Bank of America has been investing and building its corporate and banking business in the BRIC countries over the past few years. Investing in the emerging markets has been a priority and BofA will continue to do that.
Maria Bartiromo spoke to Brian Moynihan, CEO of Bank of America in a First on CNBC interview about the housing market in the US, the need for the firm to raise more capital and doing business in Russia.
Here’s the transcript of the interview.
BARTIROMO: What can you tell us in terms of this so-called soft patch? We're talking about a market that's been down for six straight weeks and upset and worry over an economy that has slowed down. What are you seeing from your vantage point?
MOYNIHAN: There's a thing that everybody sees, the new claims for unemployment, they have ticked back up again. They had sort of come down below 400,000. So that's something that's causing people to take a second look about the strength of the recovery. Our core economists would have probably moved from a three to three and a half down to more of a two and a half-ish, two and a half growth as the year's worn on.
But the good news is we still see solid spending by the consumers. Now if you look at June '11 versus June '10, and this is our card data, so it's people spending on debit and credit cards, it's up about six percent. Two percent of that's the gas prices, so you have to sort of remove that. But four percent, not as strong as it was. Early in the years, we're up five percent year over year. Now it's at four percent. But so they're still spending. So hopefully they'll just keeping driving the economy long. So we still see good signs, but the signs are a little bit less robust than they were a few months ago.
BARTIROMO: Now you mentioned an opportunity here in Russia. Of course the investment banking, the corporate side. It is a bigger banking opportunity on the corporate side or the individual? Does the Bank of America brand resonate here? Or is it really a corporate story that you're capitalizing on?
MOYNIHAN: This is all about corporate banking, investment banking. We don't do individual banking over here, so it's really about corporations. Trading partners, meaning the asset management firms and stuff we do business with and do research for.
BARTIROMO: The regulatory environment. We're talking about the idea that we could see capital levels have to go higher. You raised your dividend recently. Can you categorically say that you're not going need more capital, even as the Global Systemically Important Financial Institutions or the “GSIFI’s” buffer is put in place?
MOYNIHAN: They still keep working the rules. We don't need to raise capital in the sense that we can build the capital over time. There's phase-in period for this. And we've been clear about that with investors. I think that what's going on now is that the debate is coming to a head is, as you read in the articles, that there's reports due out over the course of the summer.
We need to make sure we balance the interest of making sure it never happens again, so to speak, with the interest of making sure the capital levels aren't set too high, that they actually hold off growth. That's what I think people are wrestling with. That's what a lot of the talk's about. In terms of us, we'll run into the capital levels that they become known as they come due.
BARTIROMO: Is the regulatory environment, in some ways, sort of handicapping the whole industry because of this uncertainty?
MOYNIHAN: I think there's just general uncertainty. I think you can't put any one thing. You can say house price uncertainty, it affects some people. Job uncertainty affects other people. Companies, I think, are a little bit reluctant to invest until they see demand.
But it's still moving forward. I think as with everything else, everybody sort of swings and looks at it one way. But if you look at it underlying, the economy's still growing, consumers are still spending. Our middle market companies are still making good profits. It may not be what they thought it was going to be three months ago, but it's still going the right direction. The issues and uncertainty, not only in financial services industry, but across all industries, as the rules of a lot of things are being ironed out. It has to.
BARTIROMO: Talk to us about the mortgage business right now. why is it that housing has been so persistently negative, really unable to participate in this economic recovery?
MOYNIHAN: I think you're seeing the simple fact that the economy's not growing, so wage growth has been growing but not as fast as people like it. I think the fact that housing prices rose so fast and came down leaves people with less options about moving and from you know, this house to a bigger house that they were doing.
The financing terms are tighter, and of course they are, because of the excesses. So all that contributes to it. If you look at what we need to do is we need to continue to work through. We need to modify the loans that we, again, try to modify. We need to-- when they can't modify it, and we tried everything, we need to get through the process in a dignified way with that customer, so that we can actually get health back to the housing market.
