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News for our Bloomberg audiences worldwide. I'm David Western. I'm delighted to be joined now by Brian moynihan. He is indeed the chair and CEO of Mecca America. So, first of all, happy holidays, Brian. Great to be with you.
Happy holidays. David. Good to see you again.
So let's start with the year. It's been a very strong year for the markets, by the way, a very strong year for Bank of America. In the markets. The economy's done well, not as well perhaps as the markets might indicate. Do you think the economy is in better shape because the markets are really over predicting what's going on.
Look, as you look at our team that we have a great research team, as you know, David. Their projection for twenty six is a strong economy two point four percent us GDP growth. And that's strong not only on a relative based to trend above two percent, which is the trend. It's strong that way, but it's also strong relative to the rest of the world in the sense that you see that basically, whether it's Euroa or Japan, other parts of the economy, you predict those to be
flatted down. And so it's strong on an absolute basis relative of the United States history, and strong on a relative basis to the other economies. And that's because, frankly, the great American engine of capitalism, consumers are driving and the markets are valuing that future growth rate, and that's why they've been very, very constructive this year.
How much of that engine that you talk about is AI investment, because that certainly is kicked in this year. How much of the growth is really attributable only to the AI investment.
You know, I think you'd have to get people to parts of it. But for this year, frankly, the A investment has been building during the year. It is probably a bigger contributor next year in the years beyond. And so if you look at the data center build out, which is one of the ways that evidence itself, that's
a big deal. If you look at customer or client spending, like US spending on AI that's hired it was last year, but frankly, overall spending levels are shifting towards that necessarily growing at a mid single digit rate type of numbers. So I think that's part why the reason we feel constructive for next year. We think AI spending continues. We think there's benefits the American taxpayer from tax rebates, lower taxes due to the tax bill going through and being
effective for next year. And we think the expense expensing and other bonuses for businesses are good. So all that leads to our confidence that we go from basically at two percent type of growth letter level this year plus or minus up to two point four percent, which is all due to that. And AI is kicking and more and more, and so it's not all attributable to AI, but that's having a marginal impact that's pretty strong.
So much of the American counomy is supported by the consumer, and you at Back of America have a really powerful viewpoint into the American consumer. How's the American consumer doing? Because it has been very strong. There have been some people saying it's starting to slow down.
Yeah, and so I think you have to step back.
We look at American consumers seventy million consumer putting four and a half trillion dollars plus into the American economy every year, and we've tracked the way that goes in the American countmy for many years. And so in the third quarter it was up about five percent of the last year. As we look at the fourth quarter here so far in October November, I'd say it in a four to four and a half percent, which is very
consistent with a very solid growing economy. You know, at the end of the day, it's going to work against wage growth, and we see in the underlying consumers we have wage growth. Iw eive their paychecks are going up, and so the labor markets flattened out a little bit in terms of job growth and things like that. It's normalizing in terms of unemployment, but you still see underlying
wage growth. So the American consumer spending at four percent more November this year versus November last year is a very solid backdrop. The credit quality American consumer is strong. And then you hear a lot about this discussion about different rates of growth among different income tursiles or third.
So we look at.
The bottom third, middle third, and top third American income people in the Bank of American customer base.
We do see difference.
Is I either higher income in middlecome are growing faster, but even the lower income third is still growing.
And that's all good.
And that means why is that true companies are employing people they're paying people now. The labor markets got a little soft, and as we look forward to a four point five four point six unemployment that is gotten worse, so to speak, than it was the beginning year.
But frankly, this goes back to normalization question.
If you look at the tenure average unemployment the twenty year to thirty year or forty year, it's five and six percent, you know, as you go back through time, and so a four and a half to four point six unemployment rate is a very strong relative unemployment rate. It's just a lot of years it's been below four and a half percent, has actually been in the last
ten years. So people are very used to numbers now which were part of the tightness and labor in the twenty seventeen eighteen nineteen era, and you had the pandemic and it retightened, and so it's it's normalizing. But we feel good about all that, and the consumers in pretty good shape, spending more money, employed and earning more money, differences between different types of consumers and then being wise and how they spend if they trade down, and all
the things you're hearing the retailers talk about. True, but the agurd amount of moving in the economy is still growing.
So you mentioned flattening out in the employment growth. There are always risks to the upside and the downside, and any of the numbers that we project, how concerned are you let the downside, because certainly the FED is very focused on a softening a labor market and whether that may be a problem for us.
So if you look at the predictions for our team and the other economists for unemployment, we're kind of peeking out at this level now, in the mid to four five four six range, and it sort of flattens out. But the FED has to be wary because they have a mandate to maintain full employment and we're at full employment now, and they have a mandate to main strip price stability and inflation fighting, and those two mandates can
work together sometimes and against each other sometimes. Right now, we're in an unusual case where the labor market is getting has softened, and yet the inflation because of to build up inflation after COVID and stuff, is now still
working its way down. Our team predicts that the inflation rate will get to the FEDCE target through the end of twenty seven, but it's continuing to work in the right direction, which gives the FED, in our view, latitude to keep cutting rates next year, especially in the first half. That will then provide a stimulus in the second half
of the year. Those rate cuts do a benefit the consumer somewhat, but in fact benefit small businesses because in mid sized business they borrow on lines of credit, which are our floating rate into season. As rates come down, they get instantaneous benefit. And if you hear our small medium sized businesses, they're pretty optimistic about next year, telling us they expect to grow, they expect to hire more people, and those small businesses are backbone of the US economy.
