Okay. Hello again, everybody. Ken Usdin from Autonomous Research, a 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. Under his leadership, Bank of America 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.
Sure
Get through the session. Brian, thanks very much for joining us today.
Ken, it's great to be here. I learned that Ken worked for me a long time ago.
Sure
Didn't realize that till this morning. He's gone on to bigger and better things.
Fun times, fond memories. Before we start, just want to make sure everyone knows you can submit questions through the Pigeonhole Live app. As we get into it, we're going to start with big picture. Brian, there's a lot of news and noise this year, five 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?
I think overall, our team, our research team, and obviously Bernstein and their research team, but everybody, last year this time after Liberation Day, knocked down their growth for this year a lot. One point took off the top. They were mid-2s, and they knocked it down. As we came through the year, they pushed it back up, and we are 2.8 at the high point. They've knocked it back down to 2.2. This is U.S. That just reflects the drag on the economy from oil and other things. 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.
Each year, consumers will move about four and a half to $5 trillion from their Bank of America checking accounts out into the economy. That's moving at 5% for this month so far, the first 20 days over last year. In April, moved likewise. In the first quarter, moved likewise, which is consistent with a strong underlying economy. People say, "Well, what's happening to gas spending?" Gas spending is up. The other spending is up. What's happened with travel? 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. Restaurants are up, and so people are spending money, and that's because, frankly, they're employed. 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.
For us, a prime lender, the loan-to-value in our portfolios, 50% on the mortgage loans and home equity loans, and combined loan-to-values in similar numbers. The consumer's in pretty good shape because they're employed, and all these wonderful companies out here 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 questions there, but it hasn't impacted their day-to-day activity yet. The question really is a tension of if this goes on, does it ultimately call them not 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, their investment rates because the four or five big policies were seeming to come together. Trade tariffs, tax, immigration, deregulation were all coming together, and deregulation was coming, be more beneficial in 2026 because a lot of the administration was taking their time. That was sort of the thing, and then all of a sudden, the Middle East war starts, and that sends it all into question, the Supreme Court. 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? They're a little bit, but still, they're borrowing a little more on the lines. Their employment levels, you can see the small business employment levels, pay rolls are going up a little bit. It's all pretty good. 2.2% GDP growth rate projected for this year is actually, if you go back and look across the last 15, 20 years, reasonably strong. Now inflation's higher. Rates will stay higher, and you guys talk all about that. I'm sure your colleagues are talking about it. Overall, we're seeing a net growth that's fairly decent, and everything we see in the customer bases that are harder to see than the capital markets and share prices is very strong.
Yeah. Does this uncertainty or hesitation just become part of the new normal?
Yeah.
Right? We've been dealing with this for a while.
Yeah
Going back a year and a half or so. Do you sense any, there's the spending differences you mentioned, and wanting to be grounded, but is this kind of just the new normal that the customer base just has to deal with and go through?
The customer lives their life and does their things. If the real impact on, if you look across the 30 years of this data, is when unemployment starts moving. If you watch new claims or something like that, and they start moving.
Yep
Against you, but they're very low, 200,000, they haven't moved much. Continuing claims, 1.7 or something, haven't moved much. Again, if you go back and compare them, everybody says, "Well, that's pre-COVID," but pre-COVID, the workforce was actually smaller population, so there's been growth since then. 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 now because the market keeps going up, so they're effective in there. 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 quit rates are down, the turnover rates. We had the great resignation two 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. Even with these layoffs, you're seeing that being absorbed into the economy. Employment levels are not, unemployment level's not moving. As long as that's true, I think the consumer hangs in there. As long as the consumer hangs in there with the power of that engine, America stays in pretty good shape. Now, those affordability questions are much different by cohorts. Our institute publishes low, medium, high income, and how it affects. This is an aggregate statement, not that there's affordability issues for $100,000 and under households that are difficult, and gas prices affect them more. I'm trying to stay away from it.
This is more of an aggregate question than a specific question.
Yeah. Okay. Got it. 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.
Yeah
Whether it's peers, regionals, fintechs, et cetera. 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?
