Bank of America Corporation ($BAC)

After lunch, Bank of America Corporation, which, of course, everyone knows is a bank that has $3.4 trillion in assets, a market cap of over $345 billion. And on top of that, they have over 3,600 branches throughout the country. With us is the Co-President, Dean Athanasia, and we're really quite pleased to have him. As you know, Bank of America has created these 2 co-Presidents, and Dean is one who overlooks the consumer wealth management, global banking, global markets. They serve 69 million customers. It's truly one of our nationwide banks in the United States. So Dean, thank you so much for joining us.

That's great being here. Thank you.

Maybe speaking of the new role, maybe you could talk to us about you and Jim DeMare, who is the other Co-President, of course, about the new responsibilities and the growth that you're looking to drive through the line of businesses at Bank of America. And where do you see like the biggest opportunities?

Yes. Let me come back to that last one. But just to give you a little bit of an overview, Jim and I oversee the 8 lines of business at Bank of America now. And we work with them, and you saw them all in Investor Day, it's an impressive array of leaders up there, but we work with them on their strategies, executing, hitting their metrics, finding the business opportunities in and around the businesses, having them work together. So -- but practically speaking, you mentioned Jim, I really -- I still keep an eye on all the regional businesses I used to have and although really focused on those. Jim is going to do the same on the global market side where we spend the most time together, and I think there are some -- the opportunities, and I'll come back to would be on our wealth continuum, looking at all the assets we have in that we think we have -- we have a $5.5 trillion wealth businesses embedded within Bank of America, looking at all the opportunities there. Same thing, second biggest area we focus on together is our business continuum. So anything from small business, business bank, commercial bank, global corporate bank, all those assets, they all work together, technology and operations. So we make sure they effectively work smoothly together, and we capture all the business on all our 46,000 business clients in and around everything they do. And then the last one is, which Jim calls the Venn diagram, a little bit of the intersection of Investment Banking, Global Markets and our high net worth business on the wealth management side, finding those are all sort of the same clients. They share products. So there's a wealth of opportunity in that little intersection as well. So we're looking at everything from high-level strategy, bringing in more clients, looking at deploying capital in the right areas, technology in the right areas, making sure the investments we get the return on them throughout the business. And coming back to the biggest opportunities, if I look at the way we do investor presentations every quarter, I'd break it down into consumer, right, continuing to lead on the deposit end, using all of our assets, digital, physical stores, having them work together continue to drive deposits and growth. Our credit card is another biggest opportunity, and we'll talk a little bit about that, but expecting to get more growth out of that and ramp it up to a 5% growth rate over the medium term. So we're working. We know we have to do better there, and we've got some focus on that. On the Wealth Management side, we've got -- on the Merrill Lynch Private Bank side, we've got over 2 million clients in that business, but we have line of sight of another 8 or 9 clients that are embedded within Bank of America that we need to continue to build, bring in and build up and bring in all their investment assets. So that would be another big opportunity. And then on the corporate side, I mentioned, I think it's -- and again, we hit this on Investor Day, our international platform, investing in it, growing in it. That's our global markets business, our Global Corporate Investment Bank, our payments business, we expect in the medium term, another $4 billion of revenue out of that group. So we're keenly focused on that, but helping all the businesses grow, achieve, work together and hit all of our performance metrics we laid out on the table.

So if I heard you correctly, so on the Bank of America side, you've got in the consumer potentially a pool of 8 million to 9 million increment -- I mean, customers that could then be brought into the wealth management.

They are greater than $1 million in investable assets out there, and they haven't brought over all that full service opportunity. So we have a line of sight on all those clients, and we're going to use that to help wealth management grow in a better connection between the 2 businesses.

Got it. Very good. Obviously, one of the strengths that you have, and you've mentioned it about your consumer franchise. What are you seeing from the internal data on consumer activity today? Are there any shifts in behaviors going on right now in the consumer side of the house?

