By Jacob Wolinsky. Originally published at ValueWalk.
Following is the unofficial transcript of a CNBC interview with Bank of America Corp (NYSE:BAC) Chairman & CEO Brian Moynihan on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Monday, May 23rd for Davos 2022 in Davos, Switzerland. Following is a link to video on CNBC.com:
Bank Of America CEO Brian Moynihan: People Have Not Spent Down Their Stimulus Money Yet
ANDREW ROSS SORKIN: Lots of folks making their way here. A little bit different than in the past, but I think we’re gonna get some insights into what’s going on in the economy around the globe. Lots of concerns, of course, about inflation, about Ukraine, Russia, this news this morning that President commented on with Taiwan already making its way around. President Zelenskyy kicked off the Davos session this morning, piping in from Ukraine this morning. But nonetheless, as we said, we’ve got Brian Moynihan in just a moment but we have so many others joining us but we have Brian on the set with us as we speak so why don’t we get right to him and begin this conversation, get the mood of what’s really happening here. Brian, it’s nice to see you.
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BRIAN MOYNIHAN: It’s good to see you, Andrew. It’s a beautiful setting and you can hear the bells.
SORKIN: It’s windy, it’s windy and things may go down. That’s the only thing we should worry about. I’ve already been to one dinner. There seems to be, I hate to say it, a lot of pessimism, a lot of sense that inflation is not transitory and that this is going to be extended and prolonged. What are you seeing in the last couple of weeks in terms of at the bank, in terms of bank account balances, what are you seeing now?
MOYNIHAN: Well, what we’re seeing is, more importantly, the balances are balances continue to be stable and continue to grow year over year for the broad base of consumers. More importantly, the spending levels in May for the first few weeks are up 10% last May, and that is not as high as it would otherwise be because last May people pay taxes so it actually it’s a bigger base to grow from so year to date, they’re up 17% fairly standard in May they’re up 17%, the consumers continue to spend in the balances of our customers, they have more money in April, their balances grew up in March and March they grew over all the way back to mid last year. So the notion that people are spending the stimulus down isn’t happening yet. It may happen but it hasn’t happened yet.
SORKIN: Right so I was gonna say you we hear anecdotal reports. Here’s some high frequency folks who are looking at things who have tried to suggest the last two or three weeks bank balances have started instead of rising to start to come down. Is that not the case?
MOYNIHAN: It’ll happen because people paying their taxes and so the reason why California has big surplus, a lot of taxes we pay in the US governments haven’t been received so you’re seeing especially among affluent customer frankly than the broader customers, people paying a lot of taxes and that happened in April. You saw the balances go down a little bit but that’s the normal pattern year to year people will overread that and not really understand it. Every year, this quarter because in the month of April we all, everyone sends a bunch of money to the government and government survives off it and does good things with it. But that’s that’s what’s happening. Generally stated though, if you compare this April to last April, it’s up 8%. This May, the last May, is still up 8%.
SORKIN: The other data point that you always have for us though is mortgages. What are you seeing there in terms of people’s interest or people starting to pull back a little?
MOYNIHAN: Well, mortgages have slowed down because frankly, the refi thing drops away right and so Americans just put out a paper the other day and what people have to realize about mortgages is all the fixed rate mortgages which are the dominant dominant part of them, don’t change rates because rates go up. What the impact is on future mortgages so when people buy a house, will they be able to buy as big of a house. The reality is 200 basis point mortgage rise on a $300,000 house is $500 a month. The question is if you make 100,000, you got 6% income rise, it’s the same amount of money and so what’s different than this time when the raise rates rose in the 17, 18, 19 framework is that wages are rising three times what they’re rising back then so people can keep up with. It’s gonna be interesting, right now they slowed down all on a refi. The house purchases are still going through.
SORKIN: So all this says what to you about this larger conversation that’s having that we’re having now about our economy.
