When Brian Moynihan became CEO of Bank of America Corp. after Ken Lewis stepped down in 2010, he took the helm in a period of unprecedented tumult at the bank and in the industry.
During his first year in the top job, the bank posted a $3.6 billion loss in the aftermath of the financial crisis. Its stock was about to sink even more than it had since the crisis hit in late 2008. The bank was tangled in lawsuits and regulatory litigation. Targeted by Occupy Wall Street protesters, Bank of America had become a symbol of the nation’s broken banking system, kept afloat by a gigantic federal bailout.
In the years since then, the 59-year-old Moynihan has overseen the bank’s return to financial strength. The bank has put a new emphasis on socially responsible investing.
He describes the bank as morphing into a leader in a new world of impact investing.
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TURNAROUND: Bank of America CEO Brian Moynihan has overseen the bank’s return to financial strength since taking the helm in 2010, following the Great Recession, during a time when the bank was dealing with lawsuit entanglements, regulatory litigation and was a target of Occupy Wall Street protesters. He said customer satisfaction scores are as high as they’ve ever been, teammate, or employee, scores are higher and the bank is now recruiting from colleges more than it ever has.
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Should large corporations have a role in addressing national and global issues? If you think about it, in this community, [Bank of America and its predecessors] have been around for 220 years. So, we are a product of the community. We’ve always had an incredible commitment to serve the community. When we talk about driving responsible growth, you’re talking about being sustainable and one way to be sustainable is … our environmental, social and governance efforts. … This is not new. It’s just that now with the ESG – it used to be CSR [corporate social responsibility] – through capital deployment, we do tremendous things. We have a $125 billion environmental program; $70 billion – that’s in green bonds, it helps people finance alternative sources. We believe over time, we have to make a change happen. And you need capital to make it happen and our job is to help deploy that capital.
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Going back to the 1950s and 1960s, corporations often had a three-legged stool of values: There was shareholder value. There was community. And there were their own workers. Then, everything became driven by shareholder value. Do you see a movement back to the old way? The three-legged stool is actually customers, teammates [employees] and shareholders. The fourth leg – the fourth constituency, is the communities. And that’s been out there for years. It sort of came in back 40 years ago or 50 years ago, when people started thinking about the broader impact – how capitalism has to both serve its shareholders and serve communities. So, what you’re seeing is various renditions of that thought process. The newer thought process is actually impact investing – investing for that impact – and having impact beyond pure financial return that you can measure.
With this thing called the RISE fund – this is a private-equity fund [in which Bank of America is involved]. It has an environmental impact. It has a development impact, etc. That’s one strategy. The other is charitable giving. We did about $200 million this year. And we’ll push it up a little bit. So, we have $250 million that we’re giving each year – and that’s pure giving. And in between there’s every type of thought process you can have. We have done transactions where we’ve taken a redwood forest in California and lent them money on terms so that they can slow down logging, so it can replenish better, yet they could keep all the loggers’ jobs, yet not have the environmental impact that was happening. … If you use the U.N. Development Programme’s ESG thought process and look back on the last five years, if you didn’t invest in companies that scored poorly on [the ESG scale], you would have avoided … 80-90 percent of bankruptcies. There’s a business purpose to this. You’re trying to educate capital. So that all capital can think about this question [on ESG impact]. Some people will; some people won’t. But a growing percentage are.
If Bank of America is getting involved with ESG investing, can it benefit the bank financially? They do. The point is some of it has return attached to it. Sometimes, there’s a low- and moderate-income housing-type development where we take a lower return. But we arrange for people who will get a lower … return but they end up with tax benefits attached to the project. So, the idea is you end up with a community that is stronger. And when a community has better housing, they can house the workers – and a community like this [Greater Providence] has a housing shortage, which is a new/old issue – and as these communities have recovered and grown back and unemployment is down, they need to have people come live here.
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LENDING GROWTH: Bank of America CEO Brian Moynihan said the bank has $25 billion to $30 billion in small-business loans for companies under $500 million in annual revenue and $17 billion to $18 billion for companies up to $50 million in annual revenue, indicating growth in small-business lending after banks pulled back from the practice following the Great Recession.