It depends on, the businesses are different. The eight lines of business do slightly different things and where they attack, their competitors are different. We monitor all the competitors. We monitor the disruptors, so to speak. You have today's parlance, disruptors, fintech and other parlance, e-companies and stuff like. We've been monitoring 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. In the commercial business, it's 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 industry, because that's a big driver of profit.
If you sort out the thing we have to maintain our competitiveness and drive is really around the core transaction account, the core activity account, whether that's a business, a person, affluent or not so whatever it is, in the end of the day, we want to be in the middle of the household and then add to the product set. That's what we really focus on. We really watch the payment systems, and you can see us constantly gaining shares. Five years ago, it was like Venmo's going to eat your lunch, and now our Zelle payments exceed Venmo's payments. It's just a matter of applying the technology to drive it.
As you look forward, the idea of applying tech, it's 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, and we can talk more detail about that. 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. Then frankly, knitting them together. 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 Banking & Investing, using techniques to ride the continuum from birth to death, from small business to large business.
Secondly, find the potential customers where they are, because without population growth at the rates, we have to go find them and take them in. We work a lot on what we call the seams and how we work between each other to make it happen.
Yeah. We got a lot of that detail last year when you did the first Investor Day that the company's done in a while. 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?
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. The key is the eight 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. We keep adding that. It's going very well in the sense that we're able to elevate those two co-presidents, and they can help drive some of the initiatives across the franchise, while we preserve that the eight lines of business heads run those businesses and drive them together. They're there 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 us, but everybody has to have a strong opinion of us in order for us to continue to gain market share on consumer side and in wealth management side, and small business side and business banking. Large corporate's a little different attack in terms of the brand and how you do that. They're doing that, and they've been great. Don't discount that the people who drive this company are the 200,000 people and three of us at the top sort of make sure it all works, but they do all the hard work.
Yeah. Thinking about Bank of America's performance and relative performance versus peers, BofA's uniquely positioned, certainly on the revenue side for the next couple of years to deliver both NI growth and NIM expansion. You got the tailwinds that we all know about fixed-rate repricing, and you've got the balance sheet mix changing. 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. If you think about from the net interest income side, we raised our estimates from 5%-7% to 6%-8%. That's driven by our view of the core growth in deposits. Frankly, we're at this time in the industry where you have to be careful about nominal deposit growth versus core deposit growth.
Got it.
People are using for funding, that's all fine. It's just that we don't need the funding. That core deposit growth, along with good loan growth and good credit quality, produces that NI lift, and the repricing adds a kick to it. If the economy goes in the tank, that's different. As long as the economy keeps rolling along, that happens because we grow faster than the economy on loans and deposits. That's a big, it's more than half our revenue, and that locks it in, and the repricing adds a little fuel to the fire. Margin from 200 basis points of NIM percentage up to 230 over time. That is pretty predictable, and the team's done a great job.
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 the attrition down.
Yep.
We took the fee structure and really managed it carefully, no overdraft fee accounts, 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. The core service, that's good. If you look at the commercial side, the GTS fees grow nicely in the mid to upper single digits. That's good. The question then is the three fee sets that really are going to depend on the market environment, the wealth management fees, the investment banking revenue, and sales and trading. Right now, those are all very strong.
Well, 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 for in perpetuity would be a nice thing to talk about. 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. They're walking up the ladder. We feel good about that. As you look forward, it's really common purpose, been at it a long time. The growth rates are there, and now with a balance sheet turnover and becoming more core, the efficiency of the returns go up too, 1% on assets, 6% common equity, 16% return to TCE. That's what we did in the first quarter. We said 16%-18%.
We hit it a year early, so you expect us to keep making progress there too. That's the general set. We can get into specifics, but that's a general setup, is that loans grow, deposits grow, drives that. Credit quality is strong, doesn't take it away. On the fee side, we've experienced good growth. We expect to do that, but the reality is that'll settle into a more normalized growth rate. After 16, 17 quarters of core sales and trading growth rate year-over-year, it's been in different environments in that scene, and that's where Jim, and now Dennis, and Soof have done a great job to build that up, and likewise, investment banking. We're holding our market share, growing a little bit here and there, but it'll ebb and flow with the markets, but generally, it's at a new baseline.
Got it. Coming back to responsible 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?
