1 00:00:02,520 --> 00:00:09,320 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. CEO Brian moynihan is 2 00:00:09,320 --> 00:00:12,119 Speaker 1: holding an investor day this week, its first in almost 3 00:00:12,160 --> 00:00:16,560 Speaker 1: fifteen years. Moynihan describes the firm strategy as quote responsible growth, 4 00:00:16,800 --> 00:00:18,920 Speaker 1: and now some analysts are wondering if that montral will 5 00:00:18,920 --> 00:00:22,000 Speaker 1: be enough to satisfy investors. One of those analysts Mike Mayo. 6 00:00:22,280 --> 00:00:24,560 Speaker 1: He is head of US large cap Bank Research at 7 00:00:24,560 --> 00:00:27,480 Speaker 1: Wells Fargo Securities, and last week he was named number 8 00:00:27,480 --> 00:00:30,000 Speaker 1: one large bank All Star Analysts for a sixth straight 9 00:00:30,080 --> 00:00:32,839 Speaker 1: year by the Exto Poll and Mike joins us out Mike, 10 00:00:32,920 --> 00:00:33,559 Speaker 1: great to see. 11 00:00:33,360 --> 00:00:36,240 Speaker 2: You, Thanks for having me so responsible. 12 00:00:35,600 --> 00:00:37,599 Speaker 1: Growth, that's the state of strategy. Has it just run 13 00:00:37,640 --> 00:00:40,159 Speaker 1: its natural course? And he's extracted all he can from 14 00:00:40,200 --> 00:00:40,840 Speaker 1: that idea. 15 00:00:40,920 --> 00:00:41,959 Speaker 2: Well, you have to understand. 16 00:00:42,040 --> 00:00:45,160 Speaker 3: CEO Brian Mornahan, a Bank of America took over after 17 00:00:45,200 --> 00:00:48,640 Speaker 3: the global financial crisis and his main job was to 18 00:00:48,680 --> 00:00:52,360 Speaker 3: steady the shit. I think Bank of America under Brian 19 00:00:52,400 --> 00:00:56,760 Speaker 3: Mornahan have been great risk managers, but this decade they've 20 00:00:56,800 --> 00:00:58,600 Speaker 3: not been great risk takers. 21 00:00:58,800 --> 00:01:00,000 Speaker 2: So I expect. 22 00:00:59,720 --> 00:01:02,440 Speaker 3: Them to to lean in more to the growth part 23 00:01:02,680 --> 00:01:04,960 Speaker 3: of their responsible growth theme. 24 00:01:05,360 --> 00:01:05,679 Speaker 2: Got it? 25 00:01:05,760 --> 00:01:08,839 Speaker 1: Okay, So Bank of America's argument is that it's working 26 00:01:08,840 --> 00:01:10,959 Speaker 1: on it's catching up right now, it's already made clear 27 00:01:10,959 --> 00:01:12,840 Speaker 1: that in that interest income will be up six to 28 00:01:12,920 --> 00:01:16,400 Speaker 1: seven percent at the end of twenty twenty five. What 29 00:01:16,440 --> 00:01:18,640 Speaker 1: do you hope to hear from via base management when 30 00:01:18,640 --> 00:01:21,000 Speaker 1: they discuss all these targets on Wednesday? 31 00:01:21,280 --> 00:01:24,520 Speaker 3: Well, I think the most important target is what do 32 00:01:24,560 --> 00:01:27,560 Speaker 3: you expect to have for returns? Bank of America has 33 00:01:27,600 --> 00:01:32,440 Speaker 3: a premium franchiser number two in US, retail number two, 34 00:01:32,640 --> 00:01:36,000 Speaker 3: and wealth management top five global investment bank. 35 00:01:36,080 --> 00:01:37,280 Speaker 2: That's really good stuff. 36 00:01:37,720 --> 00:01:40,840 Speaker 3: So why have there returns only been fourteen percent this decade? 