WHEN: Today, Thursday, May 12th
WHERE: CNBC's "Closing Bell"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Bank of America Chairman and CEO Brian Moynihan and CNBC's Wilfred Frost on "Closing Bell" (M-F, 3PM-5PM ET) today, Thursday, May 12th. Following is a link to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000516851.
All references must be sourced to CNBC.
WILFRED FROST: Mr. Moynihan, great to be with you today. Thanks very much for your time. It was torrid start to the year for banks as a whole. Are you pleased to have the first quarter behind you?
BRIAN MOYNIHAN: Well, we're pleased to have it because we made some progress. It was not a fun market environment. But we made some money. The company made progress. We continued on the core strategy of responsible growth. So with each quarter, you feel good it's behind you, because there's success. Last quarter, the markets made it a little interesting.
WILFRED FROST: Yeah in terms of 2016, you said on the investor call a couple of months ago that March is showing some improvement compared to those depths, those lows of January and February. Has that continued through April and May?
BRIAN MOYNIHAN: Yeah. And I think if you think about it from markets activity, trading activity, what these guys out there are doing, it's as strong as March, and it continued to improve. If you think about from investment banking, you could read the papers, some deals aren't getting done, some of the stuff. And it's coming along. But it just takes longer to restart the engine.
WILFRED FROST: Yeah, as you say with the M&A side of things, you know, another high profile deal this week being scuppered by the authorities with Home Depot and Staples. Do you think there's a sort of inherent opposition from the current administration against M&A?
BRIAN MOYNIHAN: Well, I wouldn't – I think these things this oddly enough, if you read the papers, this deal was proposed 20 years ago and didn't go through. But, you know, there's a tougher review of anti-trust and other issues just like there's a tougher bank regulatory environment. And, you know, we got to learn how to make our way through that. It what is interesting about what's going on is, in all these industries, there's a definition of market question without which gets kind of interesting. And so our world its fintech we call it, other person sits online, sales, and different ways things get sold. So it's going to be an interesting environment for regulators to think through global environments, macro environments, and different markets definitions than they had to before--
WILFRED FROST: And political environments, of course changing too. What would a Trump presidency mean for banks?
BRIAN MOYNIHAN: Well our jobs not to tell people to make that kind of analysis. But the reality is, we need a president, and we need a country that's focused on growing, and focused on investing to grow. And we think a president and leader and a Congress, because it takes everybody, and a business community, and a regulatory community to support growth, support investment infrastructure, support reasonable tax reform, and getting it right so we don't have the kinds of things that go on. A reasonable immigration policy, because we need to bring all the talent in the world to get here, people like yourself. And they can do great jobs here. So I don't and I think the question is, as it comes together, and the platforms get known, that's when I think people can make their choice about the future--
WILFRED FROST: No, and I certainly get that, that broad view in terms of the economy needs to grow. But the banking sector in particular has been hit by all the candidates. I mean, if we focus on the Democratic side, for example, would Clinton not be a much better candidate than Bernie Sanders for banks specifically? His rhetoric particularly negative.
BRIAN MOYNIHAN: Well, I think if you think about-- I'm just-- we don't get into discussion of individual candidates. And I don't think that's right. But if you think about what the regulatory fraternity across the world, and not only in this country, across the world, has tried to ensure-- the last, you know, eight, nine years since the crisis is it's a pretty simple set of equations. More capital, get the capital levels right, get the liquidity right, get the resolvability right. Get the scope of activities right. And largely, that's done. And in both parties, whether you agree it's too much or too little, and there's you can disagree, agree that a lot of that work is done. And we got to just make sure it all works. And that's, I think, the challenge ahead. So with-- what I'd like to see is constant focus on what's getting these things more correct at the margin. Because there's elements that were put together quickly, and we got to make sure they work.
WILFRED FROST: Since you said a lot about work is done. We've got CCAR coming up, also the living wills, that big kind of calendar dates on the regulatory horizon view. Are you confident that you'll pass both?
BRIAN MOYNIHAN: Well, in a case of resolution, you can see just what we see you got the same letter with little redaction So we got some tasks to work. We've been working-- we've probably spent $1 billion internally and externally on a resolution plan. It's in our best interests to make it work. We take it very seriously. I think we've got the plan in place to make it work. And what's important to that is not only that it works for our company, all the participants it works for. Because at the end of the day, we all stand for each other in some broad prospects, 'cause the FDIC in a liquidation and it's got to work, it's got to keep with these large banks, we got to be able to liquidate them and keep the markets calm. That was the lesson from '08. And so we think we'll get that done. We think we'll pass them both. But the question is, it's just work, as you can see.
WILFRED FROST: Is it possible to hit that 10% ROE target without a rate hike?
BRIAN MOYNIHAN: Well, it's harder, because a 100 basis points parallel rate rise for us means $6 billion now as of last quarter. It's harder, but it could be done. We've managed about in first quarter, we had some accounting adjustments that you take those out, we're at about 8.5% internal return exchange on common equity. The path to make that up to 10% is in front of us. Rates would push it above that. And so we've got to path that we can get it to acceptable to cost of capital without rate rises. It just takes a lot of work. Give you a sense—since the beginning the last five years, we're down about 80,000 people. That's the entire employment base I think of delta I looked it up the other day, or something like that. That's the amount of change gone on in the company. We got to keep doing that to bring the cost structure down. And we're working on that.
