Q4 2023 Bank of America Corp Earnings Call
Yeah.
Good day, everyone and welcome to bank of Americas earnings announcement at this time, all participants are in a listen only mode.
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Speaker Change: I'll be standing by if you should need any assistance it is.
Speaker Change: Now my pleasure to turn the conference over to Lee Mcintire.
Speaker Change: Okay.
Good morning, welcome and thank you for joining the call to review, our fourth quarter and full year results. We know it's a busy day for all of you.
Speaker Change: As usual our earnings release documents are available on the Investor Relations section of the Bank of America Dot Com website.
Speaker Change: And they include the earnings presentation that we will be referring to during this call I.
Speaker Change: I Trust everybody has had a chance to review the documents.
Speaker Change: I'll first turn the call over to our CEO, Brian Moynihan for some opening comments before Alistair Borthwick, our CFO discusses the details of the quarter.
Brian T. Moynihan: Let me just remind you that we may make forward looking statements and refer to non-GAAP financial measures during the call.
Brian Moynihan: Forward looking statements are based on management's current expectations and assumptions that are subject to risks and uncertainties.
<unk> that may cause our actual results to materially differ from those expectations are detailed in our earnings materials and the SEC filings that are available on our website.
Brian Moynihan: Information about our non-GAAP financial measures, including reconciliations to U S. GAAP can also be found in our earnings materials and our website.
So with that I'll turn the call over to you Brian. Thank you very much.
Brian T. Moynihan: You and happy new year to everyone. Good morning. Thank you for joining us I'm starting on slide two of the earnings presentation.
Brian T. Moynihan: Here at Bank of America, our teammates finished 2023 with a solid fourth quarter.
Speaker Change: Reported EPS was <unk> 35, but that included two notable items that Alastair will describe in more detail.
Alastair: Adjusted for those two items net income was $5 $9 billion after tax or 70 cents per share.
Alastair: Before else recovers quarter four results.
Alastair: A moment and briefly review the 2023 full year results.
Alastair: Our team at Bank of America delivered strong profits for shareholders across a challenging year navigating a slowing economy geopolitical tensions bank failures and the impact of a rate hike of historic speed.
Alastair: And in a year, where the pretentious aura.
Alastair: Economists predicted a mild recession within a year and instead 2023 show cast economic resilience led by U S. Consumers. Despite higher interest rates. We ended 2023 with that economists are projecting that fed has successfully steered the U S economy to a soft landing.
Alastair: In regards to the economy. During 2023, we consistently made a few points regarding what we're seeing in our customer data here at bank of America first the year over year growth rate in spending from the beginning of twenty-three started declining and it went from in the early part of 'twenty three over the early part of 'twenty, two from a 99% to 10% growth.
Alastair: Right to this quarter's 4% to 5% growth rate and that's where it stands here early in 2024, you can see that on place slide 29 in the appendix.
Alastair: That growth rate, 45% is more consistent with a 2% GDP environment and a lower inflation environment.
Alastair: Second the point, we've made is that our consumer deposit balances of bank of America remain 30% higher than pre pandemic we.
Alastair: Saw the deposit bouts of consumer accounts move up lower this quarter, but are now seeing more differentiation of behavior and a lower average balance size accounts.
Alastair: The balances in there still remain at multiples of pre pandemic levels nearly three years past the last stimulus they are modestly declining.
Alastair: Deposit outflows you've seen in consumer has largely been driven by the higher balance accounts have moved their excess balances into the markets to seek higher yields.
We capture those with our leading wealth platform third the consumers of Bank of America I've had access to credit in a bar and responsibly their balance sheets are generally in good shape and while impacted by higher rates remember many of them have fixed rate mortgages and remain employed so they've shown great resilience.
Alastair: Let's move to discussion of full year 2023 earnings we reported net income of 26 Nap $1 billion after tax which includes $2 $8 billion. After tax for notable quarter for items adjusted for those items. Adjusted net income was $29 $3 billion. After tax earnings per share were $3.42 in that.
Alastair: Grew 7% over 2022.
Alastair: On that adjusted basis, we generated a 90 basis point return on assets and a 15% return on tangible common equity.
Alastair: Your 2023 was characterized by a record organic customer activity.
Alastair: Record digital customer engagement levels and satisfaction scores.
Alastair: Drawing, but slowing NII during the course of the year strong sales and trading up 7% year over year operating laboratory, reflecting good expense discipline solid asset quality, and our strong capital and liquidity position.
Alastair: Although this was helped by the years of bank of America's Assiduous dedication to responsible growth. This helped us bring our head count expense down every quarter. During 2023 in line with what we told you expect early this year.
Early last year.
Alastair: Adjusted full year revenue grew 5% on the back of 9% NII improvement and strong asset management fees and sales and trading results. We achieved 170 basis points of operating leverage in 2023 as.
Alastair: As heightened quarterly expense levels were driven lower throughout the year, even as the investments in growth continued.
Alastair: Net charge offs moved higher through the year after historic lows, but they still compare very favorably against historic averages.
Alastair: One last point worth noting is the level of deposits. If you think back as we enter 2022 and entered 2023 the great debate was how much the pandemic surge in deposits would dissipate.
But look looking today, we ended 2023 with 1.924 trillion dollars of deposits only $7 billion less than we had at year end 'twenty, two and 4% higher than the trough in may of this year.
Alastair: The total deposits total average deposits fourth quarter remain 35% higher than they did in the quarter for 2019.
Alastair: This has been tremendous work by our teams to drive our industry, leading market share actually outperforming the industry across the four year period.
Alastair: And again this year or are they kind of appears to continue to normalize and rates continue to have some volatility one thing that remains important as driving that organic growth is.
Alastair: Calling activity sticks to the ribs is what we wanted to spend a moment as I wrap up.
Alastair: On slide three we highlight some of the successes in organic activity and our results for the year.
Alastair: Bank of America team is a powerful engine is fueling results across all our businesses I bet I'd note a couple of examples to try and connect the importance to our financials.
It's easy to use the consumer business. As example considerably added 600000 net new checking accounts during the year 2023, the fourth quarter of 2023 represents the 20th straight quarter of net addition of head of checking.
Alastair: Checking accounts.
Alastair: The quality is what drives the checking account balances on average 67% of the deposit balances had been with us for customers who've been with us for more than 10 years, 92% of the consumer checking accounts are primary meaning there's a core client household account, 60% of our checking accounts use their debit card they average for it.
Alastair: Transactions.
Each year, showing how engaged they are they have tricia up in savings accounts, 20% to 25% of time when a few months of open your checking accounts thinking about those new accounts at opening those new checking accounts opened last year bring it about $4000 of balances than they deepen over this next subsequent months to two times that amount.
Savings accounts come with those accounts, starting with about 8000 doubling over time.
Alastair: From the total new checking accounts, we opened just in 2023 those customers have opened nearly a half a million credit card accounts with it so far.
Alastair: In 2023, historically, we've seen on average these customers more than double those card balances within a year those card accounts on average it's been about 7000 per year, which of which a portion will carry a balance now.
Alastair: Now there's always additional opportunity to further serve our clients and to continue to meet them, where they are in addition to the industry leading digital.
Alastair: Our platforms that we have we have opened 50, new financial centers in 2023 more than half of those were in our expansion markets expand our presence during 2023 to 10 more 10 markets, including our latest opening in Omaha.
Alastair: Global wealth management team, we added more than 40000, net new relationships across male and the private bank. Our advisors opened 150000, new banking accounts for wealth manager clients showing the completeness of the relationship approach. The average Merrill count is over $1 million at opening the average private bank account that's multiples of that as you can see on.
Alastair: Slide we now manage five four trillion dollars of client balances across loans deposit investments of our consumer clients, both consumer and <unk>.
Alastair: We saw $84 billion of flows into those accounts last year.
Alastair: As we switch to global banking on the lower left hand side of the slide we added clients increase the number of products per relationship just like in consumer we have seen some good growth in customers seeking the benefits of our physical and digital capabilities, but most importantly, our talent relationship managers, who provide financing solutions Treasury services strategic advice for clients with local and global.
Alastair: <unk>.
