Bank of America Corporation ($BAC)

Okay. Hello again, everybody. Ken Usdin from Autonomous Research, the large-cap banks analyst, back with our second bank of the day. Brian Moynihan from Bank of America, Chairman and CEO. Brian, as you all probably know, has led the company since 2010, overseeing its transformation through the post global financial crisis period into one of the world's largest and most diversified financial institutions. And under his leadership, BofA has grown into its responsible growth strategy. It's invested heavily in technology, including digital platforms and expanded leading positions in many of its businesses, which we'll talk through as we get through the session. So Brian, thanks very much for joining us today.

Ken, it's great to be here. And so I learned that Ken was -- worked for me a long time ago, but I didn't realize that until this morning. So he's gone on to bigger and better.

Fun times, fond memories. Before we start, I just want to make sure everyone knows you can submit questions through the Pigeonhole app. And as we get into it, we're going to start with big picture. So Brian, there's a lot of news and noise this year, 5 months in. Just what's your just broad assessment of the economy as we sit here today? You see a lot of different metrics across the consumer and commercial businesses. What's your base case here? And how do you see things evolving?

So I think overall, our team, our research team and obviously, Bernstein and their research team everybody -- last year, this time after Liberation Day, knocked down the growth for this year a lot, a point took off the top. They were mid-2s and they knocked it down. And as we came through the year, they pushed it back up and we were 2.8 at the high point. They've knocked it back down to 2.2. This is U.S. And that just reflects the drag on the economy from oil and other things. So that's where we are. As we look at it, though, what's interesting is if you look even in the month of May so far, the consumer movement of money out of their accounts. So each year, consumers will move about $4.5 trillion to $5 trillion from their Bank of America checking accounts out into the economy. And that's moving at 5% for this month so far, the first 20 days over last year. And April moved likewise. In the first quarter moved likewise, which is consistent with a strong underlying economy. And so people say, well, what's happening in gas spending, gas spending is up. But that's -- the other spending is up. What's happening with travel. So airline spending is up, but the numbers of charges are up, which means there's more tickets bought even though the price is driving it higher. So -- and restaurants are up. And so people are spending money, and that's because, frankly, they're employed. And when they're employed and earning money, they're in pretty good financial position. Consumer credit quality is great. Consumer availability of credit is great. And for us, a prime lender, the house -- the loan-to-value in our portfolio is 50% on the mortgage loans and home equity loans and combined loan to value in a similar number. So the consumer is in pretty good shape because they're employed and all these wonderful companies that employ a lot of people. Earnings are growing. And yet there's a lot of worry about what happens next. Gas prices are on people's minds, the affordability question is there, but it hasn't impacted their day-to-day activity yet. And so the question really is a tension of if this goes on, does it ultimately call them to change. On the commercial side, large corporates in the markets and that activity everybody sees. But if you think about it from small- and medium-sized businesses, they sort of had as they came through last year, a pretty good setup for this year as they thought about their financial plans or investment rates because the 4 or 5 big policies were seeming to come together, trade tariffs, tax, immigration, deregulation were all come together, deregulation was coming to be more beneficial in '26 because a lot of the administration was taking their time. So that was sort of the thing. And then all of a sudden, the Middle East war starts, and that sends it all into question in Supreme Court. So they're still trying to make sure they're grounded. What is my input price going to be? Can I get it? What's the impact of oil price inflation on the goods that come to me from Asia, for example. And so they're a little bit -- but still, they're borrowing a little more in the lines. The employment levels, you can see the small business employment levels pays, roles are going up a little bit. So it's all pretty good. And 2.2% GDP growth rate predicted for this year is actually -- if you go back and look across the last 15, 20 years, reasonably strong. Now inflation is higher, rates will stay higher, and you guys talk all about that. I'm sure your colleagues are talking about it. But overall, we're seeing a net growth. It's fairly decent. And everything we see in the customer bases that are harder to see than the capital markets and share price is very strong.

Yes. And does this uncertainty or hesitation just become part of the new normal, right? So we've been dealing with this for a while, going back 1.5 years or so. So do you sense any -- there's the spending differences you mentioned and wanting to be like grounded. But is this kind of just the new normal that the customer base just has to deal with and go through?

