spending more money, employed and earning more money,
Speaker 3: differences between different types of consumers and then being wise
Speaker 3: and how they spend if they trade down, and all
Speaker 3: the things you're hearing the retailers talk about. True, but
Speaker 3: the agurd amount of moving in the economy is still growing.
Speaker 2: So you mentioned flattening out in the employment growth. There
Speaker 2: are always risks to the upside and the downside, and
Speaker 2: any of the numbers that we project, how concerned are
Speaker 2: you let the downside, because certainly the FED is very
Speaker 2: focused on a softening a labor market and whether that
Speaker 2: may be a problem for us.
Speaker 3: So if you look at the predictions for our team
Speaker 3: and the other economists for unemployment, we're kind of peeking
Speaker 3: out at this level now, in the mid to four
Speaker 3: five four six range, and it sort of flattens out.
Speaker 3: But the FED has to be wary because they have
Speaker 3: a mandate to maintain full employment and we're at full
Speaker 3: employment now, and they have a mandate to main strip
Speaker 3: price stability and inflation fighting, and those two mandates can
Speaker 3: work together sometimes and against each other sometimes. Right now,
Speaker 3: we're in an unusual case where the labor market is
Speaker 3: getting has softened, and yet the inflation because of to
Speaker 3: build up inflation after COVID and stuff, is now still
Speaker 3: working its way down. Our team predicts that the inflation
Speaker 3: rate will get to the FEDCE target through the end
Speaker 3: of twenty seven, but it's continuing to work in the
Speaker 3: right direction, which gives the FED, in our view, latitude
Speaker 3: to keep cutting rates next year, especially in the first half.
Speaker 3: That will then provide a stimulus in the second half
Speaker 3: of the year. Those rate cuts do a benefit the
Speaker 3: consumer somewhat, but in fact benefit small businesses because in
Speaker 3: mid sized business they borrow on lines of credit, which
Speaker 3: are our floating rate into season. As rates come down,
Speaker 3: they get instantaneous benefit. And if you hear our small
Speaker 3: medium sized businesses, they're pretty optimistic about next year, telling
Speaker 3: us they expect to grow, they expect to hire more people,
Speaker 3: and those small businesses are backbone of the US economy.
Speaker 3: We're the largest small business letter in the US economy,
Speaker 3: so we see them being very active.
Speaker 2: This year has been good for the markets. It's also
Speaker 2: been good for back of America. I believe you hit
Speaker 2: an all time high in your stock price today intra
Speaker 2: day at least, what do you need in twenty six
Speaker 2: totinue the growth?
Speaker 3: Look, we just need our team that's done a great
Speaker 3: job for us over the last several decades.
Speaker 1: To keep doing it.
Speaker 3: And what they need to do is go out and
Speaker 3: get one more client and do one more thing with
Speaker 3: every client we have, and they know that across all
Speaker 3: of business, whether it's our markets teams, whether it's our
Speaker 3: global corporate investment bank teams, our consumer teams, are wealth
Speaker 3: managed teams, all of them need to go out and
Speaker 3: just drive more business and at a granite growth engine,
Speaker 3: which we described our Investor Day a while back, that
Speaker 3: is intact, it's been growing with the market and now
Speaker 3: because of some dynamics and a repricing and balance sheet,
Speaker 3: we'll get more earnings left out of it like we
Speaker 3: did in the third quarter. But that organic growth engine,
Speaker 3: more customers and war with each customers been driving a
Speaker 3: Bank of America, and our team just need to do
Speaker 3: more of that.
Speaker 1: And they know that.
Speaker 2: How sensitive is your performance at back of the RecA
Speaker 2: to what the Fed does on interest rates? I mean,
Speaker 2: if it actually cuts faster than people think or doesn't
Speaker 2: cut as fast.
Speaker 3: Look at the end of the day, if our team
Speaker 3: predicts and most of the economists out there predict that
Speaker 3: the Fed funds rate will go from where it is
Speaker 3: now down closer to three percent, and the debate might
Speaker 3: be two and three quarters three three in a quarter,
Speaker 3: but it's a debate that nominal rate environment from say
Speaker 3: three percent Fed funds rate to maybe a four to
Speaker 3: four and a half percent ten year treasury rate. That's
Speaker 3: a good normal interest rate curve where banks can do well,
Speaker 3: and our bank can do very well. We have a
Speaker 3: two trillion dollars of positis and a tradeon of those
Speaker 3: are low interest, low interest accounts, and if the nominal
Speaker 3: rate environment sits in around three percent, it's a very
Speaker 3: good environment for our company to grow it's earning streams
Speaker 3: while it's grown a customer and its balances and its
Speaker 3: deposits and loans.
