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A
So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a Global workforce of 300,000 can use AI to fill their HR questions. Resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM,
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B
Bloomberg Audio Studios, podcasts, radio news, robust data.
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C
Retail sales are good. That's a decent week of data for this market.
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B
This is the exact kind of disinflationary productivity boom that everybody's been hoping for. That can really be the cherry on top and highlights how comforting it is to see that equities are a little bit lower, at least from some people's perspective. Just because people aren't taking this and running away with it. This is a euphoria that's been built into the market. Question is, how long can we stay in this good kind of backdrop that can really benefit a lot of different businesses?
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C
The banks, the financials in prime position to leverage this moment. Bank of America the stock sitting at record highs after delivering blockbuster results. Equity trading revenue rising 70% in the second quarter. Fixed income trading climbing nearly 9. Making a record first half of the year for the sales and trading division. The bank of America CEO Brian Moynihan saying against the healthy economic backdrop, resilient consumers and businesses are turning to bank of America America to spend, borrow and invest. Brian, I'm pleased to say joins us now for more. Frank and morning.
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D
It's great to be here.
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C
It's good to see you sir. What a fantastic start to this year. Now, forgive me, which analysts we've got to ask, can this really continue at this rate?
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D
You just saw two statistics that I watch carefully which is what the activity the consumer is and then ultimately what the unemployment new claims are. That's people argue it's leading or trailing but it's actually indicator of the health of the employment market. In the 4.2% unemployment rate with new claims at 1.8 on long term claims and 208,000. Every looks at it says well that's in line with 19. Remember that the workforce has actually grown a lot since 19 in terms of size and so you argue about 7160 million workers or something like that. So it's a pretty small number and so nominally it's a low number and percentage wise it's A low number. And that's good news because that means the consumer spend and what we see in our data as a consumer. So spending the consumer spend in America, that means economy is okay and that probably means the rest of the markets in the construct and the final demand is there.
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C
The weather for the banking industry has been shining brightly. The sun is out, the backdrop's great. The environment has been good. I want to draw a distinction between the environment and execution because fees are up everywhere. What are you proud of after that quarter on execution where you can in
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D
market share, Every single business grew the revenue grew operating leverage, which is critical because that means your revenue is growing faster expenses and increased the returns. Every single business, it grew the customer bases and all those things. So what you're seeing us is the power that the engine of bank of America is across all the businesses. So our consumer business made 3 billion after tax this quarter. Plus you know, that's as, that's half as much as Wells Fargo made. And you know, it's a big number. That's one of our four businesses that we disclose and the smallest of which made a billion and a half this quarter. So these are big business businesses are scaled. They're accumulating new clients, accumulating new activity. The markets business had a great quarter and investment banking had a great year over year comparison. But at 2.1 billion for the quarter we were 2 billion. Last quarter 2.1. It looks like a huge increase because last year's second quarter we all thought the world was coming in with liberation day. This year it's different. But what's really important is the pipeline they have is strong, the deal in discussion are strong. And you're seeing deals announced every day across all the spectrums. M and A strategy, financing, all of which is important.
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C
Just elaborate on that a little bit more. How strong is this pipeline? Because things just look phenomenal. We've had a record IPO Alphabet came out with a monster equity capital raise. We saw SK Hynix more recently do something similar. We're going to see more of that in the year ahead.
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D
Yeah, I think, you know, so if you look at we and all our peers are deploying more balance sheets. Our balance sheet to the markets business went up $100 billion for the quarter over what they thought they were going to be at. Just to give you a sense. And so we have that capital base and that capability just to meet the moment. But if you look at investment banking, the deal when you talk to CEOs, because if you think about last this time and the amount of things they had to think about, we've added one with the wars. But at that time it was taxes weren't set yet. The immigration policy was. People are trying to figure it out, trade and tariff policy and then deregulation. You come to the fall, they felt that that was sort of working its way through whether the tax and the tariff policy kind of looked at and said it's sort of 10 to 15% of countries willing to do business, United States and 50 if they're not. I can figure that out. Let me go figure out how to run my business. That got with a court decision, all the work that's gone around in circles a little bit. So we added some uncertainty. But on top of that, what you added is a year's worth of growth and a year's worth of belief that this year is going to grow at 2% plus, next year is going to grow at 2% plus. That's creating people's. Convincing people that despite higher energy prices, despite inflation, despite the Fed having to keep rates higher, despite all that, the economy is growing through it. That's the interesting part. And I think CEOs last year got clarity on taxes, got clarity on deregulation, got clarity on immigration, and now are thinking hard about, wait, I can do things, I can see a little more distant future. Does that mean there's a parade of possibilities that change that that's out there every day?
