I'm Jason Goldberg, and I cover the U.S. large-cap bank stocks here at Barclays. Thank you for attending our 24th Annual Global Financial Services Conference. The feedback so far has been it's a very productive morning, and we look forward to continuing on with another two days-- Or an afternoon--Another two days of insightful presentations. A word of warning: in addition to prepping for this conference and watching football this weekend, I did help my youngest child study for this Saturday's ACT.
Fortunately, today's keynote lunch speaker hardly requires an introduction, but an attempt to describe Brian Moynihan without suitably expansive vocabulary would seem almost impertinent. Since becoming CEO in 2010, Brian has overseen the remarkable stabilization, transformation, and de-risking of Bank of America while adhering to the bank's now-famous mantra of responsible growth. Under his stewardship, Bank of America has generated formidable earnings power, fortified its balance sheet, and expanded capabilities.
Brian is known throughout the industry for his disciplined leadership, intellectual rigor, and what many would describe as a perspicacious understanding of the economy and financial markets. He's also, as countless investors have discovered, fond of introducing arcane vocabulary into earnings calls, leaving even the most erudite observers wondering whether a particular location was meticulously chosen or simply a product of especially sesquipedalian morning.
Fortunately, today's discussion should provide less anecdotal obscureness than some of the earnings transcripts, and I trust none of us will also develop the fantods while attempting to parse his remarks. Indeed, should an unfamiliar word emerge, we can take comfort in knowing it was almost certainly employed with the intention rather than obfuscation. Please join in welcoming the Chairman and CEO of Bank of America, Brian Moynihan.
Thank you. Well, I hope your kid does well in the ACTs.
Me too.
Those colleges are really expensive.
We were thinking.
It's not like you can't afford it. Actually, we were talking earlier, today or tomorrow, is the sort of anniversary of a momentous weekend 17 years ago, and Jason and I were talking about how I closed the conference that year before the weekend that we never want to repeat. It's good that you're still here doing what you're doing.
Very good.
Yes.
Favorite college?
Yeah.
Brian, maybe the best place to start is you've described the U.S. economy as proving more durable than many expected, supported by strong consumer spending and AI-driven investment. Where are you seeing that durability most clearly in your customer data, and where are you watching most carefully for potential cracks?
In the end, one of the things we obviously watch is what our consumers do along all dimensions: how they spend money, what their paychecks look like coming in, how they're using the lines of credit or how their credit posture is. Then that goes in the small and medium-sized businesses second, because at the end of the day, that's the lion's share of the U.S. economy is represented. If you look at the consumers in the month of August, they were up 4% of spending into the economy versus last August.
Yes, gas drove part of that, gas prices drove part of that, but the reality is that there was more spending on cruise bookings, more spending on restaurants, both quick-serve at a lower gross rate but regular full-serve restaurants at a higher gross rate. The consumer spending on a broad basis, out-of-home entertainment has been big. The movies have come back because it had some good movies. The consumer spending money, and if you look at their paychecks, you can see the paycheck and you can see the wage growth is 3%+ to 4%. We can see that in their paychecks.
Then we look at their credit. The credit quality is as good as it has been in a long, long time. I mean, so we are normalizing or normalized to levels that are equivalent to where pre-pandemic, where everybody said things were growing, you are saying what is only getting back to that. That was like a 40-year low, so we feel good about that. On the small and medium-sized, the good news is they are using the lines of credit a little bit more.
They think about all the issues that you read about in the paper every day, but the good news is credit quality is good in the commercial book, that the small and medium-sized loan growth is solid. They are using their lines, not all the way back to where they used them, but they are using their lines, which is good news. They seem to have a stable employee base and that ends up in the broader economy as unemployment. So we feel very good about the underlying U.S. economy. Our team, like your team, has mid-twos growth for the year and a federal raise rate, but it will not knock the economy off its movement.
I guess, anything, areas of concern you are watching for potential cracks on your radar?
We always watch to make sure that we watch the new case for unemployment levels. We watch any delinquency movement. We watch any sort of stress in the consumer payment cycle where they seem to be storing money. The good news is the American consumer continues to spend. There is affordability in their mind, and so you can see that year-over-year, even September so far, spending on gas is up 15%-20% on the credit and debit card charges. That is about 5% or 6% of the total, so it does not change the overall picture.
Credit and debit cards are 25% of the overall movement of money I am describing, so it is impactful. That causes them, if you look, we just published a report today where you can see at the pump versus inside the store, at convenience stores, what is going on. It seems like the consumer still spends money. On their mind is affordability. That will be the issue to reconcile as will wage growth catch up and will there be real wage growth?
Got it. Maybe before we get into a more strategic discussion, perhaps you could give us some thoughts on the quarter, particularly the ever-changing capital markets environment.
