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- [00:00]
A
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- [00:29]
B
Bloomberg Audio Studios Podcasts radio news for our Bloomberg audiences worldwide. I'm David Westin. I'm delighted to be joined now by Brian Moynihan. He is indeed the chair and CEO of Bank of America. So first of all, happy holidays. Brian, great to be with you.
- [00:46]
C
Happy holidays. David, good to see you again.
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B
So let's start with the year. It's been a very strong year for the markets, by the way, a very strong year for bank of America. In the markets, the economy's done well. Not as well perhaps, as the markets might indicate. Do you think the economy is in better shape because the markets are really over predicting what's going on?
- [01:07]
C
Look, as you look at our team that we have a great research team, as you know, David, their projection for 26 is a strong economy, 2.4% US GDP growth. And that's strong not only on a relative basis to trend above 2%, which is the trend, it's strong that way, but it's also strong relative to the rest of the world in the sense that it's, you see that other basically whether it's Euro or Japan, other parts of the economy, you predict those to be flat to down. And so it's strong on an absolute basis relative to the United States history and strong on a relative basis to the other economies. And that's because frankly the great American engine of capitalism, consumers are driving it and the markets are valuing that future growth rate. And that's why they've been very, very constructive this year.
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B
How much of that engine that you talk about is AI investment, because that certainly has kicked in this year. How much of the growth is really attributable only to the investment?
- [02:04]
C
You know, I think you'd have to get people to parse it. But for this year, frankly, the investment's been building during the year and is probably a bigger contributor next year in the years beyond. And so if you look at the data center build out, which is one of the ways that evidence itself, that's a big deal. If you look at customer client spending, like US spending on AI, that's higher than it was last year, but frankly overall spending levels are shifting towards that, not necessarily growing at a Mid single digit rate type of number. So I think that's part why. The reason we feel constructive for next year. We think spending continues, we think there's benefits to the American taxpayer from tax rebates, lower taxes due to the tax bill going through and being effective for next year. And we think the expense expensing and other bonuses for businesses are good. So all that leads to our confidence that we go from basically a 2% type of growth letter level this year, plus or minus up to 2.4% which is all due to that in AI ISE kicking in more and more. And so it's not all attributable, but that's having a marginal impact is pretty strong.
- [03:08]
B
So much of the American economy is supported by the consumer. And you at bank of America have a really powerful viewpoint into the American consumer. How's the American consumer doing? Because it has been very strong. There have been some people saying it's starting to slow down.
- [03:22]
C
Yeah. And so I think you have to step back. We look at American consumers, 70 million consumers putting four and a half trillion dollars plus into the American economy every year. And we've tracked the way that goes in the American economy for many years. And so in the third quarter it was up about 5% over last year. As we look at the fourth quarter here so far in October, November, I'd say it in a four, four and a half percent, which is very consistent with a very solid growing economy. You know, in the end of day it's going to work against wage growth. And we see in the underlying consumers we have wage growth, that is their paychecks are going up. And so the labor market's flattened out a little bit in terms of job growth and things like that. It's normalizing in terms of unemployment, but you still see underlying wage growth. So the American consumer spending it 4% more November this year versus November last year is a very solid backdrop. The credit quality American consumer is strong. And then you hear a lot about this discussion about different rates of growth among different income tercels or third. So we look at the bottom third, middle third and top third American income people in the bank of America customer base, we do see differences. That is the higher income and middle income are growing faster but, but even the lower income third is, is still growing. And that's all good. And that means why is that true? Companies are employing people, they're paying people. Now the labor market's got a little soft. And as we look Forward forward at 4.5, 4.6 unemployment that is gotten worse, so to speak, than it was the beginning year. But frankly, this goes back to normalization question. If you look at the 10 year average unemployment, the 20 year to 30 or 40 year, it's 5 and 6% as you go back through time. And so a 4 and a half to 4.6 unemployment rate is a very strong relative unemployment rate. It's just a lot of the years it's been below four and a half percent has actually been in the last 10 years. So people are very used to numbers now which were part of the tightness in labor in the 2017, 18, 19, 19 era. Then you had the pandemic and it retightened and so it's, it's normalizing, but we feel good about all that in the consumers in pretty good shape, spending more money, employed and earning more money, but differences between different types of consumers and then being wise in how they spend. If they, you know, they trade down and all the things you hear in the retailers talk about, true, but the aggregate amount of moving in the economy is still growing, so.