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B
Let's talk about the parade of possibilities. Sorry, I'm a journalist so I have to. There's this question about how market dependent some of this capital markets activity will be for the rest of this year. The idea that a lot of people are borrowing money they don't even need right now because the market is so wide open to them. What are the potential thresholds, whether it's in rates or whether it's a sell off in equities that could potentially stymie some of the pipeline.
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D
So if we were here a year ago, you'd say nobody's ever going to get a mortgage at six and a half percent. Just to give you a sense, we were 30% up in production mortgages this quarter. So as people get used to environments, they start to behave differently. And so the consumer borrowing is strong, but there's a lot of capacity left. But you know, mortgage production being up 30% is kind of an interesting start statistic in a world where if you said rates were going to be as high, they'd be doing mortgage volume. If you go to the commercial side, which is where you were talking about. You know, we're seeing loan good loan growth, high single digits year over year in our core middle market small business area with the largest small business lender, United States. That's good news because that means back to John's question that's a little bit that if I'm not going to borrow, if I don't need the money, I'm not going to borrow if I don't need to do something. Despite what people talk about, you're not going to issue debt and increasing interest cost and have just sit there because the arbitrage if you don't issue below Treasuries which these guys, no borrower does, you're going to pay 3 or 400 basis points to let money sit there. It's, it's just not going to work. So people are borrowing because they see opportunity. What's equipment buying, what is hiring, whether it's building a plant, whether it's inventory buildup. And so they're going to be more worried about can they get the margin on that. That's the question of inflation coming through the system. Later on they're going to be more worried about will the final demands that that's watching the consumer behavior. If they' consumer side driven or if they're in supply chains, is the demand going to stay there? So I think it's the markets will stay there if the companies see opportunities whether small, medium or large size and they'll stay there as long as they have something to do with the money. Nobody borrows money just to have it sit around.
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B
Despite what people think about SK Hynix and what just happened. I mean just saying, you know, one could say you've got to have a
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view or they're going to do something with their else they just aid in their profit margin. So whatever they're going to do with it, they're thinking about something.
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B
Well, one thing that you noted, the mortgages is something that Tommy show mentioned earlier and he was saying that you've seen a lot of the traditional financial institutions gain market share back from alternative asset managers and that's one of the reasons why the regulatory pullback has been so beneficial. Is that been your experience as well?
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D
Well, I think also, you know, the investor money going into the private capital funds and stuff has been slowed and there's been withdrawals and people getting out and that then slows down the activity. But I think also the questions are raised around how much leverage is, is too much. And I think if you looked at the average leverage of the different deals, it was different inside the banking system and out. So I think we've seen a little bit of pullback, pushback to the system and I think we also had to come with competitive responses. So we put together pools that we could, we and our peers and you know, two different pools where we could, when the opportunity was there, hit the bid for. The core difference is if we do a $5 billion transaction, we tend to syndicate it and get five banks in. That takes time and effort and creates a little bit uncertainty. The other players are saying I'll give you all 5 billion, I'll bring you the equity plus I'll bring out that we build a practice where we can do more of that for our good middle market companies. It still will be laid off. It's just when you lay it off up front or behind. And so we put a couple of things, I think between that and the efforts industry and the efforts, our company are seeing some of the market share come back in. So it's a lot of factors. But we grew a commercial bonds at 8%. That's a pretty good growth rate.
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C
Brian, you continuously measure mention if we
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were this time last year, Liberation Day,
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unsure about tax policy, where the deregulation
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was going, where immigration policy was going.
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Are you more focused on Washington now
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than you have been in the past
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because of how pronounced this administration has been on policy?
