Bank of America Corporation (BAC) Earnings Call Transcript & Summary

Moving right along, very pleased to have Bank of America with us returning this year. From the company, we have Bernard Mensah, who is President of International for Bank of America. He's based in London and responsible with Bank of America's strategy and business activities internationally. Some of you may remember, but prior to his current position, which he took in 2020, he actually led [ FIC ] business, we did generate [indiscernible] May of 2019 [indiscernible] why Bank of America is going to commit it to the business and grow it. And if you kind of look at the revenues, it's been a nice source for the company. And with that, what we're going to do is to take us through a few slides to kind of level set us, and then we'll kind of jump into some fireside chat and Q&A.

Thanks. So I sit here and then I can see my slides. Thank you so much. Thanks, everybody. Thanks for taking the time to join. And I think we have some people on the webcast as well, so appreciate it. We have just 3 slides here, which I'm going to run through. And I think if there's 3 points that I want to make today on the slides and through our discussion is that we have an incredible global business that is truly global and it's at scale. The global business that we're a part of is growing, but it is complex, and we're very well set up to take advantage of it and that our international business is a growth engine for the firm. So it's really those 3 things that I'm going to touch in a bunch of different ways that we have this platform. It's big and it's complex, and you have to be thoughtful about how you grow it, but it's absolutely a growth engine for our global franchise. So the first slide that comes up talks to that, the first point that I was making that we have this international business that's at scale. It's all the historic amalgamations of where we are now with Bank of America. So its full services across all the major countries that we want to be in. As you can see, we're in the 36 main countries we want to be in. We don't really have a desire for one more or other. We could be a little bit deeper in 1 or 2 countries, and we'll come to that in terms of how we're growing. We have 17,000 colleagues that cover these countries. We have another 25,000, 30,000 or so that's in India that runs some of our platform. And in some of these countries, we've been there for 75, 80, 90 years. We've been in Italy for more than 100 years. We've been in India for 60 years. We've been in Japan for 73 years. We've been in Brazil for 73 years, some real longevity around that. You can see that it is at scale. It has around about $13 billion in revenues. It's been growing very well over the last 4 or 5 years, as has pretax, and a good return on allocated capital as well, which is something that I look at. Loans have been growing a lot more slowly, but actually deposits have been growing quite a lot as well. So it's a business that is really at scale. And of course, when you measure revenues that are booked internationally or not, you can always sort of fine-tune it this way or that. But this really gives you a sense of the international franchise that we have. And you can see on the right of the slide just that the quality and what we've tried to do here is just to show the depth and the breadth and the quality that we have. We have a global research platform. We cover, I think, 3,500 companies, something like that, of which about 2,000 are international. We cover 50 countries. We have about 50 currencies. We cover about 30, 35 commodities. So we are 1 of top 2, top 3 global research platforms. And the exciting thing for me about this platform is that we have our full service markets business, fixed income and equities. That's one business that we do globally. We have our full service banking business, our corporate and our investment banking business. We're #3 international investment bank -- corporate investment banking internationally and in the U.S. And underlying that is a very exciting payments business, and we're a top 2, top 3 in international transaction banking services. And that's from trade finance to the card business, to treasury management, to liquidity management. And our ability to do that at scale and at the pace that we have is, as I said, there's very, very few institutions that are able to do that. And that is driven by an incredible home base of the best and largest economy, the U.S. economy, that gives us this incredible sort of base from which to grow out because we have that. It's a dollar-based bank, and we have an incredible suite of U.S. clients, but then we also have the ability to project and be global with the rest of the global franchise. So I'll come to that, but that's really the main point. We're set. We're not looking to grow in terms of country or product base. It's really deepening and enriching this platform that is set and in place. The second slide I wanted to touch on was really the nature of the business, really client-led, and one way to think about it is -- and to give you a sense of the scale and the opportunities is if you look on the top left, as I was just touching on before. And particularly, if you take the GCIB business, you have this incredible platform of U.S. large corporates that are operating globally. We know all of them and all of the household names. And we obviously have all of the U.S. large institutions that operate globally as well, right? The U.S. sits at the nexus of huge amount of capital of excess savings flows. The rest of the world generally has excess savings, mainly in Asia and Northern Europe and then export it to the U.S., which is able to capture a lot of the excess savings around the world, and we sit in the middle of those