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- [00:00]
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- [00:29]
Brian Moynihan
News Now I want to take you over to the Economic club of Washington where I'm pleased to say that David Rubenstein, the Carlyle co founder and host of Peer to Peer Conversations on Bloomberg tv, is joined by a good friend of this program, the bank of America CEO Brian Moynihan. Let's take a listen. There's a lot of burden upon the banking system to both report suspicious activity reports and do a lot of analysis. And we have to close accounts. We can't tell people why we did it. And often we're told by authorities to close accounts. That creates confusion. Another area comes up in this discussion is in the crypto area where the regulator said you can't bank crypto operating companies, employees of crypto companies, etc. We are allowed to do we bank everybody but the operating company. They said that's a high risk activity. Ask us for authority and guess what? You would have never gotten the authority. So that came up as an issue. So at the end of the day, it's about getting these regulations right. And I think it opens a dialogue about how to get these regulations correct. At the end of the day, we're open for everybody. We serve millions and millions of Americans, trillions of transactions a year and we'll continue to do so.
- [01:34]
David Rubenstein
Okay, so when this administration was elected, there was a lot of, I would say, jubilation in the streets of the banking world. People thought that the banking regulation had been too tough under President Biden. Some people thought that regulation would be more amenable to banks. Has that turned out to be the case yet or is it still too early to know? And is the Banking Committee happy with the direction that the current administration is going or you just don't know yet?
- [02:01]
Brian Moynihan
So you have to sort of step back and say the regulation dodge. The regulation of banking has been always been true since our charter's part of a bank was from 1784. So we've been regulated from that day forward. If you think, think about the great financial crisis and Dodd Frank and a lot of capital rules and liquidity rules and all that stuff came in. There was a reason for the world writ large to be really not happy with banks and non banks that became banks. Goldman Sachs, Morgan Stanley, Merrill, et cetera. So you could understand that when you go fast Forward through the 15 years hence, plus you go through the pandemic and the banking system stands up and stabilizes the economy, you go through the regional banking crisis, the banking system steps up and stabilize it and they keep adding capital and liquidity. You're sort of saying, wait a second, you know, we are a source of strength. And by the way, the American bank industry is really a source of strength. So the pent on kept just swinging even though the reason why it had swung had stopped. And so our industry would say wait a second, why we have 20% more capital? We did during the pandemic. The risk is the same. It just by mathematical creep of calculations. Why are you saying we're going to limit your fees charged for certain activity or deem an activity alone when it wasn't a loan? And with hundreds of years of history saying an overdraft is not a loan, somebody just says, I want to make it a loan. And so this idea of the regulators sort of imposing new rules and regulations that Congress did not intend actually was kind of an interesting question.
- [03:33]
David Rubenstein
So many people, when they talk about the Federal Reserve, they wonder whether the Fed's going to increase interest rates or decrease interest rates. But in the Banking Committee you're often worried about the stress tests, right? And do you think the Fed has pushed stress tests to too tough a limit on banks? Or are you okay with the current stress tests?
- [03:52]
Brian Moynihan
It's so the stress tests are publicly available were, I think the first one was 2010 and then picked up in earnest 11 or 12. And so every year you can see this report card on the bank industry's health. And every year the bank industry has great health. But the issue we got in the bank industry ended up suing the Fed was behind the scenes that the rules kept changing the test. So if you think over the last four or five years you had volatility in capital requirements that were what, from 50, 75 basis points up and down a year with basically a test that said 10% unemployment, 50% downturn in the equity markets, 30% drop in housing, 30 or 40% drop in commercial real estate, high yield spreads blown out by 1000, 2000 basis points. Whatever it was, you look at all the same test produces different results. It didn't make sense. So behind the scenes the transparency wasn't there and that's what we ended up suing them on. So the stress tests are a very good thing, frankly. It gives us state of health. For 31 banks, which cover most of the industry, the way the United States runs was far superior. We do stress tests every quarter, multiple scenarios, and our trading book is stressed every day. So if you think about it's a good thing. It's just that behind the scenes what was happening is that dials are being turned on us and the numbers are becoming irrational to the market and we have investors and we have to raise capital and have capital available for the industry.
- [05:12]
David Rubenstein
So there was somebody, there's a vice chairman of the Federal Reserve who's in charge of regulating the banks and so forth. That person has given up that position recently. And was that something the banking community was happy with, that he stepped aside or you didn't really care whether he stepped aside or not?
- [05:30]
Brian Moynihan
Well, at the end of the day, I think he had a year left on his term and the new administrative president would appoint someone for that position. You know, look at the end of the day, as people always ask me, do you have different approaches for different administrations? And you say, well, in the long term, we've been around since Washington was president, so if we geared ourselves up for this president, not that president, we'd have to change 45 times or whatever it is. And if you think even in the foreign soil, think of how many different prime ministers there's been in England or, you know, so even in my tenure as CEO, so the end of the day, you run the company the right way. And what we're trying to say is get us to rational regulatory structure debt and have it stick to the ribs. If you keep swinging like this, our clients can't be as can't depend on us when they need us.
- [06:14]
David Rubenstein
So before the Great Recession, there were a number of large banks, United States and Europe and Asia. And now it seems as if post the Great Recession and post Covid, the United States is dominating the global banking world. What happened to the European banks? They're not really competing with you and J.P. morgan and Wells Fargo as much as they used to. What happened? What are the American banks doing that enabled them to become so much so dominant in the banking world?