Yeah. I think if you look at just starting with the capital markets, as you said, Jason, because that's the one that's interesting. Last year's second quarter was Liberation Day. This year's second quarter were increases that were very strong in both investment banking and in sales and trading revenue. If you look this quarter, what we're seeing is the market generally in investment banking is down 10% or so in Dealogic fees type of things. We're not as well positioned in some of the businesses that have more activity, so we'll be down probably a bit more than that.
I'd say $1.6 billion- $1.8 billion in fees will be kind of the number. Sales and trading, it'll be one of the better third quarters we've ever had, but it'll be relatively flat to last year, because last year was a big recovery from the second quarter. That's being driven by a lot of the financing activity, frankly, slowing down from the second quarter because you had, especially in international businesses in Asia, you had a lot of high brokerage lift that's mitigated a bit as people pulled the risk back as a provider of credit. So you're seeing that happen.
So investment banking $1.6 billion, $1.8 billion, sales and trading flat, investment management AUM fees up 10%-15%, which is good news. Then you back in the loans and deposits, everything has happened like we thought it would. Loans in the commercial side grow in mid-double, single digits. Consumer side, low to mid, and that ends up with good loan growth. Deposits are growing. We aren't reaching for CDs and high-end cost deposits. We've got $2 trillion deposits, $2 trillion to loans, but the deposits are good.
NII is doing exactly what you said, not only the dollar amount and the growth rate, but also the NII yield is going up. We feel very good about the rest of the company. Then expenses are bouncing around at the 18.6 level, which makes this quarter tougher operating leverage with a quick downdraft of revenue, but we will get back and get back on the targets we have set for the 200 basis points-300 basis points.
We feel good about that. It is just a matter of getting through this quarter. Over the streaks that we have had on operating leverage, there is always a quarter where the thing moves quickly on you and it takes you a quarter or two to get back underneath it. We feel the underlying economy is good and the business is good. It is kind of this capital markets movement makes you not feel good, but when you actually look at it with the right perspective, it is actually a pretty good quarter.
A lot in there to unpack, which we will do. Maybe we will kind of just run maybe balance sheet first. Maybe start with some of the loan side. You have had fairly strong broad-based loan growth. I think you are up 6% in the second quarter, ninth consecutive quarter of growth. Can you maybe just talk expanded a bit upon both the commercial and consumer lending outlooks, particularly against this backdrop of rising rates as early as Wednesday?
Yeah. Last quarter we had 4% credit card growth, which we have been on the stair step of growing the book, and that is good, and we see that in good shape. The mortgage business is quite quiet, as people might expect. The higher-end customers, not so much for the general mortgage business and the consumer side. Autos are fine, but again, not growing real fast, just kind of moving along at the same pace. When you get the commercial side, that is where the growth has been strong.
The good news is over the last several quarters, it has broadened out from the capital markets area contribution to lending, which we have a lot of lending businesses in there to lend to warehouses for mortgage lending companies, asset accumulation companies, things like that. That is basically the growth rate slowed down.
The rest of the commercial business, the core, middle market, large corporate, and small business banking group has grown. We feel very good about that because that's a broader-based amount. Last quarter, I think it was high single digits, and we expect something similar this quarter. That's good news because that means people are investing in the broad base of American businesses and putting the money to work.
I guess on the deposit front, you've often talked about deposits being a competitive advantage for Bank of America. I know last quarter's results somewhat obscured by seasonal tax-related outflows. Let me just talk through kind of underlying trends and client activity across your various segments as well as maybe you get delayed across kind of the consumer income cohorts.
Sure. If you look at the consumer business, the deposit growth, what we're seeing last quarter and this quarter is continuous, in the non-interest-bearing, both consumer and commercial, and especially in the consumer business, you're seeing it stabilize. You're seeing the number of checking accounts grow. The average balance per checking account went up a few hundred dollars last quarter. Those are all good in this year because we've produced about 160,000-170,000 in net new checking. Over the last five years, we've done 5 million.
The average balance continues to grow, which means we're getting a primary account, and that's the focus in the consumer business. When you go to the commercial side, the cash management revenue has been up high single digits, and that's sometimes expressed in deposit value and sometimes expressed in fee value. That team's done a good job, and we continue to build our international platform out, investing really hundreds of millions of dollars in that platform just to keep it pushing it along. We feel good about that.
If you look at the near-term quarter, everything's performing, as you said. I think you'll see solid deposit growth, but we won't see a lot. We just don't do them CDs in high-end because we're sitting with excess money. If we did a 4% CD, we'd take that cash and basically put it at the Fed at 3.7%, whatever that was. We don't do things and lose money. We don't need it. We put the people in the market, and that's what we do.
The nice thing with Merrill Edge and Merrill and the Private Bank, we can put we have lots of access, so our customers can come at us and say, "I want higher yield," and we just put them in the market. With that being said, we have actually been growing deposits for the last several quarters, which is good.
I guess deposit pricing is something that has received outside attention recently. Given Bank of America already offers a superior set of products and services, have you ever considered paying higher deposit rates as a way to accelerate market share gains? Just looking further ahead, there is a growing discussion on stablecoins, automated [Free] technologies, other innovations that can maybe reshape how people think about deposits and manage liquidity. Just how ultimately do you think this deposit landscape plays out?