Yes, and yes because the dynamic, if you look back two or three 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.
Yep.
Whether it's middle market or business banking, the line of credit usage is still not recovered, and you're seeing that eke back up, and each point of that's a lot of outstanding. If that goes from the mid, say mid 30s to the 40% type of numbers.
Yep
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. That's what we feel good about. What I felt good about in the last quarter is if you looked, the quarterly progression in markets lending, of which markets lending is very different pieces in there, has slowed, but the rest of the businesses in the commercial side have caught up. In the consumer side, basically the credit card, if they've 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 that's.
Yep
We don't have to go over the dynamics of that. If you look at the home equity side, we're starting to see a little bit of pickup. Ultimately, those balances were $30 billion down to $20 billion after the pandemic, and should go back through $30 and beyond, given everything that's going on, yet the American consumer has not decided to tap that. Ultimately, if they stay in the house longer to do repairs and things like that. We think that grows, but mortgage loans are just going to run to stay in place until there's a more favorable environment.
Yeah.
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 the businesses driving as opposed to just markets.
Yeah. At the Investor Day, you talked about the card strategy, and talked about the competitive dynamics there and how you expect the card business to just evolve over time from where it's been historically?
Yeah, we've been in the card business a long time. We made a conscious decision along three dimensions. One, to be really focused on prime card lending. Second, to focus on the Bank of America card base. 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 add a lot of value, honestly, in the credit losses, and some of them were pretty substantial. We've narrowed the business. 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 mass affluent America.
We've now broadened it out that all checking customers have access to reward programs. The card has a rewards program, but it's one rewards program. With the affinities 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 the deposit base stickiness. 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. Because we haven't had a serious consumer credit issue since 2007.
Yep.
It's very volatile and so we're playing it to make sure that it doesn't create issues for us, while at the same time penetrate the customer base and drive it, use the rewards to do it. 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%. If you just say grow balances, you can forget that you got to get profitability.
Right.
With a third of the balances paying off every month, they're not paying you 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.
Yep. The deposit side of the business, for the industry, is getting a lot of attention. You have one of the largest and lowest cost of deposit franchises around. 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 adapting over time and evolving to both continue to grow.
Right
Also protect that core funding base?
I think the principles of which money could move to higher rate products are not new.
Right
The devices are changing and they always change, and they've changed over time. We always have to be mindful of that dynamic. When you back up from that, we have $2 trillion in deposits and $1 trillion and 1 in loans, just to make it simple. The $2 trillion deposits are very core. That's where our advantage comes, our 150 basis points to 40 basis points cost of deposits is not because we're cheap on deposits, it's because a dominant part of them are zero-interest or low-interest checking in the consumer space, and then even the commercial space, non-interest-bearing, and in wealth too. That creates that value.
Yep.
That's because we have the core transaction account. That goes back to my earlier statement.
Right.
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 your 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. 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 this stuff, so people move within it, so they can find rate if they want, if it's excess cash.
You have to say, why do 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. I think their 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 a balance sheet. There's no advantage in holding it, but we want to control that cash decision, so we have very fast terms.
Right.
If other ways come up to do it, we will facilitate those ways too.
Yep.
It would be bringing down the growth rate of deposits because I don't think they'd 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 maybe, but we'd still control the cash and make money on it somehow.
Yeah. Right.
We have fee side and everything else. It's a complex thing, but 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 in and moving every 10 minutes, until they bust it once and all hell breaks loose, that'll be the interesting question. 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, it gets very expensive very fast. What did I save? What did I get? The fine-tuning, that's going to be interesting tension in all this, we'll see it play out.
We'll be competitive and we'll have all the techniques everybody else has. We have them today, we'll have them tomorrow.
Yep.
Yeah.
Let's touch on some of those fee-generating businesses you mentioned earlier. Wealth management's been a long time big strategy driver for Bank of America. You talked about this at the Investor Day. What are the key drivers that are going to drive growth in the wealth business of X markets? We'll keep that aside as a nice tailwind today, but in terms of organic and gaining market share, et cetera.