- [06:44]
Brian Moynihan
The American banking system is probably a story as much of American capitalism being successful, because in days the banks in the country, the banks represent the size, scale and scope and the vibrancy of that economy. So what happened from pre financial crisis to now is at that time you and I would have been sitting here talking about how China's economy was going to be bigger than the United States in a very like by now the European economy was as big and was going to outgrow the United States under the enthusiasm for the EU framework. And guess what? We're 1, 1 1/2, 1 3/4 times the size of the economy back then. Europe's like 1.1 or whatever it is. So we've outgrown them. That's part of the vibrancy and frankly dealing with the financial crisis, recapitalizing industries, failing, a bunch of company industry participants, bringing people into the tent, the right regulations and then going forward. And so what's happened is Europe is not kind of crawled out economically, therefore their banking system has been hamstrung at the same time.
- [07:45]
David Rubenstein
Now You've been the CEO for 15 years and the bank has recovered from a lot of problems it had when you took over. You've got a great career. Suppose the President states said next year I need a new chairman of the Federal Reserve Board. And you've been running bank of America. Why don't you come in and be chairman of the Federal Reserve Board? Your response would be, I think I.
- [08:05]
Brian Moynihan
Say talk to David Rubenstein.
- [08:07]
David Rubenstein
I don't think so.
- [08:08]
Brian Moynihan
I'm sorry. So you're our company. Look, in the end of the day, I get up every morning and I've got teammates out here in the audience and this team is unbelievable. And if you see what we do for a customer and my emails in the public domain and customers send me when we're doing great things for them and when we're not doing great things for them, come directly to me. Nobody reads them but me. And so if you see what we can do for a company for individual, you see the enthusiasm for a young kid who's opened an account, enthusiasm for the 4 or 5,000 kids we hire between 18 and 22 that come into our company every year, the communities that we support, that just is a great job. And I love doing it as long as I'm healthy, as long as I have the energy, as long as team on the board support. Good.
- [08:57]
David Rubenstein
So recently another banker you probably heard of, Jamie Dimon, he testified on Capitol Hill that maybe the regulators and Congress should get together and say let's just start afresh and take a look at all the banking regulations from a fresh perspective. Building from scratch. Do you have a comment on that? Is that a good idea or.
- [09:17]
Brian Moynihan
Well, I think the spaghetti chart of overlap is a question. So just take the Consumer Bureau in 2010 with Dodd Frank, 10 or 11, they set up the consumer Bureau. The theory was that all the consumer regulatory activity would move to new agency Guess what? We still have the occur consumer activity. You still have the Fed regulates consumer activity still the FTC will hit consumer activity on occasion and you have the consumer bureau. And if you have the FDIC as a regulator, you have the fdic. So none of that happens. So you end up with another added regulator. Much like after 911 HHS came in and was supposed to sweep everything in. It didn't quite happen that way. So I think you could start with a fresh sheet of paper recognizing that in the National Banking act in the 1800s. So whether the Federal Reserve act and the FDIC act in the 30s, the world has changed a lot since then. And so the idea of national regulatory consolidation even on a dynamic country like the United States is probably more appropriate today than it was when you had 10, 15,000 banks all distributed all over. And Tom Barkin's coming from the Richmond Fed. Tom is terrific. But there was a day when everything went on in Richmond and the Richmond Fed catchment basin was only there. That day is way past.
- [10:36]
David Rubenstein
You're regulated by the Federal Reserve, the fdic, the comptroller currency and anybody else.
- [10:43]
Brian Moynihan
The Consumer Bureau, the SEC, the CFTC. Then put it this way, there's 100 plus regulators in our building every day.
- [10:54]
David Rubenstein
So do you spend a lot of time with the regulators or you try to avoid that?
- [10:59]
Brian Moynihan
I'd like to spend time when they're telling us we're doing good stuff. But no, we all spend a lot of time and I have great chief risk officer Jeff Greener who organized that for the company. All my senior executives spend time with him. And look the day to day regulators are trying to help us be better. And we understand that we are on the road to perfection as a company. And as Vince Lombardi said, you strive for perfection, excellence to be found. That's what we're trying to do. If they've got ideas, we're all ears. Simplifying the organization will allow frankly cost to be taken out from the regulatory side and we pay fees to support it. And it wouldn't be the worst idea.
- [11:36]
David Rubenstein
Now when interest rates go up, the theory is that banks can charge more for loans and therefore they're more profitable. And banks have been very profitable in recent years. When interest rates go down, is that a concern to banks because you less profitability or you really don't care?
- [11:51]
Brian Moynihan
Well the toughest time to be a bank with a trillion $2 trillion deposits is when interest rates are zero because we can't charge people to store their money. We're not like a self storage unit or something like that. So the end of day you have a floor on interest rates. And so when interest rates came down, you start squeezing margins. So the loan rates came down, but the deposit rates have a zero floor. When rates move up, that changes. And so the zero interest checking accounts, all that stuff become worth more and loan rates go up. So as long as the rate structure is more normal and you know, anybody under age of 40 has never seen a real rate structure except for like right now, you know, and probably even a little older than that now. And so, so the idea of a 3% fed fund rate isn't high rates, it's the usual rate. In fact, on the lower side, a four and a half percent tenure, the usual rate. And so in that environment, banks will make money. But in the day, the net interest margin, which is the difference between what we lend at and what we pay for funds, tends to run 250 basis points. And that benefit goes back to the depositor side and to the debt holder side. And as rates go up and then ups and downs, it's just when it hits that floor, that margin got down to 1, 150 or something like that.
- [13:06]
David Rubenstein
As interest rates come down though, you're not, it's not going to affect your profitability.
- [13:10]
Brian Moynihan
Not, not a lot, because you have.
- [13:12]
David Rubenstein
All right, so you don't want Jay Powell's job, it sounds like. But suppose he called you and said, should I increase interest rates, decrease interest rates or holding the same. What would your advice be?
