Brian Moynihan

0:00Hiscox Small Business Insurance knows there is no business like your business. Across America, over 600 ,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscox Insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com. There's no business like small business. Hiscox Small Business Insurance. One of the largest and most respected banks in the world is Bank of America. For the past 15 years, it's been led by its CEO, Brian Moynihan. I had a chance to sit down with him recently to talk about the new environment in Washington, low interest rates, and the impact on the banking community.

0:48And Davos, you were asking a question of President Trump, and he didn't quite answer the question, and he asked you a question. So the question he asked you was something like, why are you not banking certain groups? What is the answer? I don't think he gave you a chance to really answer that question, but what is the answer to that question? Well, first off, the Bank of America has 70 million consumer customers and millions of small businesses all over the country, all over the world. And so we bank everybody. But the real question was about overregulation, frankly. And so as you look, what's happened is because the interpretations of AML, anti-money laundering, BSA, Bank Secrecy Act, KYC, know your customer, know your customer's customer, there's a lot of burden upon the banking system to both report suspicious activity reports and do a lot of analysis, and we have to close accounts, and we can't tell people why we did it.

1:48And often we're told by authorities to close accounts. That creates confusion. Another area comes up in this discussion is in the crypto area where the regulators said you can't bank crypto operating companies, employees of crypto companies, et cetera. We bank everybody. So at the end of the day, it's about getting these regulations right. And I think it opens a dialogue about how to get these regulations correct. At the end of the day, we're open for everybody. We serve millions and millions of Americans, trillions of transactions a year, and we're committed to do so. Okay. So when this administration was elected, there was a lot of, I would say, jubilation in the streets.

2:21the banking world. People thought that the banking regulation had been too tough under President Biden. Some people thought that regulation would be more amenable to banks. Has that turned out to be the case yet, or is it still too early to know? And is the banking community happy with the direction that the current administration is going, or you just don't know yet? If you think about the great financial crisis and Dodd-Frank and a lot of capital rules and liquidity rules and all that stuff came in, there was a reason for the world writ large to be really not happy with banks and non-banks that became banks, Goldman Sachs, Morgan Stanley, Merrill, et cetera.

2:56So you could understand that. When you go fast forward through the 15 years hence, plus you go through the pandemic and the banking system stands up and stabilizes the economy. You go through the regional banking crisis, the banking system steps up and stabilizes it, and they keep adding capital and liquidity. You're sort of saying, wait a second, We are a source of strength. And by the way, the American bank industry is really a source of strength. So the pendulum kept just swinging, even though the reason why it had swung had stopped. And so our industry would say, wait a second, why are we have 20 % more capital we did during the pandemic?

3:29The risk is the same. It's just by mathematical creep of calculations. So many people, when they talk about the Federal Reserve, they wonder whether the Fed's going to increase interest rates or decrease interest rates. but in the banking community, you're often worried about the stress tests. Right. And do you think the Fed has pushed stress tests to too tough a limit on banks, or are you okay with the current stress tests? So the stress tests are publicly available. I think the first one was 2010 and then picked up in earnest 11 or 12. So every year you can see this report card on the bank industry's health, and every year the bank industry has great health.

4:06The rules kept changing in the test. So if you think of the last four or five years, you had volatility and capital requirements that went from 50 to 75 basis points up and down a year. With basically a test that said 10 % employment, 50 % downturn in the equity markets, 30 % drop in housing, 30 or 40 % drop in commercial real estate, high yield spreads blown out by 1 ,000, 2 ,000 basis points, whatever it was. You look at all that, the same test produces different results. It didn't make sense. So behind the scenes, the transparency wasn't there, and that's what we ended up suing them on. So the stress tests are a very good thing.

4:43Frankly, it gives us state of health for 31 banks, which cover most of the industry. The way the United States runs them is far superior. We do stress tests every quarter, multiple scenarios, and our trading book is stressed every day. So if you think about it, it's a good thing. It's just that behind the scenes, what was happening is the dials were being turned on us, and the numbers were becoming irrational to the market, and we have investors, and we have to raise capital and have capital available for the industry. So there was somebody, there was a vice chairman of the Federal Reserve who was in charge of regulating the banks and so forth.

5:13That person has given up that position recently. And was that something the banking community was happy with, that he stepped aside, or you didn't really care whether he stepped aside or not? Well, at the end of the day, I think he had a year left on his term, and the new administrative president would appoint someone for that position. You know, look at the end of the day, as when people always ask me, do you have different approaches for different administrations? And you say, well, in the long term, we've been around since Washington was president. So if we geared ourselves up for this president, not that president, we'd have to change 45 times or whatever it is.