Alastair: We added roughly 2500, new commercial and business banking clients. This year, that's more than twice what we added in 2022, we look forward to continue to drive those grow with those clients in 'twenty four and add even more.
Alastair: This capitalizes on a multi year build up our relationship management team and a global banking businesses, especially.
Alastair: And product expansion also especially in the global transaction services area and mid market investment banking.
As we think about global markets, we continue to see strong performance from our team with 7% year over year revenue growth. The strongest we've had in many years.
Alastair: We see digital tools, our customers have access to across the board, helping us enable this activity at lower costs or know about digital banking slides are once again included for your reference on pages 21, 24 and 26.
Alastair: In summary, this was a good quarter, we delivered our third quarter of expense declines we saw in I outperformed what we expected when we talked to you on our last earnings call. We continue to manage well through the transition and the right structure beside deposits grow this quarter.
Alastair: And we look forward with a strong capital base draw on liquidity and growing loans and deposits to a great 2024, I want to thank my teammates for what they did for US in 2023, and we all know we're off to a nice start for 'twenty four.
Alastair: With that I'll turn it over to Alastair.
Alastair: Thank you, Brian and I'm going to start on slide four of the earnings presentation to provide just a little more context on the summary income statement and highlights.
Alastair: For the fourth quarter as Brian noted, we reported $3 $1 billion in net income.
Alastair: Or 35 cents per diluted share that GAAP net income number included two notable items first we.
We recorded $2 $1 billion of pretax expense, that's 20 cents after tax earnings per share.
For the special assessment by the FDIC to recover losses from the failures of Silicon Valley and signature bank.
Alastair: Second on November 15th 2023, Bloomberg announced that they were discontinued publishing the Bloomberg short term bank yield index rate.
After November 15th 2024, and many commercial loans in the industry had bisbee as a reference rate prior to sulfur becoming industry standard.
Alastair: As noted in an 8-K, we filed earlier this week, we came to a conclusion in early January that it would be cessation would not get the same accounting treatment of load under LIBOR cessation.
Alastair: And therefore cash flow hedges of bisbee indexed products related to basically cash flows forecast to occur. After November 15th 2024 would need to be moved out of OCI and into earnings in the fourth quarter 'twenty to financials.
Alastair: So as a result of the accounting interpretation, we recorded a negative pre tax impact to our market, making revenue of approximately 1.6 billion.
I just wanted to reinforce that's an accounting impact it's not an economic change to the contracts and we will see an offset to this over time through higher and I I, mostly occurring in 2025 and 2026 after bisbee ceases in November of 2024.
Alastair: The accounting lowered CET, one by eight basis points during the quarter.
And we will recapture that in the next two or three years.
Alastair: Adjusted for the FDIC assessment and the BSP sensation.
Alastair: It did impact.
Alastair: Q4, net income was $5.9 billion or <unk> 17 per share.
Alastair: On slide five we show the highlights of the quarter and we reported revenue of $22 1 billion on an FTE basis.
Alastair: And excluding the Busby cessation impact adjusted revenue was $23 7 billion and declined 4% driven by net interest income.
Fourth quarter revenue is a tough year over year comparison as NII peaked in the fourth quarter of 'twenty two at $14 8 billion.
Alastair: Before slowly moving lower over 2023.
Alastair: Outside of NII, we saw good growth in Treasury service fees and wealth management fees.
And those were offset by higher tax advantaged investment deal activity, creating higher operating losses, and the more tax credits associated with them and recognized across periods expense.
Alastair: <unk> expense for the quarter of 17.7 billion included the $2 1 billion of FDIC charge. So excluding that charge adjusted expense was $15 6 billion and consistent with our prior guidance.
Alastair: That allowed us to invest for growth as well as use good expense discipline to eliminate work and reduce head count.
Alastair: And on an adjusted basis. This then is the third quarter of sequential expense decline this year.
Alastair: Provision expense for the quarter was $1 1 billion that consisted of a 1 billion two and net charge offs and a modest reserve release, reflecting the improved macroeconomic outlook.
Net charge offs reflect the continued trend in consumer and commercial charge offs towards more normalized levels as well as higher commercial real estate office losses.
Lastly, our income tax expense this quarter was a modest benefit as credits from tax advantaged investment deals offset the tax expense on the lower earnings in Q4, driven by the notable charges.
Alastair: So let's review the balance sheet on slide six and you'll see we ended the quarter at 3.2 trillion dollars of total assets up 27 billion from the third quarter.
I'd highlight here, both the 13 9 billion dollar growth in deposits.
Alastair: And a decline in cash on balance sheet of 19 billion overall, you'll note that debt securities increased 19 2 billion.
And that included a 9 billion dollar decline in hold to maturity securities at.
100 billion increase in available for sale securities, reflecting short term investment of liquidity from all of these activities.
Alastair: We continue to put money into very short term T bills and hedged Treasury notes this quarter and those are essentially earning the same rate as cash.
Alastair: And you can see our absolute cash levels remain quite high.
As Brian noted liquidity remains strong with 897 billion of global excess liquidity sources that was up 38 billion from the third quarter of 23, and it remains 321 billion above our pre pandemic level in the fourth quarter of 19.
Alastair: Shareholders' equity increased $5 billion from the third quarter as.
Alastair: Earnings and OCI improvement were only partially offset by capital distributed to shareholders.
Speaker Change: Yeah, the Aoc I improved 4 billion, reflecting both the previously mentioned basically related reclassification into fourth quarter earnings and other a OCI improvements. This included some improvements and other cash flow hedges, which don't impact regulatory capital.
Speaker Change: And by a decline in long end rates.
Speaker Change: During the quarter, we paid out $1 9 billion in common dividends and we bought back $800 million in shares which more than offset our employee awards tanger.
Speaker Change: Tangible book value per share is up 3% linked quarter and 12% year over year.
Speaker Change: Turning to the regulatory capital R E T one level.
Speaker Change: Improved to $195 billion from September 30th.
Speaker Change: The CET one ratio declined nine basis points to 11, eight and remains well above our current 10% requirement as of January one 'twenty four.
Speaker Change: We also remain well positioned against the proposed capital rules as our current C. E. T. One level matches, our 10% minimum against anticipated R. W. A inflation from the proposed rules.
Speaker Change: Risk weighted assets increased $19 billion on loan growth and growth in global markets Our W. Eight and.
And our supplemental leverage ratio was six 1% versus the minimum requirement of 5%, which leaves plenty of capacity for balance sheet growth and our T. Lac ratio remains comfortably above requirements.
Speaker Change: So let's focus on loans by looking at the average balances on slide seven.
Speaker Change: And you can see loan growth improved this quarter as we saw improvement in both credit cards and commercial borrowing offset by declines in commercial real estate and securities based lending.
Speaker Change: Commercial growth reflects good demand overall and was muted only at quarter end by companies paying down commercial balances as they finalize their yearend financial positions.
Speaker Change: Lastly on a positive note we've seen loan spreads continue to widen given some of the capital pressures from proposed rules on the banking industry.
Speaker Change: And this combined with investment in relationship managers, we've added over the past few years has positioned us to take market share and improved spreads.
Speaker Change: Moving to deposits I'll stay focused on averages on slide eight.
Speaker Change: And the trends of ending balances saw growth in global banking and wealth management and declines in consumer.
Speaker Change: Relative to the pre pandemic Fourthquarter 19 period average deposits are still up 35%.
Speaker Change: Every line of business remains well above their pre pandemic levels.
Consumers up 33%.
Speaker Change: With checking up 40% driven by the net new checking accounts added that Brian noted earlier.
Speaker Change: On a more recent performance basis deposits grew $29 billion or 6% from Q3 on an annualized basis.
The only business that saw a decline in deposits linked quarter was consumer and here. We saw a decline of 21 billion. This linked quarter declines slowed from the third quarter change.
Speaker Change: And in total we have 959 billion in high quality consumer deposits, which remains 213 9 billion about pre pandemic levels.
Speaker Change: The total rate paid on consumer deposits in the quarter was 47 basis points and this remains very low driven by the high mix of quality transactional accounts.
