WHEN: Today, Friday, January 12, 2024
WHERE: CNBC's "Power Lunch"
Following is the unofficial transcript of a CNBC exclusive interview with Bank of America Chairman & CEO Brian Moynihan on CNBC's "Power Lunch" (M-F, 2PM-3PM ET) today, Friday, January 12. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/01/12/bank-of-america-ceo-brian-moynihan-our-customers-are-planning-for-a-soft-landing.html.
All references must be sourced to CNBC.
BECKY QUICK: Want to welcome Brian Moynihan, who is the chairman and CEO of Bank of America. Brian, big day for the banks. We have heard from a lot of reports, and there have been a little bit of confusion as people try to look through these numbers because there are some big charges that have gotten handed out to every one of the banks, FDI assessments and other things that have been included. On the earnings per share, you came in at 70 cents. That was above expectations, but it was down from last year. But why don't we dig beneath some of these charges and try and really get at what's happening with the bank? Why don't we walk through segment by segment? Maybe we could start with sales and trading, because revenue there was up by about 3 percent. What's happening?
BRIAN MOYNIHAN: Well, Becky, it's good to be here. And we will see you next week over in Switzerland. But if you look at sales and trading, Jim and the team have done a good job, for the year, '23 versus '22, up 7 percent, this quarter up a bit. We were down a little bit in fixed income this quarter, but year over year, it's up 11 percent. So things ebb and flow. They have made money every trading day. They have done a great job. They have gained market share. The equities business came up stronger in the fourth quarter, and -- but year over year is relatively flat. So they have done a good job. And then, when you move over to the investment bank and corporate banking side, loans grew, deposits grew in that area. And then, importantly, our investment banking fees, it seems, performed better than some of our peers. And Matthew Koder and our team have done a good job there running the whole commercial bank, the global corporate investment bank business, and also helping on the investment banking side. So we feel good about our markets-based businesses.
QUICK: In terms of consumer banking, revenue there was down by about 4 percent. What was the pressure? I think part of this may have been having to pay up to keep some of those consumer deposits.
MOYNIHAN: Yes, it's -- largely, when you look at the company overall, last year's fourth quarter of '22 was a high net interest income. And it, like all the companies, it's come down as rates, pay to consumers have gone up and the Fed has quit raising rates. And so if you look at that that affects consumers most of all, because they got 900, consumer segment, they have $950 billion of deposits, of which they pay 40, 40, 50 basis points for them. It's a great business. It, the deposit based, that business has stabilized. Credit card loans are up. The rest of the loans are relatively flat. Credit costs went up and affected them a bit just because we're building reserves for the credit card growth. But the team's done a great job there, and, importantly, 600,000 net new checking accounts, billions of, 40-some-billion-dollars of flows into the Merrill Lynch side for the investment side of that business. And we feel very good, and they have opened 50 new branches last year. And we have done, basically finished our remodeling of all the branches. So they're absorbing all expense and expenses relatively flat year over year.
QUICK: In terms of net interest income, down 5 percent. You mentioned the reasons why, just higher deposit costs offsetting those higher asset yields; $13.9 billion was the number that came in. What are you anticipating as rates potentially will come down, Federal Reserve may lower rates? What are you anticipating in net interest income for the current quarter and the rest of the year?
MOYNIHAN: Yes, so for fourth quarter last year, it was $14.1 billion. And then what happens is, fourth quarter of '23 to first quarter of '24, you have one less day. And so that's -- believe it or not, that's like $100 million, $150 million. So, we're saying, next year, it'll be $13.9 billion to $14 billion, which is consistent with what we said last earnings call. And the interesting thing about that is, since the earnings call in October until now, you have had the rate cuts in the market go from three to six. And so that's a major change in interest rates for 2024. And we still think we have the same trajectory. We come down a little bit in the first quarter. We bounce around a little bit down in the second quarter, and we start to grow out from there. And that stability is really the power of the deposit franchise starting to actually grow. We actually grew deposits quarter to quarter third to fourth, and it's very stable. And there's some seasonality in that, but we feel very good about that. And that's all advantage funding, which helps us grow the NII. But it's just a matter of basically getting loans to grow, getting deposits to grow, but also just taking the effects of the squeeze from the Fed. Fed quit raising rates and the deposit pricing gain for those deposits are more rate-sensitive.
QUICK: Brian, that's a lot riding on the idea that the Fed will actually start cutting rates in the first half of the year. And that's certainly what the market seems to think right now, but there are issues that could complicate that. Part of that is what we saw with CPI earlier this week. Obviously, PPI today showed that producer prices were down, but CPI was a little hotter and more stubborn than had been anticipated. And there are some headwinds out there, things like higher transportation costs when you look at what's happening in the Red Sea. You saw oil prices up 4.5 percent, maybe better than that today on some of those concerns too. If that starts to trickle back through into the inflationary cost, and the Fed does not actually lower rates sooner, what does that mean?
