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WHEN: Today, Wednesday, August 21, 2019
WHERE: CNBC's "Squawk Box"
The following is the unofficial transcript of a CNBC interview with Bank of America Chairman and CEO Brian Moynihan and CNBC's Becky Quick on CNBC's "Squawk Box" (M-F 6AM – 9AM) today, Wednesday, August 21st. The following is a link to video of the interview on CNBC.com: https://www.cnbc.com/video/2019/08/21/bank-of-america-ceo-full-interview-brian-moynihan-squawk-box.html.
All references must be sourced to CNBC.
BECKY QUICK: Good morning, everybody. Welcome back to "Squawk Box." I'm here at Bank of America's headquarters in New York City with Brian Moynihan who is the Chairman and CEO of the company. There have been so many calls -- or so many thoughts that a recession may be on the horizon. We thought this would be the perfect time, Brian, to kind of sit down with you and hear from someone who really sees things from a real-time basis. Where is the economy right now from your perch?
BRIAN MOYNIHAN: Well, first of all, it's great to have you here on our trading floor. And even though it's August, you can hear there noise back there. So, we apologize to the world if they hear something. Look, when the yield curve moved around, the punditocracy got going, saying, 'Here, this means a recession is coming.' But if you actually think about it, there could be two reasons the yield curve is moving around. You're seeing that debate take hold. Which is – part is the debate over the flight to equality. 80, 90% of all the yield in the world is available in the United States. So, the money comes flying here because you're going to give your money to someone, $1,000 and they give you back less in ten years. Or you're going to give your money to someone, $1000, and they'll give you back more in ten years. And so, that's why there's a great debate about it. But it is going to come down to is what's really going on in the economy. And when we see the economy at Bank of America, we have lot of different ways we think about it. Our team at Bank of America, Research, who predicts the U.S. to grow at 2.3% GDP this year. High one's next year – maybe 1.9. And they have moved that up and moved that down and basically, it's settled at that point. If you look at the broader economics, the consensus blue chip, there is not one person with a negative number for 19 or 20. And so, they're saying it's growing. But what's going to make that happen is the underlying U.S. consumer. And the underlying consumer is doing well making more money, they're employed and more importantly, they're spending more money. And so, in our customer base through this time, you know, August 15th, year to date, you have seen the amount spent by American consumers at Bank of America, $2 trillion. It's up 5.9% from last year through the same period of time. So, in '17-'18 you're up about 8.5%. '18–'19, you're up about 5.9%. So, think about that as 120 billion dollars more spending by our consumers this year versus last year. Which means the U.S. consumer continues to spend, and that will keep the U.S. economy in good shape.
BECKY QUICK: You talked about the punditry, and people who are out there. There was a Bank of America economist last week who raised her own odds for a recession. She said she was going from 20% to 1 in 3, so 33%. Based, not on a change in her model, but kind of a subjective call, of what she is hearing, what she is feeling and what's happening out there. Would you disagree with that? Do you think the odds went up last week yourself?
BRIAN MOYNIHAN: I don't think the odds went up last week. I think the odds of a recession debate have always been -- they tend to be around 20%. Like, if you actually look at the most recent survey, there are people who have this year predicted still in the 10% level. Which is only two-quarters in a row have to be negative and there's only two quarters left to go and we're halfway through one. So I think when Savita and the team change, Michelle and the team change, they're looking at it. But what they put the overlay on frankly is what everybody is thinking about. So, if you think of the business economy in the world and in the business economy in the U.S., there hasn't been a lot of good news. And that not good news is largely around trade, European slowdown, what is going to happen with Brexit, China's slowdown. So those issues that need to be resolved out there are affecting the business enthusiasm – business energy. So, you're seeing capital spending come down. So, I think that's the overlay that they put on, was really around this question, if trade doesn't get resolved. Now the reality is in the few months that the trade issue since May or so when it really picked up, we're getting used to it. And most of the people believe that the China situation, which is very difficult, is going to take a lot longer than people think to resolve fully. It may not get worse, may get better. There may be debates about what's going on and you hear it every day. But, the reality is, it may take a long time. And that's where I believe the keys are, to get the federal budget situation fixed. Which is for 2 1/2 years we have got to get the USMCA passed, I believe, because that settles the biggest trading block that we deal with down and that we have in agreement. And ultimately, we have to get through Brexit and figure out what happens there. And we've got to also figure out if China can sort of restart their economy. which they're working on but it's difficult when they have the pressure of the trade.
BECKY QUICK: If you're seeing such strength in the economy and particularly in the U.S. consumer, what do you think when you hear President Trump saying things like, 'Oh we're considering a payroll tax cut. We want the fed to cut 100 basis points'? I mean, I look at that and I think those are extreme measures, things I would have expected in 2008 and 2009. Are they warranted today?
