WHEN: TODAY, WEDNESDAY, APRIL 28TH
WHERE: CNBC's Business Day Programming
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Bank of America CEO Brian Moynihan on CNBC today, Wednesday, April 28th. Excerpts of the interview will run throughout CNBC's Business Day Programming.
All references must be sourced to CNBC.
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BofA CEO Speaks Out
Insight on Bank of America and its shareholder meeting today, with Brian Moynihan, Bank of America CEO.
BRIAN MOYNIHAN: Thank you, Maria. And it's nice to be here. How are you doing?
MARIA BARTIROMO: I'm doing great. So, your most recent results were better than expected. Can you characterize business today? What's driving business at B of A?
BRIAN MOYNIHAN: Well, I think there's two core drivers of what we're doing at Bank of America. First, the credit situation-- has improved. It improved from the third quarter, fourth quarter. And it improved again from the fourth quarter to the first quarter. And as that-- the credit-- mar-- the charge offs and provisions recover, our earnings are recovering.
But then the second and-- and more positive view is what's going on in the-- some of our businesses. So, we had all our businesses return to profitability this quarter, except for the home loan area. We still have to do some work. Tom Montag and his team have had a fabulous-- another fabulous quarter in the-- in the sales and marketing-- markets area. And in the investment banking-- Sallie Krawcheck performed well. David Darnell's global commercial business returned to strong profitability. Our core consumer business under Joe Price performed well. But-- so, the businesses are coming back. Now, we're still-- got some room to go, but they're coming back.
MARIA BARTIROMO: So, sales and trading once again showing real strength. Does that mean the risk trade is back on?
BRIAN MOYNIHAN: Well, I think we-- in fact, we lowered our risk during the quarter, all during the quarter. And I think it's just-- we just have a great client franchise. And so, what's-- what's back on is the clients are active. They feel-- good about the markets. Relatively good about the markets, compared to where they felt six months or a year ago.
And so, there's a lot of act-- a lot more activity. And ebbs and flows on a daily basis. It's really good client activity from both the issuing side and the investment banking area and the capital markets area. And from the investor sides and Thomas Dean's doing a good job of supplying-- those cu-- clients with-- with what they need.
MARIA BARTIROMO: Yeah, that's-- that's a great point then. It's nice to see, actually, that-- investors are-- are-- participating once again, if you will. So, profits did decline-- mostly because of lower mortgage banking activity. Can you talk to us about how fragile the housing market is right now from your standpoint?
BRIAN MOYNIHAN: Well, I think it's-- the housing market is stabilizing. We're seeing prices stabilize-- and grow in some areas. And you've seen all the national statistics. But it's still-- we've still got some work to do in the mortgage-- company-- our company, but also in the market generally, because we've got to-- get through the-- delinquencies and foreclosures. And we're doing everything we can to modify as many home loans as we can. Well-- well over 800,000.
But there's still a lot of work to do for people who-- who-- who got into-- product or over-borrowed. And-- and now have either suffered unemployment or lesser wages. And working with them to try and figure out if we can help them through this tough time. So, I think housing prices are stabilized. Some markets they're still going down. But compared to where we were over the last 24 months, very stable.
You're seeing-- housing pric-- housing sales move a little bit. But most importantly, we're starting to finalize on the delinquency side, so we know that we got a group of customers we've got to work through in their defined group. And we're doing our best to help them through this tough time.
MARIA BARTIROMO: Of course, financial reform is coming. As-- as we watch the-- Senate-- take a look at this-- this latest proposal. When you look at some of the proposals, what in your view is most important, in terms of financial reform, Brian? For example, I want to get your take on the stricter regulation of derivatives in particular. You know, some people say that the reform is actually, basically, forcing banks out of the business.
But I wonder if this is positive for the real economy or not. Because there are some companies who actually want a structured product versus a product. And will they be able to get-- the kind of product that they want if in fact we see the-- the-- stronger regulation in the derivatives part of things?
BRIAN MOYNIHAN: I think we need to think through what-- what the purpose of derivatives are, when you talk about the reform. And if you think about it, the reason why we do 'em in our bank is we do 'em for a lot of bank customers. So, think of a middle market company, a manufacturing concern that is exporting to-- or importing from Asia and it needs to hedge the currency risk.
And they're gonna want to do that in the context of maybe they have a $30 million evolving line with us. And they want to hedge that risk. And part of the exposure we'll take-- to help them hedge that risk. If that's not allowed to be done in a bank where the loan agreements are obviously gonna be-- we're gonna have to put it over in a securities firm, which is not impossible, but will require them to do another set of documentations and increased expense, it makes that client's life more difficult. Not necessarily ours.
And so, what we're trying to say is from both hedging our own risk as a bank and also working with our clients to help match up where they do business with us-- a poor middle market company is to put them-- is to have them be able to do that in a bank for the customer business under the-- current rules, which are-- are fairly restrictive in what we can do. And-- and I don't think you look through this-- crisis that we saw big issues inside banks with derivatives. It was more in brokerage firms, which I think the-- the-- the more proprietary-oriented or-- or different kinds of clients can be in those business. But I think we need to get careful as we do this or we will affect the real economy.