- [13:22]
Brian Moynihan
Our team right now is basically says there'll be no further rate cuts through the, their forecast period, which is this year and next year. And they were one of the first people to pull that off the table. And they did because they said inflation is coming down, but is a bigger fight. And the dual mandate, employment, inflation, employment, they're in great shape on inflation. It's been coming down, it's working its way down. It takes multiple years to squeeze inflation out. They started in 22. And so think of 26 is actually a normal period to squeeze it out. But. And there's a drag on the economy today. And so you're seeing economic growth from 3% in the last couple of quarters to 2%. We have it moving down to 2%. So he shouldn't. Our, our expectation is they won't cut rates. I think we have the rest of the year. Yeah, for the rest of year into next year and frankly until inflation and.
- [14:17]
David Rubenstein
Okay, so let me ask you. The business that my firm has been in is private equity, but now Private, private equity firms have become private credit firms as well. And private credit firms, they lend money but they're not regulated quite the way you are. So is that a source of concern that we can lend money and we're not as highly regulated as you are and you're lending money but you're highly regulated or you don't care about that?
- [14:41]
Brian Moynihan
You know, I think I care about your firm. Look it adaptive the private capital has grown because they can do something we can't along a couple dimensions. One is they can finance companies that may have more leverage. And we are basically stopped out at six times leverage. And that used to be a rule, then it was taken back then it was a guidance and then it was like wait till we examine you. And we do go above it for certain credits and stuff like that. So that's one thing. The second thing is the ability to bring the whole capital structure, debt, equity, the mezzanine, the whole nine yards. That's hard for a bank because we don't engage in equity business. But on top of that we have a trillion dollars of commercial loan commitments, a half a billion plus of drawn loans. We don't fear any competitor and we work with those companies, including yours, to generate assets for them. But it's just a different style. I think the world should be concerned to make sure that those enterprises making loans to, you know, billion dollar operating company have the ability to work with them in times of stress. That that's going to be interesting question. We haven't gone through a stress period with this practice out there.
- [15:51]
David Rubenstein
I think J.P. morgan, maybe other banks, maybe you have gone out and raised private credit funds that you can then lend out without the normal constraints that you have. The money you have from depositors, is that something you've done or you think it's a good idea?
- [16:04]
Brian Moynihan
We've created some, some capacity in the end day, the credit we like, we're willing to do is as much as we can. So we have, you know, we're dying from our loans. We have $2 trillion deposits and a trillion dollars of loans. We're trying to do all the loans we think have good credit quality and so we don't feel this constraint.
- [16:25]
David Rubenstein
Let's talk about your background. I am an only child. You have how many siblings?
- [16:30]
Brian Moynihan
Seven.
- [16:31]
David Rubenstein
Seven. So you know, growing up with eight people in the family wasn't that crowded at times.
- [16:42]
Brian Moynihan
I'm trying to think I didn't have. I was set up to get in my own bedroom for the first time in my life. And my younger brother Decided he wanted to move in the bedroom because he was scared to sleep alone. So I think. I'm trying to think, probably when I was in college, it was the first time I ever had a bedroom to myself. So, yes, it was crowded.
- [16:59]
David Rubenstein
So what did your father do that to support eight children?
- [17:03]
Brian Moynihan
Might see him.
- [17:03]
David Rubenstein
Private equity or something important like that.
- [17:08]
Brian Moynihan
He was a research chemist for DuPont, and so he spent his whole life on plastics. So the graduate, you know, plastics young man. My dad was that.
- [17:17]
David Rubenstein
You know, he grew up in Ohio.
- [17:19]
Brian Moynihan
Yeah.
- [17:20]
David Rubenstein
And then you went to college in the east coast at Brown?
- [17:24]
Brian Moynihan
Yes.
- [17:24]
David Rubenstein
And you were the co captain of the rugby team.
- [17:27]
Brian Moynihan
Yes.
- [17:28]
David Rubenstein
And do you still play rugby or not so much?
- [17:31]
Brian Moynihan
No, I don't play. I played rugby at Brown. I played rugby at law school and I played rugby after. It's a great sport. I've never played it until I played it at college. It is, in a way, the most intense. What looks like disorganization out there is extremely organized, but it's unique in that it's physical and tackling. You kick, you run. Everybody gets to handle the ball, and you run for 80 minutes. And so it's a very demanding game. So it was a lot of fun.
- [18:00]
David Rubenstein
Okay, so now you are the chancellor of Brown University, which means the chairman of the board, essentially. So how do you have time for that?
- [18:09]
Brian Moynihan
Well, I've been on the board for 15 years, and at the end of the day, the chair of a board, Chris Paxton, runs the university, does a spectacular job, and our job is to govern and not.
- [18:20]
David Rubenstein
So after you graduated from Brown, you went to law school at Notre Dame?
- [18:23]
Brian Moynihan
Yes, sir.
- [18:24]
David Rubenstein
And. Okay, and did you play rugby at Notre Dame?
- [18:28]
Brian Moynihan
I did.
- [18:29]
David Rubenstein
Okay, so then you went to practice law back in Rhode island, is that right? Why did you move back to Rhode Island? You're from Ohio, you went to Notre Dame and the Midwest. Why did you go back to Rhode Island?
- [18:40]
Brian Moynihan
Well, none of the Boston law firms would hire a person from Notre Dame Law School, so I had.
- [18:44]
David Rubenstein
Okay.
- [18:45]
Brian Moynihan
It was. It was. It's hard to believe, but literally I was the first lawyer hired by the firm from Notre Dame. And they did it more because I had the Brown connection stuff. But the big law firms in Boston, just even with one of my teammates working there, a fellow named John LeClaire, they couldn't convince him to hire me. So I ended up with a great law firm and had a great short legal career there, and it didn't.
- [19:10]
David Rubenstein
So I'm a big fan of people who are lawyers getting out of law and going into finance.
- [19:15]
Brian Moynihan
I can empathize with you.
- [19:16]
David Rubenstein
Okay, so you're practicing law, you're minding your own business, I assume a good lawyer. What kind of law were you? A corporate lawyer.
