Brian Moynihan is no stranger to turbulent times at Wall Street. Having joined Bank of America 20 years ago, he saw the financial institution grow to become America’s second-biggest lender and battle its way through the 2008 financial crisis.
Since 2010, the 57-year-old has been at the helm of the bank, which employs more than 208,000 workers and controls some 14 percent of the U.S. domestic retail banking market.
Following an acquisition spree ahead of the financial meltdown in 2007-2008, Mr. Moynihan has set his sights on cutting costs at the banking giant. The results appear to prove him right: Last year, Bank of America reported a rise in net profit to $17.9 billion.
Since the election of Donald Trump in the United States, bank stocks have only risen to new heights. Mr. Moynihan insists he sees nothing but a bright future ahead, saying that the optimism among people in the United States is “palpable” and that companies feel upbeat about what’s ahead.
The fact that the new U.S. administration appears set on slashing wide-ranging and cost-intensive financial regulations also doesn’t sour the mood at Bank of America. In the interview, Mr. Moynihan said the time is right to introduce changes to the substantial regulations passed in the wake of the financial crisis, though he doesn’t want to see financial regulations gutted completely.
Read the full Q&A with Mr. Moynihan below.
Handelsblatt: Mr. Moynihan, U.S. President Donald Trump has started his first few weeks in office with a focus on deregulation and trade. What implications do his policies have for the economy?
Brian Moynihan: What you have seen in recent months is a massive change in confidence among consumers and small and midsize companies. People in the U.S. are very enthusiastic, the optimism is palpable. Most of the 30,000 midsize companies we serve feel they are going to move forward. And the U.S. economy has been relatively strong already.
Trump has signed an executive order to water down the substantial U.S. rule system for banks, called Dodd-Frank, which was passed to increase accountability and transparency among financial institutions following the financial crisis. How good will he be for Wall Street?
Brian Moynihan: This is a good time to look at the regulations, how well they are working, what can be simplified, which is a good thing. There will be a cost-benefit analysis for any new rule. Why are we doing this, is it worth the costs? These are the kind of questions the new administration is going to ask. But this will be for all industries, not only financial services.
It is time to turn back the clock on banking regulation?
After the financial crisis, it was necessary to bring in stricter rules. The increase in capital levels in the United States, the higher liquidity requirements, the living wills and the resolution regime – these are all important and sensible. The question now is if we have built up too many rules and how they all add up.
“Dodd-Frank should not be abolished. But we have to get the regulation right within this framework.”
So Mr. Trump is right to dismantle Dodd-Frank?
Dodd-Frank should not be abolished. But we have to get the regulation right within this framework. We have built a lot of safety and soundness in the banking industry in recent years. But the question is if it is rightly balanced with the other goal, which is to promote the economy and growth through lending and capitals markets.
What specific changes do you have in mind?
There is general agreement that we need to address the Volcker rule, which is the regulation that forbids proprietary trading. We at Bank of America largely eliminated those activities years before the Volcker rule had even come into place. But with six regulatory agencies having different views on how to interpret the rule, it means a lot of costs for us. So there needs to be a debate about how those rules are being applied.
Is there a risk that the Trump administration will sow the seeds for another financial crisis?
At the moment we just do not know what could cause a future crisis. There are a lot of things that could happen. All I know is that the resilience and strength of large banks has increased a lot since the financial crisis. For example, the amount of capital that banks have is now two or three times higher than it was back then.
Are there risks building up elsewhere in the financial system?
Yes, in certain economies the fast-growing and sometimes highly leveraged shadow banking system – activities that are outside the scope of regulator overview — is a major issue we should pay more attention to. It is a concern.
Should the shadow banking system, which currently evades regulatory oversight, be more regulated?
The fundamental principle should be: Everyone who takes deposits and gives a loan, be it a fintech company or a hedge fund or a bank, should be regulated.
Your balance sheet has shrunk since the financial crisis, but it still has the staggering size of more than $2 trillion. Are you still too big to fail?
People like to focus on absolute numbers. But we are large because the 18 trillion dollar US economy is huge and because we have a 14 per cent market share in domestic retail banking. So the size of our institution is dictated by the work we do for our clients. We do not have a goal to be x large or y large, it is all driven by the business of our customers.
That can still mean that you are too big to fail.
That is why we have the living wills and the resolution process. We have spent over one billion dollars on a resolution plan, we have been working on this since 2009.
But will this work in a crisis?
Yes, definitely. We have simplified the bank dramatically, we have disposed of 60 businesses, we have brought the balance sheet down and have increased capital nearly three times what it was at the time of the last crisis. Plus we have 500 billion dollars in liquidity. And we have a very detailed resolution plan. There is literally a playbook that says, if this starts to happen, this is what you have to do.
“The main problem I see in Europe is that its capital markets are still underdeveloped.”
With 18 billion dollars, Bank of America last year earned roughly two thirds of Deutsche Bank’s current market value. Why are European banks so weak and U.S. banks so strong?
The main problem I see in Europe is that its capital markets are still underdeveloped. One reason why we were able to reshape the company so quickly is that the deep capital markets exist toraise money as well as to sell assets. The restructuring in Europe has been scaled down because banks were not able lay risks off to the investor community.
What is your own strategy for Europe?
Outside the US we have two businesses: The global corporate and investment bank, which serves large companies and the global markets sales and trading business serving institutional investors. This is what we do and there is no change in strategy.
How are you going to deal with Brexit, will you move your London operations to the continent?
It is a little hard to say what you will do until you know the rules to operate under. So it is premature to make a decision yet.
Other banks have already decided on the basis that there will be a hard Brexit. Why are you not doing the same?
There is no rush. But the concept of operating in different regimes with different subsidiaries is the norm for us.
What would be your preferred location?
We have people in all these places and cities, so we will let that play out. It really comes down to how our clients will operate and what the rules are.
Bank of America gained its current size through large acquisitions before the financial crisis. Is it now time to look for big global deals again?
No. We will not do any deals in the foreseeable future. We are able to grow this bank on our own with five or even ten year investments. We have the businesses and capabilities we need to execute our responsible growth strategy. If we would do an acquisition it would get in the middle and mess things up. It would just slow down progress.
But what about technological expertise? Would you buy a financial technology company?
We spend three billion dollars on technology development every year. So we are obviously interesting for other people to work with. So we can get access to what we need without making acquisitions.
Is there no fintech revolution really, as banks are driving it equally?
You can put a new name on it, but this has been going on for years. We have 30 million online bank customers. But at the same time, we have five million clients coming into our branches every week and we still spend five billion dollars every year on moving coins, currency and cheques around for our customers. If we would only want to work digitally, we would probably be just a hundredth of our current size.
Daniel Schäfer is head of Handelsblatt’s finance pages and is based in Frankfurt. To contact the author: email@example.com