Yes. And just -- we did -- we've invested a lot in all of our analytics, but we have close to 70 million consumers on the consumer side, including stretching across wealth management. They push about $4.5 trillion through the economy. So there's a lot of activity that we track and keep tabs of almost daily. And then also on the business side, you didn't mention that the 46,000 business clients, they're generating payments of $450 trillion on that side as well. So there's all this activity we look at every day to see what's happening. So on the consumer clients, they're still spending at a 5% year-over-year rate. It's about equivalent to last year. If I just broke it down to debit and credit at about 5% to 6%, which is just a little bit higher, and you're seeing more spend on entertainment and travel than you did last year, just to tick up. You do see evidence of a K-shaped economy. I know that's prevalent out there and sort of the discussion, but wages are growing faster and spend is higher on the upper end than it is on the lower end. The good thing about that is the credit quality, so there's a little bit of a growing gap there, but the credit quality is not growing. There's still -- clients on the lower end are still in good shape. So the lower FICO and the upper FICOs, that credit quality is not widening. So they're still in a great shape. They still have a lot of deposits. They have greater than 13% deposits more than they had in pre-COVID. So they are still in good shape, still spending. And so as far as we can see, the asset quality is still good. And on the corporate side, yes, we can -- we're getting good activity from our corporate clients led by our commercial bank clients, good lending coming out of the gate here and strong growth in that end as well.

Yes. It might be a little too early, but you mentioned the K-shaped recovery. Are the guys on the -- have your folks on the front line seen any evidence that with these tax refunds that are supposed to be greater this year than last year. Has that shown up yet in spending or deposits? Or is it too early?

Yes. It's too early to tell. Usually, we do the analysis post -- we'll see inflows now and we expect outflows coming all the way through April up to the 15th. So -- but as of right now, it's on track with what we expected. So there's no surprises there, no differences there, and you'll see that in our deposit numbers.

Got it. Okay. Obviously, you held an Investor Day in early November in Boston. And one of the themes was delivering one company to your customers. Can you talk about the advantages you have with the integrated platform that will enable you to do this? And also how it is a competitive differentiator in your local markets that you have this? And what are some of the other differentiators that BofA brings to the market?

I'll break my whole presentation down to the second answer here. So if I look at on Investor Day, if you didn't go, we compete at a very local level in the United States. I'm going to leave out international for a second. But early on, we targeted 100 top markets in the country. We wanted all of our businesses to be in those markets. We wanted them all working together because we know we're competing against an array of banks. And then we selected or elected a leader, a senior leader from one of the businesses to be the market president, if you will, and they marshal all the resources. So the resources in that market are dependent on the clients that are there -- business clients, consumer clients, two-legged clients and then our desire to drive market share in each and every one of those markets. So the market president's job is to make sure that each and every line of business is taking clients and growing their client share and being #1, striving to be #1 in that market, and we measure it and then also working with each other, sharing clients, referring clients to help each other grow. And that's where we always come up with the number of 10 million referrals that I referenced back in Investor Day done every year. And somebody like Wendy Stewart, she gets on stage in the global commercial banks and she can declare that I'm going to get 30% of my clients from wealth management, 30% of our new clients. So what she's saying is, look, I've got a great partnership with wealth management. I'm going to rely on them. They're going to help me grow. And in fact, in my financial plan, I have that level of growth in my plan. So it's a great cultural thing. People love to come in and work, and they know they're going to work in a team environment. So I think that in itself is a competitive advantage because in a market, yes, we compete against the national banks. We compete against the very strong regional banks and very strong local banks, and you need that local level of leadership on top of everything else we do. So we have to be good in decision-making. And then over the top, I mean I think we have strengths in a lot of different platforms. I mean technology and scale, first and foremost, we spent $13 billion a year on technology, $4 billion on new initiatives, and that's growing over $4 billion. We've been able to build great platforms. Our mobile banking, integrated banking and investment platforms. We've got over 1 billion log-ins every month, and we've got all sorts of transactions going through that. We advertise our businesses. We make sure it attracts clients and make sure they stay in longer and do business. Something like Erica, we added on, it's doing done over 3 billion transactions since the day we rolled it out. Same thing on the corporate side. It's anchored by CashPro, right? That's 35,000 of our business clients are using CashPro. They're making those $450 trillion in payments, over 9 billion transactions going through that. Those are incredible just scale things that we have advantages over everyone else. And the last 2 is our wealth management platform. The combination of Merrill Edge, Merrill Lynch, our Private Bank, workplace benefits, all those platforms working together extremely hard to beat in terms of the level of investment somebody would need to replicate that. And then last, I'd say our international platform, and we've invested heavily in that, and that includes our Global Payments business. But we operate in 45 countries and jurisdictions, over 140 currencies. We have all the platforms, products and services to take all of our clients internationally around the world, which is a huge competitive advantage.

