WHEN: TODAY, TUESDAY, DECEMBER 5
WHERE: CNBC'S "SQUAWK ALLEY"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Bank of America Chairman & CEO Brian Moynihan from the Goldman Sachs Financial Services Conference. The interview aired today, Tuesday, December 5 on CNBC's "Squawk Alley." Following are links to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/12/05/bank-of-america-ceo-heres-why-the-consumer-is-in-good-shape.html and https://www.cnbc.com/video/2017/12/05/bank-of-america-ceo-brian-moynihan-on-why-corporate-america-likes-tax-reform.html.
All references must be sourced to CNBC.
JON FORTT: WILFRED FROST LIVE AT GOLDMAN SACHS FINANCIAL SERVICES CONFERENCE HERE IN NEW YORK WITH A SPECIAL GUEST. WILF.
WILFRED FROST: HEY, JON, THANKS VERY MUCH. YES, INDEED, JOINED NOW BY THE CHAIRMAN AND CEO OF BANK OF AMERICA BRIAN MOYNIHAN. GOOD MORNING TO YOU. GREAT TO HAVE YOU WITH US AGAIN.
BRIAN MOYNIHAN: GOOD TO BE HERE AGAIN.
FROST: LET'S TALK ABOUT TAX REFORM FIRST OF ALL MONDAY SAW A REALLY BIG INTRADAY MARKET RALLY, IN PARTICULAR FOR AREAS LIKE SMALLER MID CAPS AND ALSO FOR BANKS BASED ON HOPES OF TAX REFORM ARRIVING. LET'S TALK ABOUT THE BANKS FIRST. IS THAT RALLY LEGITIMATE WILL THIS HELP BANKS LIKE YOURSELF?
MOYNIHAN: YEAH IF YOU THINK THAT IF YOU START WITH THE FIRST PART OF YOUR PROPOSITION WHICH IS SMALLER MID CAP COMPANIES ARE GOING TO HAVE MORE MONEY TO SPEND, BE MORE AGGRESSIVE ON CAPITAL EXPENDITURES, THA'TS GOING TO HELP US BECAUSE WE ARE THE TRANSMISSION OF THEM TO THE ECONOMY WHETHER THEY GO TO CAPITAL MARKETS OR WE LEND TO THEM, BUT IF YOU START BACK TO THE BROADER THING, AMERICA NEEDED A COUPLE THINGS ONE IS A MORE COMPETITIVE CORPORATE TAX RATE THAT'S IN THE BILL SECONDLY, TERRITORIAL SYSTEMS SO PEOPLE COULD OPERATE IN A GLOBAL ECONOMY AND NOT HAVE THE VAGARIES OF AMERICA'S SYSTEM VERSUS ALL THE OTHER SYSTEMS OPERATE AND THAT IN THAT BILL AND THAT'S GOOD FOR CORPORATE AMERICA, GOOD FOR MIDDLE MARKET COMPANIES, SMALL COMPANIES, AND THAT'S THE ENTHUSIASM YOU SEE.
FROST: THE CORPORATE CLIENTS YOU MENTIONED, ARE THEY GOING TO SPEND THAT EXTRA CAP EX NEXT YEAR IF THIS BILL COMES THROUGH?
MOYNIHAN: YOU'RE STARTING TO HEAR PEOPLE ANNOUNCE IT AND AS THEY FIGURE OUT WHAT'S IN THE BILL THEY WILL ADJUST AND DRIVE IT AND I THINK UNIFORMLY, AND I TALKED TO THEM, THEY ARE SAYING TWO THINGS ONE IS, THIS IS GOOD FOR AMERICA AND MY COMPANY, BUT ALSO IT SHOWS THAT A PRO BUSINESS ENVIRONMENT EXISTS, WHICH IS WHAT THEY ARE REALLY GOING TO INVEST INTO.
FROST: IN TERMS OF YOUR OWN BOTTOM LINE, CLEARLY, THERES A BENEFIT. YOU PAY CLOSE TO 30% AT THE MOMENT WHATS THAT GO ON TO, DOES IT GO DIRECTLY TO CAP EX ITSELF OR DOES IT KIND OF GET COMPETED AWAY FAIRLY QUICKLY IN THE MARKETPLACE BETWEEN THE OTHER BANKS?