5:48And if you think even I'm in the foreign soil, think how many different prime ministers there's been in England or, you know, so even in my tenure as CEO. So at the end of the day, you run the company the right way. and what we're trying to say is get us to rational regulatory structure and have it stick to the ribs. If you keep swinging like this, our clients can't depend on us when they need us. So recently, another banker you probably heard of, Jamie Dimon, and he testified on Capitol Hill that maybe the regulators and Congress should get together and say, let's just start afresh and take a look at all the banking regulations from a fresh perspective, building from scratch.

6:27Do you have a comment on that? Is that a good idea? Just take the Consumer Bureau. In 2010, with Dodd-Frank, 10 or 11, they set up the Consumer Bureau. The theory was that all the consumer regulatory activity would move to a new agency. Guess what? We still have the OCC regulated consumer activity. We still have the Fed regulated consumer activity. We still have the FTC with consumer activity on occasion. And you have the Consumer Bureau. And if you have the FDIC as a regulator, you have the FDIC. You're regulated by the Federal Reserve, the FDIC, the Comptroller Currency. So do you spend a lot of time with the regulators or do you try to avoid that?

7:02I'd like to spend time when they're telling us we're doing good stuff. We all spend a lot of time, and I have a great chief risk officer in Jeff Greener who organized that for the company. All my senior executives spend time with them. And look, the day-to-day regulators are trying to help us be better, and we understand that. We are on the road to perfection as a company. And as Vince Lombardi said, you strive for perfection, excellence we found. That's what we're trying to do. If they've got ideas, we're all ears. simplifying the organization will allow, frankly, cost to be taken out from the regulatory side, and we pay fees to support it.

7:34And it wouldn't be the worst idea. Now, when interest rates go up, the theory is that banks can charge more for loans, and therefore they're more profitable. And banks have been very profitable in recent years. When interest rates go down, is that a concern to banks because you have less profitability, or you really don't care? Well, the toughest time to be a bank with a trillion, $2 trillion of deposits is when interest rates are zero because we can't charge people to store their money. We're not like a self-storage unit or something like that. So the end of the day, you have a floor on interest rates.

8:10And so when interest rates came down, you started squeezing margins. So the loan rates came down, but the deposit rates have a zero floor. When rates move up, that changes. And so the zero interest checking accounts and all that stuff become worth more and the loan rates go up. As interest rates come down, though, it's not going to affect your profitability? Not a lot because you have... Right. So you don't want Jay Powell's job, it sounds like. But suppose he called you and said, should I increase interest rates, decrease interest rates, or hold them the same? What would your advice be? Our team right now basically says there'll be no further rate cuts through their forecast period, which is this year and next year.

8:50Inflation is coming down, but it's a bigger fight. And the other day, there's the dual mandate, employment, inflation, employment. They're in great shape on. Inflation, it's been coming down. It's working its way down. It takes multiple years to squeeze inflation out. And there's a drag on the economy today. And so you're seeing economic growth from 3 % in the last couple quarters to 2%. We have it moving down to 2%. Our expectation is they won't cut rates. So let me ask you, the business that my firm has been in is private equity, but now private equity firms have become private credit firms as well.

9:20And private credit firms, they lend money, but they're not regulated quite the way you are. So is that a source of concern that we can lend money and we're not as highly regulated as you are, and you're lending money, but you're highly regulated? You know, I think I care about your firm. Look, at a day, the private capital has grown because they can do something we can't along a couple dimensions. One is they can finance companies that may have more leverage. And we are basically stopped out at six times leverage. And that used to be a rule, then it was taken back, then it was guidance, and then it was like, wait till we examine you.

10:03And we do go above it for certain credits and stuff like that. That's one thing. The second thing is the ability to bring the whole capital structure, debt, equity, mezzanine, the whole nine yards. That's hard for a bank because we don't engage in equity business. But on top of that, we have a trillion dollars of commercial loan commitments, a half a billion plus of drawn loans. We don't fear any competitor. And we work with those companies, including yours, to generate assets for them. But it's just a different style. I think the world should be concerned to make sure that those enterprises making loans to a billion-dollar operating company have the ability to work with them in times of stress.

10:40That's going to be an interesting question. We haven't gone through a stress period with this. Hiscock Small Business Insurance knows there is no business like your business. Across America, over 600 ,000 small businesses, from accountants and architects to photographers and yoga instructors, look to Hiscock's insurance for protection. Find flexible coverage that adapts to the needs of your small business with a fast, easy online quote at Hiscox.com. That's H-I-S-C-O-X dot com. There's no business like small business. Hiscox Small Business Insurance. Let's talk about your background. I am an only child.

11:17You have how many siblings? Seven. Seven. So, you know, growing up with eight people in the family, wasn't that crowded at times? I was set up to get my own bedroom for the first time in my life and my younger brother decided he wanted to move in the bedroom because he was scared to sleep alone. Probably when I was in college, it was the first time I ever had a bedroom to myself. So yes, it was crowded. So what did your father do to support eight children? Was he in private equity or something important like that? He was a research chemist for DuPont. And so he spent his whole life on plastic.

