Bank of America Corporation

kick off with our disclosure commentary. So for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com, morganstanley.com slash research disclosure. And taking a photograph, use of recording devices is also not allowed. If you have any questions, reach out to your Morgan Stanley sales representative. Okay, with that out of the way, we are so thrilled and delighted to have with us today Brian Moynihan.

It's great to be here. Good to see you, Betsy.

Chairman, CEO of Bank of America, just in case you didn't catch the name, Brian Moynihan, thank you so much.

Good to be here. Thank you. You did a great job reading the disclosures.

Yes, so now that I've got everybody warmed up, post-disclosure read. Brian, 15 years as Bank of America's CEO, driving responsible growth, and seeing the significant changes in the operating environment and the industry overall over the past 15 years. It's a thrill to have you here to talk through how you see the current environment and the forward look. So first off, can we talk a little bit about the current operating environment given the considerable amount of policy uncertainty that we had at the beginning of the year and even running through to today. So let's start a little bit with the macro on the consumer. How are you seeing the consumer spending, deposits, overall health?

So I think if you look across the consumer and you think about the three or four ways to think of how they're doing, what their confidence is to spend money, what's in their accounts, what's their credit posture. unemployment and things like that, the other piece, and you all have all the data on that. But if you look at our customer base, and our institute just put out some research, but if you look at it more broadly in our customer base, in the month of May, the consumers moved into the economy about 5% more than they moved in the month of May last year. And that's consistent with year-to-date, that's consistent with what we saw happening earlier in the year, and up for about a 4% rate in the first quarter. a little over 4%, fourth quarter last year versus the fourth quarter year before. So four moving up to five, and that's good. And so what that goes into moves around. And so with some of the debates about international flights, there's more on cruises. People are spending a lot on movies right now because the movies are good, but they move the money around. And across May year-to-date, that is about $1.7 trillion of money movement into the economy. So the consumer is spending money, and that's a little counterintuitive to the – different confidence studies, but those are more impacted by what I feel versus what I do. And that's what we always try to make sure. This is what the consumer is doing. What they're telling their feelings is a question for the future. Credit quality is very strong. Charge-offs in the consumer credit area came back up over the last couple years from the post-pandemic drop and now basically settled at a level very consistent. So we feel very good about that. And there's a lot of availability of credit. In other words, the loan-to-value on our Home equity loan portfolio is about 50 cents on the dollar. The home equity in homes is 40-something trillion or something the other day. So there's a lot of borrowing power if the consumer needed to do it. They're not using a lot of it up right now, quite frankly. Our home equity balances came down or are bumping along and not growing a lot. So there's borrowing capacity. They're employed, as you well know. The wage growth is strong. And even in our small business area, you can see the payrolls are okay and fine, not as strong as they were A lot more uncertainty in small business and middle market than there is in the core consumer.

Interesting. But small business, how you feel small business is doing?

The loan growth's been solid, and we're careful on the credit. We know that business well. But I'd say that the thing more in the middle market, so in business banking, so $1 million in revenue companies to $2 billion, so big swath of the American economy. Their line usage, which was about 40% on average pre-pandemic, dropped down about 34, 35, came up to about 36, got up to about 37, but it's leveled off again. And that reflects sort of them trying to think through before they spend, you know, SOFR plus 300 basis points to fund a piece of equipment to increase their inventories. They've got to think hard about it, and the tariffs added a complexity to it. As that shakes down, you'd expect them to feel better. When you go in the markets and talk to them, they're just trying to figure it out. whether they are supporters or not supporters of the policy, they're just trying to figure it out to make their business plan. As you move to the annual planning cycle for most businesses, we're like into it. You hear them saying, I'd like this to be figured out. And so the good news is, recently this morning, you're starting to see things drop in place that those companies can say, at least I can understand better what I should plan for in 26. And so they're very credit quality strong. Their activity is solid, but If you said, show me the window to your heart, you'd say, why aren't you using your lines and buying more equipment and stuff? And they're being careful, and really for the last couple of years, trying to figure this all out.

Okay. Let's switch to the corporates, the largest customers that you work with. What's the outlook there for investment, given the headline volatility that we've had?