MOYNIHAN: So there’s a lot of fear and worry about the Fed tightening in the federal slowdown in the economy. That is what they’re going to do. And so our economists have this year predicted, everybody keeps moving, as the Fed has said they’re gonna raise rates faster, everybody keeps moving their estimates down. Our economists said Friday there’s a 1/3 chance of recession, those numbers get overquoted. If you’d asked them in the middle of ‘17, ‘18, they’d have said there’s a 15% to 20% chance of recession but nobody had it on their mind. The reality is, it’s moved up. It’s moved up because the government has to slow down and take on inflation. Inflation, you said transitory, it wasn’t transitory last fall and that’s when everybody was figuring it out. Now, they’ve got to move fast. They moved 50 last meeting they expect to move 50 two meetings. That is an unprecedent fast rate. The question is could they slow it down without tipping over? And that’s what the debate is about. People get up in the morning, one side of the bed says it’s going to tip over people on the other side of the bed said we’ll be fine. Our team believes we’ll grow this year and next year. And by the way, if you look at all the blue chip economists only one out of like 40 economists has a negative number this year, and nobody has one next year. And if you look at all the big firms, none of them have the negative quarters. So something is this the probability is rising, the fear is going up. But the reality is, is no one’s really saying there’ll be a recession in ’22 or ’23 yet. We’ll see what happens there.
SORKIN: What’s Brian Moynihan saying?
MOYNIHAN: We think the economy will slow down. But with this kind of spending and this kind of activity, the Fed has a tough job in this kind of employment tightness, the Fed has a tough job, but it’s a job they have to they’re getting after much faster than before and we’ll have to see if they can get the balance right.
SORKIN: Becky’s got a question back back in New York. Becks?
BECKY QUICK: Hey, thanks Andrew. Brian, I see today that you are raising your minimum wage to $22 from the $21 it had been. This all kind of plays into it. People are having a tougher time keeping up with the costs that are rising everything from gasoline prices to food prices and it’s great to see that but it also comes into this whole wage inflation spiral that that you see what’s what’s going on. Why do you feel the need to raise wages? What does this mean for your employee base, and then how does that kind of fit into the broader picture of inflation too?
MOYNIHAN: So Becky today we announced, we had a pattern going from we announced from ‘20 to ’25, in the year of ’20 to ’25, a dollar each year, we moved it up and announced today to from what was gonna be October to June. But importantly, last week, we also announced for everybody making less 100,000 in our company, we increased our wages by 3%, 5%, 7% based on the years of service, so what we’re really trying to do is say we need the best team to serve our clients and we’re trying to make sure that we make make our teammates feel great about working at our company so with a $22 hour start wage, it’s fairly straightforward. You get $45,000 a year if you’re an individual, you pay about $100 a month for full medical care, you get a 7% dollar for dollar employer match, and $10,000 tuition reimbursement, if you have children $275 per child per month. These are all benefits because we want our team to be able to focus on their career here and stay with a company a long time and so we’ve raised in response to some pressures we’ve raised and we’ve hired 7,000 people in the first quarter. We aren’t having trouble hiring people, but it’s really to make sure we stabilize and have the best team that we can have.
QUICK: I mean that’s fantastic and it definitely means good things for your team. I just tried to get to the broader issue of what this might mean and what it’s going to take for people to be able to I mean real wages are dropping overall if you look at the numbers, the the inflationary pressures from CPI are eating away at any of the wage gains that people have gotten on average, not from your company, but on average. What what do you think about this? Does it concern you to watch that?
MOYNIHAN: Well, that’s that’s the that’s the question. So the labor market is tight and you’re hearing stories about, you know, our turnover moved up to where it was in ‘19 and about a little bit higher and still well within what lower was like in ‘17 so we feel good about it. But the reality is when I talk to CEOs around the country getting people is number one issue. Labor market’s tight, there’s two job openings for every job. Go into some of that real time data we’ve seen in one of our real time data sets a little less job postings, which may mean the markets easing but until that labor market eases the weight of wage growth is going to be strong and then the question is can they slow price appreciation in light of wage growth carries through for real wage growth. And that’s, that’s getting, especially with the market being down because it’s helped broadly people’s 401(k)s that create things these are all impacts on people’s view. The reality though is they are changing their behavior as of last week, in other words, travel in the month of May up 40% over last year. Restaurants up are they spending less at retail goods? Yeah, it’s flattish a little bit. But they’re spending the money on experiences and doing things. So that’s the conundrum and that’s because frankly, a lot of them have the stimulus from before so the real pressure point here I think would be as we move to the fall unless you see some ease in the price appreciation and stabilization. So gas prices stabilized at some level, you know, and other things that people, grocery prices stabilized then I think people really will get much more concerned right now it’s competitive out there as people are raising wages.
SORKIN: But there’s still stimulus, meaning that you think that a lot of these bank accounts still have some of that stimulus money and that—
MOYNIHAN: So for our account holders in April, if you had if they had between $1,000 and $2,000, before the pandemic they had an average balance of $1,400 they had about $4,000 in April. If they had an average balance of $2,000 to $5,000 pre pandemic, they would carry about $35,000, they would carry $13,000 in balances. They haven’t spent them down yet and they grew 5% from March to April. This is—
SORKIN: That’s a remarkable statistic.