11:54So the graduate, you know, plastics young man, my dad was that. So you grew up in Ohio? Yeah. And then you went to college in the East Coast at Brown? Yes. And you were the co-captain of the rugby team? Yes. And do you still play rugby or not so much? I played rugby at Brown, I played rugby at law school, and I played rugby after. It's a great sport. It is, in a way, the most intense. It looks like this organization out there is extremely organized. But it's unique in that it's physical and tackling. You kick, you run, everybody gets to handle the ball. and you run for 80 minutes. And so it's a very demanding game.

12:29It was a lot of fun. Okay. So now you are the chancellor of Brown University, which means the chairman of the board, essentially. So how do you have time for that? Well, I've been on the board for 15 years. And at the end of the day, the chair of a board, Chris Paxson, runs the university, does a spectacular job. After you graduated from Brown, you went to law school at Notre Dame? Yes, sir. Then you went to practice law back in Rhode Island. You're from Ohio. You went to Notre Dame and the Midwest. Why did you go back to Rhode Island? Well, none of the Boston law firms would hire a person from Notre Dame Law School.

13:01So I had... Oh, okay. So I ended up at a great law firm and had a great, short legal career there. How did you escape from being a corporate lawyer? What did you do? One of my mentors is named Terry Murray, who ran Fleet. And I did corporate law, a lot of work I did for Fleet. And then Terry, after we did a transaction called the Bank of New England transaction with KKR put money into the bank industry and we bought the bank in New England, meaning Fleet bought the bank in New England from the federal government in the early 90s after the real estate crisis. I'd structured that deal in a way that I'd structured private equity deals for our bank private equity firm, which was a thing called dual convertible pervert stock.

13:40It converted into parent company stock or bank stock. Never been done in the public array. Terry said to the general counsel, he's too smart to be a lawyer, which I never figured out what the general counsel thought about, who was a brilliant guy. And he said, get him in here, and we'll figure out if he's going to do something. Went to work at Fleet, which is headquartered in Rhode Island. Yeah, I just went to work for Fleet. And I was deputy general counsel for like three months, and then went on a special project to re-engineer the company and became that. And Fleet ultimately merged with Bank Boston.

14:05That was the last deal I did. I was the head of M &A and strategy, and Terry Murray and Chad Gifford put together that deal. Chad ultimately took a liking to me as a great mentor and said, you've got to run a business and put me in running a business. and we were merging two companies together and I survived and ran the wealth management business for a few years. You ran the wealth management business for the combined Bank Boston fleet and then Bank Boston fleet combined company was sold to Bank of America but then you became the general counsel. For 40 days. For how long? 40 days and 40 nights.

14:40All right, so you became the general counsel of the combined Bank of America and then... Well, so what happened was in December of 2008, remember we bought Merrill on the Lehman weekend and everything. So we were originally trying to buy at Lehman. We said we couldn't do it as a company. I was running at that point a corporate investment bank and other parts of Bank of America. We couldn't do that. And then over the weekend, that's when the world became very ugly. And so we bought Merrill. And then around the time Merrill showed up with a$7 billion loss in the quarter, with a lot less capital than we were supposed to have, we started telling the government we couldn't do the deal and stuff.

15:25And so Ken asked me to be general counsel because we were eliminating a lot of jobs, and I actually eliminated my job. And I was basically out of the company. He said, you know what, stay and become general counsel because we need somebody. And from December 9th to... All right, so you became the general counsel of the Combined Bank of America. as we negotiated with the government to figure out how to get the Merrill deal done. And then I went back in business right after. But then you left after that for a while. So then in mid-January of 2009, I took over a bunch of the businesses after John Thain left and went back into business.

15:55And then by the end of 2009, I'm CEO. Let's talk about the beginning of Bank of America. So Bank of America started as Bank of Italy. So who started Bank of America, and why did you name it after Italy as opposed to America? Well, A.P. Giannini, who was Italian descent, started the Bank of Italy when he came to the country in San Francisco to help the Italian community that emigrated to San Francisco. And he became famous in the San Francisco earthquakes and fires in the early 1900s by setting up a barrel and starting to lend money. And then fast forward to 1999 when Nations Bank, which was the North Carolina Bank, which is the bank today, and the Bank of America merged, you had two good names.

16:42Now, on the personal side, you've been there 15 years. You haven't announced any time, and you might step back, and you're not prepared to announce that today, right? No, I don't. I'll tell you first, though, David. Okay. So have you been able to convince your children to go in the banking world? My oldest son's an investment banker for a different firm, obviously. And my middle child is a risk manager for another firm in financial services. And my youngest is in communications and other stuff. But look, being a CEO's child is not the easiest thing, being a CEO's spouse. And they saw me work in different ways across the years.