- [19:22]
Brian Moynihan
Well, this interesting thing. When I came out of law school, I went to law school. I was going to be a criminal lawyer because it was F. Lee Bailey was the rock of the world at that point. Or I was going to be a labor lawyer. And then I went to law school and I went to a firm and oddly enough, I went to law school. From 81 to 84. There were no corporate lawyers in America because it was before the 80s took off and after the 70s, activity died. So being a person of his impatient life, I said, why don't I be a corporate lawyer? Too much to the script of the litigation lawyers and stuff. Who thought that I lost my gourd. So I became a corporate lawyer more by I could see the opportunity to get responsibility. And I did that for nine years and became a partner.
- [20:04]
David Rubenstein
So how did you escape from being a corporate lawyer? What did you do?
- [20:07]
Brian Moynihan
There's a fellow named. One of my mentors is named Terry Murray. He ran Florida Fleet. And I was. I did corporate law. A lot of work I did for Fleet. And then Terry, after we did a transaction called the bank of New England transaction with kkr, put money into the bank industry and we bought the bank of New England, meaning Fleet bought the bank of New England from the federal government in the early 90s after the real estate crisis. I'd structured that deal in a way that I'd structured private equity yields for our bank. Private equity for firm which was a thing called dual convertible preferred stock. It converted into parent company stock or bank stock. Never been done in a public array. Terry said to the general counsel, he's too smart to be a lawyer. Which I never figured out what the general counsel thought about. He was a brilliant guy and he said, get him in here and we'll figure out if he's going to do something. So he. And then I went to work at.
- [20:57]
David Rubenstein
Fleet, which is headquartered in Rhode Island.
- [20:59]
Brian Moynihan
I just went to work for Fleet and I was deputy general counsel for like three months. And I went on a special project to reengineer the company.
- [21:05]
David Rubenstein
And Fleet ultimately merged with Bank Boston. And how did you survive that?
- [21:11]
Brian Moynihan
Well, that was the last deal I did. I was the head of M and A and strategy and Terry Murray and Chad Gifford put together that deal. And Chad took a liking to me. I was an acquired.
- [21:22]
David Rubenstein
Chad Gifford, who was the head of.
- [21:23]
Brian Moynihan
Bank Boston, I was acquired taste for Chad, because I was in the middle of negotiating, getting all the cost structure and getting the alignment and. And I was meant to be the pain in the butt. And so Chad ultimately took a liking to me as a great mentor and said, you got to run a business and put me in running a business. And we were merging two companies together, and I survived and ran the wealth management business for a few years.
- [21:44]
David Rubenstein
You ran the wealth management business for the combined Bank Boston Fleet and then Bank Boston Fleet. Combined company was sold to bank of America in 2003.
- [21:54]
Brian Moynihan
Fall. Yeah.
- [21:55]
David Rubenstein
And so how did you survive that one?
- [21:57]
Brian Moynihan
Well, they asked me to run the wealth management business, the combined companies. And I did that. And Ken Lewis wanted to integrate some of the people because the companies were maybe 60, 40, but they're very sizable companies. And so he was trying to get a management team that represented both companies. And so Chad was chair and Ken was CEO, and I went and ran the wealth management business of the combined company.
- [22:20]
David Rubenstein
Right, but then you became the General.
- [22:21]
Brian Moynihan
Counsel for 40 days.
- [22:25]
David Rubenstein
For how long?
- [22:25]
Brian Moynihan
40 days and 40 nights.
- [22:27]
David Rubenstein
All right, so we became the general counsel of the combined bank of America.
- [22:31]
Brian Moynihan
Yeah.
- [22:31]
David Rubenstein
And then.
- [22:32]
Brian Moynihan
Well, that. So what happened was In December of 2008, remember, we bought Merrill on the Lehman weekend and everything. So we were originally trying to buy at Lehman. We said we couldn't do it as a company. I was running at that point the corporate investment bank. Bank and other parts of bank of America. We couldn't do that. And then over the weekend, that's when the world became very ugly. And so we bought Merrill. And remember, Morgan Stanley got investment from the Japanese bank and investments were made around. And so after that, I'm sort of running the integration, a bunch of stuff as we're going through from October or whatever that was till the fall. And then around the time Merrill showed up without. With a $7 billion loss in the quarter and with a lot less capital than you're supposed to have, we started telling the government we couldn't do the deal and stuff. And so Ken asked me to be general counsel because we were eliminating a lot of jobs. And I actually eliminated my job and I was basically out of the company. Said, you know what? Stay and become general counsel because we need somebody from December 9th to.
- [23:40]
David Rubenstein
All right, you became the general counsel of the combined bank of America as.
- [23:43]
Brian Moynihan
We negotiated with the government to figure out how to get the Merrill deal done. And then I went back in business right after.
- [23:48]
David Rubenstein
But then you left after that for a while.
- [23:50]
Brian Moynihan
No, no, I Became so then in early January, mid January of 09, I took over a bunch of the businesses after John Thain left and went back into business. And then by the end of 09 I'm CEO. I had a lot of jobs in a short period of time.
- [24:04]
David Rubenstein
Right.
- [24:05]
Brian Moynihan
So now it wasn't what somebody should do.
- [24:07]
David Rubenstein
Now you bought Merrill lynch at a discount, I guess, or low price. But it turned out to be a pretty good deal, I guess.
- [24:12]
Brian Moynihan
Right. From an operating basis was always a good deal. The issue. The issue was that the hole in our capital cost us some dilution. So we worked through that over time. So with new capital rules and everything, we had about 7/2 8 billion shares at the time we went up to almost 12 billion. Now we're down to about 7%. So we're back down to where we should have been. But it took a lot of work to. But from an operating base, it was always a home.