I think if you take out the sort of AI infrastructure problems, side of that equation. Everybody else is just being careful, again, trying to figure out what the rules of the game would be. And if they figured that out, then they'll take action. But again, making money, Ernie's growth of S&P and everything is very solid, maybe less than people hope. So I think they feel good. The economy from the third quarter to, say, The third quarter is projected to slow down by almost 200 basis points. So they reflect that in terms of that. So if you look at their headcount levels and stuff all being managed carefully, what they talk about is them being very careful on expansion expenses, trying to figure out this new technology, which we can talk about. But overall, the situation is very stable right now, and it just needs clarity, and I think it will come out.

Okay. Let's dig in a little bit on the consumer bank, and we'll go through each of the business lines. but starting with the consumer bank, you have a dominant retail banking franchise with a very strong national brand. I would expect that Bank of America is one of the most well-recognized consumer brands out there. Can you talk to what has been key in driving your deposit, your checking account growth? I think it's been something like 25 consecutive quarters of net new checking account growth.

If you look at it more broadly, we run the consumer business with two pieces, two thought processes. That's because the customers are different. In the retail, which is the general consumer business, this is about checking, it's about start of savings, it's about the start of investment, Merrill Edge, and it's about a home loan and a credit card and an auto loan. You don't need to think about 8,000 other things. The real question has been, how do you continue to drive growth in that business? With that's like 70% of our consumers in about 30% of balances round numbers. So think of that business as very much an expense driven automation play over many years, but you got to grow because in that base is a customer of the future. And so that's where Holly and Neil and the team have been able to grow that, uh, for 25 consecutive quarters or whatever it is, uh, that new check-ins, but a million per year of net new check-ins while keeping the average balance per checking account overall in the business at $9,000. which is three times the industry average. So it's not like we're growing a bunch of accounts with no money. It's the primary account. So over the last decade plus, they've gone from a 60% primary household in that book to 90%. The customer satisfaction has gone up from the 60s to the 80%. The satisfaction with the actual execution has gone up even higher than that. So that then bodes well because it has two purposes. One, to make money on the business that exists as it does today in the retail. But secondly, it is the catchment base of which is Bank of America. the branches and everything else. When you go to the preferred business, completely different. Now that people have cash flow positive, that's a different business, 30% of the customers, 75%, 80% of the balances. Merrill Edge is very important there, half a trillion dollars is up to now. We've got about 300,000, 400,000 customers, again, with $100,000 average starting account, not $3,000 for the Merrill Edge and investment side. Checking account balances, to get in there, you've got to have $25,000 of balances with us. gives you lots of rewards programs, and again, growing organically. You put that together, we've outgrown the market every year. We've expanded a bunch of markets that we weren't in over the last 10 years. We put $5 billion into the branch rehab and redo and expansion. We've taken the headcount from the start of 2010, about 100,000, down to about 55,000. And that's where automation is applied. So this is not a new concept. Think about that. The customers Base has gone from maybe 20-some million checking holders to 30-some million checking holders. The total balances and deposits, 300-odd billion to 950 billion. The execution volumes through the roof, and the headcounts come down by 40,000. And that's just a constant reengineering. So that business is very strong, grows well, gets net new customers. Retail serves the great customers they have, but also is a customer of the future. Preferred, the higher-end customers, those customers then graduate into Merrill, the private bank, if they go that way. Otherwise, they serve them well. And then we've been adding things to it constantly. Erica, life plans, 7 million life plans, 20 million Erica users. The mobile usage penetration is very high. Automated statements, I mean, electronic statements, yada, yada, yada, fraud protection, et cetera, all driving that so we can bring that efficiency down and then pass through the savings to customers, and that gets you an attrition rate that's in low single digits overall and 99% plus in the preferred business.

Okay, 99% plus.

Yeah, it was a preferred business.

Yeah, okay. And so you're everywhere, you have the product set, you have the digital capabilities. What's the driver of growth in consumer from here?

We basically take a bit of market share by expanding those markets where we aren't. So we didn't have a brand system in Pittsburgh or Minneapolis or Cleveland or Columbus or Cincinnati or Denver or Milwaukee or Lexington, et cetera, we've added there. And in the big markets, we have penetration. It's growing two ways. It's adding customers, but it's also adding incrementally to the wallet share, what we call a stair step. Checking account, card, home loan, you just keep going up that stair step. And that's what we've been doing. So that penetration has led us to go from probably 40% credit card penetration of the core customer base to 60, whatever it is today. And each of the businesses has that goal, even the other businesses.

And I know card is something you focus on your depositor customers with. Would you ever think about using card as a way to attract new customers?