I think I would separate that dramatically into two different buckets, because for the non-transactional deposit, they are flipped. Our core business is transactional deposits. For commercial customers, for wealthy consumers, and general consumers, that is the business. That is the payments business. That is the number one, the primary household account for a business or small business. So that is what we derive. That all in is $2 trillion deposits, which in the consumer side were, I do not know, 50 basis points all in cost paid on $1 trillion of it, $950 billion, and then on the rest of it is higher and brings up a buck and a half or something like that.
If you think about it in the consumer side, you take that deposit rate paid plus the cost of operating the thing and you get 160 basis points, 180 basis points type of numbers, that is a very advantageous position, and there is no reason. So the idea of bidding for non-transactional deposits, you need to do something with the money.
You need to fund a balance sheet. Our balance sheet is very liquid. We are sitting with almost $1 trillion of liquidity every day. So that just does not make sense. That is heavily taken the market. In the commercial side, we have to pay what the market bears. So when you get in a larger corporate and cash manager, you are paying whatever the market bears. There is not even for the transactional account and the credit rates you give them.
When you look at it, stablecoin is completely different because it is not the question. There is a lot of talk about the interest on stablecoins, and that is the policy debate. But the real question is, would it attack and take non-interest-bearing accounts and give people a vehicle to use them for payments and receive interest on them? That is not the best idea for the banking system because it will shrink the banking system and lending capacity. That is the argument that broad-based 4,000 banks keep making.
Whatever amount it shrinks it by, its lending capacity comes out because the only thing a stablecoin can do is own treasuries or put the money at a bank or the Fed or indirectly with us. If you think about it is not providing good core economy activity. The point is, if you shrink the banking system by $100 billion, $200 billion, $500 billion, $1 trillion, you are basically taking that lending capacity out of the core banking system, which is the lender to small and medium-sized businesses and consumers in certain areas, home equity and things like that, card, not mortgage.
There are more market-based choices. That is the point. The idea of stablecoins, the industry has built multiple products. We have minted our own stablecoins. When the consumer demands, when the customer demands, they will do it. The industry, you have seen some consortiums announce, and it gets linked into tokenized deposits and stablecoins because tokenized what you are really saying is, "Can I move money of size on the weekend?" Right now, with a real-time payment system at the clearinghouse, you can do $10 million 24x 7.
With the Fed, you can do 5x 20-odd dollars. You can move a lot of money with the Fed and other systems around the world. The tokenized deposit may let us close down the need to move amounts of money on the weekend. Then for the consumer side, it is the payment. What you do not want to do is lose that position. We have consumer-side applications we built in the industry. Really, there are two parts of that.
One is just general payments inside of all the different technologies out there, and the second is cross-border. The cross-border piece is something we are all working on to make sure we have ready to go. Zelle has proven a tremendous payment system. Taking that cross-border is not the hardest thing to think about. Connecting with other mechanisms in the industry has been working on that too.
Got it. Maybe we'll stick with the balance sheet before moving on to the income statement. Just moving on capital, broadly speaking, we've seen this overall second quarter results, good year-over-year organic growth, positive operating leverage, efficiency ratio improvement, I think across every business segment. Just when you think about that, how would you characterize that as kind of cyclical improvement versus structural change? What's your level of confidence you can sustain that performance? Just how significant is this AI infrastructure build-out contributing to the overall landscape?
The overall landscape or Bank of America?
Bank of America.
Bank of America, we announced an infrastructure effort to say we deploy more than AI, just across all infrastructure in the six quarters from the start of this year to the July 4th of 2027. We deploy $250 billion. The team's on course to do that. That's broader than AI, but it's a substantial part of AI. We're participating in those transactions where they make sense. Necessarily, the duration of the financing requirements ends up going to the market, a lot of it. So we're more of a facilitator and underwriter, so to speak. It's not driving the outstanding balances as much as it's driving the activity. It will be a major driver.
Our team's estimates, your team's estimates, is a point, is 1/3 of the marginal growth. Lots of different estimates, but it's a big investment cycle that will continue on, and it may go faster or slower depending on the announcements this weekend or not. But at the end of the day, the capacity is going to be built. We feel good about that. We're participating in that. We built that infrastructure fund. We've also put together a team to work more on the ecosystem, make sure we're seeing all the parts and driving that. But in terms of outstanding balance sheet loan growth, it's not that measurable because it's going to the market.
What's driving the balance sheet growth, the good news is for America, is small and medium-sized businesses are using their lines, and we're gaining client share by getting more clients, more logos, as we call them, across the 100 markets we serve in America and outside America, across the 30, 40, 50 markets we do business in. That growth's coming the hard way, one more client getting their lines of credit and their facilities that they're using, and that's where that growth's coming from. It's two different things. I say the AI is helpful in building it, but it's a good backdrop, but it's not going to hit the balance sheet as much as the other activity will.