We're the largest small business letter in the US economy, so we see them being very active.
This year has been good for the markets. It's also been good for back of America. I believe you hit an all time high in your stock price today intra day at least, what do you need in twenty six totinue the growth?
Look, we just need our team that's done a great job for us over the last several decades.
To keep doing it.
And what they need to do is go out and get one more client and do one more thing with every client we have, and they know that across all of business, whether it's our markets teams, whether it's our global corporate investment bank teams, our consumer teams, are wealth managed teams, all of them need to go out and just drive more business and at a granite growth engine, which we described our Investor Day a while back, that is intact, it's been growing with the market and now
because of some dynamics and a repricing and balance sheet, we'll get more earnings left out of it like we did in the third quarter. But that organic growth engine, more customers and war with each customers been driving a Bank of America, and our team just need to do more of that.
And they know that.
How sensitive is your performance at back of the RecA to what the Fed does on interest rates? I mean, if it actually cuts faster than people think or doesn't cut as fast.
Look at the end of the day, if our team predicts and most of the economists out there predict that the Fed funds rate will go from where it is now down closer to three percent, and the debate might be two and three quarters three three in a quarter, but it's a debate that nominal rate environment from say three percent Fed funds rate to maybe a four to four and a half percent ten year treasury rate. That's a good normal interest rate curve where banks can do well,
and our bank can do very well. We have a two trillion dollars of positis and a tradeon of those are low interest, low interest accounts, and if the nominal rate environment sits in around three percent, it's a very good environment for our company to grow it's earning streams while it's grown a customer and its balances and its deposits and loans.
You originally had an investor's day and you went through in that your investment in tech, which as I recall is ten billion dollars over ten years, one billion dollars in this year alone. What did you get for that? How do you monitor the return on investment of that kind of tech investment?
Yeah, So each year we have about thirteen billion dollars in total tech spending, about nine to ten nine or so of it is the running of thevironment, protecting the environment, and sort of what they call the infrastructure, both the systems and protecting those systems, and new software purchases about four billions what we call initiatives, and that's the new products, new services, the things my teammates love to talk about and what do we get for how do we measure?
We literally look at every project we do and say, what's the payback in terms of additional revenue, additional expense or simplicit expense taken out of either reducing work or simplicity new systems environment.
So we measured all that. It's got to be above our cost of capital.
That's a technical way of measure, but what you really see is that deployment of lots of capabilities to help our customers do much greater things with AI, with agents and all the things working on but also our teammates to do great things.
So this year we deployed our three sixty five co pitt.
We'll finish the end of the year with two hundred thousand people up and operating on AI and it's just tremendous And that's all part of that major tech budget. But also as part of that is just the nuts and bolts of having a better trading system or enhancing that trading system our data. So that four billion plus a year is really important to drive the initiatives that we have as an innovation company.
So we are in the early stages of AI, even though you've been doing at Bank of America for a while.
Now, how far.
Will this go for Bank of America? What will Bank of America look like five years down the road because of AI? How transformed will it become?
Well, I think to answer that question, no one knows precisely for sure. But what you will know is we'll be applying more and more of automated intelligence or augmented intelligence as we call it, with a person using AI using that to be more effective, and that'll affect all the businesses. So if you look historically, we deployed AI more than five years ago with a product called Erica. Erica was a agent, bought a small language model, and all the words we use today back then we didn't.
And over the last twenty four hours, Erica interfaced with two million Bank of America consumers and answer the questions. It went from two hundred questions that could answer about seven hundred question can answer about twenty million people use it.
So we have great experience of how that worked.
But what part of that experience was you have to have your data perfect, you have to have the controls around it, so answer the question right. So the customer is getting a good answer, and you have to be able to transmit that answer instantaneously on an inquiry across the one hundred systems that touch our mobile bank or digital banking out to the customers. So it's a lot harder to do.
Now.
The interesting thing is we took that Erica and we put it in our institutional side business, so cash pro with Erica and hundreds of thousands of interactions with institutional customers using it to answer questions about their accounts. Then you took it and put it in an internal environment so people could work with the IT department to get their laptops replaced or passwords change. So we use that model plus other models, and we believe it has a
big impact. Where exactly it goes we'll figure out, but what we know there'll be more of it. It'll be helping people be smart and more efficient, help us take work out that we can get out and invest in work that helps our customers and our teammate be more successful. And we are after it every day, and we have
thirty proofs of concept going. We have money we're spending and all that stuff, but a lot of this is really fairly controlled, right now to make sure that we can actually deliver what we say when we put a and I, we just can't let it run and have answers that customers won't have faith in. And that's why it'll be a little slower build out there, I think people see, but a very relentless build out.