MOYNIHAN: I DON'T KNOW IF IT GETS COMPETED AWAY FAIRLY QUICKLY, BUT WE SPEND MONEY ON BRANCHES AND WE SPEND A LOT OF MONEY ON TEAMMATES, AND WELL LOOK TO INCREASE THINGS THAT MAKE SENSE, BECAUSE IF WE CAN SPEND A LITTLE FASTER ON BRANCH BUILDOUTS IN THE CITIES WERE NOT IN, WE WOULD SPEND THAT'S CAPITAL EXPENDITURES AND THAT EMPLOYS PEOPLE TO REBUILD AND TAKES UP REAL ESTATE, EMPLOYS PEOPLE IN LOCAL COMMUNITIES, SO I THINK WE'RE LIKE EVERYBODY ELSE. THERE WILL BE ADJUSTMENTS WE MAY HAVE MORE MONEY TO SPEND AND DO IT, BUT BY AND LARGE, WE PAY A LOT OF TAXES AND WE'LL GET A BENEFIT, BUT THAT'S REALLY THE REAL BENEFIT WILL BE AN AMERICAN SOCIETY AND BROADER ECONOMY.
FROST: LET'S TOUCH ON THE CONSUMER YOU WERE JUST TALKING ABOUT THIS IN YOUR PRESENTATION WHAT ARE YOUR VIEWS IN TERMS OF HOW THE HOLIDAY QUARTER AND CONSUMER SPENDING IS GOING SO FAR?
MOYNIHAN: SO FAR, SO GOOD ITS BEEN STRONG SO IF YOU THINK ABOUT IT YEAR TO DATE, ALL 11 MONTHS NOW, CONSUMERS ARE MOVING CASH ABOUT 6% OVER LAST YEAR, CREDIT AND DEBIT CARD SPENDING 6.5% AT BANK OF AMERICA OVER LAST YEAR THE YEAR BEFORE THOSE NUMBERS HAVE BEEN FIVE ON CREDIT AND DEBIT SO IT HAS MOVED UP A PERCENT AND ABOUT 3 ON GENERAL CASH, THAT'S CASH OUT OF THE ATMs, TELLER, PAYMENTS SO YOU ARE SEEING.
FROST: SO THAT'S DOUBLED?
MOYNIHAN: IT'S DOUBLED. THAT'S INTERESTING. THAT'S 2.4 TRILLION DOLLARS IN SPENDING SO THAT DOUBLING MEANS THAT THINGS ARE GOING ON IN THE ECONOMY, WHICH IS GOOD AND SO CONSUMERS ARE IN GOOD SHAPE. SO OVER THE, YOU KNOW, BLACK FRIDAY, CYBER MONDAY, ALL THE THINGS WE TALK ABOUT, WE SAW ABOUT 6%, 6.5% OVER LAST YEAR.
FROST: THAT'S MIDDLE AMERICA BOUNCING BACK WITH A BANG?
MOYNIHAN: YES AND THE UNEMPLOYMENT IS LOW, PEOPLE ARE EMPLOYED LABOR CONDITIONS CONTINUE TO TIGHTEN. WHEN I TALK TO OUR COMPANIES, YOU KNOW, THEY LOVE TAX REFORM OUR CLIENT COMPANIES THEY ARE CONCERNED ABOUT GETTING WORKERS, AND THEY JUST NEED TO KEEP TRAINING PEOPLE FOR THE JOBS THEY HAVE, BUT THAT NEED OF TRAINING PEOPLE MEANS THEIR WAGES ARE RISING COMPANIES LIKE OURS EVEN THOUGH WE HAVE LESS PEOPLE, THE PEOPLE -- THE SALARIES AND WAGES HAVE RISEN 6-7% EVERY YEAR FOR THE BROAD PART OF OUR TEAMMATE BASE, THAT'S WHAT YOU'RE FEELING OUT THAT. PEOPLE ARE EARNING MORE MONEY THEY KNOW THEY HAVE A JOB THEY KNOW THERE IS DEMAND SO THEY ARE SPENDING.
FROST: SO STICKING WITH THE CONSUMER AREA OF YOUR BANK, WE'RE HERE AT THE GOLDMAN SACHS CONFERENCE. ARE YOU THREATENED BY WHAT GOLDMAN SACHS ARE DOING THAT SPACE –PUSHING INTO IT WITH MARCUS AND GSBANK.COM?
