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Brian Moynihan: BofA’s Deposits Are Inherently Sticky Based On Our Customer Base

Following is the unofficial transcript of a CNBC exclusive interview with Bank of America Corp (NYSE:BAC) Chair & CEO Brian … Read more

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11 months ago

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Following is the unofficial transcript of a CNBC exclusive interview with Bank of America Corp (NYSE:BAC) Chair & CEO Brian Moynihan on CNBC’s “Closing Bell” (M-F, 3PM-4PM ET) today, Tuesday, April 18th.

BofA’s Deposits Are Inherently Sticky Based On Our Customer Base, Says CEO Brian Moynihan

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BECKY QUICK: I want to welcome Brian Moynihan. Brian, earnings very strong across the board. Scott just mentioned a lot of the numbers. I think it was the net interest income that had so many people kind of watching and wondering what happens next.

Those numbers are strong, it means that you can get deposits paying out very low amounts of interest to people but you give out loans at higher rates.

What are you seeing just as we get deeper into this towards the end of the quarter as things change so much with banking? Is the net interest income is that a number you think can continue or how did things change and how do they shape?

BRIAN MOYNIHAN: Well, at the end of the day, it's good to talk to you again, Becky, and thank you. The team at Bank of America had a great quarter $8 billion plus in earnings and 70% return on tangible common equity and we did it by growing loans year over year and having deposits stabilize as the Fed has withdrawn monetary combination QT shrinking their balance sheet, everything your colleagues were talking about before.

The money's moved to off the bank balance sheets out of the system, but our deposits are set up relatively well. And I think even through the in March even through the changes of March and the banking system, our deposits held up well, performed a little bit better than we thought we did.

So we had $14.6 billion in NI for the quarter up 25 percent as you said but the real question is what we do. We we open accounts for people and they give us deposits and we turn around and make loans to people or we invest -- and that's been going on for years. That's it.

It's called banking and then we have fee revenue streams and all that performed well late quarter albeit that the pace of rate rises has slowed. So therefore you're starting to see it flatten out and it was down a little bit quarter to but more or less flat and we see that continuing in the future. And we gave some guidance today. They'd be down a little bit next quarter. But we feel pretty good about it.

QUICK: You said today that you're anticipating a mild recession at this point just based on what you're seeing with the consumer, which still looks strong, maybe a little bit of a slowdown when it comes to commercial issues, commercial loans, but is that dependent on the Fed slowing things down after this next rate hike that's anticipated?

MOYNIHAN: We base our earnings on the market. The market has one fed increase left in a four curve and then has cuts. Whether those come true or not, that’s really gonna be dependent on what the Fed sees after they at each meeting because they're completely driven by trying to figure out what's going on in the data.

Our team, okay, the -- and research team have a recession and have consistently had a recession predicted for the second half of this year, third quarter, fourth quarter, first quarter of next year and then ends then we start to see positive growth. And so that's based on the Fed tightening having finally taken hold and those experts see that.

When we look at our consumers though, you can see the core conundrum that faces the Fed. Our consumers spent 9% more in March of 2023 than they did in March 2022. They spent about 8% in the first quarter more than they spent last year in the first quarter and they're spending on things frankly which drive employment.

And meaning they're spending one experiences at amusement parks or theaters or restaurants or outside concerts or outside entertainment all these things drive people to make them happen as opposed to other things buying a product which would come from another country potentially so U.S. employment is very strong.

So our customers are seeing wage growth and seeing wages and they also have money in their account still a lot of stimulus money left in so that's what the Fed is trying to slow down and albeit I think we see and our experts see them having a mild recession.

Which if they could do that, and unemployment never got much above four and a half that would be a heck of an accomplishment. And so that's the base case and we are running the company accordingly.

QUICK: Deposits were down just slightly but you're still talking about deposits up over $500 billion dollars from what they were pre pandemic at the end of 2019 are going through that. You and I have talked a lot in the past about deposits being sticky.

Are they still going to be sticky? Because one thing we've learned during the the issues the banks have been having recently is that people are willing and able to move their money pretty quickly electronically.

MOYNIHAN: Yeah I think if you look across our customer base, it deposits is a great big word and it's 1.91 trillion of them in Bank of America. It is up $500 billion or more since pre pandemic and you'd say well, is that going to go back out? And the answer is the economy on a real on a gross basis is up a lot also so the industry’s deposits are up 31%. Ours are up 34%.

