CNBC Exclusive: CNBC Transcript: Bank of America Chairman and CEO Brian Moynihan Speaks with CNBC’s Leslie Picker on “Squawk on the Street” Today

WHEN: Today, Tuesday, December 5, 2023

WHERE: CNBC's "Squawk on the Street"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Bank of America Chairman and CEO Brian Moynihan and CNBC's Leslie Picker on "Squawk on the Street" (M-F, 9AM-12PM ET) today, Tuesday, December 5. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2023/12/05/short-bank-of-americas-moynihan-our-nii-projections-are-to-grow-next-year.html.

All references must be sourced to CNBC.

LESLIE PICKER: Hey, good morning, Sara. And, Brian, thank you so much for being here. Really nice to sit down with you in person. I want to kick things off with rates because we've seen a pretty drastically different environment in recent weeks with the long end of the curve coming down quite significantly. Concurrently, Bank of America's stock price has surged 17 percent in the month of November alone investing most of its peers in the financial services industry in general. In large part, in talking to investors and analysts who have a thesis on this, because of the $131 billion in unrealized losses, the lower end of the curve coming down would, you know, create some sort of a dent in that figure. So, I'm curious how your plans for capital allocation change in a more benign rate environment?

BRIAN MOYNIHAN: Well, first, it's great to be here, Leslie. And we just, here at the Goldman conference, talking about -- all of us talking about the industry and the companies. And I think, look, you got to get to normal. And an inverted rate curve is not normal. And as the Fed has raised it to fight inflation, as inflation is tipping over and coming down, as the indicia of future inflation are coming down, you know, the job openings today being lower, the unemployment rate going up a little bit, spending slowing down year over year, that we can talk about all that, but that's happening. And so the rate structure is settling in. And that has two -- an interesting impact. You know, if you have a lot of zero interest funds, the rates coming down don't help. But on the other hand, stabilization in rates means the economy will kick in and the activity will kick back up. So, if you look at investment banking activity, you know, slow this year because of the uncertainty, picking back up as people think there's certainty and then we'll pick back up. So, these things all work out and balance each other out. But, you know, we manage the money to be – the company to be fairly balanced. So, our interest rate sensitivity today is no different than it was two years ago to rise in rates that's across $3.3 trillion of balance sheet and work you're trying to he keep the interest rate sensitivity relatively the same so– that you can then earn, you know, $14 billion in a quarter.

PICKER: But, you know, lower rates has certainly been a tailwind, at least in November, because there is this perception that the underwater securities are, you know, impacting them. There's an opportunity cost associated with that. You're turning over about $11 billion each quarter as these securities mature and get paid down. How much longer do you think the balance sheet will be something that analysts and investors continue to talk about?

MOYNIHAN: Well, I think when we talk to people who own the stock, they see the earnings power coming up. And so our NI projections, which reflect the whole company, are to basically come down, bounce along and then grow next year. That's wholly different than anybody else. And part of that's the stability in the deposit franchise and part of it is, as rates fall, the short rates, the people who only have their money shorts coming down, we have $500 billion plus in cash in short-term securities on top of the $500 billion and change we have on the other side. So it's a balanced book and so that we don't get hit as hard when rates come down because if you're all short, that's going to hurt. But in there there's floating rate loans. There's $3.3 trillion. But the difference between us is we see NI peaking back up. We're $5 billion higher than the trough a few years ago. We are now seeing it flatten out at this level and grow. And that's different than others because that's the power of the whole franchise, not in any individual part.

PICKER: Is that true even if rates continue to go down? Because I know you had 57 -- you're on track to produce about $57 billion worth of NII this year. That's 33 percent higher than 2021. Obviously, thanks in large, large part to a higher interest rate cycle this year. So, do you think that peak benefit is behind us or you think it will –

MOYNIHAN: No, in those projections is rate cuts next year.

PICKER: Right.

MOYNIHAN: Yes, so we follow the curve. So, as rates cut next year and the year after that, you know, our team has the economy troughing out to like a half a percent growth beginning in the first part of next year through the middle and then it starts growing a little stronger. They have two rate cuts next year – two to three rate cuts and they have four the next year. So, the rate structure will be higher. And in that rate structure, it's actually very beneficial, our franchise. What you need to do is have loans and deposits start to grow. So, when we were at this conference last year, we would have had everybody talking about, well, you know, will the deposits go back to where they were pre-pandemic. And we were trying to show people that if you took the growth rate in deposits, you know, you were coming back to that level to be back on the trend growth rates. For us, that's $1.5 trillion to $1.9 trillion. Our deposits are actually growing again. And so when those deposits grow, at a cost of 150 basis points, whether Fed Funds is 5.5 or 4, that's still a nice profit margin that we can get out of that. And that's what we do.

PICKER: We've seen some -- you mentioned capital markets and kind of the interplay there in terms of lower rates being beneficial for deal-making activity. We've seen some headlines, especially as it pertains to IPOs, some M&A activity. Do you expect to see a significant rebound in advisory and underwriting work, and will it be enough to kind of offset some of the pressures of interest rates coming down?