The customers have got to -- the consumer lives their life and does their things. And they're not -- the real impact on -- if you look across the 30 years of this data is when unemployment starts moving. And so if you watch new claims or something like that and they start moving against, they're very low 200s some thousand, they haven't moved much. continuing claims, 1.7 or something haven't moved much. And again, if you go back and compare them, say, that's pre-COVID, but pre-COVID, the workforce was actually smaller in population. So there's been growth since then. So that's what's going to cause them to change. The only thing after looking at it for years is retail trading volumes were more correlated to consumer confidence than anything else. That's kind of broken out because the market keeps going up, so they're effective in there. But -- so I think what has to change is employment levels, and that's going to take business -- businesses are being careful, both large, medium and small on hiring and making sure they're hiring carefully. The quick rates are down. The turnover rates. We had the great resignation 2 years ago, it's no longer there. Businesses have adjusted their hiring to make sure that they're going to be able to deploy the people with the new world of AI and everything they're thinking about how that's all going to work. But even with these layoffs, you're seeing that being absorbed into the economy. So employment levels are not -- unemployment levels are not moving. And as long as that's true, I think the consumer hangs in there and as long as the consumer hangs in with the power of that engine, America stays in pretty good shape. Now there's affordability questions are much different by cohorts. We do -- our institute publishes low, medium, high income and how it affects. This is not -- this is an aggregate statement, not that there's affordability issues for $100,000 under households that are difficult and gas prices affect them more. So I'm trying to stay away from -- this is more of an aggregate question than a specific question.

Yes. Okay. Got it. So talking about Bank of America at the big picture. I mentioned that you've been building and growing all segments across the company. But there's a lot of competition out there, and that competition is building and expanding, whether it's peers, regionals, fintechs, et cetera. So when you think about the company for the next decade, how do you think about supporting and continuing to defend both your strengths and expand the advantages that you have across the businesses?

So it depends on -- the businesses are different. The 8 lines of business do slightly different things and where they attack, but -- and the competitors are different. We monitor all the competitors. We monitor the disruptors, so to speak. And you have today's parlance, disruptors, fintech and other parlance, e-companies and stuff like -- we monitor for years, wonder what they do, see where they're seeing, any traction, consumers, seeing if that's something we need to adjust to, whether it's in the core consumer space, in the retail investment space, the broad-based retail investment space and the high-end investment space. And then the commercial business is the same things. We look hard at payment systems changes, obviously, stablecoins and the legislation going through and our positioning both as a company and the industry because that's a big driver of profit. But if you sort out the thing we have to maintain, our competitiveness and drive is really around the core transaction account, core activity count, whether that's a business, a person, affluent or not so affluent, whatever it is, at the end of the day, we want to be in the middle of household and then add to the product set. And so that's what we're really focused on. We really, really watch the payment system. You see us constantly gaining share. So 5 years ago, it was like Venmo is going to eat your launch and now our Zelle payments exceed Venmo's payments. So it's just a matter of applying technology to drive it. So as you look forward, the idea of applying it is really drive the brand, drive the capabilities in the core businesses and just keep investing in them through new initiatives and technology and technology capability, et cetera, we can talk more detail about that. And then making sure that the talent and teammates we have are the best that we can get and the best in the business and then letting that work and then frankly, knitting them together. So in the markets we operate around the United States, using techniques to get our corporate clients to drive us into their employee bases. We have something called employee base investing, using techniques to ride the continuum from birth to death, from small business to large business. And then secondly, find the potential customers where they are because without population growth at the rates, we have to go find them and take them. And so we work a lot on what we call the themes and how we work between each other and make it happen.

Yes. And we got a lot of that detail last year when you did the first Investor Day that the company has done in a while. So as we also think about the long term, we saw a lot of the new depth and breadth of the management team. Recently, Dean and Jimmy have been promoted to Co-Presidents. Can you talk about just how the new structure is elevating both the team of leadership for the future and how that's going to improve performance of the bank?

So our challenge is to keep developing the talent for the future. And so people focused -- Dean and Jimmy are talent executives and they took it. But the key is the 8 lines of business head and keep investing in the teammates running those businesses and keep adding to the talent and then even on the credit side or on the risk side or on the legal side or on the HR side. So we keep adding that. But it's going very well in the sense that we were able to elevate those 2 co-presidents, and they can help drive some of the initiatives across the franchise. While we preserve that the 8 lines of business heads run those businesses and drive them together, but they're to knit them together to push and help us execute and make sure we're driving and lifting the brand. We're investing a lot to drive our consumer brand to places really nowhere else is on the theory that we're ubiquitous. Everybody knows this, but everybody has to have a strong opinion of this in order for us to continue to gain market share on the consumer side and in wealth management side and small business side and business banking, large corporates is a little different attack in terms of the brand and how you do that. So they're doing that. They've been great. But don't discount that the people who drive this company are the 200,000 people and 3 of us at the top sort of make sure it all works, but they do all the hard work.

Yes. So thinking about Bank of America's performance and relative performance versus peers, BofA is uniquely positioned certainly on the revenue side for the next couple of years to deliver both NII growth and NIM expansion. You got the tailwinds that we all know about, about fixed rate repricing and you've got the balance sheet mix changing. So can you just walk us through just the main drivers that give you confidence in that growth and that outlook trajectory and how long your line of sight is on that continuing?