MARIA BARTIROMO: So-- so, let's-- let's talk about the changes coming and-- and whether or not your business changes as a result. So, knowing what-- knowing we will see a change in the regulatory environment, what will your core business be going forward?
BRIAN MOYNIHAN: Our business will be the same as we have today. There's nothing in this regulation-- reform package that we think a lot of this-- the reform package is very good. What-- and we support a lot of it. And we think it will help-- move the country forward and the world forward and move our industry forward. So, we-- we have been supportive of a lot of the different parts of it.
Not every part do we agree with, but we've been supportive of the lion's share. But we think that the core areas of consumer protection, the core areas of making sure derivatives are on-- either-- cleared through either exchanges or through clearing houses. To help find the risk and make sure it's transparent. Those are-- those are things that we've-- been clear about that we agree with. We have to be careful that we do it in a way that we don't affect the real economy and that's what we've been concentrating on.
MARIA BARTIROMO: Yeah, for sure. So-- so, how does the industry look then after reform? You're saying maybe it won't look that different? I mean, is it fair to say that we're talking about smaller balance sheets, for example? Less leverage, for example? How might the industry look different post reform?
BRIAN MOYNIHAN: Well, that's all going on as we speak, Maria, in terms of-- if you look at us, we've doubled-- doubled our changeable capital over the last-- more or less over the last eight, nine quarters. Our capital are up, our balance sheet has been relatively-- stable, in other words not growing a lot. And we'll have an ability to grow our core businesses without growing our balance sheet.
The new proposed rules and rules will-- ca-- require us to keep more-- capital and liquidity. It will require-- we were getting out of certain types of things, we've sold as-- as you may have read in the last few days, some private equity positions. And de-emph-- taken that business down some. Because it's-- not a core activity in what we do.
So, if you put all that together, we're gonna-- we are as an industry gonna have less leverage. We're gonna have-- more transparent risk. And we're gonna do it in a way that's more geared to the client as the balance between client and non-client activity. All those are good things, and we've been clear about that. That we believe those are good things for our industry to-- to do.
MARIA BARTIROMO: Yeah, very, very interesting. So, too big to fail, obviously, also part of the reform as the Senate regulator. Now, you've got-- different cultures at Bank of America. Some-- some complex businesses as well as pure vanilla. You've got a culture-- of investment banking at Merrill and the mortgage business with Country Wide, of course. Obviously, the Bank of America culture. Are you too big to fail?
BRIAN MOYNIHAN: I don't think-- I think the idea of too big to fail, we think that institutions who run through their capital and are in a position-- should be resolved in a way that-- that is-- doesn't disturb the rest of the economy. And we think that a lot of the proposals, discussions will do that.
I think we-- the issue that you have to sort out is failure versus too big. We think that we have to have a size and capital base, the $200 billion of capital-- dollars of capital we have-- allows us to do things for our clients that only large companies can do. At the same time, the earnings power and size of our franchise allows us to give away the $200 million to charity we give away every year. Or make the-- trillions of dollars of commitments we make to-- to-- low and moderate-- house finance. Or it allows us to do the $300 billion of mortgage originations-- a year to bring out the most innovative products.
So, being big allows for-- large and innovative-- activities to take place. And now we just have to be careful that we manage the risk well in those. And-- and that will serve us well as we go through the next-- good period and-- and ul-- ultimately the next bad period. I-- I just think that the idea of too big is not the-- the-- the failure ought to be when you run through your capital and have problems. The idea of being big-- it's important to have big financial institutions to help our big clients, to be competitive in the worldwide and to provide the kinds of products and services that we can provide.
MARIA BARTIROMO: Now, that makes a lot of sense, Brian. So, I'm not gonna ask you about Goldman Sachs, because I realize-- I've read it in the press, you did not do what-- what Goldman was doing on these synthetic CDOs. But-- but let me ask you in-- relative to that, how much of a threat in your view are copycat lawsuits? I mean, this is something obviously stemming-- after the Goldman Sachs fraud charges. Or is this an opportunity-- for B of A to build upon a competitor's weakness?
BRIAN MOYNIHAN: I can't reflect on the Goldman situation. I don't know the facts. I just know what I've read in the paper. And you-- you've read all the same stories I've read. I-- I think that-- just broadly on litigation and our-- in our industry, there are-- we continue to-- to work on resolving lawsuits-- about various issues and resolve our-- settlement with the SEC. And we're working on some other ones which-- we're trying to resolve.
We're trying to put some of the issues of the past behind us. Whether it was some of the companies that we're cleaning up. Whether it's old Country Wide or old Merrill Lynch and cleaning up their activities. And litigation's a part of-- of life. And-- in our business. And it will continue to be. But I wouldn't get into Goldman Sachs and-- the issues there, 'cause that's-- lawsuit which is-- they'd know the facts and I wouldn't know.
MARIA BARTIROMO: Right, of course. Of course. I'm hearing Bank of America has been real aggressive recently in terms of poaching the talents-- at pretty good salaries. One person says that-- the company was willing to pay someone at his firm three or four times what you would have a year ago. Are we back to the big bonus culture? Or is this just-- business-- the business of staying competitive?