flows. But we also have a lot of internationally headquartered clients that want to do business in the U.S. and frankly, want to do business around the world as well. Now if we have a client that is local and in country, a large German corporate that just does business in Germany, it's tough for us to compete with that client because they'll have German banks covering them. But as soon as they're putting a foot internationally, which a large majority of the biggest companies are, we're well placed to service them with that. But another core aspect of our franchise that we're excited about is our commercial banking business. There are only 3 U.S. banks that have a substantial U.S. commercial banking and we define it as $50 million to $2 billion in revenues. So in that middle space just below the large corporates, there's just 3 of us that have it at scale. And there are only 2 of us that operate globally, absolutely. And so we can work with that incredible client base and travel with that client base. And that's -- and when we look at that client base, it's very underpenetrated in terms of how we service them globally. So that's been an area where we're absolutely looking to grow. And you can see we've given you some of the numbers there. If you take my international subsidiaries of U.S. commercial clients, some of those clients won't have any international business. A bunch of them will have 3, 4, 5 subsidiaries. And if you think that whoever runs that business has got north of 10,000, 15,000, some where U.S. commercial clients, we're the #1 U.S. commercial bank then you see the opportunities to grow in that in terms of servicing their subsidiary business. Now one thing I wanted to touch on, which I didn't -- we didn't put a slide up on is the fact that it is complex internationally. It is getting more complex. If you were a CEO 20 years ago, you thought about maybe London, New York, Hong Kong, when you thought about your international bases. Now you've got to think it's because of Brexit is it Paris, is it London, as it Frankfurt. In Asia, how do you think about Hong Kong, Singapore. And the world is getting [ leaner ], is coming up and it's at Dubai, et cetera. So it is getting more complex. The geopolitics is affecting the business to some extent. They have new rules and regulations that are coming and there's a whole raft of regulations around data, this whole raft of regulations around climate. So we have to be thoughtful about that. But in a sense, that plays to our strengths as well because you need to have the scale to be able to manage in that space. You need to have the scale of compliance and local management and a local understanding country by country in order for this business really to be truly sustainable so that in our mantra of responsible growth, you're growing, but you're growing responsibly. You have a strategy by country, and you're able to tap on the opportunities insofar as they're happening. So as far as this global GDP growth, there's growth opportunities for us even if supply chains are moving around. Actually that presents opportunities, and one of the growth areas we've looked at recently, for example, is in Mexico, where in the last year, it has become the U.S.'s largest trading customer. And as that happens, we're absolutely best, best placed to manage through that and to capture that. So this gives you a sense of really the client-driven strategy that's just driving this growth strategy that we think that -- and the growth opportunity that we think international has. And the final slide that we put up here is really, as I was saying, that if it's the third takeaway is the fact that it is this engine for growth. This slide is really saying that we're connecting the dots. We're working really hard to think through country by country, product by product with products to go after, how to connect this incredible franchise, how to leverage middle market client or a commercial banking client in the U.S. internationally. How to leverage a Korean or a Japanese client that's looking to take advantage of the IRA into the U.S. How to leverage our incredible payments platform or our card platform to allow international companies that are operating globally to take advantage of that. So we're investing in the platform all the time. We have to do it at scale. When Brian talks about the fact that we invest $11 billion to $12 billion in technology, spend $3.5 billion to $4 billion in new initiatives, we absolutely benefit from that. Because when we're investing in that global payments platform, we're investing in a cash flow platform, and when we're inventing things like the virtual accounts, the truly virtual accounts in the payment space, a lot of those things are actually driven by global corporate interests that we can use to gain market share and, frankly, work with our clients and help them grow. So it's a strategy that is an organic growth strategy that is based on driving the core client franchise we have expanding that, investing in that continuously and just applying our global metrics to allow us to -- for that to be really a tremendous engine for growth. So I was saying to Lee, it's a little bit of an untold story within the global -- the Bank of America sort of firm and so it was exciting to come in and talk a little bit about it.

It's actually interesting on the first slide, I think you showed $13 billion in revenues, take 10% to 15% of Bank of America's total, but the percent perspective, $13 billion as a stand-alone company will be the 12th largest bank in the United States. So it's a fairly substantial franchise.

With $4 billion in pretax.

A quite profitable. Just maybe -- you touched on this, but maybe just elaborate about how you kind of leverage Bank of America's U.S. franchise globally.