Got it. Last month, Bank of America announced a strategic investment in an online consumer lender in India. I think to some, that appears somewhat out of character for the company. Just maybe walk us through the rationale behind that investment, and should we expect similar opportunities or partnerships in other non-U.S. markets over time?
Well, if you back up, our basic platform is inside the U.S., we do all eight businesses. Outside the U.S., we do mid-market lending, large corporate lending, treasury services, investment banking, and capital market sales and trading. That's what we do. We're not going to have a retail bank in India in any near term. We're not going to have a small business lender, medium-sized business lender. We partner with Jio, which is a premium company with Reliance and Mukesh Ambani and the Reliance structure and Jio's subsidiaries and various things. They have one insurance. They have one in, obviously, core retail banking. They have one in they have their capabilities in the cell phone industry.
Our job is to help them bring in the expertise in commercial banking and small and medium-sized lending, coupled with their reach, hundreds of millions of customers, coupled with their knowledge of India, and we could do it. It is a sizable country. We are going to 6%. That is what makes it interesting and a partner we have done business with for many years and have great confidence in. I struggle to see how many other countries fit that profile because we have tended to stay in the upper middle market, and we have announced initiatives like in Switzerland and the U.K. and Germany and Canada, we have for years, and Mexico for years.
We have gone deeper in the middle market where we could have the expertise to do the lending, but we did not need the brand structure to extract the value. I think that understanding of how commercial banking works for small and medium-sized businesses, which we are the largest in the United States, stops us from going outside the United States, especially except in an opportunity where you have a great partner, a great reach, a great brand, and they need the expertise. $1.9 billion To help develop that platform, and it looks like it is going to be a great financial investment.
Got it. I guess I also saw that you announced capital deployment plans in further support of the U.S. critical infrastructure build-out with financing Initiative Honoring America's 250th anniversary. What role do you see for other uses within B of A capital strategy going forward in any specific areas of focus?
Well, if you think about we earned $9 billion last quarter, whatever it was, we paid a couple billion dollars out in dividend. That gives us $7 billion. We always want to deploy that to help the businesses serve their clients. If we see loan growth, we put $100 billion more in the capital markets balance sheet at the end of last year and the first part of this year into the second quarter, supporting their growth. We instantaneously will push the capital where it gets the returns.
If there's nothing to do with it, we'll buy back the stock, and we're holding a 10% to common equity ratio just over 6% and the CET1 to 11% and change, which could work down a little bit based on all the rules and theories, but the reality is we're focused on the 10% to common equity ratio also. We have plenty of capital. We'll deploy it. This thing at a joint venture you mentioned is there. When you then get to what we talked about a little bit earlier, the $250 billion, that's really supporting our clients' development of assets related to the infrastructure build-up. This country needs long power, both generation, transmission, new sources, import-export, etc., around AI, data centers, and things like that, of all the different aspects of that.
Around railroads and other things that need to have another level of investment in, if you're going to redomesticate a lot of production activity, manufacturing, other types of activity, you need to move those materials. So in its airports, it's whatever we can do. Some will be on balance sheets, some will be in the capital markets, but that's the capital deployment we announced. In the end of the day, it won't be a lot of capital needed for that because a lot of it will be going to the capital markets ultimately.
Got it. Maybe just ask me how this evolving kind of Basel III endgame finalization insight. You've seen your kind of upwards you said surcharge pressure. Just how do you kind of think about capital in the new regime?
I think the upward pressure is kind of mitigated, which is good. If they index, that's important. When they index from, in the final rule, will be important because are we going to go back to 12% that was in the original statute? Are you going to pick 19%? Are you going to pick 20%? Whatever period of time they do, and they'll announce a rule, and that'll start it. But the concept of indexing is critically important, and then the methodology changes for some of the stuff. But we've been below the add-on for the stress test for a long time, most years. That's not really relevant. We'll drop down a little bit.
But at the end of the day, what we watch and what the rating agencies and other people who actually own the debt and think about companies, you watch the tangible common equity ratio, and at 6%, you are getting to the point where you got to be careful. Can you go a little lower than that now with the amount of no-risk assets we have on the balance sheet? Yeah. But remember, if you go back and think about 2008, tangible common equity ratios of 3% didn't fare well in the first bump of the night.
We have looked heavily over time at what happens to banks that have gotten in trouble, and as part of a risk thought process, we think hard with our board and others about what's the right tangible common equity because at the end of the day, that's what the rating agencies end up. They have their own risk-based methods and stuff, but in the end of the day, they also look at that. So you are trying to manage the dichotomy. And at 6%, we are kind of we are 6.07% or 6.05%, whatever it was last quarter. You are kind of around the range where you got to make sure you maintain it. But you are looking at all that, but we don't really feel any capital pressure to build at all right now. We can return it all if we don't have good use for it.