BRIAN MOYNIHAN: Well, I think it's also-- in my experience as everybody always says somebody else is paying a lot for the people they hire. So, that's just the nature of the business. But let's-- if you step back and look at the context-- the best year ever for Merrill Lynch and Bank of America, as if they were combined was-- three or four years ago, 2006. And Tom Montag and his team business their relevant-- almost-- earned 20 percent more money than-- than those combined businesses earned in their highest and best year together.
Had 95 percent of the revenue and had 30 percent less expense. So, we're doing a very good job. And when-- when that business performs well-- people-- get paid and deserve to get paid. And we've tried to balance the interests of our shareholders, the-- the world and everything as we deal with compensation. But it's a competitive market out there. And we need the talent to run this-- big powerful franchise for our customers.
MARIA BARTIROMO: What about this responsibility fee, Brian? I mean-- banks are getting the brunt of paying for the missteps, even though other industries also had missteps. Look at the autos, look at the housing companies. What are your thoughts on this responsibility fee that-- is being talked about?
BRIAN MOYNIHAN: I think we're in the discussion of how to apply it. I mean, it's the law of the land. The idea was in the original TARP legislation that-- that our industry was-- expected to-- the financial services industry broadly, it was expected to pay for it. I think clearly we believe that it should be-- a broad-- a broad application and it should be focused on what the financial industry contributed.
The idea being that-- that if we pay all that back between what we do with the FDIC and what we do in the-- TARP responsibility fee and the legislation is effectively a banking industry, the financial service industry is reimbursed-- the-- the U.S. and-- or paid for itself for all the-- the risk. And I think that that's a fair request on the part of the U.S. taxpayer. But I think it's gotta be dealt with fairly through the industry.
MARIA BARTIROMO: What can you tell us about the consumer in the retail segment today, Brian? Some people are worried that all sorts of credit is down. Home equity, credit cards-- is the consumer getting squeezed? What are you seeing in terms of the health of the consumer right now?
BRIAN MOYNIHAN: Well, I think there's two elements to that. One is-- that if you look from first quarter of last year to first quarter of this year, our consumer credit at Bank of America and the about $37 billion or about eight or nine percent. Figure that type-- amount. Of that $37 billion, $33 billion is actually charged off credit. So, Brian Moynihan still has the credit, we just said we can't recover it and had to charge it up under our rules. And then we may it down the road.
So, the number one driver of consumer credit coming down has been charge offs in the near term. Longer term, that'll change as charge off levels mitigate. The-- the issue on credit availability really is for consumers who are credit worthy, we continue to-- we did three quarters of a million new credit cards in the first quarter of 2010. In the small business arena, we did well over $3 billion, plus the new credit originations in small business and me-- small and midsized businesses.
We continue to originate credit for credit-worthy customers. The issue is that the customers are really pinched, may not have the credit worthiness. And that's-- that's where the tension comes in you read a lot about. So, that's the small business and certain industries. That's consumers who have suffered declines in income. And-- and maybe have-- credit scores and other behavior that we can see that they haven't-- they've become delinquent in other-- other accounts.
Those are very tough circumstances. We continue to work with people. But overall, we're making a lot of credit available, but it is narrower, because it's against the people that are a-- are credit worthy in the current environment. And that's a smaller group of people than it were two or three years ago.
MARIA BARTIROMO: Sure. That-- that-- I get that. Growth at Bank of America right now. What are your plans in Asia, which, of course, is the vibrancy of the world right now. And what about Europe? Still important to the firm or no?
BRIAN MOYNIHAN: Both of those are very important for the-- firm. If you think about what Merrill-- what we-- we brought as we brought Merrill and Bank of America together is we ended up with an international franchise, which is much more balanced against the size of the-- of the large corporate customer base we have. And the investor customer base we had.
So, what we operate around the world is our wealth management business. Our--investment banking business and our sales trading platforms. And we're continuing to expand. And it's really hiring people, 'cause we had nice-sized operations to round out our carry. So, we just hired a fellow to run-- EVA-- investment bank. And then Christian Meissner who-- is gonna come in and work there for us. We hired-- some people in Asia to come in and help on the sales, trading side, the investment banking side. Our-- our goal is to continue to expand our franchise, 'cause our customers, who are global customers need us to do that for 'em.
MARIA BARTIROMO: Brian, would you like to add anything else that I may have missed?
BRIAN MOYNIHAN: Well, I think, Maria, we-- we're pleased that the first quarter was-- returned us-- some-- earnings of-- $3 billion plus. We see the economy healing. So, we're optimistic here. And-- and we hope that-- the economy continues to recover. And that'll be good for our company. And-- and our country, frankly.
MARIA BARTIROMO: And-- and certainly good for the country, as well. Exactly. Brian, good to have you on the program. Thanks so much.
BRIAN MOYNIHAN: Thank you.
MARIA BARTIROMO: We appreciate it. Brian Moynihan joining us from Bank of America.
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