Sure. So if you think about from the net interest income side, we raised our estimates from 5% to 7% to 6% to 8%, and that's driven by our view of the core growth in deposits. And frankly, we're at this time in the industry where people -- you have to be careful about nominal deposit growth versus core deposit growth and people are using for funding. And that's all fine. It's just that we don't need the funding. So that core deposit growth, along with good loan growth and good credit quality produces that NII lift that just -- and the repricing adds a kick to it. So that -- if the economy goes in the tank, that's different. But as long as the economy gets roll along, that happens because we grow faster than the economy on loans and deposits. That's -- it's more than half our revenue, and that locks it in and the repricing adds a little fuel of fire and you march from 200 basis points of NIM percentage up to 230 over time. So that is pretty predictable and the team has done a great job. And then on the fee side, we had a couple of dynamics over the last several years, which was to keep becoming the most favorable bank for consumers to drive attrition down. We took the fee structure and really managed it carefully, no overdraft fee accounts, et cetera, et cetera. That's all through the system and flattened out. Now you're starting to see even the consumer service fees grow a little bit. Card incomes with rewards and stuff, a little different dynamic. But the core service, that's good. And then if you look at the commercial side that the GPS fees grow nicely in the mid- to upper single digits. And so that's good. And then the question then there is the 3 fee sets that really are going to depend on the market environment, the wealth management fees, the investment banking revenue and sales and trading. And right now, those are all very strong. So while you wouldn't -- I guess, maybe we could if we're in a different dimension, but the idea of the market going up 20% per year in perpetuity would be a nice thing to talk about. But the reality is they're all positioned and they're setting new standards of profitability that even if they flatten there, it would be a great business sort of walking up the ladder. So we feel good about that. But as you look forward, it's really a common purpose, been at a long time. The growth rates are there. And now with the balance sheet turnover and becoming more core, the efficiency of the returns go up to 1% on assets, 6% common equity, 16% return to core. That's what we did in the first quarter. We said 16% to 18%. We hit it a year early. So you expect us to keep making progress there, too. So that's the general set -- we can get into specifics. That's a general setup is that loans grow, deposits grow drives that. Credit quality is strong, doesn't take it away. And on the fee side, we experienced good growth. We expect to do that. But the reality is that will settle into a more normalized growth rate. But after 16, 17 quarters of core sales and trading growth rate year-over-year. It's been a different environment in that scene, and that's where Jim and now Dennis and [indiscernible] have done a great job. They've build that up. And likewise, investment banking, we're holding our market share growing a little bit here and there, but it will ebb and flow with the markets, but generally, it's the new baseline.

Got it. And so coming back to reasonable growth at Bank of America, your loan growth has been ahead of the industry for the last several quarters, right, led by the commercial side, U.S., international. What do you see as the main drivers of that growth? And do you see that as sustainable?

So yes. And yes, because the dynamic -- if you look back 2 or 3 years ago, the markets business was growing strong. It's flattened out, and now we're still getting good strong upper single-digit better growth. There's still a usage question in the core businesses. And so whether it's middle market or business banking, the line of credit usage is still not recovered, and we're seeing that eat back up and each point of that is a lot of outstanding. So if that goes from the -- say, mid-30s to the 40% type of numbers, round numbers, that gives us a nice anchor to win where we do no more work, we take no more risk and yet we get more revenue, which is a nice -- and loan growth, which is a nice thing. So that's what we feel good about. So what I felt good about in the last quarter is if you look the quarterly progression in markets lending, of which markets lending has very different pieces in there, it has slowed, but the rest of the businesses in the commercial side have caught up. In the consumer side, basically, the credit card, they set a path to get to 5% nominal growth in balances. That aside, if you really look at the mortgage stuff, it's really not growing, and it's -- we don't have to go over the dynamics of that. But if you look at the home equity side, we're starting to see a little pickup. Ultimately, that -- those balances were $30 billion, down to $20 billion after the pandemic and should go back to $30 billion and beyond, given everything that's going on, yet the American consumer has not decided to tap that. And ultimately, they stay in the house longer to do repairs and things like that. So we think that grows, but mortgage loans are just going to run to stay in place until there's a more favorable environment. So the consumer side oddly is kind of bumping along card a little bit better. It's the commercial side driving it, and that has leveled out to more of the business is driving as opposed to just markets.

Yes. And at the Investor Day, we talked -- you talked about the card strategy. And can you talk to us -- talk about the competitive dynamics there and how you expect the card business to just evolve over time from where it's been historically?

