Tags: BofA CEO 5 Fee Needed to Pay for Dodd-Frank

BofA CEO: $5 Fee Needed to Pay for Dodd-Frank

By    |   Thursday, 06 October 2011 02:57 PM

I had the pleasure to sit down with Bank of America’s CEO Brian Moynihan yesterday in DC at the Washington Ideas Forum. We cover a lot of ground.

LARRY KUDLOW, host: Brian Moynihan, CEO of the Bank of America, welcome. Thank you for doing this.

Mr. BRIAN MOYNIHAN: Oh, thank you.

KUDLOW: I appreciate it very much. You're like a really famous guy now, and your bank has become incredibly famous because of $5. I've never seen anything like it. So I'm going to ask you — I want to begin with the $5 question. Adding five bucks a month to a BofA customer's debit card account has caused the most massive political backlash I've ever seen. First of all, why did you do it?

Mr. MOYNIHAN: Oh, we have started over the last three years with a basic vision for our company to be completely clear, transparent with our retail customers because as you watched the industry build up practices over the last 10, 15 years there were things that people didn't like, overdraft fees. And so starting 2009 we started with mortgages with a simple page describing a mortgage, then we went to credit card, then we went to our checking accounts. Then we took the overdraft fee penalty fees, because remember the last great discussion in our industry was a $35 cup of coffee, and we got rid of that. And so in doing all that we are building a transparent clear view. So when you think about this fee, really, it's a fee that's — anybody that has a mortgage or card or significant savings, a biweekly paycheck or something will probably get out of this fee because they're our main bank.

KUDLOW: But just — I understand the transparency, and I appreciate that, and any banker who talks about transparency deserves a lot of credit. But isn't this a function of the Dick Durbin amendment, what is now being called the Durbin tax? Because that was the price control on the debit transactions for the retailers. In effect, Wal-Mart out-lobbied the Bank of America and the ABA, so you got yours cut back from, what, 45 cents to 20 cents. So now you're down two billion — you tell me if I'm wrong, this is my narrative that I read about — and you got to make it up because you're in the business of profits, right? I'm going to get to profits in a minute. It's a dirty word according to the president. But just on this narrow point, Durbin, who was saying get away from the Bank of America, he's like promoting people to go away, he — didn't he cause this in the first place?

Mr. MOYNIHAN: I'm glad I gave you something to ask about today, Larry.

KUDLOW: Well, this is so hot. We had — we had lunch a week ago, nothing was going on. Now you're like — it's the most famous five bucks in the history of this country.

Mr. MOYNIHAN: The — I'd say taking out the politics and really getting into what we're trying to provide, we provide 18,000 ATMs, 5700 branches. People can access their money with no charge, the ATM cards, that all goes forward. So I'd stay away from the politics and really focus on — we know our customers...

KUDLOW: But it was part of Dodd-Frank.

Mr. MOYNIHAN: The reduction and interchange fees...

KUDLOW: Right.

Mr. MOYNIHAN: ...was part of Dodd-Frank. In retail banking, the ability to be profitable has changed. And so what we're trying to respond is how do we rebuild a profitability because of the need to return shareholders and provide all these great services for our customers, at the same time trying to be absolutely clear with our customers. If — it's about choice. Do you choose to — do you choose to use the services this way, i.e., electronic banking vs. branch banking, and that's what we're trying to work through.

KUDLOW: All right. So the president's not happy with you either, and he's quoted — ABC News, all right? "Banks do not," — quote, "Banks do not have some inherent right just to get a certain amount of profit. Now, that is a very heavy duty statement for a president of the United States to make. First of all, to you, what does that mean?

Mr. MOYNIHAN: Well, I have an inherent duty as a COO of a publicly held company to get a return for my shareholders. At the same time, I have an inherent duty to do a great job for my customers. And I think between — we know our customers, we know the choices we give them. We have 50 million, and we listen to them all the time. So I think that what I focus on is providing great service to those customers and also getting a fair return for my shareholders, and I think that's my job.

KUDLOW: You believe in the profit motive.

Mr. MOYNIHAN: Absolutely.

KUDLOW: And you believe that that's, in effect, your highest calling as a banker. You're operating in a free market economy, more or less.

Mr. MOYNIHAN: Right.