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D
Well, I think the company's been around for 242 years. So we've been around through every administration that you can name pretty much. So it affects the economy. When it affects the economy, it affects CEO views of what they want to do. All that affects us. But I think so an interesting question right now is that the say do paradox is as high as it's ever been. If you read the consumer surveys, it says I'm worried about and listed out. Look what you just saw in retail sales in the, in the month of June, the money moving out of the bank of America customer accounts was 7% high sixes and in July it was the same strength. That's stronger than it was in May and April and March. That is counterintuitive to what the people are. So people are upset about high gas prices, are upset about affordability. That that's a fact. That's a fact that may change your behavior right now. The behavior hasn't changed and I think that's sort of a parallel to all the things about policy. People talk about it and think about it but if the underlying business conditions are fine, they just go to work and get through it. And so the question is when does it affect their things? When supply chains become uncertain because for pricing, because of tariffs, they had to slow down and wait it out. Now they've got to kind of figure it out and they can pass it through. When the immigration policy meant they might not get workers, they had to think that through. They're used to that now and a lot less immigration. They've rearranged their work supply. You still hear that from our small businesses of workforce availability is a big issue for especially for the construction and things like that. And so I think we got to get that rational at some point. But but right now there's enough momentum behind it that we're going through it.
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D
Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory Services by Public Advisors LLC SEC registered advisor complete disclosures available at public.com/disclosures I've always given
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C
you credit to really understand where your research team is at with regards to their outlook to know what they're thinking about with regards to rates. Other banks don't really do that. You do their view on interest rates right now just share that with us. And if you can build on that, what does it mean for the business if they're right that trajectory for interest rates turns out to be right later this year.
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D
Well number one they're a great team and that's why I listen to them because they know a hell lot more about this than I do. Number two is it's a big investment so I better get you better take advantage of that investment on an annual basis. They they I have to say I have this Friday they re upped their things. They had three rate rises this year. And I think that's, that was an outlier. And with some of these numbers they may change that. But the principle they're saying is inflation will be here longer. It'll take us into 28 to squeeze it out. That's probably a year later than they thought six months a year ago. But they've raised their, you know, if you think about the travel over the last 12 months 2 1/2 to% GDP growth of 26 down to 1 1/2 back up to 2, 2, 2, 3. That's showing that they're believing that the AI build out the consumer spending consistency, the employment consistency overweights this. And that's why rates will stay higher because the economy is strong enough in inflation. And then you've got to wait through the second wave of inflation for gas prices. First it comes to the, the fast turn stuff and it comes to slow turn stuff. And what I mean by that is this, this keyboard is produced with petroleum related products to produce the plastic. It just takes time to get through the supply chain. So we'll see that their views three rate rises this year. I can't speak for them but I think the new numbers may change that a little bit. But we'll see that they're, they're independent, they make their decisions. But the principal principle was inflation is going to be sticky and we think it's a year sticker was a few
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C
months ago is a piece of that. And maybe you can speak to what's happening internally at the bank right now. We've seen plenty of examples of certain companies, certain firms maybe backing away on spend, telling the staff internally not to do this, maybe to focus on that instead. How have you approached this moment just on a cost basis?
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D
We realized that was a risk from the start. So we built, we built optimization models on top of the models for lack of better term. So and then we also negotiated for lack of better terms for the fixed base pricing so subscription model pricing. So you know, like with your firm we pay a subscription and inside you have the Bloomberg, ask Bloomberg or whatever the capability with other firms we did the same thing. And so will that hold forever? I don't know. But right now we're not seeing a big cost increase and so we expect to spend more on it, but it's more about implementation. And if we look across I think of two big differences in the accelerator. We've had Erica, for almost a decade now and we can talk about that and what we've learned from that. But if you think about the implementation since the ChatGPT moment type of thing, you've had one implementation where we're just spending money to get people really used to this and that was to roll out across 200,000 people the ability to have AI and use it and do things with it. Everything else we have had and that's a very modest cost when you think about a 72 billion expense base, frankly. And with Microsoft and Copilot and all that stuff. We already had a big license fee increase some but that we said it would be hard to measure the incremental return. Everything else. 110 business cases, the 37 that are implemented all have a business case that says here's the cost, here's the benefits, revenue, expense, whatever it is, it makes sense. Let's make the investments. 37 are implemented, we implement about one a week, 110 are approved. It's just a matter of getting the work done. And they've had a profound impact on the company. Now the reality is it's slower than people might think and has to be done much more carefully because the $3 billion we spent on data over the last decade allows us to have these models operate in our company. Otherwise it'd be a problem because it'd be picking up wrong stuff and it'd be problems. So you had to have your data right, you had to have your infrastructure right, you had to have your security right, you had to isolate your data so it isn't taken into the world, so to speak. And so there's a lot of pre work that the team got right now that allows us to go faster. Once a product, once an idea comes up.
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B
About a year ago, maybe a little bit more. You said that you thought that the effect on the overall employment picture for bank of America was that you'd be able to do more with the same volume of staff. Is your view the same today?