Well, we have done that. We have a lot of card-only customers left over, and we're out there generating cards, and it's not that we're turning people down that come to us as a single brand, and we convert them. It's just the cost of acquisition is so different if you're working off your current people, your current customer base. And that being one of the costs of being a car business. And then the second thing is by using the combined rewards program that we have, a preferred rewards program that rewards not only your cards, but also rewards your deposit balances and the benefits go to your loans and other higher rates on deposits, et cetera, et cetera. What you're actually doing is the affinity brand that we're pushing hard is called Bank of America. And so we're trying to tie the customer in so it's not only getting the product in, It's getting to be the first product out, the first card out of the wallet, so to speak. So the balances grow more consistently. Other people might grow faster and come down. The credit quality stays very high. But if the economics, the ROA and stuff is very high, so everybody says, let's grow faster. But if you start to go away from that, we know that business has a lot of volatility around it. The business that we had in 2005, 6, 7, leading up to the first last real recession we've had in this country, because the other ones, you know, were spackled over by a lot of fiscal stimulus and stuff. You know, that cost us $50 billion in charge of us from 2009 to 2013 and 14. And we were the best in the business understanding credit. We had automated models. They were written about publicly. We were way ahead in data and all this stuff. It still costs you because it's just unemployment. So we're trying to keep the risk parameters right because we know even looking at those books, the people who are customers overall at Bank of America fare much better.

Super. That is very helpful. And so the profit growth dynamic is clearly being toggled efficiently. Can we turn to wealth and just talk a little bit about a very broad spectrum wealth channel that you have? Wealth business, I should say, across Merrill, the private bank, as well as just your affluent offering as well. Can we talk a little bit about what you're doing to drive growth and profitability in wealth?

So the businesses we have that are dedicated to currently wealthy customers, Merrill and the private bank, $4.5 trillion, $4.6 trillion in assets for those clients. Last year, the net flows grew at an annualized rate of 4% plus. And that business is good. The thing about that business, high return on capital, low efficiency ratio because of the compensation methodologies. And so the team, Lindsay and Eric and Katie Knox, continue to work to push that profit margin back up to 30% in that business through just good engineering of the cost. But what we call the continuum we have is from Merrill Edge to those businesses. And what we're trying to do with Merrill Edge is accumulate the investor of the future and the self-directed type investor of the current. But we're trying to grow that so that that business, which was about $200 billion six, seven years ago, is now $500 billion in assets. and is growing at a pretty good clip, that's providing, again, the feeder of the future. So like retail is to preferred, Merrill Edge is to the wealth management businesses. So we're trying to get people started investing, and that's not life plans. Seven million plans have been, the customer does it themselves. It's an artificial intelligence-driven financial planning module that they choose their goals. And seven million are loaded and active, and people are putting their data in. So that gives us a broad base. Then you move to Merrill, and it's a relationship business in private bank. And then what we're doing in Merrill is the team's, They've done a great job with the advisors and are now recruiting to fill out the offices in areas where we have capacity and developing not only trainees, but also doing some experience recruiting. Not a lot, but enough. And then that helps grow the business. And then if you go to the private bank, they've had about 30% more private bankers over the last four or five years as there's been disruption in the market. We keep hiring, and Katie Knox and team keep driving that out. Very profitable from return on capital. efficiency lower than the average of Bank of America, but as the NII kicks in, which I'm sure you'll ask me about at some point, they get a big kick because it's a $280 billion deposit base in that business. So it's as big as most banks in that business, not just in that business.

Great. Okay. And what about driving growth through financial advisor acquisition? How important is that to you?

Well, it's important. The economics of all this is always interesting and get great discussions about it. But at the end of the day, we recruit people, see the value in our platform, and they'll come in. And Lindsay and Eric and the team have done a good job of picking up advisors through the recruiting process that really understand what Bank of America and Merrill Lynch, importantly, can bring to that group. Clay's been able to add hers. We have on the trainee process, we We, like all people, continue to refine that process. And so the FSAs, which are in the branches, is a great fertile ground to graduate people to be FAs because they get securities license. They have a limited product set because of the nature of the investment need of the customer. But what they do is they can move out. So we have that to gain numbers of advisors, and then we have the recruiting to gain numbers of advisors. But the number one thing is to retain our advisors, and we're at a very good place right now in terms of retention.

Okay, but it seems like there could be even better.

Yeah, there could be better. At the end of the day, in a business which is advisor-led, you really have two ways, both in the private bank, Merrill, and also the commercial bank. You have two ways to grow the business, more advisors, more relationship managers, and or making them incrementally more efficient, handle more clients through automation. That is going on too, but that takes a little longer to get that through the system.