- [24:39]
David Rubenstein
Before your bank came back in from a rough position, you borrowed in effect $5 billion from Warren Buffett, is that right? Or less.
- [24:50]
Brian Moynihan
Yeah.
- [24:50]
David Rubenstein
And was pretty expensive capital, some people say. So did Warren Buffett get a better deal? Did bank of America get a better deal out of that?
- [24:59]
Brian Moynihan
Well, if you. Our stock was trading at $5. He converted 714 a share. So it was a classic 20%. But he had a 6% dividend. We were paying low dividend. But if you bought the common or the preferred, the Preferred had a 10% dividend that day. And the common, you would have done better because you would have picked up more the first two bucks.
- [25:18]
David Rubenstein
So did you negotiate the deal with Warren Buffett or is he smart?
- [25:23]
Brian Moynihan
It's apocryphal. He's told the story. So it's not my. But he. The idea came to him in the bathtub. He called up, got into the call center, believe it or not, then finally got someone to get a number, called me and said I want to put 5 billion in bank. And I said we don't need the capital war. And he said no you don't. That's why I'm calling you. You need stability and I can provide stability. And I said yes you can. The night before a fellow named Mike Lyons and now runs five service who was working for us at the time. And fellow named Bruce Thompson and I were sitting there saying we need to get some stability because remember what people think about is government shutdowns and defaults. The government was really in trouble in August of 2011. They couldn't come together in funding. They were Starting to overdraft their accounts, let's just call it that. So that was going on and then we were getting banged around because all the mortgage litigation. So he came in, put the money in and from then, from basically $5 share price up to 44, $45, whatever, it's been pretty unbroken since. So he's fared well and we fared well.
- [26:22]
David Rubenstein
Does he still have the stock or is he sold most?
- [26:25]
Brian Moynihan
He sold. He sold about a third of it and then. Yeah, he bought another 300 million shares. He ended up with a billion shares. He sold down to like 600 last. I know. But he's. He did very well and we did very well and he's been a great investor.
- [26:37]
David Rubenstein
Let's talk about the beginning of bank of America. So bank of America started as bank of Italy. So who started bank of America and why did he name it after Italy as opposed to America?
- [26:47]
Brian Moynihan
Well, A.P. giannini, who was Italian descent, started the bank of Italy when he came to the country in San Francisco to help the local, the Italian community that emigrated to San Francisco. And so he became famous in the San Francisco earthquakes and fires in the early 1900s by setting up a barrel and starting len money. And then Fast forward to 1999 when Nations bank, which was the North Carolina bank, which is the bank, the bank today and the bank of America merged. You had two good names. Nation bank wasn't a bad bank that name, but bank of America was a better name. So they took the name. But the operating company that survived was.
- [27:30]
David Rubenstein
Nation's bank, moved from San Francisco headquarters to Charlotte headquarters, where you are headquartered now.
- [27:36]
Brian Moynihan
And you know, it's interesting because with the LA fires, we've asked our teammate Raul and I to step in because, you know, we have a heritage in California, helping in times of stress that we have a big business in California and Raul's doing a great job. But you do have this historical ways that we've done business around the world. We're the first bank to make a loan in Japan after World War II ended at the request of the US government to start lending money. We've been in UAE since it was formed. We, you know, so you go back, inherit. It's just a wonderful heritage. In the bank of Italy, heritage is apocryphal because of. But the reality is the bank that is the bank that survived all this and drove all this was the North Carolina bank, which formed and bring capital to the Southeast as it grew because the New York bankers wouldn't come down, do as much business that is the bank that survived all this. And it's, it's all these rivers came together and formed this huge river.
- [28:25]
David Rubenstein
One of your predecessors is the head of bank of America. Became the head of the World bank at one point. You have any interest in being the head of the World Bank?
- [28:33]
Brian Moynihan
No. You've got Ajay coming in. I'll let him, let him on that because I haven't been asked. And he does a great job. He'll be terrific for it.
- [28:41]
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- [29:15]
David Rubenstein
So let's ask, let me ask you about this banking today. Why do we need all these bank facilities, bank branches, buildings, financial centers? Because everything is done online, it seems. Do you actually have a lot of buildings? You really need all those buildings you have where you have your bank.
- [29:32]
Brian Moynihan
This is, this is the classic do as I do, not as I say. Because end of day, between this morning when the banks open up to tomorrow morning, 400,000 people come into our branches. So this idea, nobody goes to a bank branch just is not true. The idea that nobody uses cash. Well, about a quarter billion dollars will go out of our ATM machines in the next 24 hours. The idea. But nobody writes checks. There were 100 million checks.
- [29:59]
David Rubenstein
How many banks do you have around the country now?
- [30:01]
Brian Moynihan
We have 3,700. We went from 6,000 down to 3,7.
- [30:05]
David Rubenstein
What about ATMs? You have a lot of them.
- [30:07]
Brian Moynihan
We have about 14,000 of them. At the high point we had 18,000. And that's technology. And the day, the huge technology impact in banking over a long period of time. But since the team started in 2010, coming together really started a few years before that. We have been basically engineering the headcount the facilities. We had 120 million square feet of real estate in 2010. We have about 70 million today.
- [30:34]
David Rubenstein
Now have you ever gone to get money out of an ATM and been denied?
- [30:40]
Brian Moynihan
Not, not, not since college. During the Great Blizzard, great blizzard of 78 when we were at the wrong. We had a friend gave us an ATM card to go out and get some money to buy liquor before everything shut down and we went to the wrong bank. What about give us Some money.
- [30:55]
David Rubenstein
What about credit cards? You ever had your credit card denied?
- [30:58]
Brian Moynihan
Not that I'm aware of, but.
- [31:01]
David Rubenstein
So how.
- [31:02]
Brian Moynihan
Hopefully nobody else has. It shouldn't have been either.