Speaking of the wealth management...

That was okay, right? In that short period of time, my presentation...

In the wealth management area, the targeted acceleration in the net new asset growth of about 4% to 5% over the medium term is really brought it to investors' attention. And so can you walk us a little deeper through the key drivers that -- to reach that goal, including the integration that you just mentioned, the different areas? And also highlight this workplace benefit solutions. I'm not so certain most people know...

We haven't. Yes, yes, it's a great secret. And we're about to go in a big way with that. But overall, just remember, wealth management at Bank, we have just under $5.5 trillion in assets. So it's a big entity, right? We have a lot of different pieces. And one of the ways, and I love them putting a stake in the ground on 4% to 5% net new asset growth. So -- and that's our medium-term target. So we're getting after it. But they've -- the reason we have confidence in doing that, we have the building blocks in place or being put in place to get there. So first step is accelerated client acquisition and retention. We've got 15,000 financial advisers. We backed them up with 1,000 product specialists. We are creating capacity and allowing them to be more productive, reach more clients by leveraging AI, and we'll talk about that a little bit later, but getting and retaining those individuals at a higher rate given the platform we have and everything we offer, that would be one, more aggressive recruiting to bring people on our platform who fit in our model and want to work in that team-based environment. We have no problem recruiting, so we'll continue to do so. And then we develop -- we're ramping up the development of our own advisers Remember, we've got this great base of consumer financial service advisers, and they will move up. They'll do well in the consumer area, Merrill Edge and they'll sort of move up through the continuum and be great private bankers and full-service financial advisers over time. So that part acquiring clients. The other one is a little bit what I talked about, again, in terms of building blocks, more and more referrals from the franchise. So small business, business banking, Global Commercial Banking, global -- our Investment Bank, our Global Markets group, all those groups bringing clients to wealth management, but doing it at an increasingly greater rate. So this year, we have a target. Next year, we have a higher target. And the year after that, we have an even higher target. So they'll be bringing more referrals in, and that will help grow the base. And then that's sort of new clients and then deepening with clients, I think 2 things. One, I think we said 64% of our investment clients use banking products and services from us. That's good, but not good enough. We've got some room to go there, not just credit card or deposits or things like that, but custom credit, trust, estate planning, all those things that help grow assets and make them more sticky in the company. And then last, growing our alternative investment platform. We're putting new products, new services, widening the array of offerings we have for our high net worth and family office clients. So it's got over $100 billion of assets on that, and we see substantial growth there as well. And then I'll take the last one. Just explain workplace benefits, embedded within Merrill Lynch is an organization that has $600 billion in assets. They do 401(k) plans, they do equity plans, they do HSAs. We offer it to our corporate clients. Great. We have a lot of corporate clients. We've got 24,000 corporate clients using workplace benefits. And so we have 46,000 corporate clients in the bank. So we have plenty of room to grow as we add new clients on, we're able to capture those assets on the platform that helps grow our platform. But it also happens when those employees separate from the company, we have first access into them. We probably have some of their external assets already, and then we go and building over there. So it's a way -- it's another way to acquire clients that not a lot of people have. So huge, huge benefit for us.

Absolutely. It's a one way of getting access to these people. You're on the front line.

You're on the front line, you're ready, you're the first call. They know you, they know what you have to offer. So you are the first step into it.

Absolutely. Can we shift a bit to the credit card? You touched on that a moment ago. And at Investor Day, you guys highlighted some plans to improve the growth there. Can you talk more specifically on just how are you going to drive that growth? And where is it -- how far underway are you with that?

