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

Since we're in London, let's focus on our international business or at least we're a small part of it. Yes, but a...

Meaningful part.

A meaningful part -- it was a key focus of the Investor Day last year in November. So what do you see as the biggest opportunities for growth? And what do you need to do to capitalize on them?

Sure. So Reflecting back on Investor Day, I think we have more than a few people speak to the opportunities in international specifically. I was one of them. I had my markets hat on for the last time and spoke to the markets business. But Wendy Stewart runs our commercial banking business, in addition to Matthew, who runs corporate and investment banking and I think Bernie brought it all together for us as Head of International and tried to show and did show what the capabilities are and what this potentially means for growth just a reset for everybody, the numbers that were thrown out were a $4 billion increase in revenue, about $2 billion in pretax, the expectations were to deliver about 18% return on allocated capital, which is great. So when you go down into each of these businesses, what is that? I just mentioned it briefly. But for market, it was -- we have institutional clients that we could deepen the relationship with by meaning doing more of the products that we're engaged in and they're engaged in, but we don't seem to have a good piece of market share with them. That was the most straightforward. When you flipped it to corporate clients, there was more opportunity we've identified clients that we may not be doing business with today that we can be a value-add and there's a relationship within corporate banking or investment banking that we just need to turn on the markets business. Commercial banking -- we talk about it a lot, but maybe not enough in this environment and being in this room, it may resonate a little bit more. But for domestic U.S. companies, and we are depending on the day, the largest commercial lender in the country and thinking about $50 million in sales up to about $3 billion in sales. A lot of those companies have either clients or production or suppliers in other parts of the world. And so a big opportunity for us as we refer to as the foreign subsidiaries in doing business with them. Like I said before, if we have a good relationship with the kind of home operation, when they go to expand internationally, we want to be part of that discussion. So whether it's not part of the discussion part of the execution, it's payments, it's FX hedging, it's rates, all of those things and deliver that between the commercial bank and the corporate. Excuse me, in the investment bank, and that flows similarly for clients that we have that are internationally that are as the world's supply chains are changing, and some of those businesses are opening up or expanding their operations in the U.S., we want to be part of that, whether that's Europe, Asia, South America. So you can see that the synergies that may not seem obvious until you dig into it, but it's really across the board between [indiscernible] banking, corporate and investment banking and markets. And it's a priority.

You've touched on most businesses. One more maybe the wealth management business. As you look at the medium term, a 5-year view, what gives you confidence we can accelerate net asset growth? I mean we spoke about 4% to 5% growth. What are the drivers of that type of opportunity? And to get there.

Sure. I guess a couple of things. First, just resetting again on what our wealth platform is or wealth capabilities that we offer. I mentioned we have the consumer investments business, which isn't a direct answer to your question, but we've been in any way, we have about $600 billion in assets there, consumer investments which we have a target for $1 trillion, which isn't part of that the wealth and enable that we're talking about. But it is an important part of how we think about this wealth continuum that we have and the capabilities of offering different degrees of high touch and low touch for investors depending on their needs. Bringing it back to specifically Merrell, I think there are a handful of ways and I think the team has done a pretty good job articulating them. But for the benefit of those that don't pay attention to it as much because we are a domestic wealth management business also like the consumer business. The traditional place to start is with your financial advisers that provide that high-touch experience for their client. So there are a couple of ways that you achieve that. One is through hiring. One is through -- historically, I would say the last handful of years, maybe 3 to 5 years, the recruiting wasn't as high of a focus for us as it is today. I think the numbers through yesterday, we're going to be. If we forecast out for the rest of the year, we'll hire more FAs than we did last year. That's a positive. And the assets that are coming along with them are almost double -- anticipated at almost double what -- and again, these are -- these are not hundreds of billions of numbers there are tens of billions. But to put some context on it, we're pleased with the progress that we've made there. We're continuing to hide people, market executives in those local areas where we need to upgrade or improve, and we're expecting to see good benefits from that. The other part of it, which may not be in the trainees, we have about 2,500 trainees that got come through each year. And you're going to obviously have not 100% retention, but we do see about 25% of the new business that we get tend to come out of the trainees. So existing plus new and then the power of really what we have beyond that is all these businesses that we talked about that provide a source and an opportunity to build out a wealth relationship, small business business banking, commercial bank. It really touches everything. And I think that we could probably -- we will be focusing on more and probably continue to hear this be part of the regular conversation we have. There's also a part of the business, which isn't as clear because, candidly, 5 years ago, I'm embarrassed to say, I didn't know as much about these aspects of the business as I do today, but we have 2 other powerful, I think, in this category, we have employee banking and investments, which is really us having a relationship with the individuals of a company. So we may go to a company and say, we can offer these benefits to your employees for banking. We just announced our Bank of America -- Bank of New York announced that we announced, we did something with them a few months ago. I think it was second quarter. But again, this is another source of opportunity for wealth and for our traditional consumer banking than we have the other, which is workplace benefits, which was more about relationships with corporations and managing their 401(k) businesses, as well as their employee equity plans. And those are -- it's a little bit of -- you don't see much written about it. In general, in the industry, there's a handful of people or companies that can offer both of those capabilities, and it's another source of contact and introductions with people that we can then provide additional investment in wealth services.