KUDLOW: All right. So what do you make of Obama's statement? Is he threatening you? Is he saying they're going to send the new Consumer Protection Bureau in to roll back your fee increase and other increases? What does it mean? Why is he saying you — there's no inherent right just to get a certain amount of profits. I've been around a while, I don't believe I've ever heard a US president directly attack profits in this manner.

Mr. MOYNIHAN: Well, I think — let's talk — on the Consumer Protection Bureau. If you look at what they have set this up and what it stands for, we've been working with it since it was an idea, when Elizabeth Warren was putting together the idea, and we believe that transparency and fairness and clarity are the right things. And if — actually if you see the statements the bureau made today, it's — that's what they believe and that's what we believe. So our customers will see this. This fee doesn't start till next year for new customers, doesn't start till halfway through next year for current customers. And it'll apply to those customers that don't have their total relationship with us. We'll have that dialogue with the customers, it'll be transparent, it'll be clear. It is consistent with the motives of the Consumer Protection Bureau.

KUDLOW: Will you respond to the president? I think you're a leading banker in this country. All right, one of your colleagues and friends, Jamie Diamond of another great bank, JPMorgan, he blasted administration regulatory policies on several occasions, actually. Now, this--you have no right to make a profit just to get a certain amount of profit I think has gone into overkill. Will you — have you issued a statement? Will you write an op-ed piece in one of the big newspapers protesting that, in fact, profit-making is a good thing, not a bad thing?

Mr. MOYNIHAN: I think we will talk to our customers, we'll talk to our teammates, which we have, and they'll understand what we're doing. They'll understand we have a right to make a profit with our shareholders. I don't — I don't think to engage in the discussion that you're leading to is really what's important. What's important is being clear to the customers, providing the great services we provide, and making a profit that we can return to our shareholders. That's absolutely what we need to do.

KUDLOW: All right. And after this pleasant experience, will you be raising other fees?

Mr. MOYNIHAN: We will make sure that we balance everything we do with how we listen to our customers. And so we listen to our customers on a daily basis, more than anybody else. So one in two households, we know what they do. For example, we know what they spent last month in September, which would be news to a lot of people. They spent more than they did last year September. So we look at them, we'll talk to them, as we do everything. We use panels of customers, we talk to all the external constituencies that would be factored in. Banks have a special relationship with their communities and stuff.

KUDLOW: Mm-hmm.

Mr. MOYNIHAN: We have community groups we work with, we have advocates we work with, and all this has been through that process. And likewise when we do something in the future we'll go through that, too.

KUDLOW: All right. Let me ask you, then, taking this profit, anti-profits, it's really kind of right out of some central planning Soviet style, old Soviet style handbook, I mean that's really what it sounded like when I first heard it. OK, some may disagree, but that's the way I heard it. Is the government still waging war against banks? All right, you have this fee flap that's going on with some pretty harsh language from the president and also from Senator Durbin. Now, in addition to that, many bankers, including Mr. Diamond, believe that Dodd-Frank, with its thousands of pages of regulations, most of which are uninterpreted and unforced, but no one knows. You mentioned the Consumer Finance Protection Bureau. Fannie and Freddie are taking you to court for mortgage-backed bonds, states attorneys general are taking you to court for mortgage-backed bonds. The attorney general of California just left the consortium, she's going to take you on all by herself. I mean, do you feel under siege. Does the bank feel under siege, and is the government waging war against banks in the midst of this sluggish recessionary economy?

Mr. MOYNIHAN: Well, I think, if you think about what I heard the secretary — Secretary Geithner say before, we have a strong banking system. From 2008 to now the industry's raised tremendous capital, has tremendous liquidity. Our capital as a company has doubled. We have a narrower franchise that we've continued to get out of things that we didn't think were customer-driven. We are in a much stronger place. A strong banking system is needed to have a strong economy. In America, we have a strong banking system. We have stuff going on in Europe that people are worried about. We don't see the direct impact here, and that's because of the risk management and the work we've done. So do I feel — we feel that we need to keep focus on--let's go forward. Let's not — let's not talk about what happened three years ago.

Let's focus on the issues we got in the economy now, creating jobs, helping — making loans, all the things we do. but we're a much stronger financial system. So...