We have gained share during the pandemic and its aftermath and that's by opening up since the pandemic started, we've opened up two and a half million net new checking accounts in our consumer business.

Our wealth management customers have opened up 25,000 or so bank accounts last quarter, the first quarter this year. You know, we just keep deepening our relationships and driving it that means our deposits are inherently sticky because different customers are using the cash for different purpose.

If you're a core, general consumer in our consumer business, your money's coming in and out of your household, you're paying your bills, etc. If you're a wealthy customer when cash funds were basically getting zero and it has nothing to do with the money you just left it sitting at the bank when cash when a money market yields or direct treasuries went up, you lose some out.

We expected that to happen. Matter of fact, we did it for the customers that's the way it works. And then when your corporate customers are same thing and there's even some tedious stuff that in there called earnings credit rate and things like that, but basically companies pay us for the service by leaving deposits with us and if we raise that rate they can leave less deposits.

Now interestingly, those deposits have been relatively stable the last six months so each customer base each who it is what they do with the money investment cash versus transactional cash is very different.

But at the end of day $1.91 trillion in deposits. They've been relatively stable last six months. We showed some details of that. And, you know, we feel very good about that. Given those deposits, we make loans and serve our customers that way.

QUICK: Hey Brian, Warren Buffett said that he expects more bank failures but he also said that he doesn't think any depositor is going to lose a dime in any of this. How would you kind of sum up how you see things shaking out with the turmoil in the banking business lately?

MOYNIHAN: Well, I think our industry has great capital, great liquidity, is managed well so and so if you look at it, you know, the FDIC insurance ensures that depositors don't lose the money underneath the insurance levels. Typically, when a bank fails, all deposits are bought by an acquiring bank.

There was a little bit of difference in the March things where they had to make some systemic declarations. But at the end of the day, you want the depositors to go on and conduct their daily business while the shareholders and debt holders take a hit. And that's what happened.

The key that we have to remember is we pay for all that and meaning industry pays its own way in terms of the insurance. The government guarantees it but the industry reimburses the government for that. That's one of the reasons why our expenses were up this quarter, we had an additional 100 million dollars in deposit insurance costs.

It had nothing to do with what went on in the first quarter but they were scheduled to go up and so I think we feel very good about this industry.

It's well managed, the business models that were challenged early this in March were very different than the banks that the regional banking system and stuff and we've seen the stability come in and that's a very good thing for America quite frankly because the strength of our banking system is one of the things that holds us in great stead all over the world.

QUICK: Brian, unrealized losses on hold to maturity bonds, you brought that number down from $108 billion three months ago to $99 billion now. That's a big number. Obviously, it's nothing compared to the deposits you have, not going to be an issue in terms of being able to hold those things to maturity, but how does it impact profitability earnings wise for the company?

MOYNIHAN: It really does. And we also showed the data that the rates on our on our trillion dollars we have to put to work every day because we have $1.9 trillion plus other cash from debt and other things to put to work.

We have only have a trillion of loans that goes into cash AFS securities held to maturity securities, you look at those things as on average, they keep going up each quarter and people say how could that happen if they're fixed rate? Well, a lot of it's floating rate a lot of it was fixed rate stuff hedge it so that keeps marching forward.

So at the end of day, our we had 25% more net interest income last year's first quarter, this year's first quarter. We held up better than we originally planned. We thought we have 14.4 billion, we have 14.6 but it's the way you extract the value of those deposits and so we quit investing in a held to maturity in mid 2021.

And it's just been running off but that was a plan once we figured out that deposits were going to be staying in the industry because of the stimulus and the things that went on during the pandemic, we then had to invest them even when short term rates were zero to produce some revenue otherwise we basically are running the business for no profit and then we did that and then we let it run down. And you know $8 billion after taxes is a pretty good quarter.

QUICK: Yeah, it is. Brian, I want to thank you very much for your time today. Brian Moynihan, Bank of America.

MOYNIHAN: Thank you Becky.

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Key shipping company files for Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

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2 hours ago

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March 14, 2024

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The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Key shipping company files Chapter 11 bankruptcy

The Illinois-based general freight trucking company filed for Chapter 11 bankruptcy to reorganize.

Published

2 hours ago

on

March 14, 2024

By

The U.S. trucking industry has had a difficult beginning of the year for 2024 with several logistics companies filing for bankruptcy to seek either a Chapter 7 liquidation or Chapter 11 reorganization.