Yes. So I touched on that we do that in a number of ways. We -- again, we're blessed or fortunate to have that cohort of some of the biggest, most entrepreneurial and enterprising businesses. So our ability to travel with them because we have this global platform is, I think, second to none. We leverage that with the international platform that I look after. So a lot of my job is to make sure that we have the international platform in place that they can leverage, if they want to do business in France or in Germany or the U.K. and that we are able to invest our resources in the right way across our international platform so that we can offer those services to the biggest companies. So we do that. But the other way as well -- and we do that. I talked quite a little bit about the commercial bank and how we're excited about that sort of middle market space and traveling with them. Another anecdote I was mentioning is I was in Mexico a month ago. And when we looked at the number of clients already on boarded that we do business with in the U.S. and we -- and that do business in Mexico, we were covering something like 25%, 30% of clients that are already clients of ours in the U.S., we like, we know them, our market presidents in the U.S. send them Christmas cards and bank them and do all of that. And so it's an easy call to say, hey, how about the Mexico business? They may say no, but at least it's an easy go before you go and look after other people's business. And then the other way I would say as well is that going back in, at least in this life cycle of our sort of economic growth, the U.S. economy is dynamic, and it's very important globally. So we leverage that because everybody -- a lot of -- there is a lot of interest outside the U.S. for investments in the U.S., and that's not just the Inflation Reduction Act. It's just the dynamism of this is the largest market. It's the stability of the economy. It's the technology-driven investments. So we are in demand with respect to our clients looking to navigate into the U.S. in terms of how these investments might take place. And then finally, I would say, in the global market space, which is a global flow of capital space, it's so important for the large wealth managers. So Europe has a huge amount of savings that it exports to the U.S., to the large money managers, some of which comes back to Europe actually. And obviously, Asia, Japan and all these countries have a huge amount of capital flows that get exported. And we and others being in the middle of those flows and our ability to handle those flows is important, is covered, is backed up with things like our research platform, et cetera. So those are the ways that we leverage all of that.

I guess it sounds like you've had more of the growth of kind of U.S. clients growing organically and then growing internationally and taking advantage of you. Maybe talk a bit more about opportunities of kind of organic opportunities with companies that are kind of based outside the U.S., maybe talk to what you do there.

Yes. So we've expanded that enormously. Look, some of it was from a little bit of a low base, but if you take our GCIB, the number of clients we cover and what we call GCIB, which are the larger corporates, that has gone up by about 50% or 60% since 2019. And for the GCB clients that I was talking about the $50 million to $2 billion, that's gone up about 20% in the last 4 or 5 years. So we've been investing a lot in covering more clients. That's such a leverage to the platform because we have the installed capacity to do that. So that has been a journey that we've been on, and that's what's driven the revenue growth. That's what's driven the profitability growth. And our mix of our full service capability to offer them everything in the capital markets space, in the corporate lending space. We talked about the size of the loan book that we have, ability to operate in the leasing space, in the card space means that we've been able to grow that. I was in Switzerland last week, and there are 2 things that -- many things struck me. One of the things that struck me was when I spoke to one of my colleagues in the global payment services business actually, she was most excited about a couple of mandates that she'd won in the card space as opposed to our transaction services space, which is something -- sometimes we don't talk too much about. And secondly, in Switzerland, where we have been a little bit opportunistic actually since the departure of one of the large Swiss banks we were actually quite tactical and we went in very quickly high. We haven't -- it's not our nature to make a big song and dance. We've hired 5 bankers from this institution who are already on the platform. And I had dinner with 5 CEOs of large Swiss companies, and I saw a bunch of them in the next day. And it was interesting, the gap that has been left in the Swiss corporate commercial C&I space by that activity. And again, we're very well placed to cover that, particularly with those companies that are international versus purely domestic.

I guess one of the things that we've observed in the U.S. that Bank of America is good at kind of leveraging local markets and connecting clients really across the businesses. How do you think about connecting clients across the businesses internationally?

Yes. So one of our sort of -- I think, one of the most powerful tools that we've built over the last 2 or 3 years is we've built a country executive team that we think is second to none. And it's actually mirrored a little bit on our market presidents' effort that I'm sure you've spoken about and actually Lee helps us drive. And actually, I picked up the phone and I spent a bunch of time with what we've done in the U.S. So one of the things that has allowed us to really execute on this in a way that we think is sustainable and gives us an edge is really investing in a country executive team that we spend a lot of time with. We make sure that they own the business front to back from compliance to finance to HR, obviously, working with their global colleagues. They think strategically about the countries. We took a country-by-country strategic approach. There wasn't a regional approach, so we have all the -- we measure them by a bunch of metrics, not just profitability, not just revenue, number of audit issues, what are our employee satisfaction scores because we want each of them to be a mini CEO in that country thinking holistically about the speed at which we should move with that country. They give us an early warning on new regulations that are coming in because some of the regulations, as I touched on, are -- can be complex and complicated. You've got to think through how you manage through that. So that's been the bedrock of allowing us to deliver the entire firm to each situation country -- in each country to drive. And I think that's been working well.