Got it. Okay, great. Let's turn to capital markets. where clearly you've been investing in the markets business, and you are the only firm to grow sales and trading revenue year on year for 12 consecutive quarters, which was very impressive.

I'll give you a news flash. This won't be 13, I think.

This what? I'm sorry?

This one should be 13.

Oh, this one should be 13.

Well, it's not closed yet.

Okay. Just want to make sure I heard that right. Yeah. Where have you made the investments to generate that kind of result? And what's been most impactful there?

So when you think about it over the last chunk of time, after the financial crisis, you had the bones of everything you needed. You had all the major trading areas. You had a great research team. You had the reach of the sales force and all that. We also had some interesting pieces that we had to get out because it became too much of the storage business and the legacy companies. So we did a lot of that. But the reality was we need to make more of a commitment of size, balance sheet capacity, capital capacity, and frankly, expense capacity of that business. And we did that starting, you know, 16, 17, 18. And Jim DeMar and team have done a great job. So what you're now seeing is a compounding effect of that. That business this quarter we expect to grow mid to high single digits, 13th quarter in a row, by rounding out the FIC platform, by going a little macro versus micro, all these areas which – our hard work. And then geographically, we spread it out. But if you think about what we really did is we, Jim and the team, put to use about $300 billion of balance sheet round numbers on a gap basis over the last three or four years. They took more capital and have gotten the returns from 10% to 13%, 14%. They've also been able to deeper penetrate customers, and they dropped the break-even point in the business by about a billion bucks, which is an interesting because that's where all the automation, the processing capabilities, and as Jimmy calls it, cleaner, simpler, better. And so that was important in 16, 17, 18, and 19 because you're investing. To run that business is $900 million in technology investments a year. So it's not for the faint of heart. And so your first $900 million, and by the way, a lot of that is just to be able to run the systems and report and all the venues and all the – I think we report out 3 billion trades, potential trades a day or something like that in that business to give you every single day. We have to report out 3 billion trades, not even execute trades, quotes, 3 billion quotes, excuse me. And so they built that infrastructure. They drove it. And Jim and the team have done a good job. And as we work with our customers in that business, a lot of them which are out in the audience here, they've done a good job of, getting a broader representation of that customer, not only in the equities business, but over the fixed income business. Those all become more important to all these groups, the private capital, lending into those businesses, which we believe we can do in a very smart way to help them grow their business. The coordination with the distribution platform, just because we've got the availability to help people be successful, they've done a great job.

What about the international side?

Yep.

40% is coming of your revenues in markets and banking, I think, is coming from international. Is that right?

Yeah, and that's the piece that surprises people because they think of Bank of America, the name, and they never get off the point. But the reality is that 40% of the revenue in a concerted effort going on those same dimensions of time. And so you have in the corporate investment banking area, you have number three market share. Again, this is where you've got to be consistent because this quarter, you know, investment banking, we think about a billion two-ish, you know, not where we want it to be, but great prospects, great conversations, great going. But that's because we're operating all over the world. And so the key is to think about the global investment, the corporate investment bank, and the global markets business to be global businesses and drive that out. We talked about markets, corporate investment banking. It's not only investment banking capabilities. It's also the corporate banking and the cash manager, GPS, we call it. And we've been building and investing in that. The growth in that is still ahead of us, frankly. What we've done interesting lately is dropped the customer targets in some markets from the $2.5 billion minimum revenue size we had down to a billion because we feel more and more comfortable. We can understand the credit looking at firms that, frankly, are tied into the industries and stuff we cover heavily. So the auto industry is a global industry. The supplies come from all over. That's why we're having this discussion and the tariffs and all this stuff. They come from all over the world. And so a mid-sized supplier in Europe is probably also supplying in the U.S. and supplying. So having that ability to help them across the world has been strong. And so 40% of revenue continues to expand. Bernie Menza runs internationals and overlay. Matthew and Jimmy run the businesses, but Bernie helps us with overlay. We have lots more to do, if we think, in Europe that we can gain even more share there. Asia's always going to sort of reflect the ebbs and flows of Asia, and then U.S. is U.S.

Okay. So just to make sure that we got the comments about the quarter you mentioned, markets, revenues.

Mid to high single digit, 13 straight quarter growth year over year.

Okay.