Speaker Change: Most of this quarters rate increase remains concentrated in Cds, and consumer investment deposits, which together only represent 15% of the consumer deposits.
Speaker Change: Turning to wealth management balances on an end of period basis improved modestly and we continued to experience slowing and the trend of clients moving money from lower yielding sweep accounts into higher yielding preferred deposits and off balance sheet.
Speaker Change: Our sweep balances were down 4 billion and were replaced by new account generation and deepening.
Speaker Change: Global banking deposits grew $23 billion moving nicely above the 500 billion dollar level that we've experienced over the course of the past six quarters.
Speaker Change: These deposits are generally transactional deposits of our commercial customers that they are the ones they use to manage their cash flows.
Speaker Change: Noninterest bearing deposits were about 33% of deposits at the end of the quarter.
Speaker Change: Yeah.
Speaker Change: So when we turned to excess deposit levels on slide nine you can see deposit growth exceeded loan growth this quarter and that expanded our excess of deposits above loans from.
Speaker Change: From Q3.
Speaker Change: About <unk> nine trillion, which is well above the 0.5 trillion. We had pre pandemic you can see that in the upper left of slide nine which is where we've.
Speaker Change: Used in showing you, how we think about managing excess liquidity.
Speaker Change: We continue to have a balanced mix of cash available for sale securities and held to maturity securities.
And this quarter the combination of the cash and the F. S Securities no represent.
Speaker Change: 51% of the total one two trillion noted on this page.
You'll also notice the change in mix of the shorter term portfolio as we began to lower cash and increase available for sale securities buying mostly short dated T bills with similar yields.
Speaker Change: You can know also the hold to maturity book continued to decline from Paydowns and maturities pulling to par.
In total the hold to maturity book moved below 600 billion. This quarter. It's no down 18 9 billion from its peak and it consists of about 122 billion in treasuries and about 465 billion and mortgage backed securities along with a few billion others.
Also note that the blended cash and securities yields continued to rise and remained about 170 basis points above the rate we pay for deposits.
Speaker Change: The replacement of these lower earning assets into higher yielding assets continues to provide an ongoing benefit and support to NII.
Speaker Change: From a valuation perspective, given the reduced balance and the longer term interest rate reductions we've seen in the fourth quarter, we experienced an improvement of more than $30 billion and the valuation of the whole to maturity securities.
Speaker Change: Yeah.
Speaker Change: So, let's turn our focus to NII performance using slide 10.
Speaker Change: And a strong finish to the year helped US report $57 5 billion in NII on a fully tax equivalent basis for the full year of 2023, that's up 9% compared to 2022.
Speaker Change: On an FTE basis, we reported $14 1 billion in NII.
Speaker Change: Which was modestly better than we told you to expect last quarter driven by modestly Bachelor deposit growth.
Speaker Change: The $14 1 billion was a decline of $400 million from the third quarter, driven by the unfavorable impacts of deposits and related pricing and lower global markets NII, partially offset by higher rates benefiting asset yields.
Speaker Change: And as we look forward.
Speaker Change: Even though we've got one less day of interest in the first quarter and that's worth about $125 million to $150 million and given the rate curve shift we believe the first quarter will be somewhere between 102 hundred lower than the fourth quarter.
Speaker Change: It could move a touch lower in Q2, and then we believe it should begin to grow sequentially in the second half of 2024.
Speaker Change: Consistent with our prior guidance.
Speaker Change: With regard to the forward view I just provided let me note a few other caveats. It would include an assumption that interest rates and the forward curve materialize.
And the forward curve today has six cuts compared to last quarter. When we had three cuts in the 2024.
Speaker Change: Four curve, so it's bouncing around a little and shifted in the past quarter.
Speaker Change: Before I review also includes our expectation of low to mid single digit loan growth and some moderate growth in deposits as we move into the back half of 2024.
Speaker Change: Given our recent deposit and loan performance, we continue to feel good about these assumptions.
Speaker Change: Before moving away, it's worth noting our net interest yield declined 14 basis points to 197 basis points and that's driven by the decline in NII as well as higher average, earning assets, reflecting prior period builds of cash and cash like securities.
Turning to asset sensitivity and focusing on a forward yield curve basis, the plus 100 basis point parallel shift.
At December 31st with <unk>.
Speaker Change: 3.5 billion of expected NII over the next 12 months.
Speaker Change: Coming from our banking book and that assumes no expected change in balance sheet levels or mix relative to our baseline forecast and 93% of that sensitivity is driven by short rates.
Speaker Change: 100 basis, playing time scenario is $3 1 billion.
Speaker Change: Yeah.
Speaker Change: Let's turn to expand some of your slide 11 for the discussion.
Speaker Change: And we reported $15 6 billion and adjusted expense this quarter, which excludes the FDIC assessment.
Speaker Change: This was in line with our projection from last quarter and down to 119 9 million from the third quarter driven by reductions in head count earlier in the year and seasonally lower revenue related expense.
These reductions outpaced the continued investments that we're making to drive growth.
Speaker Change: Our average head count was down from third quarter to 213000 people.
Speaker Change: And that's good work after peaking at 218000 last January.
Speaker Change: We lowered our head count through the year by 5000 and did so without taking an outsized severance charge as we use attrition to lower our headcount along the way.
Speaker Change: One more point to acknowledge the good work of our teams on expense.
Speaker Change: 423, adjusted expense of $15 6 billion.
Speaker Change: It was only $94 million higher than the fourth quarter of 'twenty, two and just remember we began 2023 with a $125 million lift and quarterly FDIC expense. So.
Speaker Change: Through some good operational excellence work and otherwise we've managed through all of the additional cost of investments in your tech initiatives.
Speaker Change: And merit and financial center openings as well as some stronger revenue and higher marketing costs.
Speaker Change: As we look forward to next quarter, we expect to see the more typical Q1 seasonal elevation and expense of $700 million to $800 million compared to Q4. So we believe expense will be around $16 4 billion in the first quarter.
Speaker Change: That includes elevated payroll tax expense and the expected cost of higher revenue in both sales and trading and wealth management as well as merit cost increases and as we move through 2024, and we expect the quarterly expense to decline from Q1, reflecting a drop in the elevated payroll tax expense.
Speaker Change: And revenue changes as well as some additional operational excellence initiative work continued digital transformation and adoption is also going to help us as we go through the year.
Speaker Change: Let's now turn to credit and I'll use a slide 12 for that.
Revision expense was $1 1 billion in the fourth quarter and it included an $88 million reserve release due to a modestly improved macroeconomic environment.
Speaker Change: On a weighted basis, where reserve for an unemployment rate of nearly 5% by the end of 2024 compared to the most recent 3.7% rate reported.
Speaker Change: Net charge offs of 1.2 billion increased $261 million from the third quarter.
Speaker Change: And the net charge off ratio was 45 basis points 10 basis point increase from the third quarter.
Speaker Change: On slide 13, we highlight the credit quality metrics for both our consumer and commercial portfolios and the overall increase in net charge offs was driven by three things.
Speaker Change: First $104 million of the increase was driven by credit card losses, which continued to normalize.
Speaker Change: Higher late stage delinquencies flowed through to charge offs.
Speaker Change: Second $65 million of the increase was driven by a broad range smaller commercial and industrial losses, which were mostly previously reserved.
And monitored for the past couple of quarters.
Speaker Change: And lastly, $76 million of the increase was driven by commercial real estate losses.
Primarily due to office also mostly reserved.
Speaker Change: In the appendix. We've included a current view of our commercial real estate and office portfolio stats provided last quarter.
And we've also included the historical perspective of our loan book Derisking and long term trend of our consumer and commercial net charge offs and you can see those on slides 30 to 33.
Speaker Change: Let's move on to the various lines of business and their results and I'll start on slide 14 with consumer banking.
Speaker Change: For the quarter consumer on 2.8 billion on continued good organic growth.
Speaker Change: And despite their good client activity, it's difficult to outrun the earnings impact of higher rates on deposit costs, while the credit is also normalizing.
Speaker Change: So reported earnings declined 23% year over year as top line revenue declined 4%, while expense rose, 3% and the credit costs rose.