If you look at the drivers in that business, it's more clients, more the clients. To get more clients, you have to have either more clients per advisor or more advisors in both. You have to decide whether they're internally generated advisor or external hires. Over the years, the external hires have gotten so expensive, that we 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 advisor attrition is bumping along all-time lows. That number just keeps coming down. By the way, it was all-time lows two years ago, and it just keeps bouncing down, and so that's good news.
To get net flows, you have to have current customers add balance 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's doing pretty well in that. To do that, you've got to then add advisors net and add clients net. They're adding the clients net. They got through the continuum we have from Merrill Edge all the way through the private bank. We got, I don't know, $90 billion in net flows last year, something like that. It's just pushing that a little bit higher. The big change for the Merrill teammates is the hiring, and they've started recruiting in advisors to come join this wonderful platform. That helps on the asset management side.
The real other thing that's going on, and every year we make another step of progress, is $280 billion of deposits in that business.
Yep.
It's one of the largest banks in the country in the wealth management business.
Just if you start to noodle on that question. They have gone to the rate they pay, rate they do it, they have a big core checking business, that's been picking up. Frankly, the best success they've had over the last few years has been on the loan side, there's two parts to that. One is you have sort of the very high-end, very structured loan to wealthy people for art and for other planes and other types of things. Secondly, the securities-based lending has picked up as the market's been strong. The loan growth's been very strong in that business. You put that all together, the improvement they laid out was to go to higher net asset flows. That's from basically driving advisor count up, we can make advisors more efficient, too.
It's really from driving advisor that comes from being a little more aggressive on the recruiting side. We manufacture advisors through training programs and stuff. We said let's go out and do that. The economics you got to be careful of. On the other hand, we believe we can bring somebody in, even at 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.
Yeah. Another business where you've expanded and taken share has been in the markets business or the trading related business. Some of that's been through allocating more balance sheet to it. 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 continuing that stable base that you've talked about for a long time?
Yeah. I think if you look at the markets business, let's say it was a $600 billion-$700 billion balance sheet at peak three or four years ago, now it's a $1 trillion balance sheet at peak. The balance sheet's increased to support the business, the capital allocated to it is circa $50 billion now. It's getting a good return on that. The challenge for us, always, if you think about the tightness of our franchise, the ROA and a TCE equivalent.
Right
it's the one that earns it less. Dennis and Suf have to solve that equation all the time. They've grown nicely, taken market share, done a great job, and we've given a lot more resources. The constraint is you got to be able to put it to work. 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 a ROA basis. From an equity at risk basis, it's a huge return. This is where you get into the arbitrage between regulatory accounting and RWA and actual tangible common equity and stuff. 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 great clients in here with knowledge, research about all the different things. This is not an easy business with the technology demands, $700, $800, $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, or else it becomes extremely difficult, and the bespokeness has to be managed down. The team's done a good job at cleaner, simpler, better, as Jimmy called it, and taken a breakeven point down $1 billion a quarter over the last decade, probably.
Right.
That then puts up to made $2 billion in the first quarter. 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 as we're moving up in a 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.
Right.
I don't know if that makes sense to you, but that's one of the challenges with it.
Got it.
They have lots more resources doing it. They do a great job running it. 16 straight quarters of year-over-year, nobody's come close to that, and I think they probably will do 17.
Yeah.
Yeah.
The last one, just in terms of higher ROE business, has been the investment banking, which has been also gaining market share over the last couple of years. You've 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? 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?
Let's go to the last part first. People are just plowing through. To your point a little bit, they've adjusted 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've got to figure it out. Scale will help do that. 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's a little more constructive, et cetera. The pipelines are full, and the activity is high.
Think last year, it could start and stop on a moment, 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. It's a fairly constructive place there. The pipelines are strong and et cetera. If 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. That's two pieces.
That's smaller companies, still covered in the industry world, but also general middle market companies of which we have dominant market share around the country. Right after COVID, when we end up with excess capacity because the world kind of stopped, they were saying, "Well, we got too many investment bankers. What are they going to do?" I said, "Well, let's build that faster." 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 adding, because there's capacity to add a lot more people doing that in all the markets. They're out in the markets, out in 17, 20 cities, working with Wendy's team, going to call middle market clients.