Yes. Well, since I had that a long time ago, credit card has always been a great relationship product for us. We've got 71% penetration of our credit eligible clients at Bank of America for our core cards, which is they've done a phenomenal job there. It's a great job. We could go deeper than that. So there's room to grow there. when I say credit quality, our book FICO is 780 plus. So it is a high-quality book. If we have anything in 660, probably 10% to 12%, that's probably about half or 1/3 as much as other competitors and other peers. So it's a very high-quality book, and we've stuck to that, and we will stick to that. There are things that we can do to continue the growth, though, doing more -- I'll name a few, doing more with our co-brand partners. So Alaska Air is one of our good -- just as an example, we just launched the Atmos Card with them in August, and that's got great growth across and great deepening and people will grow assets with it. So that's a big one for us and others like it. We're doing more. We changed our whole rewards program. We just relaunched it, and it captures a wider array of our core operating account clients, but it's partnered with credit cards. So you get more benefits if you do both of those products with us, and we open the door. So that will help both grow new clients, attract new clients, but deepen and grow those assets with clients at a faster rate. We've got new marketing programs. I don't know if you guys know we're the sponsor of the Masters, FIFA and other sporting events. So we're leveraging every dollar we're spending there. We're doing a FIFA credit card. And so that's been a big home run as well. We've upgraded a platform on the digital side, remove some friction. We can acquire and onboard clients faster. We've changed the payment mechanisms to make it easier for clients to do more things with their credit card, which promotes deepening overall. And so that -- we've got an investment last year and investment this year in our digital platform. And then last, the platform itself. We've upgraded -- we're in the process of upgrading all the cards, enhancing them. We're adding new products. We're using AI and other analytics to do better and go deeper on underwriting and processing and things like that just to speed up things for our clients and help us make the right decisions. So if Holly talks about it, she's hitting on -- Holly O'Neil who runs that, is hitting on all those different elements. Each one of them is a building block. And so we're tracking it all the way through, and we feel pretty confident we're going to get there.

Got it. Now I talk to you or Lee on the World Cup tickets.

Well, since Lee is hoarding them, he's got stuff in his pockets, you can probably shake it up a bit.

First quarter '26 performance. Any updates on net interest income, loan growth? And then also any updates in the capital markets, markets or investment banking that you'd like to share with us?

Yes, you can -- and then there's a lot there, so you can hit me. But first quarter NII up at least 7%...

Year-over-year.

Yes, at least 7% year-over-year. Things are going pretty good there. We feel good about that. Deposits in the low single digits. Things are going as planned, as I said there. Consumers going through the usual tax inflows and outflows in corporate. You're seeing just the normal seasonality and outflows for dividend, bonus payments and everything else that happens in the first quarter, and we expect deposits to grow after we go through these periods in line with what we're talking about Wealth Management, fees are up double digits. So that's good for the first quarter, and that continues to go. So there will be some volatility, but again, that goes. When I hit lending has actually come out of the gate pretty strong, led by our commercial bank, and I would expect in line or above the H8 data. So they're doing a great job, and we see good activity on our corporate clients. Capital markets is a little bit different. You're going to see probably a lot of volatility that are going to happen in the last 2 weeks here. So let me just couch it by saying, let me just focus on where we are today, if that's okay. Investment banking, we would see as we stand today as compared to last year at this exact time, up 10%, double digits right there. And I think on Global Markets, it's up low double digits as well. So really good activity. Again, we've got, whatever it is, 15, 16 more days left of trading that we'll see where the results go, but a lot of activity. And I think if I -- Jim would get mad of me if I didn't say he's pretty confident he's going to hit his 16th consecutive quarter of year-over-year growth in capital markets in Global Markets. So they're doing a great job, and he's continuing to drive it.

That's great. And we have always heard that volatility really helps the markets businesses and clearly, you're seeing that. One of the areas that everybody focuses in on Bank of America is expenses and operating leverage. And you provided at Investor Day some operating leverage targets for the medium term. And for this year, it's at the low end of the range is what you talked about. And so what are the expense levers that you have confidence in that can get you guys to that target and the amount of operating leverage that could improve from this year's target?

