Bank of America CEO talks wages, interest rates, the U.S. economy, inflation, crypto, and more

Bank of America CEO Brian Moynihan speaks with Yahoo Finance's Brian Sozzi at the World Economic Forum in Davos, Switzerland, about the outlook for the U.S. economy, cryptocurrencies, and why the bank is raising its starting wage.

Video Transcript

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BRIAN SOZZI: All right. Joining me now is Bank of America CEO Brian Moynihan. Brian, good to catch-- catch up with you here.

BRIAN MOYNIHAN: It's good to be here, Brian. Good to talk to you again.

BRIAN SOZZI: Yes. So I've been talking to a lot of folks, and there's been a lot of downbeat reads on the economy and the world. But I want to start on something positive. Ahead of the World Economic Forum, you raised your minimum wage to $22 an hour. Why did you make that move?

BRIAN MOYNIHAN: Well, we made that move-- we have a commitment to start-- to $15 an hour, then started at $20 an hour, then started at $25. And so this is year two-- 20-- it was 2020, '21 and '21, '22. We were going to do it in October.

We moved it up, largely because we just thought it was time to reward our employees, and at the same time, that-- last week, we gave the employees who work for the company 3%, 5% and 7% raises, up to two years, two to five years, and above five years under $100,000 because we're trying to make sure that those employees realize how much they're valued, and have a career with our company. And it helps our attrition and all the things. It pays for the shareholder and it pays for the employee, and it works out.

BRIAN SOZZI: Good, positive initiative. I like to hear that. Now you're going to reach $25 by 2025?

BRIAN MOYNIHAN: Yep. Yes, sir.

BRIAN SOZZI: Has that helped you retain talent?

BRIAN MOYNIHAN: Yeah, we-- we've been on a long-term program starting in 2010, when the team took over. And they did a great job. We basically made a decision to invest in careers for our--our teammates. So it's not only the wages-- it's the benefits, it's wellness benefits, it's child care benefits-- $275 a month per child for our teammates in lower-paid areas.

Health care's been flat, in terms of premium costs, for our low-- for employees under $100,000-- $50,000 to $100,000, maybe up a percent or two. So we have a long package. But it started back then with a view that-- and our attrition rate, especially in the processing jobs, in call centers, was running higher.

That attrition rate went from 20% to 15% to 12%, pre-pandemic. Dropped to next to nothing during the pandemic, then started coming up. And this is a goal-- to keep that attrition rate coming down because each point to us is 2,000 people. So it's a lot of work to hire the people and stuff.

Now we don't have a problem hiring people. We hired 7,000 people in the first quarter. So it's not hard to do.

BRIAN SOZZI: Look, if I work in a retail or I'm making $15 an hour, why not just come work at Bank of America? And what I'm saying is, shouldn't that be the new normal out there with wages-- $22 an hour, if not even higher?

BRIAN MOYNIHAN: It depends on the company's economic model. In other words, our economic model allows us to have strong profit margins and deliver to the shareholder, and while doing this and stabilizing, get the payback, in terms of experience and handling customers. The easy tasks that we handled have gone away. So the sophistication of our engagement with customers is different.

Now by the way, with our vendors, we may-- they've all gone to $15 an hour three years ago. We said, if you're going to provide services to us, you will get there. And we pay them in our contracts to do that because we want them to have the stability in employees. If you're our guard team at our branches protecting our teammates, we want you to be paid well and have a career mindset because that's important.

BRIAN SOZZI: OK, now let's switch gears a little bit to the dreaded R word-- recession. A lot of executives such as yourself are getting this question right now. But here's Bank of America raising wages. I got to a lot of the stores in the malls in the United States-- they're still crowded. What do you see?

BRIAN MOYNIHAN: Well, I-- so our-- Michael Hartnett, our economist for our research team, which is number one in the business--

BRIAN SOZZI: He's the best.

BRIAN MOYNIHAN: --he's the best. So Michael said it was one in three last Friday. But you have to remember, Michael would have said, if you asked me a year ago-- a year ago wasn't right. If you'd asked him pre-pandemic, he'd have said, yeah, 15% to 20% chance.

So he moved it up. And that's because he's-- he's a believer that the Fed has to take some aggressive rate action. He was the first to call for, I think, seven rate rises in January, February. People thought he was crazy, and now the whole market came that way.

So the idea is-- why do they need to move that aggressively? Because inflation's real. It wasn't temporary-- it's real. But there's a good aspect to what's going on in America now, which is American consumer is very strong.

So that presents a challenge to the Fed, but it's also a good thing to be working against. Their leverage is in great shape. Their account balances have gone up very-- very dramatically. Even though stimulus stopped in March of last year, the account balances of our-- our customers of Bank of America have gone up every month since last June or July. Went up faster March to April than they did any other month.