37 00:01:40,880 --> 00:01:45,279 Speaker 3: So I'm looking for a new return target of about 38 00:01:45,319 --> 00:01:46,720 Speaker 3: sixteen to eighteen percent. 39 00:01:47,240 --> 00:01:48,800 Speaker 2: So how they get there and how. 40 00:01:48,640 --> 00:01:50,720 Speaker 3: They put some meat on the bones for those growth 41 00:01:50,720 --> 00:01:52,880 Speaker 3: strategies will be very important this Wednesday. 42 00:01:53,080 --> 00:01:54,000 Speaker 2: Okay, that makes sense. 43 00:01:54,040 --> 00:01:56,600 Speaker 1: And you're referring to the return on tangible common equity 44 00:01:57,040 --> 00:02:01,080 Speaker 1: and right now they've set a target a guess of 45 00:02:01,240 --> 00:02:03,640 Speaker 1: the high teens. It's currently around No. 46 00:02:03,560 --> 00:02:05,640 Speaker 3: They currently Bank America, I don't know of them to 47 00:02:05,680 --> 00:02:08,079 Speaker 3: have any targets. So first of all, let's hear a target. 48 00:02:08,160 --> 00:02:10,160 Speaker 1: Oh excuse me, analysts are expecting something. 49 00:02:10,760 --> 00:02:14,120 Speaker 3: Okay, So yeah, so I think sixty to eighteen percent 50 00:02:14,200 --> 00:02:16,800 Speaker 3: seems reasonable, But it's really how are they're going to 51 00:02:16,840 --> 00:02:19,800 Speaker 3: get there is what's going to be important. And I 52 00:02:19,840 --> 00:02:23,760 Speaker 3: think when it comes to traditional banking deposit taking, Bank 53 00:02:23,800 --> 00:02:27,360 Speaker 3: of America has excelled, but for being such a strong bank, 54 00:02:27,360 --> 00:02:31,080 Speaker 3: they've underperformed in terms of growth of the less traditional 55 00:02:31,160 --> 00:02:36,480 Speaker 3: activities wealth management, credit cards, banking, trading, even total loan 56 00:02:36,520 --> 00:02:39,560 Speaker 3: growth the last fifteen years has lagged at Bank of America. 57 00:02:39,639 --> 00:02:43,440 Speaker 3: So there's no skill in never taking risk. You don't 58 00:02:43,440 --> 00:02:45,520 Speaker 3: want them going back to two thousand and seven when 59 00:02:45,560 --> 00:02:49,320 Speaker 3: they took too much risk. So this has been a 60 00:02:49,400 --> 00:02:52,919 Speaker 3: risk off company in a risk on year. To explain 61 00:02:52,960 --> 00:02:54,799 Speaker 3: this dock Rice, So I expect them to have more 62 00:02:54,840 --> 00:02:58,040 Speaker 3: of an opportunistic risk mindset going forward. 63 00:02:58,200 --> 00:02:59,959 Speaker 1: You've mentioned the areas where they have room to grow, 64 00:03:00,000 --> 00:03:02,480 Speaker 1: Where's it already strong, Where's it you know, kind of 65 00:03:02,520 --> 00:03:04,600 Speaker 1: delivering already to the to the way that it can 66 00:03:04,680 --> 00:03:05,639 Speaker 1: the maximum that it can. 67 00:03:05,840 --> 00:03:09,040 Speaker 3: Well, wow, I mean Bank of America's one trillion dollars 68 00:03:09,120 --> 00:03:10,279 Speaker 3: or retail deposits. 69 00:03:10,760 --> 00:03:12,480 Speaker 2: I mean that's those. 