Got it. Maybe pivoting back to the income statement. You kind of gave an overview of guidance at the onset. You talked about good loan and deposit growth. Net interest income has kind of been running at the upper end at 6%-8%. We should talk to you for the year. Is that still kind of the way to think about it?
Yeah. So if you back up, the net interest income growth, we gave you estimates for the year back on Investor Day, and then that was multiple years, and Alastair showed the charts and stuff. Everything's worked out, and if rates go up a little bit, that will help a little bit even on that. So we feel very good about that, not only in the percentage growth, but importantly, to get the 1%+ return on assets on the 6% tangible common equity basis for the 16%+ ROTCE, you had to make sure that you were also getting the balance sheet tightened back down as it came through. So the net interest yield part of that, I think I am trying to remember.
I thought top of my head, I think it was up 14 basis points second quarter last year, second quarter this year, which doesn't sound a lot, but that's 7% on the basis of 2. It was a big move, and we expect that to keep moving. You are going to have larger dollar volume growing at upper single digit. We said 7%, 8% type of numbers, and then yield growing too. That just keeps rolling in here because of the repricing dynamics of balance sheet, the loan and deposit growth, which we are not assuming levels that we haven't grown at for many years and are growing at now, and then it just keeps compounding in. It's a wonderful thing.
Even the loans from last year's second quarter, this year's second quarter, $20 odd billion, $30 billion of loans, whatever it grew, you capitalize that out of a couple hundred basis points of spread. That's a lot of NI in the future. We are just running this virtuous circle more, but the NII yield's picking up, which then makes showing the balance sheet's getting more efficient as the repricing goes through. It's a multi-year context here.
I guess in advance of today, you talked about a 2.3% medium-term net interest margin. With the Fed hedging Wednesday, 10-year on the 12th, now over 5% today, does that make you feel more comfortable with that projection?
It does because the repricing comes in at a higher rate. The trick is you always have to remember when the rates are higher or lower, what's going on around you to make sure there's loan demand and other things. But it makes us feel better, yes. The NII story has just been sort of relentless. You don't see day, week, month. We see day, week, month, building into the quarters, and it just keeps going up. We feel very good about it because it's coming off that core $2 trillion advantage deposit base now growing.
It was $1.9 trillion, probably $1.8 trillion. It went up to $2.1 trillion, $2.2 trillion, came down, and now it's back over $2 trillion and growing. But within that, we actually have more core deposits than we were back then, and we were pretty tight back then. That NII yield then kicks off of that. You start getting $2 trillion deposit funding advantage and drive that. Then loan growth, at the end of the day, it is coming to commercial business in the areas where the yields are pretty good.
Maybe kind of shifting to fee income. You mentioned investment banking pulled down 10% year-over-year, down more than 10% for the third quarter. Maybe just talk to kind of where in the underperformance you see, and then kind of looking out, what pipelines look at. Is this kind of more of just a seasonal slowdown, and we expect another good 12- 18 months looking out?
Just backing up more philosophically, we have got as many investment bankers as anybody else. They are doing a great job. We focus a lot on the middle market connectivity of those investment bankers and how we go to market in the field. Really, around COVID, we had 60 or 70 people concentrated on the middle market. What happened was we realized we had excess investment banking. If you remember those days, it was pretty quiet.
We basically pushed a lot of them to help us cover in the middle market. We are up to 250 people, and we are growing that. That is about 1/3 of the business in it is all kinds of things. It is not only debt capital markets, some equity capital markets and M&A, but beyond that, it is also rates and currencies, people buying hedges, floors and ceilings, and foreign currency, and all that stuff. It is a great business for us. But as we look at the current pipeline, the current pipeline is very strong. In last year, we did about $2 billion.
This year, we are $1.6 billion, $1.8 billion is what I said earlier. That is a good quarter for us in some ways, but the pipeline is strong, and part of it is just getting the deals through the system. Now, the only question is if rates go up a lot, will that slow down some of the financing demand? Right now, we are seeing it is solid, and the pipelines are staying full, and the deals got to get financed and get done. It just may start to restructure on some of the pricing and stuff like that. But the activity is extremely high. People are trying to get stuff done strategically across the world and also trying to get stuff done.
In the U.S. especially, there's a fair amount of movement from generational aspects of people selling their businesses as the world gets a little bit early and the population's frankly aging in the U.S. There's more people selling businesses just to get out. That's that middle market thing, which is great, or recapping family business to take some money off the table.
Even though you said trading's flat year-over-year, it probably still makes 2026 a record year and a very big number. How do you think about that business looking out in terms of it was kind of flat to down for many years. We've now had four, five, six years of kind of growth.
Yeah. These guys do what they're supposed to do. This is going to be the 17th straight quarter of growth, so we're in a dogfight for it. That's a lot of years. What we started on about a decade ago was getting the infrastructure set and dropping the break-even cost. It's under Tom Montag and Jim and now Soof and Denis. The idea was you had to bring that cost structure down and be more precise and then build out from there. They dropped it by almost $1 billion a quarter. We started making good money, got the returns up. The returns now is the debate.