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D
We effectively just grew the earnings 30% and we have a little less people we had last year. And so that's. But meanwhile in that is a very subtle exchange. So 18,000 programmers using technique AI coding. We didn't cut the programmers, we just are doing more coding, we're just doing more activity. Relationship managers picking up agent force and that's going to the system right now. We didn't change the number of relationship, we were adding relationship managers all time. So but if you had a hundred percent, the 100 in an example 100 we have today could get 10% more efficient. They can do 10% more work. It doesn't mean we're not going to go to 105 because we want to have more production capacity. So it really is a very subtle answer. Depending on the activity. Our job is to handle it well and redeploy people. Last year we redeployed 14,000 people. We just hired 2,000 kids that will start next week from school. We hired 2,000 summer interns. We agreed to hire 10,000 military veterans. You know, we are hiring a lot of people. We have to hire 1300 people a month to have neutral headcount.
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B
How concerned are you and how much oxygen has been sucked out of the room from Mythos and some of the cybersecurity concerns from earlier this year. We heard some of your peers talking about that and anecdotally we hear a lot of fundamental concern about the risks of the financial system.
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D
I think the, you know, the, the administration looked at it quickly. Secretary treasury and others said ways I could. And so we all got started on this and we all been working a long time and, and yet it just speeds up the pace of the work you have to do to patch the systems and do the things. So it's a serious concern. I think the so called AI industry and industry writ large have worked together, but you can't think that we're ever going to be able to control this because there's foreign models that people use. Not everybody's going to have the same thought process that our country has. But our country's tried to handle it and tried to go be fairly systematic about it. But it's a big change in the amount of work that will have to go on and the pace at which these tools will affect your vulnerabilities in your system and how fast you have to take care of that. That's the core work that's going on. And then you've got proprietary software, open source software, open source supported software, third party software. And we're making sure the third parties are doing the work and working cooperatively with the team. We have a great team. We have 3,000 plus people that work in that area. A billion dollars plus a year in spending and they do a tremendous job under a fellow named Chris Feder, under Hari's leadership. And they do a tremendous job for us and they work very cooperative with their peers. And so you should rest assured we're all working hard on it. You should rest assured. It's a serious issue.
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C
I've been saving. The most important question. You ready?
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D
Yeah.
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C
How many World cup games have you been To.
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D
I've only gone to one, but I'm going to some this week.
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B
I knew it. Too easy.
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C
One game.
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There's 102 of them.
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C
You sponsored the World Cup? One game.
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D
We share the fun. So we have teammates. It's been an unbelievable experience. And so we got my fan band on and we could have been out about a million or three of these so far this year. We've had 102. 102 games. Yeah. 102 games left. Two left. Which game did you watch in the quarterfinal? Boston.
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C
Okay.
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B
Yeah.
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D
And look, it has been something that has been very interesting for our company, but the way the team went after it with the military tickets or the soccer fields. This is part of our sports with us complex, which the Golf with us is the masters in the Golf with us program. Kids getting on munis for five bucks. The running.
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C
I saw the master, his ad campaign, it was fantastic.
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D
The running campaign. Lots of people see what I did. Yeah.
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C
They went back to like legendary golf shots and the kids replicated them. It was very cool.
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D
And so now the campaign you're starting to see now is around the World cup is sort of the, the, you can do it, you know, with David talking to the young lady named Callie who's working with Street Kids United, which is a UK based charity which runs a street Kids World cup that. The commercials filmed that with David and Bono and U2, the new song. So it was kind of fun. But the idea is what we're trying to do is say fields in places. We're trying to. Soccer in schools. We're trying to help increase the availability of a game that is massively played in the United States. But just the availability on an access basis without having to spend for travel teams and stuff like that.
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C
You've got to pick a team, you know, Spain, Argentina.
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D
I don't pick teams. David's a good. David's a good friend and unfortunately that
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C
was a tough result.
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D
Yes.
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C
Basically crying last night.
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D
That was a tough result. So. And I, look, I never played the game. I have no merit to talk about the quality of any decision or anything that went on, the refereeing or anything. I played football and rugby. I have no idea how soccer is played.
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C
But you could call back now and get his opinion.
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D
He might have an opinion. I'll ask him.
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C
Brian. Thank you, sir. Appreciate it. You're a gent. Stock is at a record high. Fantastic numbers. Brian Moynihan there, the bank of America CEO.
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B
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D
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