Yes. I think we gave at earnings 200 basis points, at least 200 basis points was the guidance. And so as I said, you've got good NII growth, and that's going to help us and the continued deposit growth in the second half of the year is going to help us. We've got the volatility you said in the capital markets area and the investment banking area and wealth management. Those are all good revenues. I wouldn't -- we want to see that continue. They do come with expense. Obviously, I sort of count that as good expense. On the rest of it, we have very tight expense controls. We watch where we're spending, whether it's the investment, we're still going to hit our operating leverage and continuing our positive streak there. But we're going to we make sure that all the other expenses in the company and we're watching that. AI is going to help us, not yet baked into the numbers. So as we roll out, we'll talk about that as we roll those things out that might give us some leverage as well. So there's a lot of things we can do. I will say in all the other expenses that are non sort of activity based, we've got tight controls on. We feel pretty good about those, and we continue to work on them and drive efficiency from them.

Got it. And you obviously have invested. You mentioned the tech spend that you're going to have this year. And maybe investors are focusing on the investing and the positive operating leverage that you're going to generate. Maybe you can walk us through how you approach the investment decisions, both for tech and non-tech every year. And then also how important at the top of the house, you, Brian, Jim, on consistently delivering positive operating leverage.

Yes, we're very close. I actually think I've heard some of the -- we can do both, right? Our model allows us to do both, invest at a heavy level and the growth -- in the level we need to drive growth, but also get the operating leverage and efficiency. And you have to remember the way we manage it, we're sort of like -- we manage a portfolio, right? So we've made investments, whether it's technology, marketing, other sorts of investments 3 years ago, 2 years ago, 1 year, all the results -- and we track every single thing we do, we make sure we get results. So we get results that increase revenue, drive productivity, reduce expenses, then we're putting the new investment on top of that, right? Because there is capacity, there's a space. And so that way, we can drive high -- we can drive and continue a positive operating leverage and make all the right investments. So for technology mentioned, I'll hit that one. I said over $4 billion in new investments. That's -- if you really -- that's gone up as does marketing, about $1.5 billion over the last 10 years. So we're able to sort of add more to the pool and get great benefits out of it and feed our business. So we get growth and we also get operating leverage along the way. And we like to manage. And I think it's because our culture is, yes, if we're going to invest something, let's make sure -- let's not forget about it, let's make sure it delivers year 1, year 2, year 3. And so if we get those results, we won't, we can actually do more and invest more and get more growth. It's kind of like a flywheel that just keeps going.

Yes. Obviously, technology is important for the banking system. It seems like AI could be the real -- one of the industries that are real big beneficiaries is going to be banking and specifically Bank of America. On your Investor Day, you guys talked about utilizing AI, of course, across the businesses. Can you spend a few minutes with sharing with us some of the live examples of where AI is succeeding? And then also going forward, where are some of the best opportunities that may come from AI?