So a little bit like elsewhere in the organization, growth within the business and across.

Yes.

So we -- when we spoke about the macro and most of our businesses. Maybe we should go towards more operational subjects. The company continues to deliver sustainable operating leverage, investment in growth, talent, tech. As you look across the business, how do you think about balancing expense discipline with investing in growth? And maybe a word in that context about our tech strategy.

Yes, sure. Well, the easy answer is growing revenues faster than expenses, right? That's the operating leverage, not to oversimplify, but within that, what's the construct in terms of how we think about investments and investments take a variety of forms. Tech is obviously a big part of that. And how do we think about tech in general does it make -- does it help us execute better with customers and clients. And then second, how does that fit into keeping our competitiveness or competitive levels high. And so we say, well, that sounds pretty reasonable. I think you kind of would run your life that way, but then it turns into, okay, well, how do we prioritize within tech. We have a large and important tech budget like most firms. And then we have to start to think about, okay, within that tech investment, what's important to us? How do we prioritize within tech? And there are things that there's no negotiation around never down, we call it, which is you don't want to be in a situation where you go to use the bank and you can't access whatever it is that you're looking to access and whether that means customers or on the institutional side of the business, you got to do a transaction and you can't execute. Not to mention, it introduces risk within the businesses when you're trying to manage risk. So that's obviously a top priority. Cybersecurity which has become even more pronounced as of late, given advancements in AI and a lot of the press that's been out there. So you're always thinking about those 2 as kind of nonnegotiables but you have to also consider other things that are going to be important to you. We spent a bunch of money over the last probably 7 years just broadly on the tech stack, operating it better data, cleaning up data, making data more usable by more people, mapping out processes which, at the time, I'm sure many people thought that why are we spending as much time internally doing that? Well, one, it creates a safer environment to operate from an operational perspective. And lo and behold, when you start to look at AI and introducing it into your work processes, it's a pretty good position to be in that you have your processes map because you should be able to accelerate AI when you want to. I mean those are the top. And then on the margin, you're always looking at how can we improve, where can we do it organic growth. We need tech for that. But I think those are the main. We're always looking at it to be competitive and being aware of what is out there, but you have to do it within a cost-conscious framework. I always like to say, whatever your tech budget is, people will, without question, come back and say, well, that's not enough money for me to achieve what I want to achieve and like everything else kind of like, you have a budget, you have to operate, you need to think about it that way. So that was left this off, which is probably #3. Candidly, is thinking about things on a platform basis. So thinking about horizontals that we're operating on. It's very easy to become very siloed in your businesses and have tactical responses to demands that are being driven by the marketplace or just general improvements that you want to make or capabilities. The real goal is to have these platforms, and I'm just using 80/20, but it has -- the 80% of the commonality in what you need to do in a platform and the customization that needs to be done for a different client group, customer group or something that risk may need or operations may need, but have that be the 20% differentiated and in theory, and I believe in actual alley, where we're speaking from the markets business where we did a bunch of that, you get more for your dollar out of tech. So if I would take a step back for a second and raise 2 minutes and go back in, I would put the platform component as up there in the top 3.

So I mean talking about the transversal aspect of our tech strategy and you discuss all the pillars of it. AI is probably one of them. We were as a firm early adopters -- what -- where do you see the strongest outcome? And how -- what are the use cases you're exploring next?