KUDLOW: You are, unquestionably, but I want to just press the point in a moment. There's so much — it seems like there's so much political and governmental hostility towards banks. Some of it may be justified, and some of it is not justified. I'm a free market guy, so I think banks, you paid your dues, you paid your TARP back, you ought to be able to go out and help the country recover. A lot of people don't agree with that. Do you feel under assault? Do you think banks are going to be a political issue now, as clearly they are as we meet today? I mean, Durbin's telling people to get away from the Bank of America. That is extraordinary for a US senator. You've got branches in Illinois. You've got a lot of branches in the Chicago area, as far as I know.

Mr. MOYNIHAN: We have 7,000 employees in Illinois.

KUDLOW: There you go.

Mr. MOYNIHAN: (Unintelligible)...in the United States.

KUDLOW: Do you think it's odd for a senator to tell people to get away from you--it's not quite a run on the bank, but it's an odd formulation. Do you feel under attack?

Mr. MOYNIHAN: No. We have a great — we have the best bank in the — in the world, we do a great job for our customers. I think when — you know, I think that if you think about what's gone on — with Dodd-Frank, we got a lot to do in implementing those rules to make sure they allow us to support our customers.

KUDLOW: Mm-hmm.

Mr. MOYNIHAN: And whether it's a corporate customer or an individual customer. And that's what we need to do. And part of the political dialogue and debate, we need to focus on the energy of making sure we move forward, and I think when people talk about Dodd-Frank, the worry that it will swing too far and actually impact our ability to help companies grow and employ more people and things like that. When people talk about the capital rules where it costs too much to leveraging in the system. So all that is — it's trying to balance the safety and soundness and the strength of the financial system with the reality that we had a very serious set of issues three and four years ago and trying to balance all that with the reality we got to grow. In America we got to grow, and current projections for growth are lower and we got to figure out ways to grow.

KUDLOW: How much is Dodd-Frank costing the Bank of America, all in, when you look at proprietary trading, potential implementation of the Volcker rule, the various fees that are being interfered with now that are causing you to switch around? How much — how much are you losing because of Dodd-Frank, do you reckon?

Mr. MOYNIHAN: Well, we have made estimates of various parts of it. It'd be in the billions of dollars of revenue.

KUDLOW: Billions of dollars. And can you overcome that? You — the loan demand is soft. I mean how does the bank remain as profitable? And I ask it — you're new to the job, you inherited this thing, you're trying to pull it together. Many people think you're doing a great job. But the stock doesn't do well. You're always sort of the first stock to go down the largest amount when something sweeps through the banks. And I know today bank stocks did a little better. Why is that? How do you look at that as the CEO. Why is your stock more vulnerable?

Mr. MOYNIHAN: Well, I think we represent a lot of people's views of the growth of America, the mortgage issues are out there. Our European exposure would not be something people would focus on because it's not something to focus on, so...

KUDLOW: But you have Merrill.

Mr. MOYNIHAN: But the amount of our exposure's very small. I mean, we have $230 billion of capital, so we've managed through that very well, continued to make money in the — in the markets and things like that. But I think people worry about the growth, the earnings power of the — of the — largely because the economy projections have deteriorated over the course of this year in terms of what people think the rest of '11, '12, '13 look like, fairly significantly.

KUDLOW: So Bernanke says yesterday just on this very point, he says the recovery is close to faltering. You're sort of saying the same thing.

Mr. MOYNIHAN: Well, I mean...

KUDLOW: And your stock reflects that because you're sort of an everyman's bank. You're the largest, you've got the most customers. You're also the largest mortgage lending bank, if I'm not mistaken. So the economy's faltering is the BofA's faltering, is that fair?

Mr. MOYNIHAN: Well, I think we — we're going to reflect the economy, although our credit quality and stuff is not as correlated with the economy at this — as we see the economy flattening out, new claims for unemployment, the unemployment rate, because largely of the improvements we made in the system, as all our peers did three years ago. And so we're in much better shape as the economy has softened in terms of the growth. The economy is still growing, and I think what Chairman Bernanke, I think, expressed yesterday is the fear that we got to keep that going. So growth of a percent, percent and a half is a lot better than no growth, and that's what he's trying to make sure that that momentum stays forward because the alternative is not very attractive.

KUDLOW: Question on housing. You're a big housing lender, you own Countrywide, which is a big can of worms by itself. But it is what it is, and it puts you in even stronger shape. Is there any sign of a recovery in housing at all? Sales, foreclosures, activity, pricing? It seems like that by itself is pulling down the economy. You see anything better?