Speaker 2: You originally had an investor's day and you went through
Speaker 2: in that your investment in tech, which as I recall
Speaker 2: is ten billion dollars over ten years, one billion dollars
Speaker 2: in this year alone. What did you get for that?
Speaker 2: How do you monitor the return on investment of that
Speaker 2: kind of tech investment?
Speaker 3: Yeah, So each year we have about thirteen billion dollars
Speaker 3: in total tech spending, about nine to ten nine or
Speaker 3: so of it is the running of thevironment, protecting the environment,
Speaker 3: and sort of what they call the infrastructure, both the
Speaker 3: systems and protecting those systems, and new software purchases about
Speaker 3: four billions what we call initiatives, and that's the new products,
Speaker 3: new services, the things my teammates love to talk about
Speaker 3: and what do we get for how do we measure?
Speaker 3: We literally look at every project we do and say,
Speaker 3: what's the payback in terms of additional revenue, additional expense
Speaker 3: or simplicit expense taken out of either reducing work or
Speaker 3: simplicity new systems environment.
Speaker 1: So we measured all that. It's got to be above
Speaker 1: our cost of capital.
Speaker 3: That's a technical way of measure, but what you really
Speaker 3: see is that deployment of lots of capabilities to help
Speaker 3: our customers do much greater things with AI, with agents
Speaker 3: and all the things working on but also our teammates
Speaker 3: to do great things.
Speaker 1: So this year we deployed our three sixty five co pitt.
Speaker 3: We'll finish the end of the year with two hundred
Speaker 3: thousand people up and operating on AI and it's just
Speaker 3: tremendous And that's all part of that major tech budget.
Speaker 3: But also as part of that is just the nuts
Speaker 3: and bolts of having a better trading system or enhancing
Speaker 3: that trading system our data. So that four billion plus
Speaker 3: a year is really important to drive the initiatives that
Speaker 3: we have as an innovation company.
Speaker 2: So we are in the early stages of AI, even
Speaker 2: though you've been doing at Bank of America for a while.
Speaker 1: Now, how far.
Speaker 2: Will this go for Bank of America? What will Bank
Speaker 2: of America look like five years down the road because
Speaker 2: of AI? How transformed will it become?
Speaker 3: Well, I think to answer that question, no one knows
Speaker 3: precisely for sure. But what you will know is we'll
Speaker 3: be applying more and more of automated intelligence or augmented
Speaker 3: intelligence as we call it, with a person using AI
Speaker 3: using that to be more effective, and that'll affect all
Speaker 3: the businesses. So if you look historically, we deployed AI
Speaker 3: more than five years ago with a product called Erica.
Speaker 3: Erica was a agent, bought a small language model, and
Speaker 3: all the words we use today back then we didn't.
Speaker 3: And over the last twenty four hours, Erica interfaced with
Speaker 3: two million Bank of America consumers and answer the questions.
Speaker 3: It went from two hundred questions that could answer about
Speaker 3: seven hundred question can answer about twenty million people use it.
Speaker 1: So we have great experience of how that worked.
Speaker 3: But what part of that experience was you have to
Speaker 3: have your data perfect, you have to have the controls
Speaker 3: around it, so answer the question right. So the customer
Speaker 3: is getting a good answer, and you have to be
Speaker 3: able to transmit that answer instantaneously on an inquiry across
Speaker 3: the one hundred systems that touch our mobile bank or
Speaker 3: digital banking out to the customers. So it's a lot
Speaker 3: harder to do.
Speaker 1: Now.
Speaker 3: The interesting thing is we took that Erica and we
Speaker 3: put it in our institutional side business, so cash pro
Speaker 3: with Erica and hundreds of thousands of interactions with institutional
Speaker 3: customers using it to answer questions about their accounts. Then
Speaker 3: you took it and put it in an internal environment
Speaker 3: so people could work with the IT department to get
Speaker 3: their laptops replaced or passwords change. So we use that
Speaker 3: model plus other models, and we believe it has a
Speaker 3: big impact. Where exactly it goes we'll figure out, but
Speaker 3: what we know there'll be more of it. It'll be
Speaker 3: helping people be smart and more efficient, help us take
Speaker 3: work out that we can get out and invest in
Speaker 3: work that helps our customers and our teammate be more successful.
