Bank of America CEO flags tug-of-war between inflation and higher wages but says consumers are still spending

By Steve Gelsi

Chief Executive Brian Moynihan is 'not worried' about competition from proposed credit-card merger but admits 'concern' over regional banks' exposure to commercial real estate

'Yes, prices are up, but wages are up, unemployment is down, people are earning money. And so that's the tug-of-war that's going on. And they've moved the consumer to a different level of spending and capabilities. Will that hold is going to be an interesting question.'Brian Moynihan, chief executive of Bank of America, on CNBC-TV

That was Bank of America Chief Executive Brian Moynihan speaking about the whipsawing economic conditions that banks and the Federal Reserve continue to navigate, as inflation persists even while unemployment remains low and wages continue to rise.

Moynihan said Bank of America (BAC) account holders are spending about 4% to 5% more out of their accounts than they did a year ago, but that the pace has dropped from 9% to 10% growth in the prior year.

"It's slowed down and it's consistent with a lower-growth, lower-inflation economy," Moynihan said in an interview with CNBC-TV on Wednesday. "And that's good news, because the consumer isn't going, you know, south and ... not spending."

Consumers are roughly in the same place as they were in 2019, before the start of the COVID-19 pandemic, but the investment rate has slowed because consumers remain more careful, he said.

Moynihan reiterated the forecast from Bank of America economists for three rate cuts by the Federal Reserve in 2024, down from an earlier forecast of four cuts.

Asked about the pending $35 billion acquisition of Discover Financial Services (DFS) by Capital One Financial Corp. (COF), which would create the country's largest credit-card company, Moynihan said he's not worried about consolidation in the business.

"So being the biggest is not necessarily what we want to do," Moynihan said. "We want to be the best with the best rewards product, preferable rewards, which is integrated with our consumer franchise. Eleven million customers are, you know, 70% of the balances in our consumer business that are tied with preferred rewards through their card, their checking account, the mortgage, their home equity. And that is where you generate real economic value for your shareholders."

Asked about the threat of falling office-real-estate values with more people working remotely, Moynihan said Bank of America has reduced its own office footprint.

Office-real-estate exposure is "heavily weighted" toward regional banks, he said.

"That's where the concern comes up from our research team and others," Moynihan said.

Office real estate makes up about 2% of Bank of America's loan portfolio.

"We feel very good about our portfolio," Moynihan said.

Bank of America's stock was down by 1.3% on Wednesday. The stock has fallen by 0.5% so far in 2024, compared with a 4.1% increase by the S&P 500 SPX.

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

02-21-24 1225ET

Copyright (c) 2024 Dow Jones & Company, Inc.