Are we going to get 14% or 13% or 16% in a quarter, not 8%, 9%? There was a time when people would say, "We're going to get over double digit." That's all good. I feel very good about the business. We're built out in all the trading venues. We continue to add capacity in places where we see opportunity to support the clients in the room here and elsewhere in terms of their investment strategies. We continue to work on the funding structures and things, more structured notes to fund itself and so it can grow.
We've got about a $600 billion balance sheet of about $1 trillion in the last six, seven years in that business, and we'll continue to grow it. Where we see share opportunities that we gain is really in the fixed income area up until the recent past. Now the equities have had strong performance, so we feel good about that. There's 57 regulators touching up business to be in a global business. 57 different regulators.
They are not always consistent in their points of view, and the capital calculations are different. We were in a mandatory meeting this morning. We were talking about the calculations in Europe are slightly different. It is not an easy business to do, and there is only a few of us who can do it to scale. When you have it, the interesting thing is your middle market U.S. space from both research around the world plus execution around the world. If a middle market company has a supply chain and needs to do trade finance and currency conversions, etc., they need to know about what is really going on in Vietnam, Thailand.
You can bring India. We can bring people to them. It is a big competitive advantage, but it takes a little work. It is a lot of systems, about $1 billion of systems development work a year between that and the capital markets area to keep it current, good products, good services, and everything so you can create a new code and do it tomorrow morning with some AI and stuff. It is a lot of data. I want to say 3 billion trades a day we post. We have to submit to the regulators. It is a lot of data, a lot of execution. The team does a good job, and it is a scaled business. We make good money, and we expect it to continue to grow.
You mentioned, I think, wealth management fees up 10%-15% in the quarter. Just how do you think about that in terms of what the market gives you versus Bank of America's advantages and just the alpha there, particularly in light of evolving AI and the like?
Yeah. I think if you step back most broadly from it, what we have uniquely at Bank of America is a continuum from first-time investors from Merrill Edge all the way through the highest, richest families of the world with a Private Bank in Merrill. What we did is build it so it could go womb to tomb, so to speak. It could start with people and work there through their entire lives, and that was the principle. So Merrill Edge is $600-odd billion and it is growing about 10% accounts a year. The average account is 100 and some thousand dollars versus $2,000. These are good core investors. We work at integrating the model in terms of its presentation and the digital space and how we sell it to clients and stuff.
We have 2,000+ people in the financial service centers that can sell it, so it is a good product. Then you build into Merrill and the Private Bank, which are more traditional financial advisory-led businesses. The combination gives us one of the largest trust businesses in the world, and that trust and state execution. We do a ton of art lending and airplane lending and stuff that is unique. We administer a lot of trusts, which means we help administer assets around the world and all kinds of things, oil and gas and stuff like that, which is pretty wild. It is a great business. So the idea was to get Merrill to grow its net new assets better because the Private Bank was fine and Merrill Edge was fine.
The reason why Merrill is just so big, when I say they are up 10%-15%, their revenue line from their brokerage and AUM fees is $5 billion a quarter. So it is 2x-3x the investment banking fee rate near the trading. So you have got to get it to grow, and they are doing a good job, Lindsay and Eric. But we are recruiting again. We stayed out of recruiting.
The deals got crazy and everything, but we are recruiting exactly what we want in the 600 offices we have and the 97 markets we have because our view is we have a competitive advantage because our Merrill teammates working in a market with our consumer teammates, our business banking, which is $0 million-$50 million segment, and our middle market teammates, $50 million to $2 billion, is a unique aspect.
That has worked, and it continues to work, and it continues to give us a way to acquire it. Then the work we do, even with some of these companies going public to gather assets through their entire employee base, not just the C-suite, so to speak. The team has done a good job, but it really comes down to a little more recruiting so the advisor population grows. The productivity we have is second to none. What you saw in the second quarter is you saw, I think, 300 basis points or 400 basis points [G-wins] profit margins that made more.
You are seeing that come back up to the additional $30 billion as the value of the loaners' deposits kick in. It is a bank of size, $280 billion in deposits, to give you a sense. So it is as big as most of the banks that we will be presenting here. It has the same dynamic. So as NI picks up in the franchise, they get a good chunk of it, and the lending side is a very strong lender. But the key is just more advisors and deploying more advisors. Now, AI, we talk more generally about it.
AI is important to this business on the ability to assist an advisor to do even more and more for the clients and potentially handle more client interactions and less sort of day-to-day work for both the financial advisor or the PCA, the private client advisor, and the people that work for them in the portfolio management process. This will have a big impact. It has just got to be done carefully, crafted. But we still believe the human is the most important advisor we got. So remember, Merrill Edge is all automated.