If you think about the ability to borrow-- the credit card balances are still down from $100 billion to $80 billion. That means the same customers could go back and borrow the money. They're highly creditworthy. The-- if you think about their spending-- their spending in the month of May-- the first two weeks-- is up 10% over last year.

They're outdoing things. Now it's shifted more to services-- travel, restaurants are strong.

BRIAN SOZZI: So May good?

BRIAN MOYNIHAN: That's good. May is good. Up 10% over last year-- and by the way, that's overcoming the tax payments. If you remember last year, you could pay your taxes in May. A lot of people took advantage of that, so that's even overcoming that 10% transaction volume [INAUDIBLE].

All that's good. Now there is a different side to that. Actually, even if you look at our customers-- receipts from their pay checks is up 8% year over year. In other words, we can see-- not Bank of America employees, but other-- you can see their periodic payments come in. The good news-- that is a great place for America to be, relative to the rest of the world-- that strong, consumer-led economy.

Our consumer economy is as big as China's economy. You know, it's-- this is a very good thing. The tough thing is with low unemployment, wage growth, then the Fed's job is tougher. And that's conundrum.

So Michael has them slowing down the economy-- gets slow in the second half, and then-- he hasn't announced 24, but my guess-- it will start to come out of that.

Doesn't go into recession by his current prediction. But the probability went up.

BRIAN SOZZI: All right, so no recession this year. Good thing. Maybe not next year. But is that a stagflationary environment?

BRIAN MOYNIHAN: No, they've got to choke off inflation. And that may drive growth below trend. So our predictions this year are 2.56%, next year at 1.56%. And that's been down.

If I-- you or I were talking in January, that have been probably 3 and 1/2%. And so they've dropped a whole point-plus off. And so that goes below trend, which means they've actually overshot slowing it down.

And so his thesis is they'll get inflation under control. But again, that consumer is going to make it tougher and easier because frankly, if people are employed and have money to spend, that means that the US economy will continue to be strong. And that's not a bad thing.

BRIAN SOZZI: Brian, you're the only Bank of America CEO that I have known in my career. And I was thinking back last night on the crises and the things you've seen-- the cycles you have seen. Are you confident that the Fed gets this right? This rate hiking cycle-- they get it right, where they can raise rates, bring down inflation, and the economy still grows?

BRIAN MOYNIHAN: So-- so let's go to the other case-- what if they don't? What if we go into a recession? Most people even say-- if you look at the blue chip economists, none of them have a recession in the next two years. They may change that next month, but as of May, May-- when you go down a survey-- if you look at the street economists, none of them predict negative quarters and stuff.

So-- but if they get it wrong and it was-- at the end of the day, with this much money on the sidelines and stuff like that-- and the market's already reacted to the rate. They're already priced at 10 year up, even though it's come back down-- a lot of the adjustments are being made. And so you know, that's going to be-- so it'll be shallow. Whereas-- but the reality is the rate structure has to move.

Why? The economy is bigger than it was in 2019. The unemployment rate's lower. The projected growth for this year is actually stronger than the projected growth was for '20 before the pandemic. Why wouldn't the rate structure be at least the same?

And they've got to put it up to normalize that. And when you do that, then you don't have false growth-- don't have inflationary growth. So I think that's a good thing. So I think-- as you think about it, they have to slow down the economy or it will go below trend.

If it goes into recession, the way we run right, the way we've driven responsible growth for the last decade-plus-- we stress test every quarter. We know what 10% unemployment looks like. You'll see it in the stress test. You'll see it in the results here in a few weeks, I think.

And you'll see it-- and it shows-- we have the cap liquidity. And by the way, the whole industry does. And that's a good thing.

BRIAN SOZZI: That is a good thing. So when you talk-- a lot of CEOs and executives and global leaders come to you for advice. When you talk to them now, how concerned do they-- are they about an economic slowdown? What-- what do you hear in their voice?

BRIAN MOYNIHAN: So the challenge for certain people is-- they're having inflationary pressures and they tried to hold price, and therefore they got pinched on margins. And you saw that come out. But that'll adjust its way through. The interesting thing is-- a little phenomena going on earlier in the year and late last year was a lot of people got people from higher inflation economies to come work in the US and say, you have to move on price, you have to get your balance back.

If your inputs are going up, your outputs have to go up. Now the scarcity that was driving this is also a different measure. So people can't get-- they can't get stuff. So if you have a parts manufacturer-- you're willing to pay to get the raw materials to get that part out because you know it's going to be-- it's already forward-sold. Backlogs are huge.

You know, I've talked to a company that makes parts for golf carts. And they're booked through December, the fellow said. Every piece of plastic they can get home to make the golf cart pieces-- they grab it. Whatever the price-- they'll pass through the price--

BRIAN SOZZI: I have been playing a lot of rounds.