And then investment banking, about 1.2. We'll see what it ends up. There's a lot of stuff in the pipeline that's getting bounced.

Okay. And then while we're on quarterly commentary, Maybe you could give us a sense on whether or not there's any updates on net interest income.

Sure. So the broad structure was about a year and a half ago, we said last year's second quarter would be the trough, and that's turned out to be true. And then as you march through each quarter and giving the guidance, in the first quarter of This year, we have no change that guidance. So that guidance, just to reiterate, that guidance, we were at 14.5-ish in the first quarter. We said by the fourth quarter, that'd be 15.5 to 15.7. And we feel good about that. And what we told you was we grow with a little more kick in the second half of the year, honestly, just because of some of the repricing on cash flow hedges and things that have come through this quarter and then are effective next quarter. So A billion dollars of annual, a billion dollars of quarterly NII pickup first quarter, fourth quarter, 6% to 7% growth of 25 over 24 and exiting at 15.5 to 15.7. And the stair steps are falling in place. So this will be another quarter of growth, which says last quarter was a trough and we're growing off of that. I feel very good about that.

Excellent. And does the steeper curve help just generally speaking?

It helps, but the thing is it's never a one-hand clap. So if that's happening, there's long growth, what you thought it would be. So you've got to go around. But to hold this through all the different volatility, you think about we're all sitting here in April, Liberation Day just passed, the world was coming to an end, and now it's not coming to an end. So you have to take great care of being too far out there saying this is what's going to happen perfectly because it can bounce around. But the good news is nothing has changed even though the rates have moved around. And you're covering up some general economic malaise from that time until now. It's a lot of solar growth predicted, but we're still growing loans okay. We're still growing deposits okay. Better on the HA data, the market better than the economy. But you've got to be careful about over-expecting that until we see the settlement. Okay. But it's based on that time it was, I think, three cuts. And, you know, now there's one, two, depending on who got up this morning and put them in. Okay.

Excellent. All right. Thank you. That's it for updates on the quarter, I believe. Right. Yep. Yep. That's it. So I did want to turn the conversation towards what you're doing in payments. Clearly, you're a leader in payments, but you've also made some recent comments around stable coin and some of the potential rule changes coming. We've got the Genius Act working through Congress. So are there more crypto opportunities in your future? I would just like to understand how you're thinking about all that.

Yeah, so I think I'd focus on the stablecoin question. And so at the end of the day, our global payment services business sits behind the entire franchise. And so whether it's consumer wires, which you can do on your mobile app and are growing fast, whether it's commercial wires, which are huge and go out every day, that principle in a felony mark Monaco runs at, GPS for us, and Tongwin. And they always work in a strategy on a holistic basis. And so at the end of the day, there's a new potential entry into a payment system, which is a stable coin, right? So the theory is that if you were having dinner on a safari in Africa and you sat down, you could pay by using your credit card, your debit card, or you could also theoretically at some point pay by a stable coin transaction. And so it's a currency. We have to have it. The industry has to have it. We've not been quite sure how big it will be, but we have to be ready because in the end of the day, if people use it as a transactional account, we have to be ready to have those transactional deposits stay within our franchise, basically, or else you'll see a major migration of deposits outside the industry. And so we're working with the industry, working individually. We have pretty well understood what we do and how, but The problem before was it wasn't clear we were allowed to do it under the banking regulations, and there was a lot of mystery about that. If they get the Genius Act or the Stable Act or anything like that passed, and then they get the markets infrastructure enablement piece, that clarity will allow us to figure out whether there's really a business proposition. At the end of the day, if the customer is needed, customers can make use of it. Now, if you're very carefully following a company, you would notice that we just talked about the $10 million real-time weekend movement of money and how well that's been received on the institutional side of the house. As we keep dropping those limits down to have real time go on the weekend and stuff, you'll see more of the need for payment systems that operate off hours, so to speak, goes away because we've actually created a payment system that goes off hours. If the Fed goes to a wire service open many more hours a day, that would change the dynamics because then you could settle fairly small accounts. And so there's a complexity to this, but there's also stability of payment systems provided by the way it works today that we have to think through, but we'll be there.

I've been a little confused about this because I thought Clearinghouse has real-time payments for easily a decade.