You're seeing that start to happen. You're seeing, as much as people would put the, you know, housing prices and the sale of distressed assets, the good news is stuff's starting to move through. So if you look in the first quarter for us, we moved about we had 20,000 short sales, plus another ten or 15,000 REO dispositions off of our portfolios, which is good in that you're starting to see the stuff move. And that will add normalcy back to the market. It'll take some time, but it'll start moving along.
BARTIROMO: As we look at changes in the regulatory environment and sort of new rules that everyone is trying to figure out how it affects them, will you continue to reposition the portfolio? Are you looking to shrink assets significantly going forward? How do you envision the balance sheet looking different in the coming year?
MOYNIHAN: My job as CEO of this company was to get the balance sheet in shape to be able to handle the new capital rules in a way that's shareholder friendly. So what did we start doing a year ago? We started looking, anything that wasn't related to the three core customer groups we serve: consumers like you and me, companies, and in-- institutional investors, you know, the hedge funds and asset management firms, and said, "Anything that isn't that core to them, let's sell."
So we sold an interest in a couple foreign banks in Brazil, in Mexico. We sold some different businesses and some, a private equity business that we've been bringing down. All that's to take the capital and put it against the things that are most important.
As you look at Bank of America, the portfolio won't shift as dramatically as it has in the last year and a half. But we'll continue to optimize the balance sheet, both on a risk rated asset side, which is a technical term in our industry in terms of the way assets are counted for regulatory capital, but importantly, anything that's not core to our customers, we're taking the capital away from that and putting it against the core business so we can continue to support those customers, grow the business and drive it.
BARTIROMO: What about selling your stake in Archstone?
MOYNIHAN: Somebody wrote about that. It's not as big a stake as people think. We are disposing of all our private equity assets. You can look over the last several quarters, we've been doing that. When the time comes, we'll move all the things. Because in the new regulatory regime, we need that capital to serve our customers.
BARTIROMO: What can you tell us about real estate right now as an investment? Are you looking at real estate sort of pricing at a place where perhaps it makes sense to sell some of these assets now?
MOYNIHAN: I think the commercial real estate markets have been surprisingly resilient. So we have about a $40 billion dollar portfolio that we lend to commercial real estate customers.
We're back to almost to the usual times. We've still got more improvement in that portfolio. But what's been remarkable is how the financing availability's been there to roll over some of the financing, how the ability to find all our customers alternatives in capital markets. I'd say the commercial real estate business actually made it through this recession in pretty good shape.
You're seeing cap rates and things like that very strong. Apartment demand is huge because the homeowner demand is less. You don't want to say there are certain parts of commercial real estate market is suffering. But they're usually the properties, they're not, you know, core, big city buildings or central city buildings or apartments. They're things that with built on the edges, and they're going to have a tougher time. But if you look at it overall, it's fared very well.
BARTIROMO: Are you expecting a disruption in the economy of the markets when the Fed goes away? What's your take on Bernanke's action? And what happens when QE2 goes away?
MOYNIHAN: I think the market understands. I think Chairman Bernanke has been very clear about his priorities of movement. So I don't think there's much mystery left in it.
Our prediction's rate stay low for a long time because we got to get the unemployment situation moving in a direction that is such that you know it's going to go in the right direction. We're such a huge economy that we’ve got to make sure this economy stays moving the right direction. So it still grows. Everything we see still sees that growth. I think our view is that rates stay pretty low for a long time because this is a big economy, and it's going to continue to crawl forward.
BARTIROMO: So we're not going see, necessarily, a major backup in rates. What is it going to take to get job creation going again in the U.S.?
MOYNIHAN: As you look across jobs, I think it's a little different in the sense that you really have jobs that were lost in industries that haven't had demand recovery. I think we need to figure out how to move people who may have worked in one industry, construction and other areas, that obviously aren't going rebound to you know, the same number housing units being built that were built at the height of the cycle.
That takes time and retraining. I think there's lots of good programs going on. We just have to be relentless about this because this is the core issue that we actually lost jobs in areas that to get them back I think it will take some time. Frankly, to get them back might not be the best use of resources for our country.
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