From your experience so far, and once you project out, when you look at the return on that investment AI, how much it's from growing the top line that is increasing revenue, and how much of it is from cost savings because of the use of AI.
I think when you look at it in the very near term, it's mostly about process engineering, so embedding AI and the discrete process to take out work and that we've been doing for years for several years, so we see it. And before that we have machine learning and other digital digitization, and that was a capability that we built, but also the customer would use and that's an operative term here, as a customer has to use the use
the techniques and things that we build. I think over time it'll be much more about enhancing the revenue side. And so if you look at our proofs to cons our projects going in and out proofs the concept, then more implemented. We have a relationship management preparation tools or pitch book preparation tools that allow us to do more faster turnaround, better preparation for meetings, better idea generation for meetings with clients, and we know that I will generate
additional revenues. So there's equal parts revenue and expense in the last twenty four months, twelve months. You know it even go back to Erika starts three or four or five years ago. Whatever it started, it was more about
removing tasks and costs. I think that's moving because people are getting more comfortable with this ability to answer questions and help them prepare for a meeting with a client, and you know what they need to think about, whether it's a wealth manager client or a commercial banking client.
Including banking. Going beyond that in general to our economy, because AI appears to be being transformed, and goodness dooes, there's hundreds of billions of dollars being invested. Can we get the return investment as an economy without cutting a lot of jobs.
I think the question will be, you know how fast the jobs will grow around and the new jobs are growing to shift of jobs, So if you look, in the last fifty years or so, we had a lot of technology come in, and we have twice as many people work in the US and we did fifty five years ago. So think about David, in our lifetimes, what we've seen. You know, we've seen the desktop computer, to the laptop computer, to the phone as a computer, et cetera. And think of all that technology coming in and we
employed twice as many people. So the question will be, well, you have more people doing different types of jobs. And so my advice to myself and my advice to my teammates is simple, learn it, harness it, make it your agent to help you be more successful. And yes, does it change the human content of work in areas like
finance and audit and legal that we hadn't done it before. Yes, But the people use it effectively will be able to do more and generate more revenue and then potentially generate more jobs out there because people there are more people are the more money, spending more money. America is making more money. It should all be good, but it's going to be an interesting transition.
Brian As, CEO of Bank of America. An important part of your job, maybe the most important part is managing risk, upside risk, downside risk. As you look at the risks out there, how do you manage, if at all, for the risk that in fact we're over investing in AI as an economy.
Well, I think it's an economy.
The issue would be if it got overheated and it retracted, what would the impact flow for us as a company more into consumers, job loss, things like that. And right now we see that as being relatively limited because it's a narrow a group of companies and there a group of spending and the companies are spending and have a
lot of money. As a lender, we look at the leverage on these projects and make sure that we're comfortable that in the duration of the contract by the person who's going to commit to use the data the data center and therefore that's the revenus room. You think about the tenant, for lack of a better term, the quality that tenant, the link to that tenant.
Those are dishes. So we look at all that.
It's the market valuations, you know, our team thinks that you'll see, you know, you could could see a debate about the over whether the AI stalks are overvalued undervalued. Our team talks about that, but what people are forgetting is there's a lot of other companies are coming in and producing more and more earnings growth. At the end of the day, the earnings growth is what will drive the market, and so it may move around. But as Chris Heise, our teammates, has said on your UH Blueberg
and other places, you know it's a proud bull. He thinks you know that it's a The market ahead is very constructive and our team has you know, a mid single digit S and P growth predicted for next year.
So, Brian, one last question is we head into the holidays and into the new year, what's the biggest upside risk that you see in the new year.
Well, I think the risk is that the upside put potential is for the series of policies that have come out taxation, UH, trade and tariff, immigration and deregulation. I think the biggest one is still yet to come for businesses a deregulation piece and it's falling into place, and if that works the right way, then you'll see the US kick another level of potential growth. And when the
US kicks and growth, the world will have growth. Because the end of the day, our economy is the biggest economy with the biggest consuming economy, and so if our if our citizens are employed, working and earning more money, that's good for the world.
Is there any downside at all because of the uncertaint about policy because it's moved around a bit.
There has been a lot this year, honestly, and if you talk to our small business customers for example, and the most recent surveys, they're now getting an understanding how the tariffs are going to affect them. It took a while for them to settle in and they can see the ten fifteen to twenty percent level and they're adjusting for their adjusting supply chains. That's still work going on, and the ability to pass through those costs and things
like that is coming through the system now. Their biggest worry, what they tell us, is to get employees, and that has a bit to do with settling in on the immigration policy. And it's sort of getting more precise in the minds of a small business owner a mid sized company,
can I have the labor availability that I need? And so that issue I think is straightening out as the precision of the work on immigration policy continues through, you know, and that was probably more on the minds this year as that settles in and the trade policies have settled in during the course of the summer. I think they're feeling better about understanding them, and they still have to make some adjustments, but they're feeling better about understanding them.
Brian, as many a US head a new break, I hope you and your colleagues have a wonderful holiday. Thank you so much for being with us. That is Brian Moneyhand. He is chair and CEO of Bank of America. Back to you.