70 00:03:12,320 --> 00:03:16,040 Speaker 3: Customers really love the service and they have connections with 71 00:03:16,639 --> 00:03:20,080 Speaker 3: you know, automatic bill pay and you know all sorts 72 00:03:20,120 --> 00:03:23,800 Speaker 3: of interactions. They've had three billion interactions with their Erica 73 00:03:23,919 --> 00:03:27,160 Speaker 3: chatbot for the past decade. Talked about AI. So that's 74 00:03:27,240 --> 00:03:29,959 Speaker 3: really working the bread and butter, the raw materials of 75 00:03:29,960 --> 00:03:33,320 Speaker 3: a bank or deposits, that's worked really well. The challenge 76 00:03:33,360 --> 00:03:36,160 Speaker 3: and opportunities to leverage those relationships to do more. 77 00:03:36,280 --> 00:03:39,280 Speaker 1: Okay, are we going to get any kind of insight 78 00:03:39,320 --> 00:03:41,640 Speaker 1: into succession planning at Bank of America? They're going to 79 00:03:41,680 --> 00:03:43,880 Speaker 1: showcase some senior executives below the ceochier. 80 00:03:43,880 --> 00:03:45,600 Speaker 2: According to our reporting, well. 81 00:03:45,640 --> 00:03:48,480 Speaker 3: Up the drama and the bars low for bank analysts. Okay, 82 00:03:48,520 --> 00:03:51,720 Speaker 3: that doesn't take much to have some drama. But they 83 00:03:51,840 --> 00:03:55,960 Speaker 3: recently named two co presidents, Dean and Jivvy as we 84 00:03:56,000 --> 00:03:58,920 Speaker 3: know them colloquially. It'll be the first time we get 85 00:03:58,960 --> 00:04:01,640 Speaker 3: to see those two individuals in their new roles, and 86 00:04:01,680 --> 00:04:05,360 Speaker 3: they're overseeing jointly Bank of America's eight lines of business. 87 00:04:05,360 --> 00:04:07,840 Speaker 3: So the question is how are they going to instill 88 00:04:08,280 --> 00:04:12,840 Speaker 3: extra intensity, growth and accountability. 89 00:04:12,040 --> 00:04:13,320 Speaker 2: To those eight lines of business? 90 00:04:13,400 --> 00:04:15,720 Speaker 3: And so it could be one of those two Alistair 91 00:04:15,760 --> 00:04:20,560 Speaker 3: the CFO is you qualif very capable CFO so I'd 92 00:04:20,560 --> 00:04:23,280 Speaker 3: say those it's a three person horse race to become 93 00:04:23,279 --> 00:04:25,560 Speaker 3: who the next CEO, and this will be a chance 94 00:04:25,600 --> 00:04:28,680 Speaker 3: to the investment world to you analyze them. 95 00:04:28,760 --> 00:04:30,880 Speaker 1: So is it overstating things to say that this investor 96 00:04:30,960 --> 00:04:32,760 Speaker 1: day is crucial to be a base future? 97 00:04:33,360 --> 00:04:33,520 Speaker 2: You know? 98 00:04:33,600 --> 00:04:35,240 Speaker 3: I think this is the right time for Bank of 99 00:04:35,240 --> 00:04:37,719 Speaker 3: America's investor Day. It's the first one in fifteen years. 100 00:04:38,279 --> 00:04:40,800 Speaker 3: So what is Bank America's plan from now to the 101 00:04:40,880 --> 00:04:42,720 Speaker 3: end of the decade. How are they going to improve 102 00:04:42,720 --> 00:04:45,560 Speaker 3: their growth, how are they opportunistically going to take risk, 103 00:04:45,600 --> 00:04:48,320 Speaker 3: how are they going to improve their returns? And lastly, 104 00:04:48,360 --> 00:04:51,480 Speaker 3: with this world and their experience with AI and technology, 105 00:04:51,760 --> 00:04:53,960 Speaker 3: how are they going to improve their efficiency? This would 106 00:04:53,960 --> 00:04:56,440 Speaker 3: be one of the most efficient banks on the planet 107 00:04:56,920 --> 00:04:58,719 Speaker 3: with all the tech and AI that they've done, So 108 00:04:58,760 --> 00:05:00,719 Speaker 3: that'll be really interesting to hear. All right. 