The Covid-19 pandemic caused a lot of supply chain issues for logistics companies and also created a shortage of truck drivers as many left the business for other occupations. Shipping companies, in the meantime, have had extreme difficulty recruiting new drivers for thousands of unfilled jobs.

Related: Tesla rival’s filing reveals Chapter 11 bankruptcy is possible

Freight forwarder company Boateng Logistics joined a growing list of shipping companies that permanently shuttered their businesses as the firm on Feb. 22 filed for Chapter 7 bankruptcy with plans to liquidate.

The Carlsbad, Calif., logistics company filed its petition in the U.S. Bankruptcy Court for the Southern District of California listing assets up to $50,000 and and $1 million to $10 million in liabilities. Court papers said it owed millions of dollars in liabilities to trucking, logistics and factoring companies. The company filed bankruptcy before any creditors could take legal action.

Lawsuits force companies to liquidate in bankruptcy

Lawsuits, however, can force companies to file bankruptcy, which was the case for J.J. & Sons Logistics of Clint, Texas, which on Jan. 22 filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of Texas. The company filed bankruptcy four days before the scheduled start of a trial for a wrongful death lawsuit filed by the family of a former company truck driver who had died from drowning in 2016.

California-based logistics company Wise Choice Trans Corp. shut down operations and filed for Chapter 7 liquidation on Jan. 4 in the U.S. Bankruptcy Court for the Northern District of California, listing $1 million to $10 million in assets and liabilities.

The Hayward, Calif., third-party logistics company, founded in 2009, provided final mile, less-than-truckload and full truckload services, as well as warehouse and fulfillment services in the San Francisco Bay Area.

The Chapter 7 filing also implemented an automatic stay against all legal proceedings, as the company listed its involvement in four legal actions that were ongoing or concluded. Court papers reportedly did not list amounts for damages.

In some cases, debtors don't have to take a drastic action, such as a liquidation, and can instead file a Chapter 11 reorganization.

Truck shipping products.

Shutterstock

Nationwide Cargo seeks to reorganize its business

Nationwide Cargo Inc., a general freight trucking company that also hauls fresh produce and meat, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Illinois with plans to reorganize its business.

The East Dundee, Ill., shipping company listed $1 million to $10 million in assets and $10 million to $50 million in liabilities in its petition and said funds will not be available to pay unsecured creditors. The company operates with 183 trucks and 171 drivers, FreightWaves reported.

Nationwide Cargo's three largest secured creditors in the petition were Equify Financial LLC (owed about $3.5 million,) Commercial Credit Group (owed about $1.8 million) and Continental Bank NA (owed about $676,000.)

The shipping company reported gross revenue of about $34 million in 2022 and about $40 million in 2023.  From Jan. 1 until its petition date, the company generated $9.3 million in gross revenue.

Related: Veteran fund manager picks favorite stocks for 2024

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Tight inventory and frustrated buyers challenge agents in Virginia

With inventory a little more than half of what it was pre-pandemic, agents are struggling to find homes for clients in Virginia.

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5 hours ago

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March 14, 2024

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No matter where you are in the state, real estate agents in Virginia are facing low inventory conditions that are creating frustrating scenarios for their buyers.

“I think people are getting used to the interest rates where they are now, but there is just a huge lack of inventory,” said Chelsea Newcomb, a RE/MAX Realty Specialists agent based in Charlottesville. “I have buyers that are looking, but to find a house that you love enough to pay a high price for — and to be at over a 6.5% interest rate — it’s just a little bit harder to find something.”

Newcomb said that interest rates and higher prices, which have risen by more than $100,000 since March 2020, according to data from Altos Research, have caused her clients to be pickier when selecting a home.

“When rates and prices were lower, people were more willing to compromise,” Newcomb said.

Out in Wise, Virginia, near the westernmost tip of the state, RE/MAX Cavaliers agent Brett Tiller and his clients are also struggling to find suitable properties.

“The thing that really stands out, especially compared to two years ago, is the lack of quality listings,” Tiller said. “The slightly more upscale single-family listings for move-up buyers with children looking for their forever home just aren’t coming on the market right now, and demand is still very high.”

Statewide, Virginia had a 90-day average of 8,068 active single-family listings as of March 8, 2024, down from 14,471 single-family listings in early March 2020 at the onset of the COVID-19 pandemic, according to Altos Research. That represents a decrease of 44%.