Okay, so you touched on some, but maybe you could help us maybe key on a few. If you kind of look across the businesses, maybe talk to the biggest product client or geographical opportunities.

So I've touched on payments a little bit. For somebody who's a former trader, I found my new passion in the payment space. But maybe -- and I can come back to that a bit, but I'll switch to -- you touched on geography. For the first time this year, we thought we'd lean into a few countries, not for any particular reason, and the countries should feel left, but we just thought, well, let's see if we can move a little bit -- move the needle a little bit faster in these. A lot of the time, my job is really to allocate resources, right? I must run this business. It allows me at the top of the firm to ask for resources, whether it's headcount or real estate or new offices or comm dollars or tech dollars or whatever it is. And as a firm, we do that well in order to drive our growth the fastest. And that's the balance that we have to have. So 4 countries, so we're leaning in 3 or 4 countries to sort of see if we can crowd and resources a little bit more. One is Mexico that I talked about, and that's really driven by -- and none of these are particularly earth shattering. But we're leaning into Mexico a little bit. We've been there a long time. We have a huge amount of experience there and an incredible franchise there. And that's really driven from all of the near-shoring and the reshoring, et cetera. So we're spending a little bit more time there. I talked about Switzerland. We were probably a little bit underpenetrated for the quality and the size of the country, but then we saw an opportunity with some of the changes that have happened in the Swiss financial services market. And again, because we've put this infrastructure in place, we can move. I think that's what's exciting about what we've built. If we hadn't built it in this way, even with that opportunity, it would have been more difficult for the firm to take advantage because we want to do things right. We want to do things in a controlled way, in a responsible way. But now we can, we can move quickly. We can find those opportunities, hire people. We know it's well run. We have changed our country executive. We're very excited about the gentleman that runs it. We have a terrific relationships, et cetera. The third country that we're spending a bunch of time on is Saudi Arabia for the obvious reasons. And we've seen, for those of us, I have a little bit of an EM background as well for those of us that are going there, 5 years ago, 10 years, ago, 15 years ago, there's just this incredible dynamic change in what is, I don't know, 12, 15th largest economy in the world. So we'll see how that develops. And so we're keen to lean into that. And sometimes, I say that may not be for this current level of management. Who knows? I need to think through and enable us to do business in 10 years' time. So I may not be there, but if we get the call right, whoever is running international then or who's running the firm then would either thank me for having made the investment if they get it right or curse me because it's like, what were those posers doing back then? Why didn't they make the investment? Assuming that the Saudi is able to execute on their strategy. If not, then maybe nobody cares, it's a moot point. So we're spending a lot of time thinking through that. By the way, we are already there. We're the largest equity player. We're the only foreign bank that is a market -- Aramco shares. We participate in all of the regular activity that you'll see. But there's more business that we can do, particularly as more international clients move to Saudi Arabia. So as more corporates are going onshore, as they're bidding for contracts and then guess what, they want payment services, they want banks that they can deposit money with, they want banks that can handle dollars and riyal and euros for them. And when you think about the global proposition for that, again, as I said here, they're very few. So of course, the U.S. clients will look to us, but I think the large Asian clients and the large European clients would -- we have an ability to get some business as well. And then India is one other country where we're leaning in. They've also had a tremendous growth rate. They seem to have just gone around the corner in terms of accelerating growth. There seems to be some consistency around that. And we're in the middle of getting our heads around how should we tackle that opportunity? We know it's a big opportunity, but we want to be quite granular in terms of thinking through that. India is spectacular. On my last trip there, in each of the 4 cities I went to, you'd have dinner and there were 20 or 30 global -- not just American, global corporate clients that would come to at the treasury corporate level because we do their payments, we do their transaction management, which is the nitty gritty for them. And I think that's appreciated.

I think as an analyst, when you hear the company is expanding in international, we think expensive and complex. So maybe just talk to kind of how you manage the additional costs and complexity of operating globally.