- [31:04]
David Rubenstein
How has the world of tax technology affected the banking world? So right now, so called fintech. Has fintech dramatically changed the way bank of America operates?
- [31:16]
Brian Moynihan
So we invest about $4 billion in new code every year. Every weekend we'll have a couple million lines of code go in to amend our systems and change our systems or add new technology. That's not to run the Systems, that's another 8 or 9 billion dollars. That is just new activity. So the impacts have been unbelievable. But people, it's still human beings and what they do and how they do it. So you have to be high touch and high tech. So in the mid-90s when I was the head of strategy for the company, I remember consultants coming and saying 20 years there'll be no bank branches. Well it's 30 years and guess what, we still have 3700. The reality is people want it all the way. But the impact of the phone, iPhone in particular was so different. And we were the first app available on the iPhone. And the reason why is we built our technology through someone's prescience in the company to be a web based technology. Back when people didn't do that, it was really an app based technology. So it could be app made an app back. We don't think of these things but back then that was an unusual thing to have an app. Everybody went to the, to the websites, etc. So, so that took off. And so from that start you now have 40 million consumers who bank digitally with us all the time. Last year we had about 90 plus percent of our interactions with consumers are digital. And yet the critically importance of a person going into one of our stores and saying I got to figure out how to save more money. Can you help me do a financial plan? My mother's sick, I've got a power of attorney. I need you to figure out how I can manage your affairs. My kid wants to go to college. I need to figure out how to borrow the money. All those things are critically important so you have to be able to do both.
- [33:02]
David Rubenstein
So people still writing checks the way they did 10, 20, 30 years ago, is that a big business for you? Check cashing?
- [33:09]
Brian Moynihan
Check cashing is not a business, it's a convenience for the customer. The checks written from like 2019 and now are probably down 30 or 40%. There's still a fair amount of them. What you've seen is a dollar volume written stays flat. Right. But the number written comes down. And we track that literally every week. But we track all our spending every week. But we can see what's going on in the American consumer. But in the dynamic there is people are still paying the rent or the mortgage or something like that car payment with it. What they've done with Zelle, which didn't exist a decade ago and now is the dominant force. Our clients send more money over Zelle than Total Venmo to give you a sense. So it's become the dominant way that's replaced a lot of small dollar checks. But the big dollar checks still go through the system.
- [33:56]
David Rubenstein
In the old days when I used to write a check, the bank eventually would send me back the canceled check. What happened to those canceled checks? Where do you keep them all now.
- [34:03]
Brian Moynihan
They'Re all document destruction policies but they're all image based. So even if you went to a branch and deposit check, it's image based. Right. Then the actual checks destroyed the idea of taking a check deposit atm. So about 15% of the banks deposits checks are deposited at the physical atm. A lot of small business activity. The other, let's call it 85%. About 50% of it goes through mobile taking a picture of it which is you imaging the check. The other 30% goes through the ATMs which the ATM takes a picture check, the check disappears in all cases.
- [34:44]
David Rubenstein
So if I want to go to use an ATM and I have a Bank of America ATM card, but I don't see any bank of America ATMs I go to some other bank ATM, I pay a fee. Is that.
- [34:56]
Brian Moynihan
You wouldn't, David, because you're, you wouldn't but other people might.
- [35:00]
David Rubenstein
I thought you had to pay a fee. A pay fee. I mean is that a profit center for banks, those fees or you know.
- [35:06]
Brian Moynihan
At the end of the day we get 55% of our revenue. Our $100 billion of revenue last year, 55% came from interest, 45% came from fees. The dominant part of those fees are trading revenue and asset management fees and things like that. We, we have consumer fees, but they've come down dramatically because basically we said to the consumers, you keep changing your behavior, we keep driving down the cost of service serve and we'll give that back by lower and lower fee structures. So we have a no fee checking account. We have a $5 simple checking account, the Bequino that you can't overdraft. We do our overdraft fees when we first started changing our policies 15 years ago were $5 billion a year and now they're $120 million a year.
- [35:50]
David Rubenstein
Do you think we will have in our collective lifetime no more currency, everything will be digital, or you think that's not likely?
- [35:59]
Brian Moynihan
If not in our lifetime, what about.
- [36:03]
David Rubenstein
A digital currency which doesn't preclude other things, but a digital currency?
- [36:07]
Brian Moynihan
Well, I think the new administration wants to push. So you have to think about three parts of this dialogue. There's a blockchain question, there's the stablecoin type of currency question, and then there's Bitcoin and other types of things. It's pretty clear there's going to be a stablecoin which is going to be a fuller dollar backed type of thing, which is no different than a money market fund with check access, is no different than a bank account really. And so if they make that legal, we'll go into that business. So you'll have a Bank of America coin and a US Dollar deposit and we'll be able to move them back and forth. Because now it hasn't been legal for us to do it, but it's just then like another foreign currency, the question of what it's useful for is going to be interesting.
- [36:53]
David Rubenstein
Right. So in the old days, old 10, 20, 30 years ago, if you had a lot of coins, you put them in a jar or your desk, eventually you could wrap them up and take them to the bank. Now if you go to the bank, they don't want the coins. What do you do with these coins? Now.
- [37:10]
Brian Moynihan
We got to get rid of the pennies. So maybe the other day if you roll them, bring them in, they'll count them up and see stuff. But it's a tricky thing because it's just a lot of work for.
- [37:22]
David Rubenstein
Okay, so now President Trump said, we're not going to make the penny anymore.
- [37:25]
Brian Moynihan
We'll take all your coins, don't worry.
- [37:27]
David Rubenstein
Okay, the penny, the penny. What about the penny? We're not making the penny. Is that a problem?