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This is a new approach for the bank? We’ve been at it [for a while]. It’s just the intensity and level of it increases as we continue with it. The ability to get investors to understand how to put money to work, along that [ESG] paradigm from pure charity to pure return, is really what we’re trying to drive through our wealth-management group and others. It’s called impact investing. It has a return attached to it. We’re a for-profit company. We’ve got to make a return and sometimes it’s a full return with impact and sometimes it’s less return. We measure all that. But the real [point] is we’re supporting the community. They’ll be served – in Providence, too. And it’s important, because if the community is strong, we’re strong.
In terms of the bank’s public image – it has weathered its share of criticism in recent years, how would you describe its image today, compared to five or 10 years ago? Customer [satisfaction] scores are as high as they’ve ever been. Teammate scores are higher. We recruit more kids from colleges than we’ve ever recruited. We get more applications. I’m not trying to [undermine] your premise, but what we do for society is well-understood and people enjoy it. … Our job is to just do a better job for customers.
Has President Donald Trump been good for business? The policies that have come out – tax reform – for our customers and clients, it was good for them. The [corporate] tax rate that the U.S. had needed two basic pieces [changed]. One is it had to be lowered to be competitive in the world. Companies have a choice where they put their money to work. The second is you had to have a territorial tax. So that tax reform allows U.S. corporations and foreign corporations – it’s hard to understand – to operate in the U.S. and around the world and have a more certain tax regime. Because the tax rate in the U.S. was running in the low 30s [percentages], the tax rate in other countries was much lower. So, people [in business] are making decisions. It’s a global world. People could put their money to work outside the U.S. and leave it there. By having a territorial tax, it will eliminate the incentive, for lack of a better term, and put the money to work.
Bank of America has spent a lot of time cleaning up from the financial crisis of 2008-2009. Is all of that done? It was done probably four years ago. Even all during that time, we were investing $3 billion a year in technology to make the company better. … We sold some loans this quarter – none of them originated after 2007. And we moved them [old loans] out to keep lowering the risk. There’s always little stuff, but most of the major work was done, and that really ended, in 2014, 2015.
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POSITIVE TREND: Annual profits have risen at Bank of America since 2015, when an ongoing economic recovery took hold. The significant jump projected for 2018 largely reflects the reduced federal corporate tax rate that went into effect this year.
*Projection based on performance through three quarters of the year.
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If the economy were to topple again, would it play out any differently for your bank this time? If you think about some of the reforms that were made [through regulatory legislation after the crisis], you have a method to assess that question. Bank of America, with the way we manage risk, will be fine through an economic downturn. You don’t have to trust anyone’s opinion anymore – you get an objective assessment every six months [through mandatory financial stress tests]. The stress test that is used to judge the strength of banks in the U.S. is a recession as bad as 2008 with no warning. You look at that. All of us have capital and earnings. And, yes, we’ll be fine. The industry is in very good shape. With capital liquidity and credit risk [now more regulated], we’ll be fine.
Having met those stress tests, do you think that level of regulation hampers your performance today? The stress tests are a good thing. We do it every quarter. Some of the regulations are somewhat inconsistent. The amount of capital requirements is probably in excess [of what it should be], but that’s the way the pendulum swings. And all of that will work out and get done. But, basically, the principals of liquidity, the stress tests, all those are good principals. All of the industry supports them.
But the question is: Did you set the dial too tight or too loose? It doesn’t sound like a lot. If we have 11.5 percent capital [and liquidity requirements], and we’re off by 50 basis points, that 50 basis points in our company is almost $100 billion in lending capacity. So that’s one point. If you then have the buffer – the buffer for us is 250 basis points. If that was 200 basis points, we can’t take any risk with that capital. Because if it had risk, it wouldn’t be part of the buffer, right? So, if you’re off, it materializes in a lot of capital. … It’s a lot of technical stuff … that we can get cleaned up.