Speaker Change: Customer activity showed another strong quarter of net new checking growth another strong period of card opening and investment balances for consumer clients, which climbed 105 billion over the past year to a record 424 billion.
Our full year flows were 14 9 billion as accounts grew 10% in the past 12 months.
Speaker Change: Loan growth was led by credit card and that broke about 100 billion this quarter.
Speaker Change: Pause it declines slowed in the quarter with continued strong discipline around pricing.
And our expense reflects continued business investments for growth.
And as you can also see on the appendix page 21.
Speaker Change: Digital engagement continued to improve and showed good year over year improvement as customers enjoy the continuation of enhanced capabilities.
Speaker Change: Moving to wealth management on Slide 15, we produced good results, earning a little more than a billion after adding 40000 net new relationships in Merrill and the private bank this year.
Speaker Change: These results were down from last year as the decline in NII from higher deposit costs still catching up from the interest rate hikes more than offset higher fees from asset management, driven by higher market levels and assets under management flows.
Speaker Change: As Brian noted earlier, both Merrill and the private bank continued to see strong organic growth and produced solid assets under management flows of 52 billion since the fourth quarter of 'twenty, two which reflects a good mix of new client money as well as existing clients, putting their money to work.
Speaker Change: Expenses reflect continued investments in the business and revenue related costs.
On Slide 16, you see the global banking results. The business produced strong results with earnings of $2 5 billion. That's a decline from peak levels of NII was offset by lower provision expense, leaving earnings down 3% year over year.
Revenue declined 8% driven by the NII.
Speaker Change: Our global Treasury services business remains robust with strong business from existing clients as well as good new client generation.
Speaker Change: In addition, we continue to see a steady volume of solar and wind investment projects this quarter.
Speaker Change: And our investment banking business continued to perform well in a sluggish environment.
Year over year revenue growth also benefited from lower marks on the leveraged loan positions.
The company's overall investment banking fees were $1 1 billion in Q4 that grew 7% over the prior year. Despite a fee pool that was down 8%.
Speaker Change: And for the year, we held on to the number three position overall, given that performance and the component parts. We ended the year number one in investment grade number two in leveraged finance number for an equity capital markets and number four and mergers and acquisition.
The diversification of the revenue across products and regions reflects the growing strength of our platform and a good example of that is our focus on the equity capital markets blocks business, where we finished number one in the United States for the first time since 1998.
And in EMEA, we were also number one for blocks.
Speaker Change: Provision expense reflected a reserve release of 319 9 million and that comes from an improved macro economic outlook as well as realized charge offs better as noted before.
Speaker Change: <unk> expense decreased 2% year over year as continued investments in the business were more than offset by reductions in other operating costs.
Switching to global markets on slide 17.
Speaker Change: The team had another strong quarter with earnings growing 13% year over year to $736 million driven by revenue growth of 4% and we refer to results excluding DVA as we normally do.
Speaker Change: Good results in sales and trading and comparatively low remarks on leveraged loan positions drove the year over year performance.
Speaker Change: Focusing on the sales and trading ex DVA revenue improved 1% year over year to 3.8 billion, which is a new fourth quarter record for the firm.
Speaker Change: I think it was down 6% from a record quarter, while equities increased 12% compared to the fourth quarter of 'twenty two.
Speaker Change: And the FIC revenues were down versus that record fourth quarter level.
Speaker Change: With higher revenues and mortgages and municipal trading.
Speaker Change: Equities was driven by improved trading performance in derivatives and our expense was up 3% on continued investment in the business.
Speaker Change: Finally on slide 18.
Speaker Change: All other shows a loss of $3 8 billion as the two notable items highlighted earlier negatively impacted net income by $2 8 billion that segment revenue adjusted for the one 6 billion.
Speaker Change: This would be cessation was flat year over year and expense adjusted for the $2 1 billion FDIC assessment was down a couple of hundred million driven by lower litigation and lower unemployment processing costs.
Speaker Change: I noted earlier, we reported a modest tax benefit this quarter.
The tax credits from tax advantaged investment deals throughout the year, including their benefits in the fourth quarter exceeded taxes on reported earnings because we had two notable items that lowered results this quarter.
Speaker Change: For the full year, our tax rate was a little more than 6%.
Speaker Change: And excluding the impacts of Bisbee cessation and F D I C and the other discrete tax benefits that rate was 10%.
And further excluding our investment tax credits or tax rate would've been 25%. So.
Thank you and with that we'll launch into the Q&A. Please.
Speaker Change: At this time, if you would like to ask a question. Please press star one now on your telephone keypad to withdraw yourself from the queue. You May press the pound key once again that is star one.
Speaker Change: We'll take our first question from Jim Mitchell of Seaport Global.
Hey, good morning, guys Alister, maybe on the NII trajectory that you're talking about sort of down a little bit in the first half and then start to stabilize in the second half.
And you're building in six cuts, but a lot of those cuts are coming starting in sort of <unk> and beyond given your asset sensitivity.
Speaker Change: Why would we expect NII to stabilize is that just sort of expected growth in deposits and loans just kind of help us think through your assumptions on the NII for 24.
Speaker Change: Yep.
Speaker Change: I think Jim going back to last quarter, I don't think our R.
Our views have changed a great deal so our guidance isn't changing much either in that regard.
Speaker Change: You know at the end of the Q4 deposits were a little better than we expected. So I think you'll see in the.
Speaker Change: We we sort of thought this quarter might be around 14 billion. It was a little better than that so that's obviously a good starting point.
Speaker Change: Now when we look forward off of that slightly higher number. If you think about Q1 I'm thinking about in terms of the data that might be 150 million, let's say.
Speaker Change: So from where we are that's gonna get get us to somewhere between 13 million and 14, its going to be in that kind of a range.
Speaker Change: Q2, we see going down just a little bit more that's.
Speaker Change: Little bit deposit seasonality in Q1, and a little bit of just catch up on rate paid in some rotation.
Speaker Change: But at that point, we see growing in the back half of the year and that's largely yes deposits growing.
Speaker Change: It's Lawrence growing a little bit it's.
Speaker Change: Some re striking of the securities that come off the balance sheet.
Speaker Change: And it's really striking some of the loans that come off the balance sheet. So its all of those things Yuri.
Speaker Change: You're right you know when we got together last quarter, we thought that there might be three rate cuts.
Speaker Change: Now it's up to six so that's obviously a.
That's a little harder, but the deposit picture has been a little better so no no no particular change at this point.
Speaker Change: Okay, That's fair and maybe just as a follow up just on loan growth.
Speaker Change: What do you think we we all see the card growth, but outside of that it's been pretty pretty muted. We're looking at rate cuts, maybe that's a little bit better for for demand. How do you think what are you seeing on the commercial side in terms of demand and what what changes the dynamic.
Speaker Change: Well I mean, if you look back if you look at our loan growth in the materials.
Speaker Change: It's been a pretty slow loan growth environment.
And I think what's going on underneath that is obviously, you've got the economic activity.
Speaker Change: Offsetting that a little bit is lower revolver utilization.
Speaker Change: You can start to see you can start to see why with rates being much higher it's a little more expensive to border revolver. So as corporate cash balances have come up and deposits have come up that's just a natural headwind.
Speaker Change: That that's beginning to fade, so we kind of feel like the loan growth ought to be low single digits.
Speaker Change: Normally we think about it as kind of GDP, plus just a little bit of market share. So in a low GDP environment, that's sort of what we're expecting for loans. This year and then we'll just need to see how the rate structure develops.
Speaker Change: Okay, well fair thanks.
Okay.
Speaker Change: Yeah.
Speaker Change: We'll take our next question from Erika Najarian of UBS.
Erika Najarian: MS Najarian. Please check your mute switch your line is open.
Erika Najarian: Hi, sorry, Rocky move I apologize for that yeah Alastair.
Speaker Change: Thank you for giving us more detail about how your NII trajectory.
Speaker Change: We're going to be for the rest of the year I'm wondering if you can just give us a little bit more color on what you're expecting for deposit repricing and perhaps for me I think specifically, perhaps the liability mix in the second half of the year.