Speaker 3: And we are after it every day, and we have
Speaker 3: thirty proofs of concept going. We have money we're spending
Speaker 3: and all that stuff, but a lot of this is
Speaker 3: really fairly controlled, right now to make sure that we
Speaker 3: can actually deliver what we say when we put a
Speaker 3: and I, we just can't let it run and have
Speaker 3: answers that customers won't have faith in. And that's why
Speaker 3: it'll be a little slower build out there, I think
Speaker 3: people see, but a very relentless build out.
Speaker 2: From your experience so far, and once you project out,
Speaker 2: when you look at the return on that investment AI,
Speaker 2: how much it's from growing the top line that is
Speaker 2: increasing revenue, and how much of it is from cost
Speaker 2: savings because of the use of AI.
Speaker 3: I think when you look at it in the very
Speaker 3: near term, it's mostly about process engineering, so embedding AI
Speaker 3: and the discrete process to take out work and that
Speaker 3: we've been doing for years for several years, so we
Speaker 3: see it. And before that we have machine learning and
Speaker 3: other digital digitization, and that was a capability that we built,
Speaker 3: but also the customer would use and that's an operative
Speaker 3: term here, as a customer has to use the use
Speaker 3: the techniques and things that we build. I think over
Speaker 3: time it'll be much more about enhancing the revenue side.
Speaker 3: And so if you look at our proofs to cons
Speaker 3: our projects going in and out proofs the concept, then
Speaker 3: more implemented. We have a relationship management preparation tools or
Speaker 3: pitch book preparation tools that allow us to do more
Speaker 3: faster turnaround, better preparation for meetings, better idea generation for
Speaker 3: meetings with clients, and we know that I will generate
Speaker 3: additional revenues. So there's equal parts revenue and expense in
Speaker 3: the last twenty four months, twelve months. You know it
Speaker 3: even go back to Erika starts three or four or
Speaker 3: five years ago. Whatever it started, it was more about
Speaker 3: removing tasks and costs. I think that's moving because people
Speaker 3: are getting more comfortable with this ability to answer questions
Speaker 3: and help them prepare for a meeting with a client,
Speaker 3: and you know what they need to think about, whether
Speaker 3: it's a wealth manager client or a commercial banking client.
Speaker 2: Including banking. Going beyond that in general to our economy,
Speaker 2: because AI appears to be being transformed, and goodness dooes,
Speaker 2: there's hundreds of billions of dollars being invested. Can we
Speaker 2: get the return investment as an economy without cutting a
Speaker 2: lot of jobs.
Speaker 3: I think the question will be, you know how fast
Speaker 3: the jobs will grow around and the new jobs are
Speaker 3: growing to shift of jobs, So if you look, in
Speaker 3: the last fifty years or so, we had a lot
Speaker 3: of technology come in, and we have twice as many
Speaker 3: people work in the US and we did fifty five
Speaker 3: years ago. So think about David, in our lifetimes, what
Speaker 3: we've seen. You know, we've seen the desktop computer, to
Speaker 3: the laptop computer, to the phone as a computer, et cetera.
Speaker 3: And think of all that technology coming in and we
Speaker 3: employed twice as many people. So the question will be, well,
Speaker 3: you have more people doing different types of jobs. And
Speaker 3: so my advice to myself and my advice to my
Speaker 3: teammates is simple, learn it, harness it, make it your
Speaker 3: agent to help you be more successful. And yes, does
Speaker 3: it change the human content of work in areas like
Speaker 3: finance and audit and legal that we hadn't done it before. Yes,
Speaker 3: But the people use it effectively will be able to
Speaker 3: do more and generate more revenue and then potentially generate
Speaker 3: more jobs out there because people there are more people
Speaker 3: are the more money, spending more money. America is making
Speaker 3: more money. It should all be good, but it's going
Speaker 3: to be an interesting transition.