MOYNIHAN: Well, the natural power of the franchise is different things go differently different times and it's all good. But just to be specific, you know, the industry fee pools are down 10 to 15 percent for this quarter so far. We just told people our estimates for $1 billion in investment banking fees this quarter. And that's down low single digits. And so we're outperforming the industry and gaining market share and Matthew Koder and our team continued to do that. On the trading side, you know, we basically said to people, we'll be up a little bit from last year. It probably will be, as best we can tell right now, it will be the best fourth quarter we've ever had in the trading business. Jimmy DeMare and team have done a good job there. So, those businesses are kicking in. When you go to broader activity, the activity has been muted because of the volatility around the future. And so people -- it's hard to commit to buy a company if you're not sure what's going to happen. And as that becomes clear, and the cost to credit has gone up dramatically for companies, the cost of financing is up, you know, 500, 600 basis points relative which pushes up in the low double-digit for some of these deals, that slows everybody down because it's going to take either a lot more equity not to have to pay that financing cost or a lot less price and the sellers don't always want to sell that. All that equilibrium comes back in as the rate structure settles into any rate structure as long as it sits there and people can depend on it and figure their way around it. So that's what you're starting to see. Now, what drives our company? We have a big consumer business. We have a big wealth management business. One of the biggest in the world. We have the biggest consumer business in the United States. We have a big wealth management business. We have a big commercial banking business. And we have investment banking. And we have trading. And so you've got to think about the whole company and the rate structure and the activity level has been strong in the company overall. Or solid, I'd say, better, having slowed down from the post-pandemic recovery but pretty solid.

PICKER: I want to ask you about credit expectations and net charge offs. Last quarter your NCOs were still below pre-pandemic levels, although they have been increasing each sequential quarter. What's your outlook for credit quality as exemplified by the health of your lending book right now?

MOYNIHAN: Well, we drive responsible growth. Our c-card has shown that our lending book is more resilient to economic stress than anybody else of the large peers. And so we feel very comfortable with the credit. And the key that people have to think about is that the charge offs we're moving to now, when you say they're pre-pandemic, pre-pandemic was like a 40-year low in this company's history. So, this is very good credit times on a relative scale. So, it will all be dictated by the path forward of the economy. And if the economy does hit a soft landing and unemployment sort of peaks in the, you know, low to mid 4s, we actually built a reserve already as if it got over 5 to give you 5 percent. And so if all that happens, we should have strong credit quality out there. But we're going to reflect the economy on the credit quality. We'll be better than other people by our own determination and by the objective facts of them running 30 companies through a screen and looking at it. But the reality is, it ebbs and flows, the economy, but it's still in very good shape. And even on office space is relatively modest part of our portfolio, 2 percent. It's not something that concerns us. But it's really going to ebb and flow with the economy. And if you look at our general corporate book, it's in very strong shape.

PICKER: And from your vantage point, the state of the consumer also in a good shape? I know there were some kind of differing perspectives on what to make of Black Friday, what to make of Cyber Monday in terms of the health of the consumer.

MOYNIHAN: So, if we start from – just to get a baseline, from '21 to '22 across 60 million American consumers that Bank of America has the privilege of doing business with, about $4.5 trillion goes out of their accounts every year. That was up 9 percent from '21 to '22. Towards the end of '22 and early '23, it started slowing down. This year to date, through November, end of November, is up 4 percent versus last year. So, you saw it cut in half. In the month of November, like that. But in every case bigger than last year. So Cyber Monday, bigger than last year. Black Friday, bigger than last year. But 3.5, 4 percent bigger. So, they're records, but at a much more modest gain. That spending growth rate is very consistent, 17, 18, 19 -- 2017, 2018, 2019 with a low growth, low inflation economy. The second thing is, consumers have money in their accounts. And so if you look at the people that took the money out of the consumer banking system are the people who have discretionary funds that were getting no interest rate – you know, and during the pandemic period who put it in the market. But in the core checking accounts, for people who had, you know, under $5,000 in average balances, or 10,000, those are multiples of where they were pre-pandemic. Are they coming down a little bit? Yes. Year over year they're down like 4 percent, between $5,000 and $10,000 average. One percent between $2,000 and $5,000 average. Very modestly. That's year-to-year statistics. But, overall, in very good shape. An then they have credit capacity. Their homes are worth more and things. And so, for the prime American consumer, they're employed earning money – earning more money. Now, is inflation tough on certain segments of the economy, absolutely. And that's what you're seeing in the tension between how I feel versus what I do. And how I feel is, I feel inflation, I'm reading about everything is more expensive. What I'm doing, I'm going to concerts, I'm spending money on entertainment, 7 percent in November, higher than last November, to give you a sense. I'm spending a little less money on goods because I bought all that stuff in the pandemic. I don't need to buy it again. But I'm doing entertainment. I'm traveling more. And so the way consumers are spending money is leveling out. But all in all in pretty decent shape.

PICKER: So, normalization, not necessarily deterioration, at least at this point.

MOYNIHAN: It's deterioration from where it was, but that was a false positive. In other words, that was so positive that it had to go back on credit and things. But still in very good shape.

PICKER: Brian Moynihan, I know you will be speaking in front of the Senate Banking Committee tomorrow. All sorts of topics at hand, including regulation. Basel III endgame, what that all means to your business. We will be looking forward to that. I'll see you down in D.C. And, in the meantime, really appreciate your time today joining us on Squawk on the Street.

MOYNIHAN: Thank you, Leslie.

PICKER: All right, Sara, I'll send it back over to you.