Coming out of the recession, banks pulled back a little bit on lending to small businesses. Moving forward, do you see growth in small-business lending? The economy is integrated … in any society. So, the big businesses – the universities, the hospitals and the for-profit companies – drive a small business’s existence. It’s very hard to come up with a small business that doesn’t get its customers from somebody who is employed by big business or by the big-business value chain. It’s an integrated economy. We have a lot of small-business lenders across the platform with 1,000-plus deployed. With business bankers, we’ve grown by 15 percent, 20 percent, 30 percent across the platform.
We’re just investing in it because of our ability to do it. We have $25 billion to $30 billion in small-business loans for companies under $500 million in [annual] revenue and $17-$18 billion for companies up to $50 million in [annual] revenue. And that’s all growing and we’re in good shape.
What do you make out of recent dips in the stock market? That’s a question which we spend a lot of money and [have] a lot of teammates trying to figure out. I think it’s just a natural correction – a reaction to some of the things going on geopolitically. [As far as] what people are worrying about, which is how long can this recovery, which has gone on for a long time, continue to last. We have the U.S. economy finishing off the year and growing at 3 percent. From everything we see in our consumer and customer base, which is very large, people are spending at a faster rate than last year. Third-quarter [consumer spending] is up 8.5 percent over last year.
So, I think the stock market is more of a [reaction] from people that are worried [about geopolitical events]. And we’ll see what plays out here. The economic trends are strong. The numbers are very strong. The underlying economic trends are very good in the U.S. … We have 2.7 percent [economic growth] for next year, because with the [federal tax] stimulus, some of the spending goes down.
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MOBILE BANKING: Bank of America CEO Brian Moynihan, left, speaks with William F. Hatfield, center, market president in Rhode Island, and Trevor Koenig, communications executive, at the bank’s East Providence call center. Hatfield said more than 60 percent of Bank of America consumers in the Rhode Island market are using digital/mobile-banking services.
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How much of an impact have rising interest rates had on Bank of America? The Fed’s decisions on rates are based on the strength of the economy. The strength of the economy is … good for all banks and all companies. So [the period of lower rates] reflects the accommodation we’ve been in to help the recovery. The recovery is now on solid footing, so they’re pulling it out. There’s no mystery to the Fed’s thought process here. They publish minutes all the time, and they tell you where they’re going [with rates] and the market tries to assimilate. But the rise in rates is not what’s driving [the company’s improved performance].
What’s good for us is that the underlying economy is good. And the [rate] increases over the next period [of] time [will] continue until they get to what they call the neutral rate. It will be based, as the Fed’s said many times, on the data and what the economy is doing. And so right now, the underlying trends are good. But if something changed, they would change their course of action. It’s because the economy is growing and that’s a good thing.
Do you think the bank will sustain its quarterly improvements moving forward? Sure.
Why is that? Basically, what we’ve built is the capabilities that are very strong for organic growth and we’re deep into the continued driving of those. So, to continue in this state [of growth], we continue to grow deposits, we continue to grow loans. We refresh branches, our relationships through advising [customers through our subsidiaries] U.S. Trust and business bank Merrill Lynch and [our] commercial bankers. As the economy grows, we can get our growth from the economy and we can also get our growth from the competitive position of the company. … Our digital capabilities, our mobile capabilities, are second to none. So, we feel very good about it.
Is the bank’s increased focus on digital, mobile banking causing it to pull back from brick-and-mortar branches? We don’t look at it as A or B. It’s A and B. The question is: How do you serve the customer base? So, the objective facts are that we’ve gone from 6,100 financial centers to 4,300. But the reality is what they look like is different. We’re building them out from scratch in markets that we weren’t in. And we’re redeploying new [branches] in the markets we’re in.
There’s a community [financial] center in Washington Park that we just built here, for example. And that’s a strategy to serve that community. There are more salespeople, more business-relations people in those locations. The number [of employees] is what people are fascinated about. They say, “What will the number be?” The answer is: I don’t know. It will be dictated by customer behavior. But what’s in [those locations] is far different. So, we had 100,000 teammates in the retail [banking] business in 2009, something like that. Now it’s 60,000. However, we went up from 12,000 [business/client]-relationship people to 25,000. We’re automating the process and customers are doing it through their mobile phones. But at the same time, we’re investing heavily in the relationship side. So, it’s high-tech and high-touch. That [old business] model does not survive.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.