MOYNIHAN: From our company's perspective, that actually helps a little bit because the vast amount of short floating rate instruments we have from the, on the asset side and the cash, the $500 billion, almost $600 billion of cash we have that we put with the Fed overnight in very short Treasuries. But let's back up and talk about what we see in the consumer maybe and how we think that the market moved heavily, feeling the Fed should stop. They stopped. They have said they stopped. Everybody said they stopped. And then they started putting cuts in. And the market has, as I said, six cuts in, and the Fed dot plots have three cuts. Our team has four cuts, Candace Browning plots team. So, if you mix that all together, in the end of day, rates not coming down actually help us. But the reality is, is that everything's setting up for them to be able to normalize the rate environment, given that you're seeing consumer spending, which, for the first part of '22 to '23, was up like double digits, it's now down to 4 or 5 percent growth in the first part of '24. It's about the same. And when you think about that, we have been telling, thinking, watching that for years and years and years. As you look at that, that is more consistent with a lower-growth, low-inflation economy. If you think about the customer, the consumer-driven economy in the U.S. in terms of the amount of impact they have, if they're slowing down their purchases, that's not inflationary. Now, we have to get through the housing rollover and the inflation statistics. You have the issues you're talking about. If gas prices kick up, the consumer feels that. The consumer's expectations have stayed in line. So I think there's still some tenuous ground here where we have got to make sure we get a sure footing. But I think the consensus view, what we see in our customers, and what we hear from our commercial customers is, they are basically planning for a soft landing, which is still a major step down in growth from the third quarter of '23 to the first quarter of '24. You're going to see growth from 4 percent-plus to about a percent. That's a major downdraft in growth. And so the Fed at some point has to be careful it doesn't go below that. And these external factors could hasten them to do more faster cuts or cause them to hold on a little bit longer to make sure the inflation doesn't kick back in.
QUICK: Brian, Bank of America's stock was up, I think, 1.7 percent for 2023, versus a gain of about 10 percent for the financial sector overall. You all have been facing some headwinds, and a big part of that is that low-yielding long-dated securities that you really loaded up on during the COVID pandemic. What can you say about where that stands? I think the paper losses at this point on the securities are something like $98 billion versus $132 billion that you had been looking at before. You have been talking about how it doesn't matter. You're not going to take these losses. You just let it ride off. But when do those things actually ride off? And when does it give you more freedom to do other things with that money?
MOYNIHAN: So, why do we have to invest is that we have a trillion dollars of loans, $1.5 trillion, and we have $1.9 trillion of deposits and other cash and other sources. We have more than $2 trillion. So we have $1.2 trillion we have to put to work every day. Less than half of that is in the held-to-maturity portfolio. And it has run down $80 billion, $90 billion from the high and just keeps running off. And that was the plan. And haven't made investments since 2021. But, back then, when rates were predicted, we had to start extract value. And so that just keeps converting, $8 billion or $9 billion last quarter. It will continue to be that and it will continue to be converted over. Now, meanwhile, as deposits grow, we're building up more and more cash and we're just putting it short term as we did back then. So we bar belled the portfolio, still there. And that is earning 5. And so if you look in our materials, you will see that the yield of our, of the combined portfolio of a trillion dollars is actually continues to rise every quarter because you have the run-off in the lower-yielding, held-to-maturity and an increase in the asset, AFS and the shorter-term stuff. So we will ride that through, but it gives us a stability in NII even as it goes next year. And if you think about what people are saying, they're down a lot next year, we're basically saying, if you do all the math, we're down a couple of percentage of points for the year, which is outperforming others, because we have the stability, the earnings power driven by the deposit franchise. At the end of the day, we have got $1.9 trillion in deposits, which all it cost is 160 basis points or something like that. It's really, it's really fantastic base. But it's our customers and we do a great job to get it.
QUICK: You frustrated by how the Street has been grading it all, just based on the stock price itself? Has it been a frustrating situation for you?
MOYNIHAN: I never get frustrated, because, at the end of the day, if I go out and look at what our company does for our clients and our teammates and our shareholders and society, we generated on an operating basis $29 billion, plus earnings, 15 percent returns of tangible common equity, 90-basis-point return assets in a year which had started with people thinking there'd be a recession. It turns out of soft landing. It's a completely different environment predicted, as your colleagues were talking about bank disruption, all the things that went on. And yet we started the year with about $1.93 trillion in deposits. We end the year with $7 billion less. So all this idea that deposits are going to run out of the system for, you know, as rates got normalized, all that stuff, it's, none of us proved true. And I never get frustrated. We just go out and do what we do, is deliver good core earnings and we let the market take care of itself. And if the stock's cheap, we keep buying it.
QUICK: What's your outlook for the housing market, just given how mortgage rates have come down?
MOYNIHAN: Well, I think we're in a process, if we have 15 years of no rate environment, effectively, and people thinking that was normal, and we barely got normalized. We were just starting to get normalized at, in '19. And then the pandemic came and rates fell again. So I think it's just going to take a while for everybody to get used to a higher mortgage rate. But you're seeing that start to happen. You're starting to see that, as it even gets down a little bit, you will start to see the kick-up in activity. It's not going to be robust. It's not going to be a big refi activity. But we're basically getting, on home equity loans, a constant amount of production. And on the mortgages, we're sort of running in the same place, i.e., we're producing the amount that's running, being paid down every quarter. But it's not something, I think it'll be OK. I think the beneficiaries of the, half the households don't have a mortgage in America. So they are renters or own outright. The other half that do are benefiting by fixed rates. We have 40-odd of our mortgage portfolio on our books is all floating rates. So, those rates will start to, are starting to move up. And we will see all that play out. But, in the end of the day, people move because they either have more children or something like that, or they retire and they become empty nesters, or, unfortunately, the house is sold because people pass away. All those things are still true. It's just the refi activity is lower because people have low nominal rates, which is basically a good thing for American consumers and provides their ability to stay in the game and spend, because they have got, their mortgage rates, by and large, aren't shifting much.
QUICK: Brian Moynihan. Brian, I want to thank you for your time today. And we look forward to seeing you at the World Economic Forum in Davos on Tuesday. We will be talking with Brian Moynihan again Tuesday morning on "Squawk Box." And we will see you then. Thank you.
MOYNIHAN: Thank you, Becky.