Bank of America Corp. sees damage to the world’s economy from a euro breakup as a greater threat to the lender than any loss it may suffer on direct European holdings, said Chief Executive Officer Brian T. Moynihan.
The continent’s debt crisis is already a drag on global business, and the firm has been preparing for upheaval if the euro falls apart, Moynihan said at an investor conference in New York. The CEO of the second-largest U.S. bank spoke as speculation swirled that Greece will abandon the euro and the currency slumped to a two-year low against the dollar.
“It’d be not a very pleasant day and hopefully it never happens,” Moynihan said. “It would have a pretty good knock-on effect in terms of slowing down the world for a while, until the world figured out what this meant and what would happen.”
Bank of America and its rivals are under pressure as new regulations pinch revenue and Europe’s debt crisis roils financial markets. The turmoil intensified as Italy failed to meet its maximum target at a debt sale, Spain struggled to bolster its banks and a Greek poll showed gains for parties opposed to austerity that came with an international bailout.
“We worry about it a lot, and the only thing you can do is continue to position your direct position as well as you can,” said Moynihan, whose bank is based in Charlotte, North Carolina.
The firm reported $15.1 billion in loans, counterparty risk and investments in Greece, Ireland, Italy, Portugal and Spain as of the first quarter, before hedges meant to minimize risk. That’s down from $15.3 billion in the fourth quarter, and a small fraction of the bank’s $2.2 trillion in total assets. Much of the European exposure is with large firms that operate around the world, Moynihan said.
In the U.S., Moynihan said consumer spending is being helped by lower gasoline prices and corporations keep finding ways to adjust their models to bolster profit.
“Europe and everything colors the viewpoint of the people around the capital markets,” Moynihan said. “But if you look out in general America, consumer spending is consistently up month after month after month.” Some of the bank’s business teams need to do a better job to increase commercial lending, Moynihan said.
Bank of America gained 34 percent this year through yesterday’s close, the best showing in the Dow Jones Industrial Average. The shares were still down about 36 percent from year-earlier levels, and dropped another 4.3 percent to $7.11 as of 12:27 p.m. in New York.
Moynihan’s goals include trimming as much as $8 billion in expenses, including 30,000 job cuts in retail and support operations. More than 300 jobs may be eliminated from corporate and investment banking and trading units, a person familiar with the matter has said.
Moynihan, 52, has said he’s counting on trading to help revive income at the lender, whose consumer operations have been hobbled by more than $42 billion of expenses tied to faulty mortgages and foreclosures.
While Moynihan said he’s striving to put those problems behind the company, Bank of America had to meet a new demand this month from Freddie Mac, the mortgage buyer controlled by the U.S., for refunds on $330 million of defective home loans. Most of the mortgage pools affected were drawn up as recently as 2010 and 2011, according to analysts at Barclays Plc.
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