MOYNIHAN: I THINK THERE'S A LOT OF BUSINESS MODELS OUT THERE AND I'LL LET LLYOD AND THE TEAM FIGURE OUT WHAT THEY'RE DOING – WHAT THEY'RE GOING TO DO, BUT THE REALITY IS, FROM THE THIRD QUARTER OF 2016 TO THE THIRD QUARTER OF 2017, OUR CONSUMER GROUP BUSINESS GREW ITS DEPOSITS BY ALMOST -- AROUND $50 BILLION, WHICH IN AND OF ITSELF IS THE 20 SOMETHING LARGEST BANK IN THE COUNTRY. THE TEAM IS DOING AN EXCELLENT JOB, THE PRODUCTS AND CAPABILITIES ARE VERY STRONG, BOTH HIGH TOUCH AND HIGH-TECH, AND WE CONTINUE TO IMPROVE THOSE. AND THAT'S – SO WE'LL HAVE LOTS OF COMPETITORS AND GOLDMAN AND OTHER PEOPLE WILL BE THOSE, AND WE HOPE TO DO A GREAT JOB FOR CONSUMERS AND WIN.
FROST: WOULD YOU LIKE TO HAVE THEIR STARTING POINT, THOUGH, WHICH IS NOT HAVING A BRANCH BASE? BECAUSE YOU ARE HAVING TO CLOSE BRANCHES SLOWLY BUT SURELY AND THAT'S A COST BASE YOU HAVE TO TAKE OUT. DOES THEIR STARTING POINT LOOK MORE ATTRACTIVE SNAPSHOT OF TODAY?
MOYNIHAN: I DON'T THINK IT DOES, BECAUSE WE HAVE A MILLION PEOPLE COMING TO OUR BRANCHES EVERY DAY THAT ARE COMING BECAUSE THEY NEED US TO SERVE THEM. I THINK TO THINK THAT YOU'RE ONLY GOING TO DEAL WITH ONLINE, IT'S A BUSINESS MODEL DIFFICULT TO EXPAND, WHETHER IT'S IN SECURITIES OR IN BRANCH-BASED RETAIL BANKING. IT'S – SO OUR BRANCHES HAVE CHANGED OVER TIME, THEY ARE BIGGER THAN THEY USED TO BE, WE HAVE MORE SALES PEOPLE, WE'VE DOUBLED THE AMOUNT OF SALES RELATIONSHIP PEOPLE WE'VE HAD OVER THE LAST FIVE TO SEVEN YEARS. SO IT TAKES BOTH, AND WE BELIEVE IN THAT BUSINESS MODEL, BUT TAKES MANAGING BOTH CAREFULLY. YOU HAVE TO BE ABLE TO TAKE THE COST DOWN FOR THE TRANSACTION SIDE AND RAISE THE COST UP FOR THE RELATIONS SIDE.
FROST: AND YOU ANNOUNCED THIS MORNING AN EXTRA $5 BILLION OF BUYBACKS BY JUNE NEXT YEAR. THAT GOES ON TOP OF $18 BILLION ALREADY IN TERMS OF DIVIDEND PLUS EXISTING BUYBACKS. BY MY CALCULATIONS, EQUATES TO 120% PAYOUT RATIO FOR EARNINGS FOR THE COMING YEAR. SO CAN WE TAKE FROM THAT THAT YOU AND THE FED, BECAUSE THEY HAD TO APPROVE THIS, ARE VERY CONFIDENT THAT YOU'RE OVERCAPITALIZED RIGHT NOW?
MOYNIHAN: WELL, I THINK THE MATH PROVES THAT. WE HAD $20-ODD BILLION OF EXCESS CAPITAL AFTER THE STRESS TEST LAST YEAR. THEN WE HAD – AND THESE ACTIVITIES WEREN'T INCLUDED IN THAT BECAUSE THE BERKSHIRE HATHAWAY CONVERSION, AND MORE – OTHER CONVERTED STOCK AND STUFF, SO THIS IS ALL NEW CAPITAL, WHICH WE SAID, "WE GOT TO GET IT OUT FAST, BECAUSE IT WAS NEVER COUNTED ON." SO WE HAVE CAPITAL RATIO ABOUT 11.9%, OUR REQUIREMENT IS 9.5%, AND YOU PUT A CUSHION ON 9.5%, ANY WAY YOU CUT IT, WE HAVE $20, 25 BILLION OF EXTRA CAPITAL SITTING IN THE COMPANY AND OUR JOB IS TO MOVE THAT OUT, BECAUSE WE DON'T NEED TO SERVE THE CLIENTS. WE CAN DO WHAT WE NEED TO DO FROM LENDING, CAPITAL MARKETS, WEALTH MANAGEMENT WITHOUT THAT CAPITAL.