MOYNIHAN: Remember, we have 35 million checking customers so I’m not giving you a little tiny sample. I’m giving you a sample of a broad base of households in America. So what you’re, and they’re all primary accounts and you’ve been seeing to Becky’s point in our employment checks deposited, you know, our customers getting their, not our people, but other people you’re seeing their wages have grown 8% year over year. And so when you look at all that, that stimulus, the notion people start spending down, it’s been growing every month since last July. Will they spend it down? Probably but not right now.
SORKIN: Another sort of Davosian question, always a big conversation here about ESG and lots of pledges have been made climate pledges and other things over the years here. Question is whether that is a sort of that was a something that happened during a boom times and what happens in a challenged economy meaning all these companies that said we’re gonna do this, this and this over the next 5, 10 years, we’re gonna spend billions of dollars. Do you think that that changes do you think they say, you know what, actually I can’t do that or activists are calling up and saying, no you cannot just get, you gotta cut this stuff out.
MOYNIHAN: So I think we believe at Bank of America it’s profits and purpose, not or.
SORKIN: No I know—
MOYNIHAN: And the key to that is we have to produce on earnings $7 billion in the first quarter and record earnings last year and we have to produce so when you think about it more broadly, think of the environmental commitments. We made our first environment commitment 2004. You think we went through some interesting times between 2004 and today and it went from 25 billion to 50 billion to 125 billion to 350 and now a trillion all financing our client’s transition. So what I think Andrew is more people will ebb and flow on this given the pace of things, the fear about energy drives more activity. Well, maybe other things. The reality is if people have done it right in a World Economic Forum here at the International Business Council which I chair has had these metrics we put out, 140 companies have signed on them. 72 are under second year disclosing all those laid out bear if you’re not making progress, and people can see it. So whether it’s whether it’s women on boards, or whether it’s diversity overall, or whether it’s progress on environmental commitments, I think people will stick to them because they’ve aligned capitalism to achieving the goal. And by the way, these goals will not be achieved without the private sector doing it. The government doesn’t have the money.
SORKIN: But let me ask you, you were very ambitious around climate and specifically on fossil fuels, right? In terms of what what fossil fuel companies you would finance, what kind of projects you would finance. In this environment now where gas costs as much as it does and people look around and there’s a question, was this the right call.
MOYNIHAN: We finance oil and gas companies and we finance the green companies and sometimes it’s the same company. You know, that’s the interesting thing is even the oil companies have made major commitments to change some of that cash flow. Is it the right call? In a spot base, you’d say we wish we had more oil and you’re seeing the production, the wells are coming up and the production starting to pick up here in the US and the Middle East and stuff and that will happen because the demand will be there and the price will be there, of course people are going to, this is a transition. We have to have energy for everybody. We have to have all kinds of energy, we have to build it. Meanwhile, we did $250 billion in financing last year. So during the pandemic kept growing, it will do that much or more this year. And so our clients have made and this is, what they say it’s a markets initiative, I work with we’ve we just had a meeting in London a couple of weeks ago, 100 CEOs in a room all have commitments, all driving is part of how they’re driving their business. It’s not some commitment. It’s not charity. That’s what, when people turned the switch from charity, which which is terrific and wonderful but doesn’t give you enough money to aligning the business when they make a purchase commitment for sustainable aviation fuels, a purchase commitment for clean energy, or in our case, our commitment over multiple years to drive down our energy, our commitment will to build a power, all these are commitments that are gone. I mean, they’re going on it’s not like you reverse them because they’re already working.
SORKIN: Becks?
QUICK: Brian, real quickly. Let’s go back to the job market again. You mentioned that this is a situation where you think the job market could be easing a little bit not not quite as tight as it has been based on what you see with job postings. I mean it’s been an employee’s market for so long this has been a take, take your job and shove it market. Do you think that that is going to switch soon or how do you read that? What kind of other things are you watching to see on that front?
MOYNIHAN: It’s not gonna switch soon. So if you look at all those economists including ours, they still have the unemployment rate barely getting to 4% or maybe 3.5%, 3.6% at the end of next year. It’s still going to be a very tight labor market, frankly, because in the US because we don’t have, you know, we aren’t getting more people and now, all the most of the workforces that pre-pandemic were at X are all back at workforce except for young people. So we got to pull them off the side, it’s the optimists say, we can pull more people in and that participation rate will go up and employment the population rate will go up and you’re seeing some signs of that. Older people who said retired, wouldn’t come back. They did. They’re back at the same levels they were before older workers so there’s optimism there. But frankly, that’s one of the challenges the Fed has is the unemployment rate is projected by everybody be very tight in historical context and that then would make their job tougher because that wage inflation will be harder to tame. Goods, inflation may come down faster but wage inflation is gonna be a tough nut.