Yes. I actually think we have a unique approach that we haven't sort of really put out there and advertised. But if I may just tell you how we run it is, we created this AI catalyst group in the company, very important to us. Since it's so important, we took our Head of Strategy, Jeff Busconi; and our Head of Technology, Hari Gopalkrishnan, and they're working together, and they run the AI Catalyst group for us. We selected senior -- 18 senior business leaders to be on that Catalyst. So they represent all the different areas of the bank, and they work together to make sure -- and individually to make sure that we're driving AI into every single area. It's only -- it's such a large bank. It's a way to get it done and to share and leverage and get every bank for every investment dollar that we go out there. So before I get into the new ones, I mean, just point out -- I'd like to point out maybe because you know it was back in the day when I was there when we started. But Erica, we rolled it out as AI investment a long time ago. Now we're on our third generation of it. So it always advances forward. But like I said, it does 3 billion transaction. That is doing the work of 11,000 people for us today. I mean if I didn't have that, I'd have to have that many more people given the amount of touches and it will keep going. Then we've taken that -- it's a great example because we've taken that technology and we brought it over to the corporate side. It now answers 40% of questions that our corporate clients are asking us, takes you saving more heads. And then internally, we use it. 90% of our employees are using it for help desk, call desk, whatever they need internally, takes out 50% of the calls we used to have. And it's going to keep going, right? So we'll be on a fourth generation, fifth generation, whatever. Some of the new things coming out, all of our developers, 18,000 developers using GitHub. So they're developing things faster. So think of 20% to 25% more productivity, faster, cleaner, better and getting it out there. It allows us to get out with our clients much faster on some of the things I talked about that we develop with. That's a big one for us. We use Erica again. We do Erica Assist. So Erica Assist is now if you're a call center individual with a call that comes through or anywhere, it listens to the call and it compiles all the data that, that individual will need to answer the client. It does it in 3 seconds. So there's no more hunting and packing all the analytics come up, all the data come up and it gets the best available answer for the conversation with the client. I think that's huge for us. We use Salesforce agent force. We've rolled it out to 1,000 advisers when I was saying, make those financial advisers, help them become more productive. We rolled that out. We've got 80,000 people on Salesforce. So we're going to roll it out to 20,000 individuals by the end of the quarter, right? If I was going to see you, we'd pull up all the information on you and break it down and allow me all that prep time goes away. Pre and post call. So -- and there's other capabilities in it. But that's just a huge, huge time advantage, and we don't need a lot of admin sitting around creating that or the adviser to sort of spend time there. So huge productivity lifts there. Think of what else do we have. We have Copilot in the company. We've got 150,000 people on Copilot, including yours truly here using that, doing 1.5 million queries every week. So huge productivity lift across the board for any number of things. And then we've got other projects looking at better, faster, quicker underwriting and more analytics, helping us to streamline processes and automate processes across multiple platforms. Information delivery, speeding that up immensely and compiling 3 or 4 different databases for a better solution. So all those things are coming. And those -- there's many more, there's thousands of ideas that people are circling up, that Catalyst group is responsible for driving it, getting it done fast, getting it out there and getting in finding us more productivity. That will help in our operating leverage and everything because we haven't baked all that stuff in, but that's coming.

As AI has evolved, I'm assuming it's taking a bigger percentage of the $4 billion of growing...

Yes, absolutely. Sorry, yes. And it's all there, the investments -- all the investments we need because we sort of dedicated a fair amount to it.

Got it. If we shift over to the regulatory side, Basel III endgame, we're thinking maybe we get some news here in the third or fourth week of March. So it's coming right up. What are your thoughts on just the regulatory environment and the outlook? Also G-SIB that is another part for...

Yes, I think you're right. I think we'll get a proposal, hopefully, by the end of the month, maybe a little bit after that. So I'm looking forward to -- hopefully, we finalize the capital rules. So that would be terrific. I think the regulators would agree that the banks have a great level of capital to support a growing economy. So -- and I think if you look at for us between the net-net impact of the G-SIB and the Basel III end game would be to lower regulatory capital for us. So that's a positive thing. I think another thing that sort of occurred more on the operating side is that this on operating procedures around materiality, particularly as it relates to MRAs, I think that was particularly important for us for operating risk because it helps us dedicate the best people at the most critical areas and lower risk overall for -- not only for us, but for the industry. So I think that environment, waiting for the final capital rules, but that's a lot of positive direction there.

Sure. We've run out of time, but I do want to give one last question. And can you talk about the trade-offs between the deployment of excess capital where you think which businesses should receive it versus share repurchases and dividend increase?

Yes. I think when we look at -- we generate a significant amount of excess capital. Our CET1 ratio in the fourth quarter, 11.4%, right above the minimum level of 10% and our sort of buffer there of 50 basis points. So our first inclination is to use excess capital to help our businesses grow, and that's what we always try to do. And again, this is where -- when I said we look at things in our portfolio, every business that we have in every project, all those things I mentioned within the business operate and have different characteristics to it on our consumer side, on the lending side, high return on average capital business drives results over time and you just have to watch a loss rate. If you compare that to investing in Merrill Lynch, which we also would do, you've got also a high return on capital business, but the expense dynamics are much different and they're less efficient as a consumer bank is. And then my friend, Jimmy, Global Markets, you can invest capital or you can deploy capital really quickly, get a result, get a return, but the returns are lower than those 2 businesses. So I think he came in around 13% for 2025. He has a medium-term target of 15%. But again, that's going to be lower. So what we have to do is make sure we are capitalizing on the opportunities in the market, finding the opportunities that are out there we can drive, but it's a balanced portfolio of where we allocate capital to get the best results and returns and growth for our shareholders.

With that, Dean, thank you so much for joining us. Please join me in a round of applause.