So we've been in the card business a long time. We made a conscious decision along 3 dimensions: one, to be really focused on prime card lending; second, to focus on the Bank of America card base; and third, focus on the affinities where we thought we could have a good relationship and help drive success. At the time, we had 3,000 affinity relationships and 2,950 of them didn't have a lot of value, honestly. And the credit losses and some of them were pretty substantial. So we've narrowed the business. But this morning, we announced a redo of our rewards program. And we always believe that the rewards program ought to be holistic around all Bank of America customer capabilities. It was geared a little bit to the -- what we call preferred affluent -- mass affluent America. We've now broaden out that all checking customers have access to reward programs. The card has a reward program, but it's one rewards program. So with the affinity we have, which are great, but the rest of the card is about building our brand, our Bank of America brand card in the eyes of our people, our customers and then drive that forward and the rewards is a key thing because the rewards drive the deposit base growth and deposit base stickiness. So that's the integrated approach. That's different than other people have taken because we're not a card-only company. We've been there and almost took the company down, frankly. And because we haven't had a serious consumer credit issue since 2007. And so it's very volatile. And so we're playing it to make sure that doesn't create issues for us while at the same time, penetrate the customer base and drive it, use the rewards and do it. So that's the card business. That being said, the team has to grow at a faster rate and they got, I think, 3% maybe year-over-year this quarter, something in that range. They're moving towards 5%. But if you just say grow balances, you can forget that you got to get profitability and with 1/3 of the balances paying off every month, they're not paying any interest and you're paying money to carry them. So you have to be careful about that balance, and that's the management task that Holly and the team have.

Yes. So the deposit side of the business for the industry is getting a lot of attention. You have one of the largest and lowest cost deposit franchises around. And how do you think about the advent of all these new digital products, some of which have existed but in different forms, whether it's stablecoins, tokenized money market, mutual funds, AI agents, how do you see the company adopting over time and evolving to both continue to grow but also protect that core funding base?

So I think -- the principles of which money could move to higher rate products are not new. The device price are changing and they always change and they change over time. But -- and so we always have to be mindful of that dynamic. But when you back up from that, we have $2 trillion in deposits and $1.1 trillion of loans, just to make it simple. The $2 trillion deposits are very core. That's where our advantage comes, our 150 basis to 40 basis points cost of deposits is not because we're cheap on deposits because the dominant part of them are zero-interest or low interest checking in the consumer space and then even the commercial space, noninterest-bearing and in wealth too, that creates that value. And so that's because we have a core transaction. That goes back to my earlier statement. So if you think it's pretty straightforward. If you think about the customer has transactional cash and cash they want to earn a return on, the company has balance sheet funding requirements and then excess funding. And if you're a position of excess funding, you don't need to chase 5% CDs because, frankly, we don't have anything to do with the money other than put it in overnight treasuries, and that's a loss. So we don't do that. Now on the other hand, can you move money at Bank of America to the market? Sure. We have massive money fund penetration for customers that move it over. Do we have higher rate products across the spectrum? Yes, we have 5 tiers of money market fund pricing and all the stuff. So people move within it. So they can find rate as they want if it's excess cash. But you have to say why did people have the money? If they have the money to carry out their daily life, they cannot have a payment get missed or something happen. And so I think the constraints and where we've aimed our attack is to really drive and own that account for the household. And then we'll take the other cash or we'll put you in a market alternative because we don't need to fund the balance sheet. There's no advantage in holding it, but we want to control that cash decision. So we have very fast terms. If other ways to come up to do it, we will facilitate those ways, too. But it would be -- bring down the growth rate in deposits because I don't think they shrink because we don't have much of that CDs and stuff like that. We have very little. It would bring down the growth rate, but we'd still control the cash and make money on it somehow. And we have fee side and everything else. So it's a complex thing. I think people are forgetting that all the ways to move money have existed and all the higher-paying devices have existed. And the reason why accounts stay where they are is because people are thinking about that money differently. The theoretical construct of an agent coming and moving every 10 minutes until they bust at once and all hell breaks loose, that will be an interesting question. And because once one payment doesn't go through right, all of them don't go through right and at $35 a clip or in our case, $10 or $15 a clip gets very expensive very fast. And so what did I save? What did I get? What did I -- the fine-tuning. And so that's going to be an interesting tension in all this, but we'll see it play out. We'll be competitive. We'll have all the techniques everybody else has. We have them today, we'll have them tomorrow.

Yes. So let's touch on some of those fee-generating businesses you mentioned earlier. So wealth management has been a longtime big strategy driver for BofA. You talked about this at the Investor Day. What are the key drivers that are going to drive growth in the wealth business ex markets, we'll keep that aside as a nice tailwind today, but in terms of organic and gaining market share, et cetera.