Speaker Change: You expect deposit growth to come back I think a big question that the market has is now what is the re pricing power to the downside that these banks have you know as the fed cuts rates and I think that would be really good.
Speaker Change: Good color for the market to have.
Speaker Change: Yep Okay.
Speaker Change: So first of all.
Speaker Change: If I if I go back over the trajectory of deposits through the course of 2023.
Speaker Change: We trust at 18, 45, and we ended at 1925 so.
Speaker Change: Underneath this $80 billion of growth in deposits since may.
Speaker Change: So that obviously informs our perspective around how do we think about deposit gathering at this stage.
Speaker Change: That that feels to us like it's it's a supportive environment of our NII forecast.
Speaker Change: Second obviously over the course of this year, there's been a move towards more interest bearing.
Speaker Change: And that actually helps us in the event that we start seeing fed cuts because that's obviously going to allow us to take those rates down. So look what we're going to see a little bit of rotation I think here in Q1 and Q2 I.
Speaker Change: I think we'll likely see a little bit of deposit pricing lag.
Speaker Change: But the last fed hike at this point was July.
Speaker Change: So theres been an awful lot of time at this point for deposit pricing to shake out.
Speaker Change: We won't be immune from anything we have to compete for deposits along with everyone else, but combine all of those things and that that's where we get our confidence.
Speaker Change: Yeah.
Got it and just to clarify them you know how is your thinking about the full year 16.
Speaker Change: $16 4 billion in 124 expenses and a quarterly decline from there.
Speaker Change: Is that.
Speaker Change: Pretty much square with what you've said in the past where expenses are up one 2% year over year.
And with that number include.
Speaker Change: Of Samson investment banking activity returns enforced in 2024.
Yeah. So if.
Speaker Change: If you think about it.
Speaker Change: Pete.
We reached the point, where we've taken expenses down a place where he said we kind of grow with it.
Speaker Change: Half the rate of inflation.
Inflation etcetera, so you're right. It is what we're thinking now is were up a $100 million in the fourth quarter of last year's fourth quarter.
Speaker Change: And if you think about that as a.
Speaker Change: Do you look at the personnel side of it it's up a little higher than non personnel that are a little lower we got the rise in first core expenses and then we start going down each quarter again. So if you think about 100 to 200 million of sort of.
Inflationary growth over the quarters. This year, you get between 64, and 64 and a half and you you know most of the firms out there. We look at are sort of in that range and we feel comfortable that that's that sort of allows us the room to use our good operational actions to take out expenses and replace them with things like revenue related expense.
Speaker Change: Does that we've seen in and we see that pattern reemerge now as we've gotten stability in past the pandemic. It past the right great resignation and all the inflation that occurred in that in the 'twenty. One 'twenty two time frame, we doubt stabilize back to that ability to produce sequential declines in quarters. During the year year over year growth of inflationary 111, 2% levels and that gets you.
Speaker Change: In a low 60 fours.
Speaker Change: Thank you Brian.
Speaker Change: We'll take our next question from John Mcdonald of Autonomous research.
Speaker Change: Yeah.
Hi, Alastair.
Brian I'm Alastair I wanted to go back on the NII and maybe you could help us. It's so hard for us to square the NII outlook with the rate sensitivity disclosure you know they have in the slide with the 100 basis point parallel shift down as $3 1 billion.
Alastair: Maybe just is there are some caveats about how in the real world. It doesn't play out like the disclosures you know we've already seen rates come down on the long end you know almost 100 basis points. So I guess, it just where does that $3 1 billion headwind in your number because it's very impressive obviously to be able to kind of keep it flat despite that using the forward curve. Thanks.
Speaker Change: Yeah, well I mean, I think that the main thing is number one it obviously assumes a parallel shift.
Speaker Change: Instantly.
Speaker Change: So you know the the rate cuts that are in the forward projections. The earliest one comes March for example.
So you're not going to see a full year's worth of rate cuts all in space of the first day or so that it doesn't work out that way.
Speaker Change: So John I think wait to start would be just use what we've disclosed which is that three one you can see what we say in terms of how much of that is the shortened.
Speaker Change: And then you know I, just take that number and use that as the beginning point.
Speaker Change: And just keep in mind, we still see some deposit growth and loan growth and some securities and loan repricing that offsets all of that.
Speaker Change: Okay. Okay. That's helpful. And then maybe just on top of that trading NII or the global markets NII.
Speaker Change: Is that likely to be a headwind or a tailwind in in 24 versus 23 is that do you have any visibility on that.
Speaker Change: Yeah, well look if you look at global markets in any given quarter. It moves around just based on the customer behavior.
Speaker Change: But over the long arc, if you look over the course of the past two or three years its liability sensitive.
Speaker Change: So I'd expect to see rate cuts that'll benefit global markets NII, just a little bit and you can almost like if you. If you think about just retracing the steps of what they've conceded in NII, you would sort of expect to get that back over time.
Speaker Change: Okay, well, maybe that could grow.
Speaker Change: John did you know this quarter was dropped third quarter fourth quarter.
Speaker Change: Pretty good amount and so and that's partly due to the fourth quarter being lower activity is lowest inventory carry and things like that that reverse itself and we're off to a good start so far in the first quarter here in the balance sheet goes back up so yeah, there's a little bit of quote unquote, a linkage third or fourth quarters are typically.
Speaker Change: Yeah.
Speaker Change: Okay got it thanks guys.
Speaker Change: We'll take our next question from Mike <unk> of Wells Fargo.
Speaker Change: Hi.
Mike: Just another follow up on NII I guess, you can take the fed dot plot, maybe there's just three rate cuts.
Mike: If you take that instead of the six.
Mike: What would how would you thinking about NII change.
Speaker Change: Well I think if we got the three rather than the six Mike we do modestly better you know I think.
Speaker Change: This way if we hadn't seen the three more.
Speaker Change: Since last quarter.
Speaker Change: We might have a higher guide, but but because we've come off of a base with better deposit gathering in Q4. So we're starting in a better place. So those two things have started even themselves out, but obviously if it pushes out later, that's a good thing for us.
Speaker Change: Yeah, Brian I'll start you always talk about the information that you have by just being in the flow of so much of the U S economy.
What do you think I mean is this just and not rely and I know you'd like on your research group, Brian and what their economic forecast there, but what do you guys think as far as are you. All you never really fast in the second half of this year that need it kind of takes time are you seeing that where are you seeing the most softness I guess that's the question.
Speaker Change: So I think you.
Speaker Change: Our research team.
Speaker Change: <unk> has a rate cuts in next year and has a soft landing as you've referenced Mike. So that's that's just as you see the customers today as I said earlier in the year to year spending growth in the fourth quarter versus last year's fourth quarter or in the first quarter. So far versus the first part of last year is a 4% to 5% rate and movement of money that was it.
Speaker Change: <unk> four trillion dollars plus out of the consumer accounts and bank of America into the economy that 4% to 5% is called is similar to what it was in 17 18 19, when the Feds Rose took rates up inflation was under control and the economy is growing at you know.
Speaker Change: 2%, one 2% to 5% and so the spending level should sustain at economy, albeit our core prediction is it slowing down from a higher growth rate in the third quarter for that five whatever it was down to a percent or something like that in the first couple of quarters next year, but we see the consumer activity, indicating that they're still in the game they are still spending money.
Speaker Change: Any where they spend is a little different more on services and going out in restaurants and experiences and less on goods at retail.
Our employed you know that if you look at the estimates by any of you have your economist the unemployment rate projected is.
Really a modest deterioration from here most of it in our core base case, our reserves actually said it almost a 5% unemployment rate by the end of this year to give you a sense.
Speaker Change: So that's good news, they're using their credit responsibly much is made of higher credit card balances, but on the size of the economy and society.
Speaker Change: People forgetting that the economy is a lot bigger than it was in 19 because of the inflation everything and as a percentage we don't see any stress there and we see a normalization of that credit so the working or getting paid a balancing accounts.
Speaker Change: Access to credit.
Speaker Change: Locked in good rates on our mortgages.
And they're employed it's we feel it's good so we think the soft landing as a core thesis and our internal data supports what our research team sees that they get they see it also through our Institute.