109 00:05:00,800 --> 00:05:03,320 Speaker 1: I also want to get your take on Citygroup because 110 00:05:03,839 --> 00:05:07,480 Speaker 1: you have recently objected to the CEO and now Chairman 111 00:05:07,560 --> 00:05:11,240 Speaker 1: Jane Fraser's her retention bonus. You call it the latest 112 00:05:11,240 --> 00:05:14,120 Speaker 1: example of the firm paying in excess. So this is 113 00:05:15,080 --> 00:05:18,480 Speaker 1: a company problem or a culture problem at City Group. 114 00:05:19,680 --> 00:05:22,760 Speaker 3: This is a twenty five year old problem at City Group. 115 00:05:22,839 --> 00:05:27,880 Speaker 3: City Groups CEOs have made a think over four hundred 116 00:05:27,880 --> 00:05:30,280 Speaker 3: million dollars in the last twenty five years, when the 117 00:05:30,320 --> 00:05:32,960 Speaker 3: stock price has gone down three fourths and the stock 118 00:05:33,000 --> 00:05:35,760 Speaker 3: market's gone up three x. So I've written about that. 119 00:05:35,800 --> 00:05:38,360 Speaker 3: I wrote that in my book Exil on Wall Street. 120 00:05:38,400 --> 00:05:42,120 Speaker 3: I talked about it when I testified to the inquiry 121 00:05:42,160 --> 00:05:45,520 Speaker 3: commissions related to the financial crisis. And I'd say, in 122 00:05:45,560 --> 00:05:48,200 Speaker 3: the case of Jane Fraser at City Group, Citygroup is 123 00:05:48,240 --> 00:05:49,600 Speaker 3: my first, second and third top fix. 124 00:05:49,720 --> 00:05:52,120 Speaker 2: So I love City Stock, and you love what they've 125 00:05:52,120 --> 00:05:53,000 Speaker 2: been doing, and I. 126 00:05:53,000 --> 00:05:55,000 Speaker 3: Love what Jane Fraser's been doing, and I think they're 127 00:05:55,000 --> 00:05:55,719 Speaker 3: going to succeed. 128 00:05:55,960 --> 00:05:56,919 Speaker 2: But I might be wrong. 129 00:05:57,040 --> 00:05:58,760 Speaker 3: And if I'm wrong, guess what, I'm probably going to 130 00:05:58,760 --> 00:06:01,200 Speaker 3: make a lot less. I think Jane Fraser should make 131 00:06:01,240 --> 00:06:03,760 Speaker 3: less too. She shouldn't get a retention bonus now, at 132 00:06:03,880 --> 00:06:07,200 Speaker 3: least until they get double digit returns, at least until 133 00:06:07,560 --> 00:06:10,239 Speaker 3: the regulatory content order is lifted, or at least. 134 00:06:10,120 --> 00:06:12,400 Speaker 2: Let the year end. So I just thought that was 135 00:06:12,839 --> 00:06:13,720 Speaker 2: at best. 136 00:06:13,520 --> 00:06:16,479 Speaker 3: Premature to give her a retention bonus at this time, 137 00:06:16,560 --> 00:06:20,120 Speaker 3: even while I think this is a generational change in 138 00:06:20,160 --> 00:06:21,359 Speaker 3: how city conducts business. 139 00:06:21,480 --> 00:06:23,920 Speaker 1: Okay, so you don't object to her ascension to chair 140 00:06:24,600 --> 00:06:26,320 Speaker 1: of a city room or anything like that. It's just 141 00:06:26,400 --> 00:06:29,000 Speaker 1: kind of the pre payment of everything first. 142 00:06:29,520 --> 00:06:32,960 Speaker 3: Absolutely, and this again, this city has a long history. 143 00:06:33,400 --> 00:06:36,440 Speaker 3: They implicitly failed five times the last century. I write 144 00:06:36,480 --> 00:06:38,679 Speaker 3: about this my book. I write in my book about 145 00:06:38,680 --> 00:06:42,320 Speaker 3: their poor, you know, pay for performance practices. So I 146 00:06:42,400 --> 00:06:45,080 Speaker 3: literally when I put out a note about Jane Fraser 147 00:06:45,120 --> 00:06:46,680 Speaker 3: the recent retention bonus. 