Mr. MOYNIHAN: Well, the first thing to think about housing is we service 20 percent of mortgage loans in America, so we are — we see what goes on. Our first job is to make sure as we deal with borrowers that can't make their payments to do everything we can to keep them in the home, and we've done that 900,000 times in the last 18 months. So we have made modifications to help people stay in. Once they can't do that, the key is to handle with dignity the process of getting through them to short sale or foreclosure. That is a bad outcome for the family, a horrible outcome.

KUDLOW: Mm-hmm.

Mr. MOYNIHAN: But on the other hand, when you see that taking — when you see the system move forward, you're seeing the pricing firm up, you're seeing the pricing flatten out. It's not — we aren't seeing it going anywhere, but...

KUDLOW: It's flattening out.

Mr. MOYNIHAN: Yeah, it's flattening.

KUDLOW: It's not falling anymore.

Mr. MOYNIHAN: Well, and it depends on which market and stuff like that. But you see the markets where you can see activity go...

KUDLOW: How about in California? Is it flattening out there?

Mr. MOYNIHAN: Parts of California. Parts of California fared reasonably well lately. Reasonably, in the context it was here and came down to here and now it's flatter. But if you look at it, what's happening is we sort of are getting through the problem. Like, the way to think about housing, is prolonging this problem is not going to solve the problem right now. We have to get through it, and that means that we've got to keep going through the transition process that will happen. We've got to do it well for the people involved.

KUDLOW: Isn't it fair to say the faster the foreclosure, the better off we're going to be? And I know there's pain; but, of course, some people lose, other people win. Young families come in, and they're going to get great homes at very low prices. But the point is, the faster we clear out the unsold inventory, the sooner this country might start creating jobs in a real — in a real economic growth situation. Is that — is that fair?

Mr. MOYNIHAN: You can look at the markets and see. Where the markets have had the inventory cleared, you're seeing prices stabilize.

KUDLOW: So these attorneys general around the country that are blocking you because there was a few bad robo-type letters or whatever they were, robo-signing letters, they're like — they're keeping the economy on its back because they won't let the housing market adjust, and they're all over Bank of America. You're like their favorite guy.

Mr. MOYNIHAN: I'd say that if you think about what we're trying to achieve, and all of us are trying to achieve is a resolution so we can move forward with attorney generals. And that may or may not get done. It's been going on for quite a while. But the principles behind it —  modifying loans, being absolutely transparent, clear and fair in the foreclosure process so people feel that they were dealt with fairly, that's what we're doing. We have 40,000 people doing this. We're getting through the peak of it. And then it'll take us a couple more years to get through, but I'm confident we can get through it. If other people come and help, it'll go faster.

KUDLOW: All right, thank you for that.

Let me move to Europe. The obvious question is not will Europe survive but will the Bank of America survive a real systemic risk contagion in Europe? Now, a moment ago, you said you don't have a large exposure. That, I guess, puts you in a different camp than Morgan Stanley. Right now everyone is worried that Morgan Stanley is not going to make it because they have a large exposure. Even with Merrill Lynch, you're not worried about what could happen in Europe if it blows up?

Mr. MOYNIHAN: I think — I think the people heard Secretary Geithner talk about it. The real issues for Europe is for them to solve the situation, and there's a lot of activity going on right as we speak with the a facility being approved over the next few weeks. I think all that is going to really help. I think the market responds every day to the idea this could get resolved. There would not be — it would not be good for the American economy to have, an economy that represents one-third of the world, stay in the condition it's in. I think that contagion stuff is real. The reality, though, is the exposures and stuff and the amount of leverage in the system and the amount of liquidity in American system and what it — the way we're situated is far different. So, if you say the world's going to end tomorrow, that'll be difficult. If you say the world works...

KUDLOW: Are you ring fenced against that? You have a better capital position, everyone agrees. Are you ring fenced against a calamity coming out of Europe?

Mr. MOYNIHAN: Everybody works — analyzes that issue every day, and you've seen a lot of risk come down the market for people to protect themselves.

KUDLOW: Do you feel confident you could withstand a kind of European systemic contagion?

Mr. MOYNIHAN: We do feel confident.

KUDLOW: You do?