Speaker Change: And then just as far as controlling what you can control in terms of expenses and head count are.
Tech investments and maybe throw in AI as part of that.
Speaker Change: The extra efficiencies can you achieve through AI Tech. Another initiative you squeezed a lot out over the last decade, plus whats left to go.
Speaker Change: Yeah, there's always more to go so I think we've got lined up if you take what we're doing this year and next year, meaning 'twenty four 'twenty five and enrolled in 26, it's a couple of billion dollars, plus which helps us to the dynamic Eric was talking about avoiding it.
Speaker Change: Growth in expenses, keeping it below inflation, because you think of us as rolling that expense taken out back into good things. This year will be I think $3 $8 billion on technology initiatives, that's up up from 'twenty, one to 'twenty two by 500 million of more and then sort of flattish 'twenty two to 'twenty three they're being applied in different ways.
Speaker Change: We added relationship managers across the board, we keep opening the branches, we're largely through the rehab of the branches that we're keeping and these are all spending to grow and that's what you're seeing so net new checking accounts 600000 for the year. That's 20 straight quarters of net checking account growth all good core accounts flows into the asset management business 80 billion are more temporary in our Merrill edge.
Speaker Change: Program. The advertising has driven the business, we have 10% more customers and those customers, which is three to 4000 customers added in the last 12 months those customers bring in average opening balance of 80 to $100000 to give you a sense, they're not small accounts. That's good. So we're just investing but there's there's a there's a thousand levers none of them are simple but.
Speaker Change: Even this year when we said we got to get the head count growth backend backend alliance after the great resignation 'twenty, two and we had to hire fast Yeah. We went from 218000 people in January down to 212900 at the end of year and in that we're rolling over teammates from one business to another business, where we need help and retraining people and Reskilling people.
Speaker Change: And as it comes in and to the extent that we can deploy it deploy it wisely it'll allow us to redeploy people and even with our very low turnover rate, which is <unk>.
Speaker Change: Seven per cent for your 23 and actually down from 12% in the year 'twenty two and.
Speaker Change: 6% in the fourth quarter, you know, we still can manage head count down just by not hiring people.
Speaker Change: Because that gives us an opportunity to have 15000 people. This year. So we are we can always hire a little less if we see the efficiencies coming through and redeploy the people we have.
Speaker Change: Alright, thank you.
Speaker Change: Yeah.
Yeah.
Speaker Change: Our next question is from Matt O'connor of Deutsche Bank.
Matt Burnell: Hi, so thoughts on capital allocation from here, Brian I think there are some and sorry, if I missed it in the beginning but I think there was some media coverage about you guys are you talking about reading into markets with capital.
Matt Burnell: Any way to kind of size that and then just broadly speaking like how you allocate capital from here or buyback levels and all that stuff.
Speaker Change: Yeah, I'm not sure the media report, but in the end of the day, Jim Jim Tomorrow and team have done a great job so deploy.
Deploying capital and growing market share in our sales and trading business set up 7% year over year and revenue was up 11% for the year.
Speaker Change: Yep equity was down a little bit or down a percent or so and whether that's a they've done a great job 17, and $6 billion of revenue highest by a lot over the last few years and think about it in the 19 timeframe. We were 13 billion in revenue. They fundamentally moved up that was deploy more balance sheet, you've got a little bit more capital, but inherently but not a lot there not take a lot of us have made.
Speaker Change: They made money every trading day in twenty-three again, I think and so they do a great job of absorbing the clients. So don't take it as a big capital a massive amount of capital they get the capital they need.
Speaker Change: They have the balance sheet and the risk.
Speaker Change: Our risk appetite.
Speaker Change: The appetite they they need it but we're continuing to put money towards that business because they've proven to be successful we gave them the balance sheet, a few years ago and they were able to deploy.
Speaker Change: More broadly.
Speaker Change: We pay out the dividend.
Speaker Change: Didn't have a bunch of capital today, we meet the standards as best as Alister said, we can divine from the rule and we'll see what the final rule looks like when it comes out but right now the $194 billion of C. T. One is the level of notional C. T. One would have to meet the RW inflation I'm not saying that's a good rule of just saying we make the math work in it.
Speaker Change: So from now on we can basically deploy capital to the dividend payment and a couple of billion dollars a quarter and then everything above that will go to support business growth that we have it build a little bit of cushion we need to build over some period of time to meet these new rules if they come through and then share buybacks, which we bought 800 million or so last quarter and you'd expect that to keep ticking up.
Speaker Change: Okay. That's helpful. And then you did mention that trading or markets is off to a good start so far this year, obviously, that's not a handful of days, but any color around that and then kind of more broadly speaking as we think about the overall wallet like honestly banking is the press, but how would you frame the market trading.
Speaker Change: <unk> wallet to be used 23, with a jumping off point and grow it by.
Speaker Change: Some kind of a long term trend or any way to kind of frame that in terms of a base case. Thank you.
But it's too early for us to predict what the quarter will look like a little get a much better feel for that.
Speaker Change: 456 weeks from now.
Speaker Change: But I think you can use the the.
Speaker Change: Twenty-three numbers as a baseline starting point and then the first quarter I, just apply sort of a typical kind of seasonality.
Speaker Change: Q1 tends to be a very good quarter for us Q4, less so just with the claim activity.
Speaker Change: And then just recognize that we're starting from a Q4 record. So that's the only only thing I would consider.
Speaker Change: Okay. Thank you very much.
Speaker Change: And then you mentioned investment banking, Matthew and her team have exceeded.
Speaker Change: Exceeded what we thought in the quarter and seem to perform.
Speaker Change: Veteran industry and actually you were up a little bit year over year, but.
Speaker Change: There's a there's a full pipeline and the question is you know sort of when is the clarity and youre seeing some stuff get done an endless stability in rates you would expect that to kick back up yeah. We typically are running about 1 billion and a half you know before the added activity because of the very falling a pandemic a quarter. We're now building Monday into you expect it to move back in those levels and we are actually been gaining share.
Speaker Change: Over the last few quarters as the markets gone down around as we held a R.
Speaker Change: Relative position grew it so yeah, I think Matthews and and the team is in good shape in this middle market execution is out of a lot of throughput to the team and is building up over time.
Speaker Change: We will take our next question from Glenn Schorr of Evercore.
Glenn Schorr: Hello there.
Glenn Schorr: Our first question is just on the deposits and I like the path that we've seen in terms of all the sadness comms or all of it.
How does it come in get some spending you get some migration.
Glenn Schorr: Rich people buying treasuries great.
Glenn Schorr: He was the 1 billion in the fourth quarter and hear your comments about 'twenty 'twenty four for deposits.
He's a little encouraging we'd always want more but it's a little hard but my question is to be 35% higher.
And for 2019 is what I would call a lot.
Glenn Schorr: More growth than a normal period of time would be with the up and down so you've got a good thing or is that a risk and maybe the answer lies within how much of those excess deposits.
Glenn Schorr: Sitting in all these new accounts that you've opened.
Glenn Schorr: Cash from.
Glenn Schorr: Sitting around an existing client that may be waiting for the support.
Glenn Schorr: I hope that question is clear.
Speaker Change: So Glenn.
Glenn Schorr: You're making me had deja vu because basically I think you would have asked this question. The first quarter of 'twenty three two on a theory that this was all going run off and so when we looked at it. We always said you know we had grown sort of in a period of time, the pandemic hit sort of four 5% a year in terms of deposit growth. If you strung that line out that well.
Glenn Schorr: Still above that line, let's just say that and now we're turning and growing so that's all she's that'd be trough the middle ear. So we've outgrown what are sort of imply growth rate would have been against the size of it et cetera. So we feel good about that it's all core now if you look at the underlying dynamics and think about the different clients, we have dealt with it.
Glenn Schorr: If you start with a wealth manager clients discreetly in G win yeah, those balances came down or bouncing around 300, 290 $300 billion on a given day and they've been relatively stable now for I don't five six months I think if you look at the wholesale banking. What's happened is they came they shot up came down after the pandemic and then they've been growing.