Well, I'd say that's probably a little strong. We developed it. It's probably been out there for four years. And that allows... If somebody wants to wire $10 million out on a weekend, they can do it. And so you have to be careful because we're facing off. The industry is taking the risk of that being good on Monday. And so that's why we'll keep walking towards it. The bigger, more important thing is really that the window for the closing is getting later and later because then you have multiple time zones covered in real time because the Fed wires real time. And also you have transactions that can take place off hours. So if you want to buy a house and settle at 6 o'clock at night, if we can ever convince the deed, the registry to take it, you can settle a house payment. If a person wants to buy a car at the agency at 8 o'clock at night instead of, I just watched this happen, I bought a new car a year ago, people are handing out people cash. Because they wanted to buy the car that night, and you're like, that's not a thing. But I think you can... So you can take away a lot of demand for it. And so the place, the cross-border, smaller balance, e-commerce, that's where this gets embedded in e-commerce, for lack of a better term. Those are the places where it's a little more interesting. And we'll see it play out. And remember, by the time we... If we sat here tomorrow, I would say yesterday, $3 trillion plus went out of the commercial bank, all automated overnight. $200 million plus went out in cash out of the ATMs. 500,000 people walked in the branches, a lot of deposited checks, cash, all this idea that one payment system is going to take over the world very fast. In the numbers I gave you before on the total of $1.7 trillion, only 20%, 25% is debit and credit cards. Checks are still 20% of the balances of consumer movement of money. And so It's not as simple as people think. It takes a long time to get people to change their behavior, and that's why they're great customers.

Okay. So with that, I think we're done with payments. Okay. I would like to understand how we're thinking about the other side of the operating leverage, the expense side. And I think you guided 2025 full-year expense growth to 2% to 3%. but with positive operating leverage. So can you talk about how much investment is embedded in that, and if revenues are lighter, where the levers are to deliver that positive operating leverage?

So if you put the historical context around this, we have a little bit of an issue that we are always taking expenses down nominally. And there's a time... when we were at $58 billion in expenses, and we said we'd be at $53 billion two years out, and people thought we were crazy, and we actually hit $53 billion. But then we said, and this part got lost because of what happened, then we said it's got to start to grow, because at some point you sort of hit, and you're going to start being unable to take out expenses at a faster rate than you need to invest for compensation, for build-outs and stuff. So that was happening right in 2019. Again, this thing called the pandemic came, and then hyperinflation came, et cetera. So you go through all that, and you end up with an expense base now, which is $68, $69 billion, whatever it was last year. And a lot of that was just a one-time adjustment around comp, frankly. And market levels generate comp, too. So what we've been able to do now is the headcount then, because of all this stuff and regulatory and all this stuff, and investments went from about $250 5,000, say, to 218,000. It's now down to 212,000, exclusive to the interns that just came in this week. And so we've gotten that to manage back down. So over the last six, eight quarters, we brought it down by 7,000, 6,000, 7,000 people. And every quarter, it basically drifts off a little bit by applying technology. So we feel good about the 2% to 3%. The parts that will just automatically will be if wealth management revenues are lower because market levels are lower, you'll see that come right through. Or if investment banking revenue is lower, we'll see adjustments on that side. But parts won't adjust as, you know, the 53,000 people in the branch system will still get paid at the same level. And so we feel good about the two to three, but it's a basic concept. We'll grow the revenues faster in economy, grow the expenses about half that rate. And the good news is we've been organically growing since like 16, 17 loans and deposits faster in the market, faster in economy. And leave aside all the rigmarole in 20 and 21. we're now back to that level, and then so that you're seeing the operating leverage kick in. As the NIA recovers, that's what kicks the operating leverage in. So the stat I gave you before is a billion dollars a quarter with no expenses attached to it from the first quarter to the fourth quarter. That's what kicks the operating leverage and, frankly, the efficiency ratio back in.

And AI clearly has been leveraged in the consumer, retail, and wealth significantly. Can you talk about how