- [05:38]
B
So you mentioned flattening out in the employment growth. There are always risks to the upside and the downside in any of the numbers that we project. How concerned are you about the downside? Because certainly the Fed is very focused on a softening labor market and whether that may be a problem for us.
- [05:54]
C
So if you look at the predictions for our team and the other economists for unemployment, we're kind of peaking out at this level now in the mid to 4 or 5, 4, 6 range and that sort of flattens out. But the Fed has to be wary because they have a mandate to maintain full employment and we're at full employment now and they have a mandate to maintain price stability and inflation fighting. And those two mandates can work together sometimes and against each other sometimes. Right now we're in the unusual case where the labor market is getting has softened and yet the inflation, because the massive buildup, inflation after Covid and stuff, is now still working its way down. Our team predicts that the inflation rate will get to the Fed's target through the end of 27, but it's continuing to work in the right direction, which gives a the Fed in our view, latitude to keep cutting rates next year, especially in the first half that will then provide a stimulus in the second half of the year. Those rate cuts do benefit the consumer somewhat, but in fact benefit small businesses because in midsize business they borrow on lines of credit, which are indices, are floating rate indices. And as rates come down, they get instantaneous benefit. And if you hear our small medium sized businesses are pretty optimistic about next year telling us they expect to grow, they expect to hire more people and those small business are backbone of the US economy. We're the largest small business lender in the US economy so we see them being very active.
- [07:17]
B
This year has been good for the markets. It's also been good for bank of America. I believe you hit an all time high in your stock price today. Intraday at least. What do you need in 26 to continue the growth?
- [07:30]
C
Look, we just need our team that's done a great job for us over the last several decades to keep doing it. And what they need to do is go out and get one more client and do one more thing with every client we have. And they know that across all our businesses, whether it's our markets teams, whether it's our global corporate investment bank teams, our consumer teams, our wealth management teams, all of them need to go out and just drive more business. And at organic growth engine, which you described our investor day a while back, you know that is intact. It's been growing with the market and now because of some dynamics and repricing the balance sheet, we'll get more earnings left out of it like we did in the third quarter. But that that organic growth engine, more customers and more of each customer has been driving a Bank of America and our team just need to do more of that and they know that.
- [08:09]
B
How sensitive is your performance at bank of America to what the Fed does on interest rates? I mean if it actually cuts faster than people think or doesn't cut as fast.
- [08:20]
C
Look, at the end of the day, if our team predicts and most the economists out there predict that the Fed funds rate will go from where it is now down closer to 3%. And the debate might be two and three quarters, three, three and a quarter. But it's a debate that nominal rate environment from say 3% fed funds rate to maybe a 4, 4 and a half percent, 10 year treasury rate, that's a good normal interest rate curve where banks can do well and our bank can do very well. We have a $2 trillion deposits and a trillion of those are low interest, no interest accounts. And if the nominal rate environment sits in around 3%, it's a very good environment for our company to grow its earnings streams while it's growing its customer and its balances and its deposits and loans.
- [09:03]
B
You recently had investors day and you went through in that your investment in tech, which as I recall is $10 billion over 10 years, $1 billion in this year alone. What did you get for that? How do you monitor the return on investment of that kind of tech investment?