SORKIN: Hey Joe.
JOE KERNEN: Yeah Brian, thanks Andrew. Back to the ESG issue again and in light of what we’re seeing with with some of the pushback against Larry Fink and maybe some of the other big money managers, managers that are voting shares from their own preferences it seems like some of their own causes. I don’t know if it’s that much different for a CEO that might steer the company, your company, for example, in a direction that he has a personal opinion on. And I’m just wondering, did you ever worry about that you’re talking about a transition to clean energy, which may or may not have hindered financing for fossil fuel, for the fossil fuel industry in the United States. Now, you know, that’s coming home to roost, obviously, where do you draw the line? Do you cut of gun makers, do you get involved with voting rights issues? These are all your own opinions as CEO, but it doesn’t seem much different than what Larry Fink does, which is receiving a lot of pushback now. Should a, should a CEO be able to steer his company in a manner that that follows his politics?
MOYNIHAN: Well, I don’t follow my politics because most of you wouldn’t even know what they were and the company wouldn’t know it. So we have, we have 200,000 people and they represent every interest so we tend to take action when it means something to our teammates, but on the energy thing, I get a letter one day from people saying we’re financing fossil fuels and we did underwriting for oil and gas companies. I get a letter the next day saying the opposite, you’re cutting them off, and I went out with Senator Cramer out to to Fargo, North Dakota and talked to him about that that state has declared to be net zero by 2030 or ‘40 or something like that. They’re building these huge carbon capture storage facilities. We’re working with people in that to drive it back so there’s gonna be a lot of competing ideas and competing things here. But the reality is we drive profits and purpose Joe, and that’s how we run the company. And I’d simply say, if we did things that were good for our customers, you’d say that’s fine. If you did things that were good for our teammates, you’d say that’s fine. If you did things that were good for our shareholders, you’d say that’s fine. If we did things that were good for our communities of which a bank depends on its communities to be successful to have customers, you’d say that’s fine. That’s what we do and I don’t think that’s an unusual idea. It’s an idea which has been around for a long time and it’s it’s, I did my first strategic plan laid out that way for a company in 1993 or 1994 or something like that. These are not new ideas. So I think the politics are completely different from actually driving the company for what society what’s what society does, needs and how capitalism can help drive the right things for things that are economic based, are teammate based, and things like that and customer based and shareholder based. And that’s what we do, profits and purpose. Not or, and you can read my shareholder letter, I lay it out and I think our shareholders are backing it.
SORKIN: Brian, before we let you go, gotta ask this is a topic that everybody seems to be talking about Elon Musk. You guys are actually backing the margin loan that’s going to allow him to either buy Twitter or not.
MOYNIHAN: You keep asking people that and they all say the same thing, it’s not our deal. You have to talk to the principals to figure out what’s going on.
SORKIN: You think it’s gonna happen?
MOYNIHAN: You have to talk—
SORKIN: Let me ask you one other question related though. No, but here’s here’s this is a fascinating question. Margin loans. There’s a big question about whether billionaires or anybody of great wealth should be able to use a loan that is not taxed, and still create effectively that value. I don’t know if you saw Trevor Noah created a sort of viral video about this sort of goes to wealth tax, and whether effectively, money that we say is not really being used in any real way because it’s not available actually does become available through a margin loan in this kind of context. What do you think about that?
MOYNIHAN: Well, a couple of things. One is there’s that that’s the way the rules are, you can have a margin loan, Joe can have a margin loan, you can have a brokers account and borrow up to 50 cents on the dollar. That’s what’s given. So I think it’s in for a penny, in for a pound, either everybody can do it or not. The second thing is that money is used to do something that generates taxes, we pay taxes on the interest we get on those loans. And so I think it’s a much more complex question someone might understand just saying I borrow money and not pay taxes because taxes are paid by other participants, the underlying assets they buy have taxes, if there’s dividends, that’s taxed on a flow basis. Having been a lawyer a long time ago and steady taxation, it’s much more complex than the average person thinks.
SORKIN: Thank you, counselor. Appreciate it. Brian Moynihan, thank you very, very much.
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