Speaker 2: Brian As, CEO of Bank of America. An important part
Speaker 2: of your job, maybe the most important part is managing risk,
Speaker 2: upside risk, downside risk. As you look at the risks
Speaker 2: out there, how do you manage, if at all, for
Speaker 2: the risk that in fact we're over investing in AI
Speaker 2: as an economy.
Speaker 1: Well, I think it's an economy.
Speaker 3: The issue would be if it got overheated and it retracted,
Speaker 3: what would the impact flow for us as a company
Speaker 3: more into consumers, job loss, things like that. And right
Speaker 3: now we see that as being relatively limited because it's
Speaker 3: a narrow a group of companies and there a group
Speaker 3: of spending and the companies are spending and have a
Speaker 3: lot of money. As a lender, we look at the
Speaker 3: leverage on these projects and make sure that we're comfortable
Speaker 3: that in the duration of the contract by the person
Speaker 3: who's going to commit to use the data the data
Speaker 3: center and therefore that's the revenus room. You think about
Speaker 3: the tenant, for lack of a better term, the quality
Speaker 3: that tenant, the link to that tenant.
Speaker 1: Those are dishes. So we look at all that.
Speaker 3: It's the market valuations, you know, our team thinks that
Speaker 3: you'll see, you know, you could could see a debate
Speaker 3: about the over whether the AI stalks are overvalued undervalued.
Speaker 3: Our team talks about that, but what people are forgetting
Speaker 3: is there's a lot of other companies are coming in
Speaker 3: and producing more and more earnings growth. At the end
Speaker 3: of the day, the earnings growth is what will drive
Speaker 3: the market, and so it may move around. But as
Speaker 3: Chris Heise, our teammates, has said on your UH Blueberg
Speaker 3: and other places, you know it's a proud bull. He
Speaker 3: thinks you know that it's a The market ahead is
Speaker 3: very constructive and our team has you know, a mid
Speaker 3: single digit S and P growth predicted for next year.
Speaker 2: So, Brian, one last question is we head into the
Speaker 2: holidays and into the new year, what's the biggest upside
Speaker 2: risk that you see in the new year.
Speaker 3: Well, I think the risk is that the upside put
Speaker 3: potential is for the series of policies that have come
Speaker 3: out taxation, UH, trade and tariff, immigration and deregulation. I
Speaker 3: think the biggest one is still yet to come for
Speaker 3: businesses a deregulation piece and it's falling into place, and
Speaker 3: if that works the right way, then you'll see the
Speaker 3: US kick another level of potential growth. And when the
Speaker 3: US kicks and growth, the world will have growth. Because
Speaker 3: the end of the day, our economy is the biggest
Speaker 3: economy with the biggest consuming economy, and so if our
Speaker 3: if our citizens are employed, working and earning more money,
Speaker 3: that's good for the world.
Speaker 2: Is there any downside at all because of the uncertaint
Speaker 2: about policy because it's moved around a bit.
Speaker 3: There has been a lot this year, honestly, and if
Speaker 3: you talk to our small business customers for example, and
Speaker 3: the most recent surveys, they're now getting an understanding how
Speaker 3: the tariffs are going to affect them. It took a
Speaker 3: while for them to settle in and they can see
Speaker 3: the ten fifteen to twenty percent level and they're adjusting
Speaker 3: for their adjusting supply chains. That's still work going on,
Speaker 3: and the ability to pass through those costs and things
Speaker 3: like that is coming through the system now. Their biggest worry,
Speaker 3: what they tell us, is to get employees, and that
Speaker 3: has a bit to do with settling in on the
Speaker 3: immigration policy. And it's sort of getting more precise in
Speaker 3: the minds of a small business owner a mid sized company,
Speaker 3: can I have the labor availability that I need? And
Speaker 3: so that issue I think is straightening out as the
Speaker 3: precision of the work on immigration policy continues through, you know,
Speaker 3: and that was probably more on the minds this year
Speaker 3: as that settles in and the trade policies have settled
Speaker 3: in during the course of the summer. I think they're
Speaker 3: feeling better about understanding them, and they still have to
Speaker 3: make some adjustments, but they're feeling better about understanding them.
Speaker 2: Brian, as many a US head a new break, I
Speaker 2: hope you and your colleagues have a wonderful holiday. Thank
Speaker 2: you so much for being with us. That is Brian Moneyhand.
Speaker 2: He is chair and CEO of Bank of America. Back
Speaker 2: to you.