BRIAN MOYNIHAN: That's different-- but that's different from somebody else who can't pass the price. So it's a different-- little different outcome, CEO by CEO, company by company, business model-- how easy it is to pass that price. The reality is these supply shortages have to get normalized for the economy and normalized-- and we thought that would be over by now.

It's still difficult. And that's another one that we have to worry about. But [INAUDIBLE] got a little worse, got a little better. So that is something I think the governments of the world have to really get done-- which is get those things re-started.

BRIAN SOZZI: What we're seeing in the markets right now is a market that I don't think a lot of people have seen before. You've seen pretty much everything. Do you think that feeds back into how consumers spend, and hits their-- it is hitting their wealth. Do you think they go and cut back on their spending?

BRIAN MOYNIHAN: So in the-- a lot of people talk about zero trading and digital brokerage and stuff. In the '90s, we had SURETRADE and all these companies. And I had-- and if you looked at the Michigan confidence numbers and trading volumes in retail, they ran together. Now is that-- which causes which is an interesting question.

So the reality is when consumers-- the market's up, and they're feeling good-- they've-- trade more. When the market comes down, they trade less. So as consumers, we'll adjust to the fact that the-- wealth effect of their homes, the wealth effect of their things. The reality is they're still up a lot from sort of-- if you take '19 as a baseline, and you look at prices of real estate, it's still up a lot.

So it'll come down or flatten out-- the new homes or whatever. The sales today were down a little bit. That's all-- that's the expected outcome the Fed has to achieve to slow things down. So yeah, they'll adjust. And that's been true for 25 years of having this business-- $0 trades are not a new concept.

We did it in 19-- 2006 or 7 and had buses around here. These are not new concepts. Applied differently, talked about differently-- the reality is if people feel wealthier, they spend more. Wealth affects a broader base of consumers-- and most economists know because of the 401(k)s and other translations.

Now interesting-- as the stock market adjusts-- now that was used in compensation-- that creates an interesting dynamic because people got paid in stock. I get paid all but my base salary in stock, and it's worth less. But that's not really relevant. But if you think about an average employee at a technology firm, this downdraft-- that creates some pressure on them. That'll be interesting to see them adjust to that.

BRIAN SOZZI: Indeed they will. Last before I let you go-- another key theme here, Davos, is cryptocurrencies. I haven't heard Bank of America talk a lot about what they may or may not do in cryptos. But now that I have you here, I'm asking you.

BRIAN MOYNIHAN: Well, from a-- so the reality is that we run a payments business across our platform. It was trillions of dollars a day. And almost all of it's digital. But the thing is it's-- and the customers we know, when we've done the KYC and AML and sent it out.

So if you think about the blockchain, we have-- I don't know-- hundreds of patents on blockchain as a process and as a tool and as a technology. If you think about the question of you know, digital movement of money-- you have 60%, 55%, 60% of our consumer already moves digitally. Zelle payments-- we have 54 million digital users. None of this is new stuff.

BRIAN SOZZI: I'm one of them.

BRIAN MOYNIHAN: Yeah. But if you think about the question of what was the issues-- cryptocurrency things trying to sell off, cross-border movement, things-- those are real issues and the industry is moving faster to move them. The reality is--is that we can't do it-- by regulation, we're not really allowed to engage.

So in the trading side, we could do it. Our research team writes on it. But we're not engaging in accounts for people in cryptocurrency and stuff when we're not allowed to, frankly-- and because we're regulated and they've said you can't-- they've said, you have to ask us before you do it, and by the way, don't ask-- was basically the tone.

BRIAN SOZZI: Do you feel as though you're missing out on the next big thing?

BRIAN MOYNIHAN: No.

BRIAN SOZZI: No.

BRIAN MOYNIHAN: No. I mean, our big thing is helping consumers in America have a successful financial life. Our life plans, financial planning tool-- four or five million users-- only started three years ago. That's what you need to do-- is get people to learn how to make their money work more for them to help in their lives.

Then you go to the corporate side-- it all moves digitally. It moves at a moment's notice-- real-time payment systems, billed at the clearinghouse. We're up in operational. Other peer companies are, moving money real-time, connecting real-time in Europe to US and Mexico and to Asia-- it's going on-- these are things. So we're not missing anything. We're driving payments through the roof.

BRIAN SOZZI: Well, we'll leave it there. I will say this, though-- it's been a pleasure following your career. You've been a beacon of stability every single quarter, just getting after it and doing a lot of good things at Bank of America. Thanks for joining Yahoo Finance.

BRIAN MOYNIHAN: Oh, thanks. And the team does a great job, and I'm proud to lead them. And we call it responsible growth. And the team's out there doing it again this quarter-- they've got to get to work.

BRIAN SOZZI: Good to see you again.

BRIAN MOYNIHAN: Thank you.

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