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C
Yeah, so. So each year we have about $13 billion in total tech spending. About 9 to 10, 9 or so of it is the running the environment, protecting the environment, and sort of what they call the infrastructure, both the systems and protecting those systems. And new software purchases, about 4 billion is what we call initiatives. And that's the new products, new services, the things my teammates love to talk about. And what do we get for it? How do we measure it? We literally look at every project we do and say, what's the payback in terms of additional revenue, additional expense or simplicity? Expense taken out of either reducing work or simplicity in the systems environment. So we measured all that. It's got to be above our cost of capital. That's a technical way to measure. But what you really see is that deployment of, of lots of capabilities to help our customers do much greater things with AI, with agents and all the things we work on, but also our teammates to do great things. So this year we deployed our 365 copilot will finish the end of the year with 200,000 people up and operating on AI. And it's just tremendous. That's all part of that major tech budget. But also part of that is just the nuts and bolts of having a better trading system or enhancing that trading system, our Data. So that 4 billion plus a year is really important to drive the initiatives that we have as an innovation company.
- [10:34]
B
So we are in the early stages of AI. Even though you've been doing it bank of America for a while now, how far will this go for bank of America? What will bank of America look like 5 years down the road because of AI? How transformed will it become?
- [10:49]
C
Well, I think, I think to answer that question, no one knows precisely for sure, but what you will know is we'll be applying more and more of automated intelligence, or augmented intelligence, as we call it, with a person using AI, using that to be more effective. And that'll affect all the businesses. So if you look historically, we deployed AI more than five years ago with a product called Erica. Erica was an agent bot, a small language model, and all the words we use today. Back then we didn't. Over the last 24 hours, Erica interfaced with 2 million bank of America consumers and answered the questions. It went from 200 questions it could answer to about 700 questions can answer. About 20 million people use it. So we have great experience of how that Worked. But what part of that experience was you have to have your data perfect, you have to have the controls around it so it answers the question right. So the customer's getting a good answer and you have to be able to transmit that answer at, you know, instantaneously on an inquiry across the hundred systems that touch our mobile bank or digital banking out to the customer. So it's, it's a lot harder to do. Now the interesting thing is we took that Erica and we put it in our institutional side business. So Cash Pro with Erica and hundreds of thousands of interactions with institutional customers using it to answer questions about their accounts. Then you took it and put in an internal environment so people could work with the IT department to get their laptops replaced or passwords changed. So we use that model plus other models and we believe it has a big impact. Where exactly it goes we'll figure out. But what we know, there'll be more of it. It'll be helping people be smarter, more efficient, help us take work out that we can get out and invest in work that helps our customers and our teammates be more successful. And we are after it every day. And we have 30 proofs of concept going, we have money we're spending and all that stuff. But a lot of this is really fairly controlled right now to make sure that we can actually deliver what we say when we put an on. We just can't let it run and have answers that customers won't have faith in. And that's why it'll be a little slower build out to think people see. But a relentless build up from your.
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B
Experience so far and what you project out, when you look at the return on that investment, how much of it's from growing the top line that is increasing revenue and how much of it is from cost savings because of use of AI.
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C
I think when you look at it in the very near term it's mostly about process engineering. So embedding AI in the discrete process to take out work and that we've been doing for years, for several years. So we see it. And before that we had machine learning and other digital digitization. And that was a capability that we built, but also the customer would use. That's an operative term here is a customer has to use the techniques and things that we build. I think over time it'll be much more about enhancing the revenue side. And so if you look at our proofs of concept, our projects going in and out, proofs of concept and more implemented, we have a relationship management preparation tools or pitchbook Preparation tools that allow us to do more, faster turnaround, better preparation for meetings, better idea generation for meetings with clients. And we know that will generate additional revenue. So there's equal parts revenue and expense in the last 24 months, 12 months, you know, it even go back to Erica start three or four or five years ago. Whenever it started, it was more about removing task and costs. I think that's moving because people are getting more comfortable with its ability to answer questions and help them prepare for a meeting with a client. And you know, what they need to think about, whether it's a wealth management client or a commercial banking client, including.
- [14:18]
B
Bank of America, going beyond that in general to our economy, because I appears to be being transformed and goodness knows there's hundreds of billions of dollars being invested. Can we get the return on investment as an economy without cutting a lot of jobs?