If you remember the days of robo-advising and all that stuff, we have, I don't know, $30 billion in that. Other people got out of business already because it self-guided investing. You put it in your parameters. It balances all the time. It uses very low-cost structures. But that's $30 billion. The whole business is trillions and trillions. People want somebody to help them and because it's hard stuff, but you can make that advisory structure more important. It's a great business, and you'll see it continue to grow, and we'll continue to invest in it. The team running it between Katy and Lindsay and Eric do a good job. Merrill Edge is sort of a hidden gem because it just keeps producing and growing and keeps delivering.
I was on a Cramer show the other day, and I was on the floor of the exchange, and somebody asked me when the last time I rang the bell was. It was when we now have $0 trades in 2005 or 2006. This is not a new concept. We took equity trades to zero at Old Bank of America back then because we just didn't have that much revenue to lose, and we figured it would do it. The idea is you're not going to make money charging zero. The question is, how do you make money on the advisory side and even that business?
Makes sense. I guess on the expense side, you try to move us away from looking at expense growth in terms of dollars or percentage and more focus on operating leverage. You start out the year at 200 basis point target. In July, you raise it to 300 basis points- 400 basis points. Is that still the right way to think about it?
I think I'd hold us to 200 basis points- 300 basis points only because this quarter was such a quick adjustment on the fee side. But at the end of the day, if you get the NII growth we're supposed to get in at 60% of the revenue and keep the expenses that will go up on the wealth investment management business, if you look over your second quarter last year, this year, the $1.2 billion or $1.3 billion we had in expense growth, $400 million basis of it was just the incentives in that business. That's good news. Another $400 million was BCNE and related stuff in the markets business, which was good business. The rest of it was about 2% or 3% growth rate. But we have to be able to grow the expense basis for inflation.
We keep managing headcount down, pay people more, and invest more in technology, in the physical plant, updating it, making it better, data center environments, all those things. For a while, we could keep taking it down. Then we hit the bottom in 2019 and said, "We're going to have to go to operating leverage in 200 basis points- 300 basis points is what we should hold ourselves." If the capital markets kick back in, we'd push back. I think right now, I'd look at us to get in that same range.
This quarter will be difficult just because of instantaneous change and the rate of growth of fees year-over-year. The fourth quarter, we should be back in the saddle. This happens over the last many years. We had five years straight operating leverage, then we had 13 quarters, and then we had this was our fifth or sixth, so we would have been back on the street. It usually happens when you have this quick turn in the market. It's just hard to get underneath it for a quarter.
Understood. Maybe just talk about how AI can maybe impact expenses and the bank overall. You guys all report earnings the same day. Not everyone goes to all your materials, but I know slide 20 of your earnings deck really stood out to us. Over 300 approved AI and machine learning use cases, 114 live generative AI applications across the country, across the company. Just maybe talk to kind of the opportunities and the risks. You talk to this kind of 55%-59% efficiency ratio target over time. Is even something better than that conceivable?
Yeah. I think this weekend was a lot about the risk and AI, and that largely is around agents just left to operate, and we just don't do that. That was the decision we made early on was, "Wait, we are responsible for everything that goes on with our customers." So our teammates that use the investment banking function that do pitchbooks with a spreadsheet that's been helped by AI own when they give demonstrations, they all talk to us. They own every cell, and that's why the practice of AI has gotten so much better. They annotate every cell coming into the spreadsheet so you can find it and double-check it. So you have to be accountable for it.
The risk for us was really the risk of letting it start getting answers without humans checking to make sure the answer was right, both just common sense, but also literally making sure it is right. That was one risk, and then obviously the cybersecurity penetration risk. Both those, the team is working, and that is a cost pressure, frankly. The current term is just building the amount of patching we all had to do across the industry. The base this weekend is more about agents and what can they do if you let them go and operate and how they operate and some of the stories about the Hugging Face.
For our sense, we are trying to control the risk. When you flip it around, what is the reward of this? We are now probably 130, 140 of implemented things at a cost of $400 million, generating a benefit of $800 million, and we are in a process of spending that money and getting those costs that they are all agreed to and being going in the system. We think that is doable. We have been able to manage the headcount very carefully.
We are about 210,000, 9,000 people a day. We are at 212,000, 213,000 at the beginning of the year. That is just all managing attritions, 8.5% right now, times 200,000+ people. That means you have got to hire 1,000+ a month. All you do is hire 1,000 versus 1,300. You have got to own 300 people. We are always managing the headcount because in the end of the day, our teammates have got to use AI to make our company better and make our clients a better experience.
We went out and asked for thousands of ideas from them to help do it, to help make their jobs easier. When you look at our employee scores over the time, we are topping out where on the general scores are great. The only thing to improve upon really is make my job easier. This gives us another tool, but the teammates will know how to do that. We are doing that. You are seeing the applications being done. We have deployed across all the teammates have access to AI.
We have not had an issue because the way we negotiated the license and stuff in terms of tokenomics and all that stuff could be an issue downstream. The coders, the 18,000 coders we have on our payroll use it and have saved 10%, 15%, and that we are just deploying into more work. We are deployed across all the different businesses in general. We are seeing the audit team and the legal team and others using it. Each idea is costed out to the nth degree to say, "I spend X, I get back Y, and here is the payback," etc.