Glenn Schorr: And they are actually stronger because just the activity has picked up in a stabilization allowed usage is.
Glenn Schorr: Joseph.
Glenn Schorr: Environment around their borrowing and cash as it is more consistent so yeah. That's that's been good and if you look at consumer that's why we're saying early if you think about consumer where you see you take the people had accounts with this the balances in all their deposit accounts pre pandemic to now if you look at people had in consumer not in wealth management.
Glenn Schorr: You know 50000, 100200, 50000 million dollars and collected balances pre pandemic. They are down 20% they move that money, they're going to move and so for wealth management and consumer largely people, who are going to move money out to get rate have done that and there is or if it is it still bouncing around a little bit and conserve any other $950 billion.
More or less on a given day.
Glenn Schorr: But it's it's you know it's stabilized had been relatively consistent philosophy at 468 weeks, but that's got to settle in and then you grow out from there, but that's what that's really telling you is they kind of move the money, they're going to move mostly.
Speaker Change: Because yeah.
Did it and you don't get that money twice. So you you moved a chunk in these higher end consumer balances. They moved you know 20% of their balances over in and to get in money market funds, which recaptured into other things.
Speaker Change: And.
Yeah. They don't have to move again, because that was accumulated balances that they had in law in a zero interest rate environment pre pandemic plus whatever.
Other things I got so if you look at the slide eight you can see the deposit slides laid out by non interest bearing and interest bearing but you know the key is that consumer was 700 going into the pandemic sits at 915 a day.
And if you look at the checking it's still up a $140 billion and that's.
Kind of bouncing around and you can see it it's moved down a little bit, but that's really the highest people with high end checking balances that have moved it into the market.
Speaker Change: Oh, that's that's all good and more than I was looking for I appreciate it.
Speaker Change: Follow up on reserves now.
Speaker Change: As you mentioned times just went back effect.
Speaker Change: Look at look at the consumer banking page, it's 47 basis points all in.
Speaker Change: And it was six.
Speaker Change: <unk>.
Speaker Change: Four six quarters ago, and so and that's all driven by the C. D. You said you know we don't have a lot of Cds and some of the high end money market pricing.
Speaker Change: But the point is if they if it was going to be moved its.
Speaker Change: Think about that you know it's it's so the money. It's moved has moved and we pay higher rates for very high balances and stuff like that so, especially like the Merrill edge platform. So there's a lot of that dynamic is for the system right now for lack of a better term.
Speaker Change: No. That's a great comment I appreciate that a quickie on reserves as well.
Speaker Change: With a pretty solid economy.
Speaker Change: The resilient U S. Consumer Npls are down you have a lot of reserves. The question is what are the signposts that you or we should be looking for to know when you've added enough. When we are stable at that point in time, when you actually start funding charge offs from reserves and not Adam. Thanks.
Speaker Change: Well I think we're getting pretty close to that because things are beginning to stabilize their beginning to normalize the hole.
Speaker Change: You know this appeared to transition for the economy and its appeared to transition for our clients to a lot of them are dealing with higher interest rates and they're just beginning to moderate and change their spending behavior. So.
Speaker Change: We've seen a trend over the course of the past few quarters, it's pretty predictable around the consumer side, you can see that in our disclosures I think it's slide 12 and 13, but.
That's gonna bunch around over the course of the next couple of quarters now that we're back towards 2018 2019 levels, it's going to settle in we think in the first half of this year.
Speaker Change: And then on the commercial side the asset quality remains really in a very good position. We happened to have a couple of names that popped up this quarter.
Speaker Change: But to your point, we were pretty fully reserved against them that wasn't a surprise to us.
Speaker Change: She knows for the course of the past six months. So we think we're getting close there Glen and obviously the closer we get to a soft landing the better we're going to feel about that.
Speaker Change: But as you think about it.
When you said reserves remember because under Cecil and stuff that we have.
Speaker Change: Always got sort of the lifetime reserve methodology, which we're all still getting a clear now we've operated under for a few years, but this.
Speaker Change: This quarter, we actually had commercial reserves come down to pay for the charge offs on a specifically prior period reserved.
Speaker Change: <unk> yeah.
Speaker Change: Loans and that happened and so you saw some of that be careful on the consumer side, because basically you have to pay as you go side. The consumer side is still building up to a nominal amount of charge offs consistent where it was at an 18 19. So if you look at card in 18 19, the charge off rate across eight quarters ranged from a low of two nine and a higher three.
26.
We're at 307 today, but where.
Speaker Change: Six $8 billion higher balances. So you got to be careful the nominal amount to get that right. If you go look at it more broadly.
Speaker Change: All the company, where we had a 45 basis points this quarter in a range in those eight quarters of 34 to 43, but what's different is the CRE piece of that net charge offs. So you know the reserve to loans and all the classic factor to look at it very strong the reserve has set itself what it with basically.
Speaker Change: Half the reserve is driven by the adverse case scenario. So to give you a sense versus the base case, and then some judgmental on top of that and so you know as.
Speaker Change: As it becomes clearer that we're in a soft landing point theres less allocation to those scenarios, we always will make some but when you put all that to get together and weighted it has unemployment pushing up in the high fours and you look at unemployment today, it's nowhere close to that and there's no prediction to get there in a base case, so that that's what will start to ease up on the general reserving but.
Speaker Change: Remember on card, it's a bit.
Speaker Change: A bit of pay as you go and you know we we.
Speaker Change: We were running around 6% reserves were up to 7% against card now so there might be a little bit coming back but not.
Speaker Change: Not that I'd, rather have the growth to sop that up down to 6% in cards, and then give it back to reserves.
Speaker Change: Great color. Thank you for all that.
Speaker Change: We will take our next question from Ken Ustinov of Jefferies.
Ken Usdin: Hey, Thanks, Good afternoon, I, just had a technical clarification on that bus B $1 6 billion.
Ken Usdin: So I presume that that you start to get that back mid quarter for Q next year, given the November 15, 2020 for termination and then does it just run out Ratably just wondering how over what exact period of time, you get that $1 6 billion.
Yep, Okay, and happy new year, it's this year, it's 24 or so.
Speaker Change: Correct. Sorry, then yes, you got it right, we'll get some of it back at the backend of 2024.
Speaker Change: So, we'll get a little bit and in the fourth quarter, and then I'd say, we get most of it back and twenty-five most of the remainder back in 26, that's the easiest way to think about it.
Speaker Change: Okay. So what you had it right.
Speaker Change: It's a little it's always it straight line or is it a little bit front like I, just wanted to get a little bit.
Speaker Change: Mine divided by or is it has a little bit of like a tale.
Speaker Change: No it's got a little more in 2025 and 2026.
Speaker Change: Oh, Okay I got it thank you.
Speaker Change: And just one question can you just remind us on brokerage fees. This quarter felt the impact I think you said it.
Speaker Change: Of the soft averages from this quarter and so I think we should we expect to see just from the markets bounce that we saw in the fourth quarter that to play well into the first quarter starting points from from them a management fee perspective.
Yeah, I think you should expect our global markets performance to continue right now I mean, obviously, there's a pretty constructive environment.
For the markets business at this point I don't think anything's changed there is a lot of client repositioning going on.
Speaker Change: So yeah, I think the fourth quarters sort of the right number to start with.
Speaker Change: And then you just got to I think adjust for the fact that obviously you've got a step up in their activity in Q1 now if you're I don't know if I misinterpreted if you're talking about the wealth management, yes, and those fees are obviously just going to work on the monthly lag based on where the Ryan could go over time so.
Speaker Change: Obviously, the markets are elevated right now and that that should portend well for the future.
Speaker Change: That's what I was getting at thank you right just confirming that we didn't see the benefit yet that comes further based on the averages and how that'll play forward presuming the market hangs in there.
Speaker Change: Correct that that tends to be a lag by a month or so so you'll see that in Q1.
Speaker Change: Okay got it thank you.
Yeah.
Speaker Change: We'll take our next question from Ryan Kenney of Morgan Stanley.
Hi, Thanks for taking my question.