- [14:33]
C
I think the question will be, you know, how fast the jobs will grow around and the new jobs are growing, the shift of jobs. So if you look in the last 50 years or so, we had a lot of technology come in and we have twice as many people work in the US than we did 50, 55 years ago. So think about, David, in our lifetimes, what we've seen, you know, we've seen, you know, the desktop computer to laptop computer to the phone, as a computer, et cetera. Think of all that technology coming in and we employ twice as many people. So the question will be, will you have more people doing different types of jobs? And so my advice to myself and my advice to my teammates is simple. Learn it, harness it, make it your, your agent to help you be more successful. And yes. Does it change the human content of work in areas like finance and audit and legal that we hadn't done it before? Yes. But the people use effectively will be able to do more and generate more revenue and then potentially generate more jobs out there because people. There are more people earning more money, spending more money. America's making more money. It should all be good. But it's going to be an interesting transition.
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B
Brian, as CEO of Bank of America, an important part of your job, maybe the most important part, is managing risk, upside risk, downside risk. As you look at the risks out there, how do you manage, if at all, for the risk that in fact we're over investing in AI as an economy?
- [15:52]
C
Well, I think it's an economy. The issue would be if it got overheated and it retracted, would what would the impact flow for us as a company more into, you know, consumers, job loss, things like that and right now we see that as being relatively limited because it's a narrow group of companies, narrow group of spending and the companies are spending and are have a lot of money as a lender. We look at the leverage on these projects, projects and make sure that we're comfortable with that and the duration of the contract by the person who's going to commit to use the data, the data center. And therefore that's a revenue stream. You think about the tenant, for lack of a better term, the quality of tenant, the length of that tenant, those are key issues. So we look at all that and if the market valuations, you know, our team thinks that you'll see, you know, you could could see a debate about the over whether the AI stocks are overvalued, undervalued. Our team talks about that. But what people are forgetting is there's a lot of other companies are coming in and producing more and more earnings growth. At the end of the day, the earnings growth is what will drive the market and so it may move around. But as Chris Isa, our teammates have said on your Bloomberg and other places, you know, it's a proud bull. He thinks, you know, it's a, the market ahead is very constructive and our team has, you know, mid single digit S and P growth predicted for next year.
- [17:05]
B
So Brian, one last question. As we head into the holidays, into the new year, what's the biggest upside risk that you see in the new year?
- [17:14]
C
Well, I think the risk is that the upside potential is for the series of policies that have come out, taxation, trade and tariff, immigration and deregulation. I think the biggest one is still yet to come for business is the deregulation piece and it's falling into place. And if that works the right way, then you'll see the US kick another level of potential growth. And when the US kicks in growth, the world will have growth because the end of day our economy is the biggest economy with the biggest consuming economy. And so if our, if our citizens are employed, working and earning more money, that's good for the world.
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B
Is there any downside at all because of the uncertainty about policy? Because it's moved around a bit.
- [17:56]
C
There has been a lot this year, honestly. And if you talk to our small business customers, for example, in the most recent surveys, they're now getting an understanding of how the tariffs are going to affect them. It took a while for them to settle in and they can see the 10, 15, 20% level and they're adjusting for their adjusting supply chains. That's still work going on and the ability to pass through those costs and things like that is coming through the system now. Their biggest worry, what they tell us, is to get employees. And that has a bit to do with settling in on the immigration policy and it sort of getting more precise in the minds of a small business owner, a mid sized company. Can I have the labor availability that I need? And so that issue I think is straightening out is the precision of the work on immigration policy continues through, you know, and that, that was probably is more, more on the minds this year as that settles in and the trade policies have settled in during the course of the summer. I think they're feeling better about understanding them and they still have to make some adjustments, but they're feeling better about understanding them.
- [19:00]
B
Brian, as many as heading to a break. I hope you and your colleagues have a wonderful holiday. Thank you so much for being with us. That is Brian Moynihan. He is chair and CEO of Bank of America. Back to you.
- [19:11]
D
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