there's legs to that into the rest of the organization well there's so there's legs to it across the board so we have ai is a natural extension of modeling and machine learning and things we have 1700 models or whatever it is about 300 of our ai models about about 30 or 50 of them operating today are generative ai models we have proof of concepts on a That many, that's why those models there, about a third of them are in operation now. But to make that all sound like great statistics, we have 1,700 patents on AI, machine learning models, and stuff like that. But what's really going on? Erica, last quarter, 20 million people used it. And it's an AI, generative AI language problem solver for you. Bot, assistant, whatever you want to call it. 170 million times. 175 million times. So it's up in scale and operating. We took that and put it into the commercial GPS cash management business. 40% of all the customer interactions are handled by the Erica interface. We took that same model because we knew it was in control and how it would work and trained it for teammates to be able to interface with technology organization for a change of passcode, break fixed, I need a computer, charge or whatever. It's tendency half the calls went through Erica as opposed to a person picking it up or a person responding to an email, I need X, Y, or Z. And so then we've taken the capabilities into the markets business. So we have a generated report that takes all our market stuff and puts it easy for the sales traders in the morning instead of pulling up a bunch of different people. And it cites it out to all of them. So it's trained on our stuff. It brings in news stories and stuff like that, but it's a very straightforward report, two or three pages. That's going out every day. We take it into the coding area, and we've got about 18,000 coders using it today. They're getting efficiency that we're seeing. There's 21 steps to start with ideation on code to implementation on code. Five or six of them are susceptible to AI productivity enhancements. About 30%, 40% of the activities in those five steps, we're applying it. We're seeing about a third of that to half of that potentially go away, and so we're just grinding that through the system. That's new. That's literally over the last six months. So we feel good about that. So you're basically looking at all the places you can use this model to help you enhance the basic text-to-text translation or coding. And what text-to-text literally means, I take a bunch of prospectuses today in SEC reports for investment bankers, and I then write a report, and I go edit that as opposed to pulling them out. 500 of those were written in the last few weeks. We just put that in for the investment banking team. So the analysts and juniors, as we all call them, are now using that to produce information. It still takes people on top of it because it's still not perfectly accurate. It still takes people checking it. But on the other hand, it gets them a step forward. And so all these areas, we really believe this. Now, why do we really believe it? We had 285,000 people on January 1, 2010. We peaked at 305,000 people on probably March of 11, or maybe March 12. We have 212,000 now. We know that technology applied by the customer and by the teammate is a powerful force. In that time, we probably spent a billion dollars, a billion and a half dollars in technology code a year. We now do four billion on new code. So we took a lot of money and spent it to develop new code to create more efficiencies. And so the business is bigger and bigger, but you can use technology to keep working at this. This just gives you a place to reach that you traditionally didn't have. But you've got to be careful. You have to have your data set. Over the last 10 years, we've probably spent $3 billion on getting our data more and more perfect for all these reports. We have to file all these feeds. We have to file all that stuff. But sometimes you've got to get a return on luck. Doing all that for regulatory and other reporting, which we would argue had great value, maybe not so much. But having that done now allows us in our Salesforce application, which goes across all relationship businesses, all the data is scrubbed, for lack of a better term. You hear people say, oh, my God, I've got to go scrub my data. It's already been done for a whole other reason. Therefore, they can pick up these new applications. So as we look across it, we have small language models operating on premises. That's Erica. We have large language access models operating at third-party providers we can use and test. And then you're going to see the major providers bring it through their products, right? They can't survive unless they bring it through their products. So what an SAP and a Workday and a Salesforce, I'll let them speak to what they're doing, but we're going to be the beneficiary of that. And so if you noodle on all that... you can see our ability to continue to maintain this efficiency effectiveness and then figure out how to reinvest. And so the way we run it is we have a centralized team that's driving through these proof of concepts, and then we're funding them centrally so they don't have to get caught in, oh, this will take too much time, and we look at them every couple weeks and implement.

So tech budget goes up and headcount comes down.

Well, even in the coding area, remember what I said, if you – If you have 18,000 people and you're getting efficiency, then you can grow the tech output without growing the numbers of people doing it. That's what's different here. Your point was pretty linear. To get more code output, you just had to add more. They'd leave aside the products and the different code languages and stuff. You just had to add more people. That code is broken a little bit now. But it's a human behavior change. A big change is going to come when we implement basically the 365 package and everything, but you've got to get the humans to use it. This is the hard thing. We are developing training programs to make sure our team knows how to use these tools because that's going to be the value. It's not going to be by just putting them on the desktop.

Okay. Well, we've identified opportunity for growth in the various businesses and the efficiencies that you're driving from investment spend in addition to other drivers.

We said the last expense will be down $500 million or $600 million in the quarter, which basically means, take out all this stuff, flat, and we're just bumping along at this level while we're making massive investments in the business. That's the dynamic which is interesting. Before, we were able to take out a lot of inefficient business. Now, we're pretty effective, and now we're able to put that expense base, running where it is now, you're allowed to make major investments that are almost double what we made five years ago.

And so as I think about the ROTCE and the direction of travel here, looks like it's moving up from what we discussed, I did want to understand thoughts on the denominator a little bit. As we enter into the era of Michelle Bowman as vice chair of supervision, what are you thinking about with regard to what is likely coming on regulation changes?