KUDLOW: All right. Let me ask about the generic question. I saw the German finance minister in the FT yesterday saying they might go back to 2008 operations to rescue the banks. That would include, among other things, things that we did here. And Tim Geithner is proposing again, and I happen to agree with Tim Geithner on this, the possibility of guaranteeing, FDIC-like guarantees of all bank liabilities, their deposits, their short term debt, their overnight debt, their long term debt. Do that, let Greece default and then go out and raise capital in the market because they're protected. Is that's what's going on? Is this going to be the new European — if it is, it might work, but I saw that Schaeuble said that and that, you know, got my antenna up.

Mr. MOYNIHAN: Well, I think that they are — in Germany and France and other — the policymakers are working to try to come up with a system. I think the principles of making sure the liquidity's there, to stop the liquidity runs, are — is one of the critical principles. And if you look back at '08 and the policy decisions to guarantee money funds, money market funds...


Mr. MOYNIHAN: ...to guarantee all deposits at banks, to really stop the liquidity run...

KUDLOW: It was huge.

Mr. MOYNIHAN: ...yeah, it was a huge benefit. And I think that that lesson was sort well in Europe, and I think they know that. I don't think it's a mystery. And I think that kickback, for lack of a better choice, all the different choices they have, they're well aware of. And as Tim — as Secretary Geithner said earlier, that they're working on it.

KUDLOW: Well, I give Geithner credit. I mean, he gave them a kick in the you know what a couple of weeks ago, and I think that's what they needed. I'll ask you., you were down at the IMF World Bank meeting and so forth. Do you think that the European, the Eurocrats in finance, are they energized now to do something or are they going to let the bond market in Europe just run the thing?

Mr. MOYNIHAN: Well, I think if you see — if you think about the amount of political activity that's been taking place even in the last couple of weeks, in terms of approvals, that...(unintelligible)...in Germany, I think they are energized.

KUDLOW: All right. So you're more confident about this?

Mr. MOYNIHAN: I'm confident they understand that they — the problem and that they're working through the solutions with reasonable pace.

KUDLOW: All right. So last set of questions, what have we got, a couple more minutes left? I can't really see that far.

KUDLOW: Last question.

KUDLOW: Excellent. Are you prepared to pay a 5 percent surtax as millionaire? That was the Senate Democrat proposal today, and that's going to be the facility to pay for Mr. Obama's jobs plan, and they're going to raise taxes on millionaires, which actually goes further than what Warren Buffett wanted. Warren just wanted it on capital gains. What do you think about this millionaires surtax?

Mr. MOYNIHAN: I think when people think about taxes, the clear thing that, when I go talk to our clients — so we have more affluent and wealthy clients than anybody in the world, we have 30,000 middle market clients — when we go talk to them, what they say about taxes, the real question they ask is what for?

KUDLOW: Mm-hmm.

Mr. MOYNIHAN: And if the belief is it puts our fiscal house in order, most people would say that's a great motive. And that's what they just want to see. They want to see the discipline of putting the fiscal house in order. Because a strong US fiscal house is critical for our economy over time, and they want — and so most people would say fine, but what for.

KUDLOW: Do you think using a millionaires tax or any generic tax increase, because there are several layered on to this package, to finance a temporary stimulus package, does that work? Is that — is that — haven't we tried that? Didn't Bush try that and Obama try that and it didn't work, and here we go again only now we're going after rich people another time? Does that work for you?

Mr. MOYNIHAN: I mean, I think people would like to see the deficit reduction commission have good work in bringing down the spending levels. They'd also be willing, if that took some tax help, to help it through. I think there's a broad consensus we've got to get after the fiscal help. The stimulus question I'd leave to others. I think, in my personal view, the — that we need to get jobs going in this country, and anything we can do to do that would probably make sense.

KUDLOW: All right, Brian Moynihan, CEO of Bank of America, I appreciate it very much. Thank you.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

© Creators Syndicate Inc.

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I had the pleasure to sit down with Bank of America s CEO Brian Moynihan yesterday in DC at the Washington Ideas Forum. We cover a lot of ground. LARRY KUDLOW, host: Brian Moynihan, CEO of the Bank of America, welcome. Thank you for doing this. Mr. BRIAN MOYNIHAN: Oh,...
BofA CEO 5 Fee Needed to Pay for Dodd-Frank
Thursday, 06 October 2011 02:57 PM
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