- [37:31]
Brian Moynihan
I, you know, I think the economics that they're talking about is it costs more to distribute them. Look, the other day we, when you think about the bills, the currency, whether it's coin or bills, and it's mostly bills in terms of value, it's an interesting thing. So 98% of all the bills that move around the world, we move on day as a service to the government and there's nothing bigger than 100. So a billion dollars of hundreds weighs a few tons. A million dollars of Hundreds is a 25 foot stack. So, so there's a big physical part of this now the reality is that's done for reserve currency and central banks. That's who holds it. The rest of the money all moves digitally today. So we move, we'll move $3 trillion today digitally. So our consumers money movement is dominated digitally. Whether it's a Zelle payment, a wire, an ACH. You know, @ the end of the day that doesn't include credit and debit cards which are taking another big part. Because at the end of the day what's, what's a debit card? It's just an introduction to digital. So getting rid of pennies and stuff. There's economics supported. But the reality is we always have.
- [38:40]
David Rubenstein
Currency because that represents what's the most common currency. Is it $100 bill or the $1 bill?
- [38:47]
Brian Moynihan
I don't know that, but I'm sure there's more ones and hundreds. But the other day all the big, the real money movement to the central banks is all the hundreds. It's palleted hundreds. It's a wild scene to watch pallets go through the. We go to the Federal Reserve, we pick up these pallets of cash and send them around the central bank of France to have the reserves.
- [39:06]
David Rubenstein
Well, when you need cash, do you go to the bank and get cash at the end of the week or do you just go to ATM or you don't use cash so much?
- [39:15]
Brian Moynihan
I do everything every one of our clients does, I look at the other day. You know, I go and often go and say hi to the teammates because that's kind of fun. So, so I try to, if the bank's open, I'll go and say hello and get some money out. But in the end, like you, like me, like everybody you become, you know, if you look at the way the money. So year to date about 7% more money got moved by bank of America consumers over last year. So that's pretty healthy. If you look 25% went by credit card payments and about 14% went by checks and Zelle and other stuff. Cash was probably in a single high single digits. So it's not a lot of cash goes out of the ATMs every day when you put it against these other payments. So four trillion, four and a half trillion will go out in cash out the ATM days. A couple hundred million and that's going to kind of being spent. So healthy consumer spends money and that's good but they use all the devices. Cash is becoming less, but it's still critically important. And so that's why you have ATMs and that's why you have branches. And that's your small businesses receive cash especially and bring in, in deposit. And that's why you need a physical plan.
- [40:24]
David Rubenstein
So if I go to your bank and I want to make a deposit of $10,000 in cash.
- [40:29]
Brian Moynihan
Yeah.
- [40:30]
David Rubenstein
I'm going to get reported to the federal government.
- [40:32]
Brian Moynihan
Yes.
- [40:33]
David Rubenstein
And 10,000 isn't what it used to be.
- [40:36]
Brian Moynihan
Well, that's, that's. So one of the, one of the reforms we're saying is, and somebody testified a few weeks ago to this fact site, I'm paraphrasing their story is they said when 1972, they set the $10,000 level. The theory even goes back to the 40s, but let's just say 1972. In 1972, you could buy a fully loaded Cadillac for $10,000. We're now this many years later and we still report not only if you did 10,000, but if you did three or four transactions in a period of time that looked like you were trying to evade the 10,000, we'd have to report that too. One of the simple answers, we're saying just index set to where it should be, which would be like 100,000. When you do that, that takes out all this activity and moves it away. And $100,000 is the inflation adjusted amount from 50 years ago for 10 or maybe 78,000 or 80,000. And so if you're saying lift that amount, you'll take the average transactor completely off the table and you really will be looking for people who are trying to move significant amounts of money or avoid the transaction level. It's such a simple fix and I think people can see that. And by the way, in 22, in 20 or 22, there was an act passed that became law that gave the authority to treasury to do that. They just need to do it now. Right.
- [41:48]
David Rubenstein
So now you live in the Boston area, as you have for many, many years. The main, biggest headquarters office I think you have are financial center offices in New York and your headquarters is in Charlotte.
- [42:01]
Brian Moynihan
Charlotte, yeah.
- [42:02]
David Rubenstein
So is that inconvenient for you to go all these different places?
- [42:05]
Brian Moynihan
No, it's not because we also travel all over. Like, you know, I'm here today, I'll be in Florida for a couple days and et cetera. So we move all over as executives and big companies and you do too. But you know, the idea of moving people around and moving their, you know, where they work and moving their families, it's more difficult. Then 20 years ago when we said we're moving the headquarters of Boston, 30 years ago, you just got to move. It was not a question that you said, oh, maybe I got a better idea. So as we look across that, we have 16,000 plus people in Charlotte, we have about the same amount when you take New York and the areas around New York, but we also have 5,000 people in Boston. Around there we have 35, 40,000 people in the state of California, we have 25, 30,000 people people in Texas, you know, so Florida, we have operations centers in Jacksonville. So you have people everywhere. And the idea is we try to always look at it and level load, you know, activity around the country to avoid, you know, to use time zone differences to our advantage for call centers and, and access talent pools. But, and then remember all our, our branches and our private banking teammates, our Merrill teammates, and our business lending teammates across all businesses, they're all in the field. There are 90, 700 markets out there every day.
- [43:24]
David Rubenstein
So if I wanted to buy, make an investment in a bank stock, would you say it's a good idea to invest in bank stocks now? Or you think bank stocks may be overvalued?
- [43:33]
Brian Moynihan
Or what do you think our valuation difference to the S and P is, Is lower than it's been. And I think, I think our company is a great value and rest of the banks are pretty good. Now.
- [43:47]
David Rubenstein
When you took over the bank, you had more employees than you have today. Bank has expanded. Why do you have fewer employees? Because your bank's so much bigger.