So if you look at the drivers in that business, it's more clients, more of the clients. And to get more clients, you have to have either more clients per adviser or more advisers in both. And then you have to decide whether internally generate advisers or external hires. And so over the years, the external hires have gotten so sort of expensive that we sort of laid off that. We're now going back in to fill up offices and to bring some talented teammates in and recruiting, and we had to restart that engine. The good news is the experienced adviser attrition is hitting -- bumping along all-time lows. And so -- and that number just keeps coming down. And by the way, it was all-time lows 2 years ago, and it just keeps bouncing down. And so that's good news. So to get net flows, you have to have current customers add balances or new customers add balance. Lindsay and Eric, Katy have committed to drive those to another round of increase really the Merrill piece, the private bank is doing pretty well on that. To do that, you've got to then add advisers net and add clients net. And they're adding the clients through the continuum we have from Merrill Edge all the way through the private bank, we got, I don't know, $90 billion of net flows last year, something like that. So it's just pushing that a little bit higher. The big change for the Merrill teammates is the hiring and they started recruiting in advisers to come join this wonderful platform. That helps on the asset management side. The real other thing that's going on, and we're getting -- every year, we make another step of progress is $280 billion of deposits in that business. And so it's one of the largest banks in the country in the wealth management business. If just we start to noodle on that question. And they have go to the rate they pay, rate they do it, but they have a big core checking business. And so that's been picking up. And then frankly, the best success they've had over the last few years has been on the loan side, and there's 2 parts to that. One is sort of the very high end, very structured loan to wealthy people for art and for other planes and other types of things. And then secondly, the securities-based lending has picked up as the market has been strong. So the loan growth has been very strong in that business. And so you put that all together, it's -- the improvement they laid out was to go to higher net asset flows. That's from basically driving the adviser count up, and we can make advisers more efficient, too. But it's really from driving adviser. That comes from being a little more aggressive on the recruiting side. We manufacture advisers and training programs and stuff. But we said, let's go out and do that. The economics are -- you got to be careful of. But on the other hand, we believe we can bring somebody in even the economics now, we're much more confident in the ability to get them around out the base and make money for the company on loans and deposits and things which they couldn't do at other firms.

Yes. And another business where you've expanded and taken share has been in the markets business or the trading-related business. And some of that's been through allocating more balance sheet to it. But I guess the question is how much more share do you think you can see taking there? How much more are you willing to allocate in terms of the balance sheet towards growing that further and creating that -- continuing that stable base that you've talked about for a long time?

Yes. So I think if you look at the markets business, let's say, it was a $600 billion to $700 billion balance sheet at peak 3 or 4 years ago, now it's a $1 trillion balance sheet at peak. So the balance sheet has increased to support the business. The capital allocated to it is circa $50 billion now. It's getting a good return on that but the challenge for us always, if you think about the tightness of our franchise, the ROA and the TCE equivalent, then it's the one that earns less. So Dennis and [indiscernible] have to solve that equation all the time. So they've grown nicely, taken market share, done a great job, and we've given a lot more resources, but the constraint is you got to be able to put it to work. And a lot of what they do, prime brokerage overnight risk, it's not exactly something you're going to get paid a lot for from an ROA basis, but from an equity risk basis, there's huge return. And so this is where you get in the arbitrage between regulatory accounting and RWA and actual tangible common equity and stuff. So they've done a great job. They continue to grow. What I'd say about that business is, I think it has 72 different regulators touch it. It operates in all the trading venues around the world. It supports the great clients in here with knowledge research about all the different things. This is not an easy business with the technology demands $700 million, $800 million, $900 million a year in technology spending. If you start to think about this business, it's really a business you have to really be willing to put a lot of scale work in a very highly talented nuanced business to the client, the scale behind it has to be there as it becomes extremely difficult. And the bespokeness has to be managed down. And the team has done a good job at the cleaner, simpler, better, as Jimmy called it, and taking the breakeven point down $1 billion a quarter over the last decade probably. And so that then puts up to $2 billion in the first quarter. And that's -- they've done a great job. It's just that in the scheme of things, we've added more capital, added more balance sheet, but we're always managing that against these other businesses, which have a much bigger impact on the return on tangible common equity. And as we're moving up in the range, we'll keep that balance going. And that's what we're doing, but we got to be careful that if it becomes too big relative to the franchise, it starts to drag the returns at the ROTCE level down a little bit. I don't know if that makes sense to you, but that's one of the challenges. They have lots more resources doing it. But it's -- and they do a great job running it in 16 straight quarters of year-over-year, nobody has come close to that. And I think they probably will do 17.

And the last one, just in terms of higher ROE business has been investment banking, which has been also gaining market share over the last couple of years. You talked about building up the middle market as part of it. Can you talk about both just that organic where you're taking share and where you can? And then as a second part of that, just coming back to the environmental question, are people just kind of plowing through this environment as the new normal? Or do you sense any change in terms of willingness to transact?