Virginia-Inventory-Line-Chart-Virginia-90-day-Single-Family

In Newcomb’s base metro area of Charlottesville, there were an average of only 277 active single-family listings during the same recent 90-day period, compared to 892 at the onset of the pandemic. In Wise County, there were only 56 listings.

Due to the demand from move-up buyers in Tiller’s area, the average days on market for homes with a median price of roughly $190,000 was just 17 days as of early March 2024.

“For the right home, which is rare to find right now, we are still seeing multiple offers,” Tiller said. “The demand is the same right now as it was during the heart of the pandemic.”

According to Tiller, the tight inventory has caused homebuyers to spend up to six months searching for their new property, roughly double the time it took prior to the pandemic.

For Matt Salway in the Virginia Beach metro area, the tight inventory conditions are creating a rather hot market.

“Depending on where you are in the area, your listing could have 15 offers in two days,” the agent for Iron Valley Real Estate Hampton Roads | Virginia Beach said. “It has been crazy competition for most of Virginia Beach, and Norfolk is pretty hot too, especially for anything under $400,000.”

According to Altos Research, the Virginia Beach-Norfolk-Newport News housing market had a seven-day average Market Action Index score of 52.44 as of March 14, making it the seventh hottest housing market in the country. Altos considers any Market Action Index score above 30 to be indicative of a seller’s market.

Virginia-Beach-Metro-Area-Market-Action-Index-Line-Chart-Virginia-Beach-Norfolk-Newport-News-VA-NC-90-day-Single-Family

Further up the coastline on the vacation destination of Chincoteague Island, Long & Foster agent Meghan O. Clarkson is also seeing a decent amount of competition despite higher prices and interest rates.

“People are taking their time to actually come see things now instead of buying site unseen, and occasionally we see some seller concessions, but the traffic and the demand is still there; you might just work a little longer with people because we don’t have anything for sale,” Clarkson said.

“I’m busy and constantly have appointments, but the underlying frenzy from the height of the pandemic has gone away, but I think it is because we have just gotten used to it.”

While much of the demand that Clarkson’s market faces is for vacation homes and from retirees looking for a scenic spot to retire, a large portion of the demand in Salway’s market comes from military personnel and civilians working under government contracts.

“We have over a dozen military bases here, plus a bunch of shipyards, so the closer you get to all of those bases, the easier it is to sell a home and the faster the sale happens,” Salway said.

Due to this, Salway said that existing-home inventory typically does not come on the market unless an employment contract ends or the owner is reassigned to a different base, which is currently contributing to the tight inventory situation in his market.

Things are a bit different for Tiller and Newcomb, who are seeing a decent number of buyers from other, more expensive parts of the state.

“One of the crazy things about Louisa and Goochland, which are kind of like suburbs on the western side of Richmond, is that they are growing like crazy,” Newcomb said. “A lot of people are coming in from Northern Virginia because they can work remotely now.”

With a Market Action Index score of 50, it is easy to see why people are leaving the Washington-Arlington-Alexandria market for the Charlottesville market, which has an index score of 41.

In addition, the 90-day average median list price in Charlottesville is $585,000 compared to $729,900 in the D.C. area, which Newcomb said is also luring many Virginia homebuyers to move further south.

Median-Price-D.C.-vs.-Charlottesville-Line-Chart-90-day-Single-Family

“They are very accustomed to higher prices, so they are super impressed with the prices we offer here in the central Virginia area,” Newcomb said.

For local buyers, Newcomb said this means they are frequently being outbid or outpriced.

“A couple who is local to the area and has been here their whole life, they are just now starting to get their mind wrapped around the fact that you can’t get a house for $200,000 anymore,” Newcomb said.

As the year heads closer to spring, triggering the start of the prime homebuying season, agents in Virginia feel optimistic about the market.

“We are seeing seasonal trends like we did up through 2019,” Clarkson said. “The market kind of soft launched around President’s Day and it is still building, but I expect it to pick right back up and be in full swing by Easter like it always used to.”

But while they are confident in demand, questions still remain about whether there will be enough inventory to support even more homebuyers entering the market.

“I have a lot of buyers starting to come off the sidelines, but in my office, I also have a lot of people who are going to list their house in the next two to three weeks now that the weather is starting to break,” Newcomb said. “I think we are going to have a good spring and summer.”

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