17:19and so it's their decision what their career is and it's nice my son, he's a deal doer, he's an M &A type of guy so it's fun because I used to do that, I haven't done that in a long time. So let me ask you about this, banking today, why do we need all these bank facilities, bank buildings? Branches, financial centers. Because everything is done online it seems, do you actually have a lot of buildings, do you really need all those buildings you have where you have your bank? This is the classic do as I do, not as I say, because at the end of the day, between this morning when the banks open up to tomorrow morning, 400 ,000 people come into our branches.

18:00So this idea that nobody goes to a bank branch just is not true. The idea that nobody uses cash, well, about a quarter billion dollars will go out of our ATM machines in the next 24 hours. The idea that nobody writes checks, there are a hundred million checks. How many banks do you have around the country now? We have 3 ,700. What about ATMs? Do you have a lot of them? We have about 14 ,000 of them. At the high point, we had 18 ,000. And that's technology. How has the world of technology affected the banking world? So right now, it's so-called fintech. Has fintech dramatically changed the way Bank of America operates?

18:35So we invest about$4 billion in new code every year. Every weekend, we'll have a couple million lines of code go in to amend our systems and change our systems or add new technology. That's not to run the systems. That's another$8 or$9 billion. That is just new activity. So the impacts have been unbelievable. So in the mid-90s, when I was the head of strategy for the company, I remember consultants coming in and saying, 20 years, there'll be no bank branches. Well, it's 30 years, and guess what? We still have 3 ,700. The reality is people want it all the way. But the impact of the phone, the iPhone in particular, was so different.

19:13and we were the first app available on the iPhone. You now have 40 million consumers who bank digitally with us all the time. Last year we had about 90 plus percent of our interactions with consumers are digital. So if I want to go to use an ATM and I have a Bank of America ATM card but I don't see any Bank of America ATMs, I go to some other bank ATM, I pay a fee. Is that it? You wouldn't, David, because you're... You wouldn't, but other people might. I thought you had to pay a fee. I mean, is that a profit center for banks, those fees? No. At the end of the day, we get 55 % of our bank revenue, our$100 billion of revenue last year.

19:5855 % came from interest. 45 % came from fees. The dominant part of those fees are trading revenue and asset management fees and things like that. We have consumer fees, but they've come down dramatically because basically we said to the consumers, So you keep changing your behavior. We keep driving on the cost to serve, and we'll give that back by low and lower fee structure. Do you think we will have in our collective lifetime no more currency? Everything will be digital, or do you think that's not likely? Not in our lifetime. What about a digital currency, which doesn't preclude other things, but a digital currency?

20:33It's pretty clear there's going to be a stable coin, which is going to be a fully dollar-backed type of thing, which is no different than a money market fund with check access. It's no different than a bank account, really. And so if they make that legal, we'll go into that business. So you'll have a Bank of America coin and a U.S. dollar deposit, and we'll be able to move them back and forth because now it hasn't been legal for us to do it. But it's just done like another foreign currency. The question of what it's useful for is going to be interesting. So if I wanted to buy and make an investment in a bank stock, would you say it's a good idea to invest in bank stocks now?

21:09Our valuation difference to the S &P is lower than it's been, and I think our company is a great value, and the rest of the banks are pretty good value. Okay, so now there's an acronym today that some people in Washington don't like called DEI. Do you have a DEI policy or not anymore? What we've always been is a bank of opportunity. So we think about creating an opportunity for our teammates, and how do we do that? We go out and hire from all areas and bring people into our company. So we go to 400 different schools to recruit kids. We have a program we call Pathways. So Pathways, we announced in 2018, we said we'd hire 10 ,000 people from low - and moderate-income neighborhoods to come work in our company.

21:54So once we have a very diverse company in terms of representation from all economic stratas, all races, all ethnicities, once they get in, the opportunity is there of a lifetime. We equal pay for equal work, the ability to promote. And so the idea is just great opportunities. So we have a diverse team. We stress inclusion. So when you're at our company, you can be who you want to be and be successful, including we have 300 ,000 memberships in our employee resource groups, of which about 60 % of the people are in one. So a young person who's graduating college, why should they go into the banking profession as opposed to private equity, investment banking, health care?

22:33What's the appeal of working in a bank? Well, when we bring the 2 ,000 kids in and I talk to them, I always say the same thing. You can make a lot of money doing a lot of things. You can have a great career doing a lot of things. But if you're going to come to our company, you really want to help people. Our market position is what would you like the power to do? And I said, your job at this company is to help people answer that question, whether it's a customer, whether it's a teammate, whether it's a shareholder, whether it's a community. And you've got to come and want to do that. You want to deliver a lot of profits done the right way with a purpose around it.

23:11Thanks for listening. To hear more of my interviews, you can subscribe and download my podcast on Spotify, Apple, or wherever you listen.