We're seeing the market share of our middle market clients where a lender is strong, but there's a lot where we're not a lender, and there's a lot of other clients, and those two elements we're really after. I think that's good. Yeah, the rest of the business, which is a classic industry-driven global business with regional overlays, Matthew and team have done very well. Asia's been pretty strong, and in Europe on the M&As, we've picked up some there. America's always strong. I think that's more standard fare. 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.
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. It's probably about 30% of the revenue now in that business. It's contributing, and it can keep growing because 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. Yeah.
Okay. One of the things we talked about also at Investor Day and the last earning 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.
Yeah.
At a high level, what does good operating discipline look like to you in terms of balancing reinvestment versus driving efficiency and bottom line performance?
Historically, we had to remove a lot of costs because we got rid of businesses. We had a lot built up after the financial crisis, et cetera. That came down, and we got down to a pretty low level. We had inflation and costs and things. All the time you're making investments. As we think about it, our investments are really headcount growth, which is in the relationship business. Going from 500 to 600 private bank, lead private bankers going from 700 to 800. The middle market commercial bankers going from 1,000 to 2,000 business bankers, which is $50 million and under revenue. It's just how do we keep adding that? That we have to do it. How do we fund that in the grand scheme of things is by becoming more efficient in operational excellence and stuff like that.
That technique, if you looked at yesterday, we showed you this massive downdraft and expense in headcount, but what we showed you is from, say, 2019 forward, what happened is we've added heads and still taken out heads, and the net's been up a little bit. We're running about 210,000 people today, 210-211. That's down, but that's a constant reinvestment in retraining, re-skilling people, even within operations groups go from X to Y as we automate and do work. It's a matter of doing it. The major change we wanted people to see is we gave you a nominal reduction expenses because we couldn't get people's attention that we're actually coming down, we could never get off that point. Now we're focused on operating leverage. Last quarter, we said at the Investor Day, we said 2-300.
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. We got to keep it relative to revenue growth in sync, and then that produces the profit margin. If we think in a steady state economy growing a couple percent, revenue growth in the mid-single digits, expense growth in the low single digits. None of this is true because the market's and everything going crazy now, but if in a more standardized environment, that produces 8%-10% operating profit growth. Then with the share reductions and stuff, 10%-12% EPS growth. 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 it comes through. We watch that underneath every day, and that's just a constant re-engineering of the platform, using all kinds of technology, including AI.
Yeah. Talk about how AI will now influence this too. For years, you guys have 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 onto just normal digitalization? 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. Our job is to manage the implementation of this and also manage our hiring and our attrition rates, to make this all work and then retrain people inside the company. 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 + people a month, yet we ended up relatively neutral headcount. That's by thinking this through. The job of management is to make this work. Now, how is it going to affect us? It's really all over the place. There's very concrete, Erica's 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. It's just the piece, it's huge. The piece, the 1% left is a lot of transactions. As you move that, you can do it. 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? What you do is you atomize the activity, and more and more activity takes place, and you got to be able to scale that without cost. 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. You get onto that side. We've automated the underwriting for years, on a consumer side. There's nothing new here. I mean, this is 30 years of doing automated underwriting. It's not a new concept. There's very little incremental benefit on consumer decision of Brian Moynihan gets a loan or doesn't. There's huge lift on the preparation of credit offer memorandums for commercial clients because that's a write-up that goes on. That's a huge amount of work that we can then reduced by having them pulled together, prepared, and looked at, human in the loop, making sure they're okay, people with experience making sure it's not giving you an answer that doesn't make sense. 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 a decision in a 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 re-inputted just because of the way the systems are configured outside our company, not only inside our company. It has applicability across every platform. We're a big Salesforce user. Agentforce is out. We're up to 4,000 or 5,000 people using it. That's growing thousands each month as we deploy it to 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 advisor, whether private banker or wealth manager, can be more prepared.
They can take on more client activity, less getting ready for that client activity. Those are where we see it have a growth aspect that's pretty strong. Our legal department uses it now, and they can insource more legal work with the same number of people and generate a benefit on that. 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 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 to 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 in whether it's fully agent or deterministic. That's going to be the interesting question, will you let it run versus it's preparing information to let a human being make a decision faster, better? That's going to be tricky, because if it goes haywire, it can go haywire, and we've seen that happen in the early days of Erica. We had to constrain Erica because of that. 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.