Well, I think the Fed, through various dialogues and speeches, even over the last 18 months, has made it clear that Basel III will get finalized in some manner, exactly how, probably up to a little bit more debate now. Obviously, the G-SIB indexing is important to our industry, and it was embedded in the original statute. If you look at the original provisions that footnotes talk about, this ought to be indexed. The economy's doubled in size, and it hadn't been indexed at all. And there's, you know, the strange calculations in there are strange. So they've got to fix that, and it was proposed to fix it going forward, and I don't think that's Correct thinking, frankly, and we'll see what comes out of it. So that's helpful.

What do you think would be correct?

Correct is go back and index it and maybe say, I won't let you drop your capital today to do that. But let's get you on a logic course which says we're going to index this thing consistently because the inverse of what people were thinking about at the time was you don't want these large banks to become too big and you want to put a penalty on bigness or at least have more capital. If the bigness fails, you can take care of it. The mistake in that is if you constrain their size, you're forcing the stuff outside the system. And where it's going, you have no insight as to whether it's being done well or not so well. And so the idea of gating a fund with draws is akin to gating with deposit with draws.

Right.

Think of what would happen if we just said you can't take your money out of a bank in the regional banking crisis. I mean, so I think there's – people have to think through it. So it's had an effect which is exactly opposite intended now, is now it's allowing more and more unregulated activity, which is regulated in the banks but not regulated elsewhere, go on, and they've got to think that through. And then they say, well, we want you to be there in times like the pandemic and help them. We helped in the pandemic, $70 billion a bar. We want you to be there in a regional crisis to help. Well, you've got a constraint, which is if we grow the balance sheet to support a bunch of riskless treasury trading by all these colleagues, the ESLR kicks in. So they've got sort of The policy has flipped on its head now, which is how to allow my colleagues and I to make the economy run well. So you expect Basel III, because we've just got to put the end behind us, you expect something on the SLR has been said. You expect something on G-sub indexing. And then the other regulations will be helpful. But what that will mean is our capital, it's not like we're going to say, oh, let's peel off a lot of capital. We will then let that growth, organic growth, eat it up. But if you think about what we do today, we earn a dollar, we pay out about, 30% round numbers and dividends, and the rest goes to support the business growth. We're back to the shareholders. That was $4.5 billion last quarter. That paradigm will keep taking place, which over time may not take down the nominal amount of capital, but as we grow the earnings around it, we'll help the ROTC, because right now we're sitting on a chunk of capital.

Well, and significant excess.

Yeah, that's right. The simple way that I try to explain it, which is if you had 10 factories, to make sure, and I said, you can't only use six of them. That's what all this adds up to be. And so we're making as much return on time to common equity as other institutions are, or more than most. And we're only getting to operate with six factories because we have to have the other four ready in case. And you're saying, is that the right balance? Originally, that was seven and two. Now it's six and four. And you're saying, you've doubled the excess unutilized capitalist industry for what? And that's what you're trying to say. You've got to think about this because it has broader implications.

And as a result, as we get these, you know, clarity on where they're going to go, how do you think about optimizing your capital structure? Like, let's say we get a rule in the next year or two.

Because of the stability of the operations, the platform, and the risk of running the credit book the right way, blah, blah, blah, blah, blah. I think we're comfortable with a 50-base point buffer, whatever the risk. than applicable requirements. We used to say 100, but I think we feel now that the insight we have and the stress test we do every quarter, we can probably manage 50 better, especially if it keeps the dividend at the 30% level, because then it's really, we're the only person during certain stresses in a pandemic that actually earn a dividend every quarter. And so that's, I think, the only person not, and I think, So we built this on a theory that that's what you want to be able to pull back if you had to let the capital not deteriorate by leaving it on a balance sheet. And by having that kind of flexibility and that kind of insight and working the hell out of the risk side, 50 basis points looks right. So whatever the – hopefully a smaller number than it is today, CCAR gets straightened out, et cetera. But 50 basis points is what we think. So stay tuned. We'll see how the CCAR comes out at the end of the month. We'll see. a lot of these things fall in, but that's where we try to run it. And we've done a lot of analysis and a lot of looks to say that that volatility ought to be manageable.

Excellent. Well, Brian, thank you so much for your thoughts and insights and direction and leadership of Bank of America. Thank you so much for joining us this morning.