Tuesday, March 26, 2013

Moynihan discusses federal regs, moderation in public TV interview

Bank of America's CEO, in an interview that aired Tuesday with public television's Charlie Rose, praised the federal regulations that have been rolled out in the wake of the financial crisis and said banks must be run better in the future.

According to a transcript of the show, Moynihan also said he could envision himself being the chief executive of the bank -- which was among those that had to be bailed out by the federal government during the downturn -- for the rest of his life.

He also called for moderation in the way industries, such as homebuilding and even his own, conduct business in the future.

Moynihan, elected to CEO in 2009, said Bank of America is now focused on "organic growth." That's a change from the approach of his predecessors, who had created a culture focused on acquisitions, he said, using the bank's 2009 purchase of Merrill Lynch as an example. Ken Lewis, who led Bank of America right before Moynihan became CEO, was at the helm of the bank when the Merrill Lynch deal was negotiated.

Bank of America was among banks that passed federal "stress" tests this month. The annual tests, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, are designed to measure how much capital banks would have during a severe economic downturn.

Moynihan lauded the Dodd-Frank Act, federal legislation enacted in response to the Great Recession and that mandates the stress-testing. Moynihan said the "principles" in the act "are all good."

Although Bank of America announced plans this month to buy back up to $5 billion in common stock -- an announcement made after the Federal Reserve approved its 2013 capital-distribution plan -- some analysts remain concerned about its legal woes.

For one, the bank could pay $8.5 billion in a proposed settlement with nearly half a dozen investors to resolve claims over mortgage abuses stemming from its purchase of subprime giant Countrywide Financial. A judge has yet to approve the settlement.

On top of that, on Thursday, Freddie Mac sued Bank of America and other large international banks, accusing them of rigging the London interbank offered rate. It's unclear for how much Bank of America could be on the hook if the banks lose the lawsuit.

Some analysts point to such legal woes as holding back the bank's earnings potential. Moynihan agreed that the bank's earnings are being crimped.

In a description he's used before, he told Rose that it's like Bank of America is climbing a mountain with a 250-pound backpack as it tries to overcome its "heavy burden." Although he didn't specify what that burden is, in a January interview with Bloomberg he described the bank's challenges, such as those related to Countrywide, as making it harder for the bank to compete.

"Our mobile banking or our investment banking or whatever products are as good as anybody else's, and we're winning market share every day," he said. "But we're doing it with this heavy burden upon us. As that burden lifts, just think of how we can out-sprint the competition.

"So the question is, when I remove the 250 pounds we can take off, and that's really where we are." 

Bank of America, Moynihan said, has "an inherent earnings power."

Moynihan also said the housing market is rebounding, with housing starts on the rise and construction jobs rising. But, he said, the housing market was overbuilt.

"We shouldn't overbuild again," he said. "We shouldn't over-lend again.

"I hope we just go back to all things in moderation."

He described today's Bank of America as "a simple, more narrow company, where every day we get up and say, 'We got customers and clients and how do we do a better job?'

"Is that wholly different? No. But … it takes away a lot of stuff that was going on and replace it with stuff that's really good."

Toward the end of the interview, Rose asked Moynihan whether the bank had a succession plan in place. Moynihan said the bank did but then went on to talk about the rewards of the job despite the "pounding."

"You know, while there have been times when you sit there and say, 'Jeez, this is a lot of pounding,' you always keep your eye on the purpose you're here. And it's to help those people with their financial lives. And if you really keep focused on that, I could do this the rest of my life."