BRIAN MOYNIHAN: Well, I think if you think about whether it's what Jay Powell has talked about and the – and the Fed minutes, what we've talked about, and we'll see what they say today – but generally what they're trying to do, and what the President is trying to do and what the world needs us to do, it's one synchronous thought. Which is the U.S. economy, which is the largest in the world by a lot, the U.S. consumer economy is as big as China's economy. And so, just think about the U.S. spends on health care the entire size of the Indian economy. So, think about the dimensional difference. The one thing that the world can't afford is for the U.S. not to continue the growth cycle. And we are in the longest growth cycle we've had. And everybody then starts to raise, 'Well, it can't keep going on forever,' and that's probably true. And so, you have this debate of how do we preserve it? How do we make financial conditions more accommodative? How do we create extra, like we did in '18 with tax reform and some of the regulatory reform, how do we create extra stimulus? And that's the debate going on. But the goal is even though people – as you said, the punditry and punditocracy can keep separating these positions, it's composition to drive the economy forward. What we see from the U.S. consumer, and unemployment, housing, they've been solid – we don't see measures that need to be taken. But we have -- but there's a diligence around this because it is a big economy. And if it goes backwards, it would be exactly the wrong time for the U.S. to have a problem.
BECKY QUICK: So, you would be okay with those types of measures that we just talked about? If the fed cut 100 basis points that's good news, if we did see a payroll tax cut, which by the way would add to the deficit maybe $150 billion to a deficit that's already over $1 trillion.
BRIAN MOYNIHAN: I think the Fed is going to be driven by the data. I think they've been clear about. We'll see what is said through Jackson Hole. I mean, eight years ago, when they went out there -- this when Greenspan, or excuse me, when Bernanke said, 'Lower for longer' and that's really sent the markets in a bit of an interesting time in August and September '11, if you remember. It was kind of interesting out there, with everything going on.
BECKY QUICK: Which is why so many people are here at their desks today.
BRIAN MOYNIHAN: Exactly. So, there will be a lot of discussions. But I think the question really is how do you preserve -- how do you keep the conditions favorable to -- because rates are low. And whether the extreme level that you're talking about or not is needed or not, that's going to be a subject of, I think, literally the data at a given time. Right now, the unemployment. Right now, wages are growing. Right now, inflation is near 2% and it has been. And right now, you're seeing that, you know, unemployment levels are very low and new claims are very low. So, you kind of have this question that the data has deteriorated. And you're hearing people talk about this. And that's going to be on the table. So, whether you call those extreme measures or not, I would say everybody will do what is needed. I don't think the current data shows that something is needed. But it may over time.
BECKY QUICK: Okay. That's what I wanted to get to. I want to walk away, because it's a very sound answer what you just said. But I don't want to walk away and parse it and parse the wrong thing. You're not necessarily in favor of these measures right now, but you could see a time in the future where it may make sense. It might – am I boiling it down correctly?
BRIAN MOYNIHAN: The facts change. Right now, you don't see it and that's why you haven't seen the extreme measures take hold. But the goal is to try to preserve the length of this recovery. And when you see the U.S. consumers spending, and you saw some companies announce earnings over the last week or so, that continues to show it is a broad based, different types of enterprises receiving different types same stores growth in the 3% level.
BECKY QUICK: A lot of the retailers—
BRIAN MOYNIHAN: A lot of the retailers, yeah, but different types of retailers. And that's good because it is being spent in different areas. And I think that's critically important. Another thing that is beneficial to consumers, year over year, gas prices are down 6%, 7%. Which has an impact of almost a quarter percent in sort of money to be re-spent in our customer base alone. So, as think of 5.9, if gas prices were unstable, it would have been higher. And yet, they're taking that money and spending it somewhere else. So, I think right now the data shows that the consumer is solid and as long as that is true, the U.S. economy ought to be okay. That doesn't mean the business economy – especially the large companies that deal on the global framework, are concerned of what the resolution will be of these series of issues. And there hasn't been a lot of good news for them. And in the midsize and smaller companies, our small business loans are record highs and growing at 8% a year and you know, those companies are active, mid-size companies are active. But they tend to be more driven by the U.S. economy, a little less driven by the global economy.
BECKY QUICK: Brian, the markets have been really volatile. We've pointed that out a couple of times. You were in Washington, last week, I believe, when the Dow was down by 800 points. You were there with Jamie Dimon and Michael Corbat from Citigroup. And the reports say that you got on a conference call with the President. What was he concerned about and what did you say to him?