Well, let's go to the last part first. People are just plowing through. To your point, a little bit, they've adjusted to the to the situation and said, you know what, we can't wait too long. There's catalytic change going on with the impacts of technology and new technology and new change. We got to figure it out. Scale will help do that. So you're seeing our clients the ability to do deals in the market, the IPO, these apocryphal IPOs are one thing, but just the general IPO market is a little more constructive, et cetera. So the pipelines are full on the activity side. It can -- think last year, it can start and stop on a moment. And that's where you got to be careful about making sure that business has a throughput underneath it that gets you a minimum amount that's fine, and then it's tied to the corporate customer where you make money on loans and deposits and stuff. So it's a fairly constructive place. The pipelines are strong and et cetera. You go to the sort of more philosophical long term, we think of that business, it's a global business, global companies. But the piece that we've been able to do a pretty good job in between Matthew and Wendy -- Matthew Koder and Wendy Stewart who runs our middle market is really drive the middle market business. And so -- and that's 2 pieces. That's smaller companies and still covered in the industry world, but also general middle market companies in which we have dominant market share around the country. And so right after COVID, when we end up with excess capacity because the world kind of stopped. They were saying, well, we've got too many investment bankers, what are they going to do? And I said, well, let's build that faster. So we went from 60 up to 200 people doing it, and we'll continue to do that. As all this technology maybe makes it efficient, we have this outlet where we can keep that because there's capacity to add a lot more people doing that in all the markets. So they're out in the market out in 17, 20, Citi is doing -- working with Wendy's team going to call middle market clients. And we're seeing the market share of our middle market clients where lenders is strong, but there's a lot where we're not a lender and there's a lot of other clients and those 2 elements we're really after. So I think that's good. The rest of the business, which is a classic industry-driven global business with regional overlays, Matthew and team have done very well. We're doing -- Asia has been pretty strong and Europe on the M&A, we picked up some there. America is always strong. So I think that's just that's more standard fair. But this middle market thing is unique because we are coupling banker capabilities, investment bank capabilities with 30-year, 50-year relationships, and we can just do that over and over. And it doesn't mean every client does a transaction every day because that's not the nature of it, but you have to be in the flow to catch the clients over time. And that's been -- it's probably about 30% of the revenue now in that business. So it's contributing, and it can keep growing because there's -- the market share sounds big, but it's not big when you think that there's 90% of the market out there we aren't touching.

Okay. So one of the things we talked about also at Investor Day and in the last earnings sessions has been just the benefit of having that built-in NII growth plus the fee growth you just described has been a better operating leverage output, which has been consistent, but it's getting wider again. And at a high level, what does good operating discipline look like to you in terms of like balancing reinvestment versus driving efficiency and bottom line performance?

So historically, we had -- remove a lot of costs because we got rid of businesses. We had a lot of buildup after the financial crisis, et cetera, et cetera. So that came down. We got down to a pretty low level. Then we had inflation and costs and things. But all the time, you're making investments. So as we think about it, our investments are really headcount growth, which is in the relationship business. So going from 500 to 600 private bank -- lead private bankers going from 700 to 800 middle market commercial bankers going from 1,000 to 2,000 business bankers, which is $50 million on revenue. It's just how do we keep adding that. And that we have to do it. And how do we fund that in the grand scheme of things is by becoming more efficient in operational excellence and stuff like that. So that technique. So if you looked at Investor Day, we showed you this massive downdraft in expense and headcount, but what we showed you is from, say, '19 forward, what happened is we've added heads and still taken out heads and the net has been up a little bit. We're running about 210,000 people today. 210,000 to 211,000. That's down, but that's a constant reinvestment in retraining, reskilling people even within operations groups going from X to Y as we automate and do work. And so it's just -- it's a matter of doing. The major change we wanted people to see is we gave a nominal reduction in expenses because we couldn't get people's attention that we're actually coming down, and then we could never get off that point. So now we're focused on operating leverage. Last quarter, we said at Investor Day said 200 to 300. Last quarter, we had 300. This quarter, you should expect us to do pretty well. That's the goal because we have to have the expense growth to fund that growth and initiatives and talent in usage of the new technologies, et cetera, but we got to keep it relative to revenue growth in sync and then that produces the profit margin. And so we think in a steady-state economy growing a couple of percent, you have revenue growth in the mid-single digits, expense growth in the low single digits. None of this is true because of the markets and everything going crazy now, but in a more standardized environment, that produces 8% to 10% operating profit growth. And then with the share reductions and stuff, 10%, 12% EPS growth. And that model is the model that's going on underneath every day. It's just that right now, you have huge market activity comes in and covers up some of that activity and then comes back out and that comes through. But we watch that underneath every day. And that's just a constant reengineering of the platform using all kinds of technology, including AI.

Yes. And how -- and talk about how AI will now influence this, too. You've talked for years, you guys talked about how the customer side has been facing it with Erica, Zelle, your broader franchise. But what are the tangible benefits that you're seeing right now as you put AI through the whole platform and add it on to just normal digitalization? And how do you think these tools are going to change the firm's performance over time?