It's got to have value. We test every project. We have 22 colleagues led by Jeff Mosconi working on this. We went up to 3,000+ people, said, "Give us your ideas." We're trying to make this everybody's work in our company. We'll see it play out. It's going to have a big impact. Our job is to make that impact work for our teammates.
Yeah.
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.
Yeah. Understood.
Talking about credit, you touched on it when we started, just talking about the consumer being very stable. Outside of gas prices and the impact on spending and maybe substitution, just what are other important signals you're looking for any potential changes in the consumer outlook and consumer losses?
Yeah, near-term, you obviously look at near-term delinquencies, all the stuff which are in good shape and improving, et cetera. That's not the problem. Really, you have to look at employment.
Yeah.
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, at the end of the day, if a person's employed, they're going to pay their debt. The question is employment, and then the other life things, death, divorce, sickness, other things can impact it. Right now, the employment level is strong. We watch that like a hawk, not only current new claims, things like that, 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 I think we're reserved at implied levels that are much higher on employment and things like that. That's the simple answer. If people are employed, they're going to pay on the consumer side because they don't want to lose their access to credit.
Right.
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.
Yeah. 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.
Yep
Let's go to the competitive question. The question was really, what was the offer that was happening that we got concerned about in middle market client? That's why we announced the $25 billion pool. When people said, "Really? This stuff's being talked about." You announced ours because we know how to do good credit. The reality was that someone was doing a, say, a billion-dollar buyout with a sponsor or an entrepreneur-owned business recapping or something, and somebody come in and offer to supply everything. We'd 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 five banks, and you'll have to work through that." The person comes in and said, "I'll do all $500 million." By the way, you'll pay more for it. People are taking the deal.
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 you put the pool together. That's the question now is, can we win consistently for middle market companies going through that kind of change? The average middle market lines of credit and stuff are very different than this. It's when they're going through sort of a cathartic capital change that the competition comes in. Can we hold our position there? That's going to require us to come at 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. That's why we built the fund.
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 much.
On capital, the recent rules were proposed for the Basel III endgame and the GSIB 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 GSIB recalculation start, for lack of better term. It was meant to start in 2012. The data was meant to be updated. That's still something we feel strongly about. There's a lot of ins and outs, but I'm not sure they'll change a lot. I think the key is to get a set of rules and make sure they stick to the ribs going forward, because under the old set of rules, suddenly we had 20% more capital with no more risk.
Right.
It was just all this manipulation. Mike 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. At some point, we've got to get something done and call it a day. Yes, we'd like to make sure that GSIB 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.
Yeah.
We're making our points, and we'll see what comes out.
Yeah. Along the way, Bank of America still has a meaningful excess capital position. You've been dividend strong, big buyback in the first quarter. How do you balance dividends, buybacks, organic growth as you look forward to that 16%-18% ROTCE target you put out for the medium term?
We think about us running ±6% tangible common equity. As we get down to that level, if you have a dollar of earnings, pay the dividend, what business growth you have, the rest goes back into the shareholder base. The interesting question is because we had 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. You should expect from the earnings we make in the first quarter, $8 billion+, all of it goes back into the shareholders because we have excess capital support, the business growth we need.
Going back to the earlier point about markets, you've always got to be fine-tuning the returns dynamics between the businesses.
Right. Got it. Okay, before we close, any updates that you want to provide in terms of the near-term outlook that we should all be considering?
I think if you look at us for this quarter, just to give you sort of an update, I'd say the NII, we told you what would happen the next day and stuff. We feel good about that. We moved the range of five to seven for the year up to six to eight. We feel good about that. You should expect this quarter, be good and solid on that. On investment banking and trading, we're doing, I think, trading, think like a 15% increase year-over-year. Got to be careful. Year-over-year, 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. We feel good about that.
The one thing I'm cautious is because the growth's coming from wealth management, 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. 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. We feel good about the quarter. I think the NII at the top end of our growth range for the year, I don't see any issue in that. Think Seventeenth quarter of sales and trading up 15% ±, t here's investment banking up strong, and then the wealth management up in the low teens.
Just make sure 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, and thank you.
Thank you.