Bloomberg News

BofA Chief Moynihan Sees U.S. Consumer Spending Rebound

March 09, 2012

Brian T. Moynihan, chief executive officer of Bank of America Corp. Photographer: Simon Dawson/Bloomberg

Brian T. Moynihan, chief executive officer of Bank of America Corp. Photographer: Simon Dawson/Bloomberg

Bank of America Corp. Chief Executive Officer Brian T. Moynihan said he sees signs of a rebound in U.S. consumer spending that would help improve earnings at the second-biggest U.S. lender.

Purchases by the bank’s credit and debit-card customers increased 5 percent to 7 percent for each of the last five months, Moynihan said in an interview airing on Bloomberg Television today. The company handles $35 billion to $40 billion of such transactions a month, he said.

“The American consumer is healing,” Moynihan, 52, said in New York yesterday. “There’s still an unemployment problem, we all have to work to solve that. But this economy is much better than it was six months ago or six months before that. It just keeps feeling better.”

Bank of America sold $33 billion in assets and announced 30,000 job cuts last year as Moynihan sought to trim expenses in line with stagnant revenue. He finally may be getting help from the U.S. economy as faster job growth, stock market gains and rising wages fueled a four-year high in household confidence last week, according to a Bloomberg survey.

Moynihan said that while he expected the U.S. economy to expand 1.5 percent to 1.8 percent, there was the possibility of positive surprises in economic figures, in contrast to the last year, when economists revised growth estimates lower.

‘Realistic’ Expectations

The CEO is counting on a U.S. economic recovery to help reach previous goals of earning $35 billion to $40 billion annually before taxes. For that to happen, U.S. growth must accelerate to 3 percent, while interest rates must rise and the firm’s costs need to decline, Moynihan said yesterday at a conference in New York.

He also said it wasn’t “realistic” to expect interest rates to rise before the first half of 2014. Expenses will come down as he cuts jobs, closes branches and increases automation at the Charlotte, North Carolina-based lender, Moynihan said.

Costs in a Bank of America unit managing soured mortgages will peak in the first half of this year at about $2 billion per quarter and should decline from there, he said at the conference. The lender has booked about $42 billion in costs tied to repurchases, litigation and writedowns from faulty mortgages and foreclosures since 2007.

Economic Catalysts

“As the economy heals more and more, we won’t have that runoff portfolio that’s costing us a couple billion dollars a year,” Moynihan told Bloomberg Television. That is one of the “catalysts that are moving the company along. We are moving to where people are saying ‘When do we see the core earnings stream of this company come through?’ And that’s a challenge that I’m happy to have.”

The CEO has spent the last two years cleaning up after his predecessor’s decision to acquire Countrywide Financial Corp., the biggest home lender during the U.S. housing bubble. Investors who buy loans are entitled to ask for refunds or compensation if they find missing or inaccurate data on home values or the borrower’s income, and Countrywide has been criticized by regulators for lax policies and sloppy procedures.

Bank of America agreed last month to contribute almost half of a $25 billion industry settlement ending probes into abusive foreclosure practices. The accord, which included 49 state attorneys general and the U.S. Justice Department, will include borrower assistance and payments to the government.

Debt Reduction

The lender will offer to reduce the mortgages of 200,000 homeowners to market value, a deeper reduction than other firms, the Huffington Post reported on March 5, citing an interview with Secretary of Housing and Urban Development Shaun Donovan.

To recoup revenue lost to regulations limiting overdraft charges, Bank of America has been testing new consumer accounts to ensure that users pay monthly fees unless they keep minimum balances, make regular deposits, buy with credit cards or use online services. The move drew criticism from lawmakers and consumer advocates.

“Some of these fees strike a fairness chord,” Moynihan said. “We understand it, but as time progresses, we’ll get the balance right. Because would you rather have really heavy overdraft fees or pay a monthly fee?”

To contact the reporters on this story: Hugh Son in New York at hson1@bloomberg.net; Betty Liu in New York at bliu17@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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