FROST: SO IT'S OVERCAPITALIZATION, NOT A LACK OF GROWTH OPPORTUNITIES TO INVEST IN?
MOYNIHAN: OUR LOAN GROWTH HAS BEEN FAIRLY CONSISTENT, OUR CORE BUSINESS HAS BEEN SINGLE DIGIT, WHICH REFLECTS THE ECONOMY. AND YOU KNOW, WE STILL HAVE $100 BILLION IN LOANS WE COULD RUN OFF AND REPLACE WITH LOANS WE WANT THAT ARE COMING OUT THE $90 BILLION OF THE CRISIS, SO WE HAVE PLENTY OF CAPACITY TO SERVE THE CLIENTS.
FROST: WE JUST HEARD FROM THE JP MORGAN CFO MARIANNE LAKE AND HER PRESENTATION, SHE SAID, "ONE RATE HIKE IN DECEMBER, THREE OR FOUR NEXT YEAR." WHAT'S BANK OF AMERICA'S BASE CASE?
MOYNIHAN: I THINK WE'RE ONE IN DECEMBER AND THREE NEXT YEAR, I THINK, IS WHAT OUR RESEARCH TEAM HAS OUT THERE, IF I GOT IT RIGHT. BUT WHEN WE DO OUR MODELING, WE TAKE THE CONSENSUS AROUND THAT RANGE. AND WE'LL SEE. IT'S ALL GOOD NEWS THE WORLD ECONOMIES ARE GROWING, IT SYNCHRONIZES, THEY SAY THAT ALL THE REALITIES ARE GROWING, WHICH IS GOOD NEWS COMPARED TO WHAT WE SAW THREE OR FOUR YEARS AGO WHEN THE UNITED STATES WAS GROWING AND EUROPE WAS STILL STRUGGLING, JAPAN WAS – BUT SO THAT'S ALL GOOD NEWS AND YOU'RE SEEING IT'S PRETTY FUNDAMENTAL. YOU SEE IT AND DRIVE AROUND THESE COUNTRIES, YOU KNOW, IT'S JUST DRIVING FORWARD AND THEY'RE DRIVING – THINGS ARE GETTING BETTER.
FROST: IN TERMS OF WHAT THAT MEANS FOR DEPOSIT PRICING, THERE WAS QUITE A FEW QUESTIONS ABOUT PRICING AND WEALTH MANAGEMENT, WHERE YOU HAVE HAD TO PUT UP PRICES MORE THAN PEOPLE EXPECTED. WITH THAT IN MIND ARE YOU QUITE PLEASED YOU HAVE THIS RETAIL DEPOSIT BASE, WHICH IS A BIT MORE STICKY SO EVEN IF WE DO SEE PERCENTS WORTH OF RATE HIKES, YOU DON'T HAVE TO PASS THAT ON TO CONSUMERS?
MOYNIHAN: YEAH, WITHOUT GETTING INTO THE INS AND OUTS, BECAUSE I THINK WE PRICE EVERY PRODUCT BY EVERY MARKET AND EVERY TYPE OF CUSTOMER. IF YOU THINK ABOUT IT BROADLY THERE'S TWO THINGS TO THINK ABOUT, CASH, WHICH IS TRANSACTIONAL, AND CASH WHICH IS INVESTMENT. AS RATES RISE, THE CASH WHICH IS INVESTMENT, WE'LL FIND ALTERNATIVES, INCLUDING THAT WE PUT INTO ALTERNATIVES, BUT THE TRANSACTIONAL CASH IS WHAT DRIVES IT. WHETHER IT'S A COMPANY'S TRANSACTIONAL CASH, AN AFFLUENT PERSON'S TRANSACTION CASH, OR A CONSUMER'S.THAT'S WHAT DRIVES THE VALUE OF A DEPOSIT FRANCHISE AND THOSE CONTINUE TO GROW STRONGLY AT BANK OF AMERICA. WHEN YOU GET IN THE PRICING, IT WILL BE WHAT IT IS TO BE COMPETITIVE AND TO CONTINUE TO GROW OUR DEPOSITS AT A DECENT RATE.
FROST: GREAT STUFF, PLEASURE AS ALWAYS, THANKS FOR JOINING US. BRIAN MOYNIHAN, BANK OF AMERICA CHAIRMAN AND CEO. BACK TO YOU GUYS.
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