I think applying technology to task is not new in our industry. Managing the human part of that is also not new. So our job is to manage implementation of this and also manage our hiring and our attrition rates to make this all work and then retrain people inside the company. And so last year, we moved 14,000 people from job A to job B in the company. That's a huge retraining effort. We also hired about 1,000-plus people a month, yet we ended up relatively neutral headcount. And that's by thinking this through. So the job of management is to make this work. Now how is it going to affect us? It's really all over the place. So there's very concrete. Erica is a very concrete example, 20 million consumers use it a lot of times. They can use it in a way that doesn't increase cost for them to have intimacy and interaction at pace that you can do it. In the consumer business, 99% of the stuff is all digital already. So there's not like a lot of -- it's just the piece -- it's huge. The piece of the 1% left is a lot of transactions. And as you move that, you can do it. But the question on my mind is that you got to be careful because even though Erica is used all those times, would people have done that if they didn't have Erica. And so what you do is you atomize the activity, more and more activity takes place and you got to be able to scale that without cost. And that's what the magic of AI can do. It can scale customer interface without adding cost other than operating in a system, which is much more leverageable. So -- then you get on that side. We've automated the underwritten for years on the consumer side. There's nothing new here, and this is 30 years of doing automated underwriting. It's not a new concept. So there's very little income benefit on consumer decision of Brian Moynihan gets the loan or doesn't. There's a huge lift on the preparation credit offer memorandum for commercial clients because that's a write-up that goes on. That's a huge amount of work that we can then reduce by having them pulled together, prepared, then looked at human in the loop, making sure they're okay, people experience, making sure it's not giving you an answer doesn't make sense, but it speeds up the process of preparation. That's a big benefit because if you look on the consumer underwriting side, you're going to get relatively small in the decisioning of credit. On the process of doing mortgage lending and the paperwork, yes, it's big, scanning and reading and taking the text and making it work and loading and stuff, a lot of it was input of just because of the way the systems are configured outside our company, not only inside our company. So it has applicability across every platform. We're a big sales force user, agent force is out. We're up to 1,000 -- 4,000 or 5,000 people using it. That's growing thousands each month as we deploy in the other businesses. That provides them the benefit to prepare for meetings faster. You go back to, say, the wealth management capacity question, that means an adviser can -- whether a private bank or wealth management can be more prepared, they can take on more client activity, less getting ready for that client activity. And those are where we see it have a growth aspect that's pretty strong. And then a legal department uses it now, and they can in-source more legal work with the same number of people and generate a benefit on that. So it's just going to go through the whole organization. I think the job is it has to be right. It has to be perfect. The data -- we spent $3 billion or $4 billion getting all our data aligned for a wholly different purpose, honestly. It turns out to be fortuitous because we know that the lineage of our data, we have been establishing for years and years and years to get all this reporting and make Erica work right and all this stuff. That provides a good stead. You have to have your data perfect. You have to have the decision path and whether it's fully agent deterministic, that's going to be an interesting question when you let it run versus you always -- it's preparing an information to let a human being make a decision faster, better. That's going to be tricky because if it goes haywire, they can go haywire. And we've seen that happen in the early days at Erica. We had to constrain Erica because of that. And then -- so that the platform -- and then the question is the cost because you're going to start to have the thing they call tokenomics. The amount of money we spend on this can't be infinite because it's got to have value. And so we test every project. We have 22 colleagues led by Jeff Busconi working on this. We went up to 3,000-plus people, give us your ideas. We're trying to make this everybody's work in our company. So we'll see it play out, but it's going to have a big impact. Our job is to make that impact work for our teammates. And their job is -- honestly, their job is to help make it work for the company and themselves, and we'll take more share and go on.

Understood. Talking about credit, we touched on it when we started just talking about the consumer being very stable. And outside of gas prices and the impact on spending and maybe substitution, just what are other important signals you're looking for, for any changes to potential changes in the consumer outlook and consumer losses?

Yes. In the near term, you obviously look at near-term delinquencies, all the stuff, which are in good shape and improving, et cetera. So that's not the problem -- really, you have to look at employment after our teammates have been in this business a long time after watching these companies after having prime, subprime, card prime, card subprime, mortgage prime, mortgage subprime, home equity lenders, all this stuff, the day if a person is employed, they're going to pay their debt. And so the question is employment and then the other life things, death, divorce, sickness, other things can impact it. And right now, the employment level is strong. We watch that like a hawk, not only current new claims and things like that, but predicted outcomes and thinking through and getting the best advice from everybody we can, including our research team. Look at all the blue chip. We base our reserving based on the blue chip. We don't let our view color it and that shows and we're -- I think we're reserved at implied levels that are much higher unemployment and things like that. But if you -- that's the simple answer. People are employed, they're going to pay on the consumer side because they don't want to lose their access to credit. And yes, they'll get overextended and some things will happen. But when you look within the things happening, it's generally a cathartic thing has happened to the individual. And our job is to try to keep that incidence rate low and then keep it more secured credit versus unsecured credit because the loss factors are obviously much different.