- [43:53]
Brian Moynihan
So that's technology and that's applied technology. So in 2010, we opened with 285,000, 284,000 employees. We went up to 305,000 to peak and we ran as low as 204,000. Now we're about 213,000. And so all that was done with applied technology and digitization, new technologies, both. So if you think about work, the way to get rid of work is to eliminate and re engineer the work and eliminate steps and things like that. You can do that through automation, you can do that through just not doing them, et cetera. Avoid duplication. Then you can eliminate management of work because if you have less people, you need less managers. And then you eliminate the real estate that people sit in. And so we've been doing that on and on again. But the key to make it really move was technology. And so whereas we had in 2010, we would have had 5,500 branches, we now have 3,700 branches. We actually have probably almost 1,000 of those in places. We did not have branches back then in different cities. And so if you think about maybe 6 or 700 like that, so you think about that. Those branches are bigger and more efficient, but all the transactions across come out and what's in their sales activity and relationship activity. And so it's just that constant RE engineering, we have the thing called opex. Every year we come up with thousands of ideas to take out and re engineer the company. And so at the end of the day, more customers, more activity, more people. And yet you've driven the headcount down. And our costs are two thirds people and then basically the other third is some advertising, the buildings, technology and electricity.
- [45:31]
David Rubenstein
Now there's an acronym today that some people in Washington don't like called dei. Do you have a DEI policy or not anymore?
- [45:41]
Brian Moynihan
We have diversity inclusion, our company. But let's step back. What we've always been is a bank of opportunity. So we think about creating opportunity for our teammates. And how do we do that? We go out and hire from all areas and bring people into our company. So we go to 400 different schools to recruit kids. We have a program we call Pathways. So Pathways we announced in 2018, we said we'd hire 10,000 people from low and moderate income neighborhoods to come work in our company. We completed the first 10,000. Then we went out and said we'll do another 10,000. We're up to 30,000 people over the last decade almost that we've hired from LMI communities to come work for our company for from high school, junior colleges and colleges to come work. So once we have a very diverse company in terms of representation from all economic stratas, all races, all ethnicities, once they get in, the opportunity is there of a lifetime. We equal pay for equal work, the ability to promote, we train, we do all the work. And so the idea is that's an opportunity. When we look outside our company, we try to work with other employers to create the same opportunity we create. We try to work with nonprofits and communities to create opportunity for them to be successful. So the idea is just create opportunity so we have a diverse team. We stress inclusion. So when you're at our company, you can be who you want to be and be successful. Including we have 300,000 memberships in our employee resource groups, of which about 60% of people are in one. The average S&P 500 company has 5% employees. Our employees love to work together. They're open to all, even though a cohort. And so we just try to create opportunity.
- [47:17]
David Rubenstein
So a young professional, young person is graduating college, why should they go into the banking profession as opposed to private equity, investment banking, healthcare? What's the appeal of working in a bank?
- [47:29]
Brian Moynihan
Well, when we bring the 2,000 kids in and I talk to them, I always say the same thing. You can make a lot of money doing a lot of things. You can have a great career doing a lot of things. But if you're going to come to our company, you really want to help people, you want to provide the answer. Our market position is what would you like the power to do? And I said, your job at this company is to help people answer that question. Whether it's a customer, whether it's a teammate, whether it's a shareholder, whether it's a community. And you got to come and want to do that. You want to deliver a lot of profits done the right way with a purpose around it and if that's what makes a place special. And our turnover rates an all time low and it's. And we are sought after by young kids to work. So you hear everybody's going to tech companies stuff. It's. We have hundreds of thousand applications for the higher.
- [48:20]
David Rubenstein
Your bank of America is mostly focused in America, I assume, but you have a lot of business outside and do you want more business outside of the United States?
- [48:28]
Brian Moynihan
Yeah, we do business 130 countries. We're in 30, 40 core countries. We've been in, like I said, in Japan for 80 years now, in India for 65 years and Brazil since 1954 and Argentina since 1914. So we have an international business. And the amount of loans we have outside the United States for commercial customers exceeds what we have in the United States for large corporate customers. So we're a global business for, for global investors. Global firms, private equity firms, global investors, global companies. But. And so we do investment banking, corporate banking, treasury cash management and trading across the world. And we're, you know, top two or three in the world in these businesses. Going back to your point that the US companies that come to dominate those businesses more right at the top.
- [49:17]
David Rubenstein
You ever at a cocktail party or lunch and somebody gives you a resume that ever happened to you if somebody they think should be hired by the bank?
- [49:24]
Brian Moynihan
There's this thing called email that gets in there fast.
- [49:26]
David Rubenstein
All right, and what now on a personal side, you've been there 15 years, you haven't announced any time and you might step back and you're not prepared to announce that today, right?
- [49:36]
Brian Moynihan
No, I don't.
- [49:37]
David Rubenstein
So I'LL tell you first. Okay. So have you been able to convince your children to go in the banking world?
- [49:44]
Brian Moynihan
My oldest son's an investment banker for a different firm, obviously. And my, my middle child is a risk manager for another firm in financial services and my youngest in communications. I never said, look, being a CEO's child is not the easiest thing being a CEO spouse. So they, but, and they saw me work in different ways across the years. And you know, so it's their decision what their career is. And, and it's, it's nice. My son, he's a deal doer. He's an M and a type of guy. So it's fun because I used to do that. I haven't done that a long time.
- [50:19]
David Rubenstein
What do you do for rest and relaxation all your spare time?
- [50:24]
Brian Moynihan
You know, I, I do what everybody else does. I, you know, you're not with Dave.
- [50:28]
David Rubenstein
Rubenstein speaking with bank of America Chief Executive Officer Brian Moynihan at the Economic Club of Washington. And you can watch more of that interview on the David Rubenstein Show. PETER Peer to peer conversations on March.
- [50:41]
Brian Moynihan
12Th at 9pm in New York.
- [50:43]
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