WILFRED FROST: And the cost structure, again, always gets a lot of focus. If you look at the costs in absolute terms or in relative terms versus your revenue compared to banks of similar size, it doesn't come out top. Do you have to get that down lower, particularly if we don't see another rate hike, say, for a year? Is there more cost-cutting to come?
BRIAN MOYNIHAN: Oh, absolutely. And we've done it every quarter for 20 odd quarters in a row. So this is not new news. And so if you think about it, we run about, fairly stated 66%, 67% efficiency ratio. We should be able to get it with a rate rise, down to 60%. We got to get it down closer to that without the rate rises. And that will put us above the 10% and things like that. The reality of that is it's hard work to keep reengineering the company, and keep taking out the costs, and doing it carefully so we serve customers. 'Cause on the other side, we're making massive investments. We invest $3 billion a year in technology. We have more sales people this year than last year, and have almost all the businesses. And so we keep adding people to generate client satisfaction. More sales, more service. At the same time, they're taking it out of the back end, and also making even the front end more efficient. And so that trade-off is trickier than originally when we had seventy about $80 billion in costs per year, the first triage was quick. Now it's just grinding it out quarter by quarter.
WILFRED FROST: And despite that, there still remains quite a lot of pressure from shareholders from the investment community on your cost revenue ratio. When you see big financial institutions like AIG face up to activist shareholder pressure, just this week, Mr. Paulson's now been added onto the board there, do you ever fear that you could be next?
BRIAN MOYNIHAN: We continue to execute our strategy. We just got through our annual meeting. And the directors got elected by 94% to 98%. I think the shareholders understand the strategy. This is a large company, and we continue to make progress. And, you know, so we've got a little bit more to go to get the threshold level and we'll get that done if we – over the next couple quarters if you look at the way it will play out.
WILFRED FROST: Yeah, a more relaxed AGM for you this particular compared to last year. I just want to move on to the issue in North Carolina most recently hitting the news. I spoke to Governor McCrory yesterday. I know you've come out publically against this bathroom law recently. If it didn't get repealed, would you consider moving head counts away from Charlotte?
BRIAN MOYNIHAN: Look, we have been clear that this ought to be repealed. And the reason why is we have 200,000 teammates. And we have 50 million customers. And if you think of how we run the company, we run the company to be the greatest place for people to work. And our own employees are worried that a law like this will impact them. Even if it may not affect them personally, in a sense of who they are, what they do, it affects their teammates. And they've been clear with us. So we will continue to monitor the situation. We hope it solves. It's now in litigation, which will take a while, probably. But our view is that it ought to be pulled back. Because it represents something that's against the values of our company.
WILFRED FROST: The governor too hasty to sign it? Should he have considered more widely before signing that into law?
BRIAN MOYNIHAN: Again, it would be local – you'd have to get into local political scene or the high level you had him on yesterday. He can speak for himself. Look, I think the answer is, it ought to be repealed.
WILFRED FROST: Well, whilst we're on that Charlotte point, three headquarters, essentially, that you have – Boston, New York and Charlotte. Does that really hinder your ability to cut costs? We've talked about the cost-cutting already. Would you ever consider making that down to two, or even one?
BRIAN MOYNIHAN: We don't really have – we have one headquarters. And we have—
WILFRED FROST: Sure, but lots of head count across three big cities.
BRIAN MOYNIHAN: Well, we have lots of head count across the world. So if you added those three places up, we'd be at 35,000 head count in the state of New York, and the state of North Carolina, and the state of Massachusetts. We have 212,000. So there's people everywhere. So we have 750 people in Tokyo. The question is how you keep bringing it down. So to give you a sense, you know, we are a tenant in our building in Boston. And we've shrunk down real estate over the last 15 years as the Bank of America bought fleet Boston a number of a years ago. We've taken, I think, 6 to 8 million square feet out in New York City alone. We've taken 40 million square feet out in the company over the last seven years.
WILFRED FROST: And you've still got space for us to sit on this lovely stage here—
BRIAN MOYNIHAN: We're charging you for it.
WILFRED FROST: Are we? I didn't know that. Well, there we go. Well, right you are to, as well. Quickly want to touch asset quality. Was a massive factor in Q1. Has it spread to be a factor for you in Q2 and also spread from the energy sector into other sectors at all?
BRIAN MOYNIHAN: We've seen nothing. The activity in our commercial portfolios is still strong. The activity from a credit quality is still strong. And the oil and gas, frankly, is mitigated somewhat, because of the obvious issue of prices have changed. But – and you're working through things. So the credit quality in our company is very, very strong, and continues to remain so.
WILFRED FROST: And now just final question for you, Brian. On the February 11, Jamie Dimon, quite famously in our circles, bought into his own stock. It was then called the Dimon bottom, it marked the bottom of markets in a bank stock. Are you happy with your currently, I think, just over 1.1 million shares at the moment?
BRIAN MOYNIHAN: I get paid 100% in stock other than my base salary. So every year I get all stock, and—
WILFRED FROST: Do you ever dip in yourself with your own cash reserves to buy –
BRIAN MOYNIHAN: I have in the past. But you know, whenever I got awarded my compensation, it was all awarded in stock. And I don't sell any stock. So I have it. And so I'm happy with my ownership position. I'll continue to increase it. And I literally do every year, because it's all stock.
WILFRED FROST: So there, we had Brian Moynihan happy with the shares he holds. Shares that closed today at $14.44. They are up since those February lows that we mentioned, but still down 14% year to date. The next big item on the agenda, Kelly, for Bank of America will be those CCAR results. They are due in June. On that note, back to you.
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