And on the commercial side, there's still a lot of attention on the private credit ecosystem, although a lot of banks, including you guys talked about your comfort with your portfolio. As you think about just the interplay between banks and private credit, how do you think that this will evolve and become an opportunity for Bank of America?

Leave aside that we've laid out all the disclosure, which shows -- but let's go to the competitive question. The question was really what was the offer that was happening that we got concerned about in the middle market client. That's why we announced the $25 billion pool when people said, really, this stuff is being talked about. We announced [indiscernible] because we know how to do good credit. But the reality was that someone was doing a, say, $1 billion buyout with a sponsor or entrepreneur business recapping or something and somebody can then all supply everything. And we go in and say, well, the private equity come in, we'll do a loan syndication for $500 million or whatever, and we'll get 5 banks and you have to work through that and the person in and said, I'll do all $500 million. By the way, you'll pay more for it and people are taking the deal. So we had a competitive risk here, not for the credit we didn't want to do, but for the credit we did want to do, and that's why we put the pull together. And that's the question now is can we win consistently for middle market companies going through that kind of change -- the average middle lines of credit and stuff are very different than this. It's when they're going through sort of a cathartic capital change that if the competition comes in, can we hold our position there, that's going to require us to combat it differently. That's the biggest exposure we had in the middle market business. In the larger end, everything ends up going through the markets and everything. But -- and so that's why we built the fund. But in terms of credit risk, we're very comfortable with our positions and build them in a way that it's not something we worry about.

So on capital, the recent rules were proposed for the Basel III end game and the G-SIB surcharge, you guys cited a net overall positive benefit. Do you anticipate any meaningful changes to come out of the final rules? And how do you feel about them as they stand?

I still think we've got some points to make on where the G-SIB recalculation starts, for lack of a better term, was meant to start in 2012. The data was meant to be updated. That's still something we feel strongly about it. And so there's a lot of ins and outs, but I'm not sure they'll change a lot. And -- but I think the key is to get a set of rules and make sure they stick to the risks going forward because under the old set of rules, suddenly, we had 20% more capital with no more risk, and it was just all this manipulation. So [indiscernible] and the team have done a good job of thinking this through about how they make sure it doesn't creep back other ways and codify it. So at some point, we've got to get something done a call a day. But yes, we'd like to make sure that G-SIB is actually calculated from the time it's meant to calculate. A lot of our growth has been just general economic growth, come on now. We're not more important or less. Those are the factors we're concerned about. But we're making our points, and we'll see what comes out.

Yes. And along the way, Bank of America still has a meaningful excess capital position. You've been -- the dividend is strong, big buyback in the first quarter. How do you balance dividends, buybacks, organic growth as you look forward to that 16% to 18% ROTCE target you put out for the medium term?

So we think about us running plus or minus 6% tangible common equity. And so as we get down to that level, if you have $1 of earnings, pay the dividend, what business growth you have, the rest goes back into the shareholder base. The interesting question is because we have the excess that middle thing, we could just leverage the current capital base. And we're kind of getting to the point where with the new rules, we'll get a little more window and then we got to figure out how that all works. But you should expect us from the earnings we make in the first quarter, $8 billion plus, all of it goes back into the shareholders because we have excess capital to support the business growth we need. And then going back to the earlier point about Mark, you always got to be fine-tuning the returns, dynamics between the businesses.

Okay. But before we close, any updates that you want to provide in terms of the near-term outlook that we should all be considering?

Yes. I think if you look at us for this quarter, just to give you a sort of an update, I'd say the NII, we told you we -- what will happen in the extra day and stuff, we feel good about that. We moved the range of 5% to 7% for the year, up to 6% to 8%. We feel good about that. You should expect this quarter will be good and solid on that. On investment banking and trading, we're doing, I think trading, I think like a 15% increase year-over-year. We got to be careful. Year-over-year, you got to remember last year was liberation quarter, so some of these numbers will look big. Investment banking is in pretty good shape and wealth management in the low teens year-over-year. So we feel good about that. The one thing I cautious is because the growth is coming from wealth management and things like that, the expense leverage, but we'll have good operating leverage. We'll do as well as last quarter, and that's good news. And so that's the only -- as I look at the things, people are forgetting that the revenue growth is exceeding what people's expectations are coming business, which have a BC&E, which is transaction costs on the market side plus compensation and things. But we feel good about the quarter. And so I think the NII at the top end of our growth range for the year. I don't see any issue in that. I think 17th quarter of sales and trading up 15% plus or minus is investment banking up strong and then the wealth management up in the low teens. And then just make sure people are -- you're paying attention to the expense side of that is the only thing.

Excellent. Great. Well, please join me in thanking Brian Moynihan for joining us this morning.