148 00:06:46,560 --> 00:06:48,839 Speaker 2: I literally quoted my book. 149 00:06:49,200 --> 00:06:51,000 Speaker 3: And here we are fifteen years later with some of 150 00:06:51,080 --> 00:06:54,720 Speaker 3: these same bad practices. Now I understand it because she's 151 00:06:54,920 --> 00:06:58,039 Speaker 3: probably the best CEO they've had, you know, in the 152 00:06:58,160 --> 00:07:02,600 Speaker 3: new since the merger nineteen ninety eight, but she still 153 00:07:02,640 --> 00:07:04,240 Speaker 3: has to deliver. It's kind of like you see someone 154 00:07:04,279 --> 00:07:06,240 Speaker 3: in the gym and they're training really well and they're 155 00:07:06,240 --> 00:07:07,919 Speaker 3: doing push ups and STIPs, but when it comes to 156 00:07:07,960 --> 00:07:09,680 Speaker 3: game time, they actually to deliver. 157 00:07:09,800 --> 00:07:12,160 Speaker 2: Next year is when they have to deliver, you know. 158 00:07:12,760 --> 00:07:15,200 Speaker 1: Going back, you look at Jane Fraser. Her background is 159 00:07:15,240 --> 00:07:18,320 Speaker 1: as a management consultant at McKenzie and James Gorman was 160 00:07:18,360 --> 00:07:22,200 Speaker 1: also a management consultant, and he basically turned around Morgan 161 00:07:22,280 --> 00:07:25,520 Speaker 1: Stanley our management consultants maybe better at running these big 162 00:07:25,560 --> 00:07:27,640 Speaker 1: banks than most bankers stop. 163 00:07:28,440 --> 00:07:29,680 Speaker 2: It's not one size fits on. 164 00:07:29,880 --> 00:07:32,680 Speaker 3: As for those that remember, I mean I said the 165 00:07:32,720 --> 00:07:35,520 Speaker 3: same thing about Morgan Stanley early last decade. There were 166 00:07:35,640 --> 00:07:38,160 Speaker 3: my three top picks, Morgan Stanley, Morgan Stanley. 167 00:07:37,960 --> 00:07:38,480 Speaker 2: Morgan Stanley. 168 00:07:38,480 --> 00:07:40,280 Speaker 3: You have the clips on Bloomberg and you look it up, 169 00:07:40,480 --> 00:07:43,240 Speaker 3: and everyone said, James Gorman wasn't a banker, wasn't a trader. 170 00:07:43,240 --> 00:07:45,520 Speaker 3: He's a consultant. Forget about him. And then all of 171 00:07:45,560 --> 00:07:48,480 Speaker 3: a sudden, you know, be walked on water by the 172 00:07:48,480 --> 00:07:51,560 Speaker 3: time he left, and you've had some bagged consultants who 173 00:07:51,560 --> 00:07:54,920 Speaker 3: became CEOs too. But I think Jane Frasier, she has 174 00:07:55,080 --> 00:07:59,280 Speaker 3: a great blueprint, architectural blueprint for how to run city 175 00:07:59,440 --> 00:08:01,920 Speaker 3: for the next twenty five years with the five lines 176 00:08:01,960 --> 00:08:04,640 Speaker 3: of business and holding the five CEOs those line of 177 00:08:04,680 --> 00:08:08,040 Speaker 3: business accountable. So it's a simple but powerful move that 178 00:08:08,320 --> 00:08:11,920 Speaker 3: people underappreciate. So I think that's a game changer for 179 00:08:12,000 --> 00:08:15,120 Speaker 3: how city is going to perform and execute the next 180 00:08:15,120 --> 00:08:15,560 Speaker 3: few years.