Importantly, the way you think it from a macro basis is, are you seeing the revenue of the company grow and the headcount in the company march down? That is the productivity, and that is what you are seeing go on. We are not laying off anybody. We do not have to do that. All we do is just manage the hiring carefully, and we can manage into this. It has been a pretty effective thing. We are about 130, 150 use cases implemented, not theoretically about 50 quarter coming on. We expect to double the expense budget for it next year.
It is deployed to all 209,000 people, have access to it. The range of things they have access to keeps increasing. With the specialized models we needed, we have got access to those models. All the general providers you hear out there, they are providing AI embedded in their core offerings to us, platform offerings. We are taking advantage of that. It is good. We own the answer. You have to do it carefully from both the teammate to make sure the teammate is able to make their work easier or else you have just not gotten anything out of it.
From the client to make sure the client does not start getting back answers. That Erica that you see, which we started developing 10 years ago, which is an AI thing, deployed seven years ago now, 20 million people, 200 million times last quarter, only does 710. 710, now you hear about intent management. That is prompts in different words. Nobody knew what the hell we were talking about. We said we were talking about intents and Erica.
It started at 200, got to 700. It is only 700 because it has to be absolutely right because the tolerance to get a wrong answer is nil. If you do the math on how many inquiries go through that each quarter and what it would cost you if you had a human answering that inquiry, either a chat, an email, or a phone call, or branch visit, you would come up to about 10,000-12,000 people. It has to be exactly right, or you are going to need 12,000 people tomorrow. That is the care that you have to take because we do not need new regulation in our industry because we are already really good. We make a loan.
It discriminates. We are liable for that. I do not care what machine you need to do. If you give a wrong answer to a client, the client is going to walk out on you. If you come to one of these clients and show a presentation that has mistakes in it, they are going to let you have it, and they should. That will gate its application in some ways. The reality is it is already having a pretty good impact, and we expect it to have more. We have done it with idea generation and idea cost.
The way we did the dot-com there, the e-com build out, the way we did some of the digital stuff, the way we did New BAC, it is a very disciplined process to make sure that you are getting the value out of it, but also that you are getting the teammates to drive it, not a top-down idea.
We have three questions left and about three minutes, so we will go quick. Credit quality?
Yes, yes.
We will be quick. Careful.
Credit quality.
Higher rates, AI build-out, private credit, anything keeping you up at night?
No. We don't see it. Consumer world, prime business, delinquency rates and stuff basically came down, went up a little bit, came down and flattened out and good. Commercial three or four years ago was all real estate, blah, blah. That's all the way through the system. Office buildings are never going to be used again. Guess what? That's pretty much the system. So we feel very good about the commercial credit, the ratings, the upgrades, downgrades, etc. and the consumer credit. So we feel very good about it. But we in our industry and we in our company manage leverage carefully. We don't overland, and that's holding us a good stead right now.
I'll combine the last two questions and kind of maybe tying everything together. We had this big Investor Day last November. You laid out a goal of 16% ROTCE within two years, 17%-18% within three years, and a potential to do better over time if the environment helps. Just how do you feel about that journey today? What do you think Bank of America needs to do to operate at kind of a high-team level of returns and kind of the KPIs you laid out? Any ones you're kind of behind on that you need to do better at?
Well, from the ROTCE, we hit it last quarter. The question was, people were saying, "Well, can you get from the 16%- 18% faster?" As I said then, I'll say now, we're letting it all flow through. We're not saying, "Oh, because we're at 16.25, we can invest more." So the way we're operating the businesses is the same dynamics. We've hit the 16%. We should continue to make progress. Frankly, as the net interest income keeps growing and becomes a bigger part, it's gone from a low of about $10 billion- $16 billion plus. That's $6 billion a quarter. That's a lot of efficiency because the amount of work doesn't change a lot. As that grows, that compounds up. So we feel very good about that path.
If you think about it, the 1/ 6, 1% ROA would drop being at over 6%- 16%, and we are there. The idea is just you tighten that balance sheet, come back to NII yield. That will push you up. So we feel very good about that. We hit the high end of the efficiency ratio. This quarter will get bumped around, but it will be around the top end of those ratios. We feel good about getting that. That is just literally just maturing the NII again through a lot of that comes from that and just operating the company well. The net new asset was the one that the team put the biggest leap on the table in the credit card growth. The credit card growth, they actually got 4%. They said five last quarter. So they are making good progress.
The net new asset, the key is that we focused on the fees, the net new fees you are generating, and that they are already hitting everything they said. The gross assets, nonpaying assets is a trick because we always have a lot of conversion off the brokerage. So Lindsay and Eric and the team are working on that. But we feel good about all those targets because we would not tell you unless we had a path to get there in our current plan, and we are hitting it.
Perfect. On that note, please join me in thanking Brian for his time today.
Thanks, Jason.