Sure. We talk a lot about in other [indiscernible] and Erica for consumers and thinking more of small language model than large the way we think about it today. But when you really look at it, it was a way of self-serve for customers. So you have a question, you have a problem. You don't necessarily need to speak with someone. And so when we reflect further on that, there are broader applications. I can share a couple of examples. But when we look at AI in general, I think one of the biggest risks to implementation of AI is people being fearful of it and thinking that's going to replace them. And so you're going to us -- I shouldn't say that us -- and that's not unique to AI. It's apparent every time we try to use new technology, someone is always going to be resistant. But at the same time, when we had -- I think it's -- we have it out to like 200,000 people now, which is with the exact number, we have 90% or 95% of the people that we have working together, there's more familiarity with it, right? And so what's the benefit there? People get to use the technology, see it, understand it, hopefully be more comfortable, too, then it's about general productivity. And how is it improving their life at work and how is it improving workflows and so on and so forth. Second place where AI and third parties we're looking at a variety of providers out there to do to do different things for us where we think that there can be -- there's a place for AI, increased automation, so on and so forth. A lot of the standard things that you hear about out there. I wouldn't say from that perspective, it's anything truly unique. The last place is looking at things that are more complex and custom and unique to us and then working with internal and external to see if there are solutions that we can accelerate it. We were just talking this morning, there are a lot of questions around this particular question. I was asked more on how much longer it wasn't addressed to me. It was addressed Michael Hartnett, but how much longer or how long can the CapEx cycle go on for some of the larger companies that are spending large numbers of money. And the question was really getting at -- are we going to see returns quickly enough. I think that the most measurable place that most companies have articulated is around the tech organization itself, coding, and the advancements that are happening there and the numbers that are being thrown around are between 15% and 20% early on, people throw out like 40% to 50% numbers. I think most industries have jelled around more of a 15% to 20%. We see those numbers in terms of our productivity from the 19,000 or 20,000 people we have coding. So that's clearly identifiable and then as we've applied Erica and Erica like capabilities to more self-serve internally, we are seeing improvement. So historically, this kind of self-help was only external, now that it's internal, we're seeing considerable reduction in help desk calls for things that are pretty basic. I know that doesn't sound revolutionary, but that's where you're going to start to see or where we have already seen those benefits starting to come through the system. And then we have other places just in other products that we're offering out to people, we talked about payments, we have cash pro which is more of a commercial and corporate offering for treasurers to use. And there's an Erica that's part of that discussion now where people can kind of self-help and self-direct and operate more smoothly. So we think we're going to end up seeing the true results of this and the normal KPIs that we look at. I also think that probably in a few years' time, there's going to be a lot less talk about AI as a separate and differentiated and it's just going to be part of a broader discussion on technology and how are you thinking about tech. But we are seeing it already in the areas that I mentioned, and I think that, that's going to continue to accelerate. I let off consuming a lot of information and data and being able to parse through it in some horizon, that's still and doesn't really require a lot of discussion kind of.

Fair enough. One last for me and maybe we'll have time for one question in the room. We constantly generate excess capital and have historically returned a lot to shareholders. How do you think about deploying excess capital? And obviously, waiting investing versus turning to shareholders?

Sure. It's constant and ongoing. I wouldn't say that there's an easy answer, but I think we have some principles that we operate by. First and foremost, we have to remain financially strong because if you're not financially strong, then you can't be there for people. So that's clearly a top priority for us thinking about strengthen the balance sheet and liquidity and capital. So it goes without saying, but I'm saying it that, that is the top priority supporting the broader economy. I mean banks are -- we're a large financial services company, obviously, but banking is a large part of it. And supporting the broader economy is important. And then you get into a couple of the points I brought up earlier, which are what do we need to do for investment to improve the business that we're doing with people, I guess, for thinking about growth, not in any particular order, but these are top 5, but I would say financial strength would remain number one. The others are all important and potentially equally important, thinking about what do we need to invest to grow. And fifth, being the obvious dividends and share repurchases. So thinking about that framework and then saying, well, how do we make the decision to go to return versus invest in the business, we want it to be marginally accretive on these targets that we have of 16% to 18%. So from that perspective, I don't think it's surprising or complicated, but that's kind of the framework of our logic. And I think we've constrained the ability to do both increased dividends and continued share buybacks and growth.

[indiscernible], as always. Thank you for your time. We have 4 minutes left. Maybe we can take a couple of questions from the room, if any? I think you've covered a lot. Thank you, Jim.

Thank you.

Thanks for your time.