BRIAN MOYNIHAN: What we discussed has not been widely reported -- it is not my job to talk about the conversation, but we were there for a different purpose. We were there to talk about technical banking regulations with Secretary Mnuchin and a team of regulators, just trying to help all banks to figure out how we can make these rules more for this case BSA/AML, sort of KYC – which of these technical rules and then how we can work on it. And we were asked to get on conference call and we did. And, you now, I'll let your reports speak for itself. But, the idea is: it's all about what is going on. And did we see something that would indicate it is not what we think we see? Which is the U.S. economy is okay. It is solid. It is growing to 2.3% is our prediction for the year. It has slowed down from 2.9 to 2.3 would be the view this year. But it has not slowed down to the place it hasn't been for a whole decade.
BECKY QUICK: Am I correct in kind of extrapolating from that that if you're asked about the market volatility, was it an overreaction when you saw the Dow down 800 points like that?
BRIAN MOYNIHAN: We get paid. We're long-term managers here. And I don't -- if I worry about that our stock did on a given day and wouldn't pay attention to it across the year, months, days, weeks and years and stuff, I think that would be a bad thing. So, yes, the market does bunce around every day. That's what makes a market, somebody sold, somebody bought. We're buying $7.25 billion in stock back every quarter. So, if the market takes it down a little bit – we'll buy a little bit more.
BECKY QUICK: Can I talk to you about the Business Roundtable? The business group, 200 CEOs came out and most of them signed a new directive this week, you included, that says the focus is no longer just on the shareholder, you have to look at other constituencies too. And that includes the employee, it includes the communities in which you operate. Didn't seem like it was that controversial, but there is a lot of controversy that has come out of that. People saying, 'Wait a second. They're greedy, just focusing on the shareholder before.' And this is a huge change on the other side of things. People saying, 'Wait a second. You're backing away from Milton Friedman saying you have got to keep your eye on business.' Which is it? Why did you guys do this? Why did you sign it?
BRIAN MOYNIHAN: Well, let's talk about why I signed it and what I do. Because I think each CEO could have a little different view. But the overall view was we have a common view, which is what that statement says. But, this is not something new and different. If you look at my shareholder letter this year, it is about how we have to mind the genius of the and. Great business writer Jim Collins talks about can you deliver on the genius of the AND – not the or? Can we both deliver strong returns for shareholders and help society, you know, make progress on its goals. We have sustainable development goals from the UN, we'll have UN Week in a few weeks and we'll talk about that a lot. But whatever the goals are, we as a bank have had this as part of our life since we started. We started -- financial services institutions, banks started as creatures of a community they serve. And if we don't have a strong economy, we aren't going to be successful. So, our goal is to help drive that. So, we believe in the genius of the AND. We have to produce strong returns –statement. We absolutely agree. We have to produce strong returns and we have to produce the goals in society. And the reason why it is capitalism is the only thing that can solve this. All the charity in the world is not enough to come close to making the progress we have to make on the sustainable development goals or on environmental component or any other component. $800 billion a year in charity in the world, we need maybe $5, $6 trillion a year. All the endowments and foundations, and they are wonderful people doing wonderful things, you could empty them all tomorrow and still won't do it. The entire U.S. budget, $4 trillion, still can't do it. It takes to private sector to drive the change. So, when you hear people talk about, you know, capitalism works, absolutely it works. That's why we're all capitalists. But we know we have to both deliver for the shareholders and deliver for society. And we do that by, say, -- we're two-thirds of expenses are people, and our talent is what makes our company successful. So, our human capital, which is the word people use to describe it, but our policy around teammates, whether it's our leave policies for family leave, 16 weeks, whether it is our $17 an hour, $20 minimum starting wage. Whether it is our 401(k) match that has gone on for years. Whether it is our healthcare which -- covers all our employees and 600,000 people. So, it's not only our 200,000 employees, it's their families. And it's a great program. And for people at the lower part of the pay scale, it's $200 a month family coverage that is second to none. Our retaining, skilling people, we're hiring 10,000 people from low and moderate-income neighborhoods that we've done. Whether it's the 17,000 people we reskilled to go from job A to job B in our company last year, or it's the 20,000 people we hired from outside to help generate employment. These are all things we do as a company, just around people. But why do we have to have the best people? Because that's what our company is. A lot of smart talented people and a bunch of computers they use to serve those customers and then we draw the business. So, it is not hard to square this, frankly. I think people made too much out of it, it is a big switch. The issue is the old statement was actually thrown up against the business community saying this is all you're interested in, when it really wasn't true. So – as an international--
BECKY QUICK: It was just expansion.
BRIAN MOYNIHAN: I'd say it is more of an alignment. We're aligning capitalism so people understand that the big companies both drive return for our shareholders and we help deliver on society's needs. And that's what we have to do. Because the governments can help, but they can't do it on their own.
BECKY QUICK: Brian, I want to thank you for your time today. We really Appreciate it. It is good it see you.
BRIAN MOYNIHAN: Thank you.
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