Just following up on a few questions ago on the commercial credit side. So the commercial net charge offs did roughly doubled sequentially and you mentioned that there were a few customers that popped up should we interpret that to mean that the pace of deterioration decelerates and it was just a one off or is there anything else going on under the Hood there.
Speaker Change: Yeah. So I don't think let me put this way I think it's too early to conclude that it's anything other than just a momentary spike up but if you look at that chart essentially what's going on just two things.
Speaker Change: First we've got a little bit of office and that's going to bounce around over the course of time. It just takes a while to resolve that portfolio, it's pretty small for US obviously, we feel like we're doing all the right things with it but that was a little elevated this quarter relative to the prior three.
Speaker Change: And then more broadly in commercial there were a couple of other things that took place. This quarter again, we were pretty fully reserved against them. So.
Speaker Change: We started so those coming.
Asset quality generally in commercial remains in a very very good place outside of the office sector and you can again see that in terms of look at our reserve over criticized that declined this quarter. So I don't think there's any change there. The issue is just that we're starting with such small numbers in commercial that anything appears like a spike.
Speaker Change: Thanks, and then just one more clarifying question on NII. So in this scenario with the secs rate cuts I guess help us understand how you expect the deposit mix to migrate and specifically, but the migration from an IV to IV deposits no grinds to a halt or is there any scenario, where niv deposits actually start growing again.
Speaker Change: <unk>.
Speaker Change: Well I think what we're trying to describe this is a sense that we're getting towards the tail end of this stuff.
Speaker Change: Partly because we're now six months away from the last time that the fed raised rates.
Speaker Change: And then partly because if we do have rate cuts, it's going to start to dis incent people moving out of.
Noninterest bearing so.
Speaker Change: That's what we're describing over the course of time, we got to see how that develops through the course of the year.
Speaker Change: Thanks.
Speaker Change: Yeah.
Speaker Change: We'll take our final question from Gerard Cassidy of RBC.
Gerard Cassidy: Hi, Brian Hi, Alastair.
You guys have obviously done a very good job in the consumer banking area with digital banking.
Gerard Cassidy: And frame them for you guys and this question, we hear a lot about AI and what it could do for the banking industry.
Gerard Cassidy: And.
Gerard Cassidy: When you look out over the next three to five years and you invest in AI to improve efficiencies.
Gerard Cassidy: Could it have a similar impact with digital banking did for consumer banking, you know pre iPhone to where we are today in your business or is it going to be more like blockchain, where it was a lot of discussion about the future of block chain, but we don't hear much about that anymore. Do you guys have a view on what a I could be for your business over the next.
Gerard Cassidy: Three to five years.
Gerard Cassidy: Right.
Speaker Change: I'm not I'm not sure I agree with you I'm not sure that there's a relevant comparison the block chain, but lets just focused on AI.
Speaker Change: You look at 'twenty, one you can see the digital movement one of the things in the digital movement you see is Erica.
Speaker Change: Lower left hand page.
Speaker Change: Lower left hand chart on page 21 drug and you can see it in the fourth quarter of the 170 million inner.
Speaker Change: Interactions with Erica where people effectively answered one question. Another 2 million people from last year to this year using it on a base of 16 up to 18 million people using it unique users and that's just an example, and that's that's AI in an early stage, we built that starting 10 years ago. It operates on our data use natural language processing.
We have to keep updating that for the way people use words that process, but I think $170 million.
Speaker Change: Phone calls walks into branches emails.
Speaker Change: Et cetera, where they add inquiry had would have to go through another place its able to clients to do things and find them. So we think that there's vast promise for AI and we're deploying it in places a lot of internal stuff.
Speaker Change: Help employees worked better work faster, we're doing it we have it and then our coding shop, there's coders using it to continue to improve their effectiveness and learning it but it's still there's still the care that has to be taken on data and usage and models and accountability. It's all of that stuff is still high so we're using it for things that.
A little easier and we think it has great promise, it's just going to.
Yeah, I'd say, it's going to be more similar to digital what the pace would be it'd be a little bit of how far. It can go before you start to run into difficulties are applying it effectively.
Speaker Change: But it plays off of the same thing that we've done in digital and Eric and other things we bought Eric over the commercial side now that the.
Cash pro uses Eric to answer questions and we're seeing that grow and you can see the customers can interface and be comfortable with it and that's good. So it will have tremendous help as it's applied more and more ways. We are still.
Speaker Change: Trying to hear and seeing if it really works how much of it how much a benefit it generates it cannot be controlled under the model the model outputs control it and also the.
Speaker Change: Things, but we've had you know.
Algorithmic machine learning type models, all over our company for years and so the billions. We've spent literally over the last 10 years on data cleanliness data or getting the data in a right place, making sure. It's dependable in the models operated under that arent you. These open that open autonomous natural language models, but our models that are machine learning models that we've seen great.
Speaker Change: That's part of how we operate the company now basically on the same dollar amount of expenses, we had in 2015 or 16 to give you a sense. So it. So yes, it's been digitization, but has also been using more of that so it's it's got we have high hopes for it we just have to make sure. It does a great job for the customer.
Speaker Change: Very good.
Speaker Change: All of them, we've been reading and seeing a lot of information about the private credit markets, making inroads continued and we know the shadow banking industry has been around for a long time our entire careers.
Speaker Change: What are you guys seeing today is it more competitive against the Apollos and Blackstone's and in lending and then second they're also I'm, assuming customers a year or so how do you balance servicing them, but at the same time, they could be a direct competitor in the lending markets.
Well, that's a that's all of the issues that we got a balance on a given day, but and we can originate loans into their platforms and there are lots of things. We can do so we continue to work through that I think to take it more broadly.
Speaker Change: My colleagues and I have made clear that the strictures around our industry. The methodologies operating any openness and nobility operate outside has led to the mortgage business largely being done outside the industry and most other asset classes for lack of better term being outside the industry and the private lending is just another case of that and I think we're very.
Speaker Change: We do a great job anyway of half a trillion dollars of consumer or excuse me commercial loans outstanding we have hundreds of billions of dollars of midsized companies etcetera. So we think there's there's a way that we can do this with our with our clients and help them and to help us.
Speaker Change: A lot of them are asking can you help us originate loans I think are still.
A question ahead of whether the policy of having more things got out of bank industry is a good policy. We of course, we and the banking industry don't think it's a good policy because the reality I think an inherent part of your question was when these companies bounce around because of economic stress or in there.
Speaker Change: For them as an operator, the banking system has a workout methodology not a liquidation methodology, our trading methodology and that that's served American.
Speaker Change: Enterprise very well and so I think we have to be currency, how it affects the economy that way and those are issues that were true pre pandemic and have become more acute. So we feel we will be competitive no matter, what nothing scares us we got a great team and they do a great job, but it's endemic of the issue that if you keep pushing too much capital regulation.
Speaker Change: You have stuff will find its way outside the system and that doesn't mean the risk is changed it just means that moved from purview of the regulators and that's one of the points, we make but on the other hand, we are working with those enterprises to help us be a combined effective competitor.
Speaker Change: Very good Brian I appreciate it.
Speaker Change: Yeah.
Speaker Change: This does conclude our question and answer session I'd be happy to return the call to Mr. Brian Moynihan for closing comments.
Brian T. Moynihan: Happy new year to everyone and thank you for all the time today and on a very busy day with lots of us reporting.
Brian T. Moynihan: As we summarize fourth quarter was a good quarter and added another strong year for our company driven by organic growth.
Brian T. Moynihan: From all our customer segments, our digital capabilities continue to grow our.
Brian T. Moynihan: Deposits and loans group and and that's good news or NII continues to exceed what we tell you each quarter in terms of what we think is going to happen, which is good news. We gave you a new guidance, which we plan to hit our capital markets activity remains good and on both the investment banking side and the and the sales trading side, but and importantly to get the value of that revenue.
Brian T. Moynihan: You have to have good expense management you saw during the course of your take headcount down from 218000 to 212900 <unk> you saw us take the expense down sequentially sets us up good for next year and with all that our capital and asset quality remained strong as does our liquidity. So thank you and we look forward to talking to you next quarter.
This does conclude today's bank of America earnings announcement, you may now disconnect your lines and everyone have a great day everybody.
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