Bank of America CEO Brian Moynihan told Bloomberg Television's Erik Schatzker at the World Economic Forum in Davos that cleaning up the mortgage mess from Countrywide is like mountain climbing with an excessively heavy backpack.
Moynihan on when the public might get a sense of BofA's revenue generation and earnings power
'Sitting here in the mountains…say we are in competition with 10 climbers going up behind us, as we look left and right, we are right next to the other climbers in terms of competitiveness and how we approach the market. Then we look in our back pack and they have a CamelBak and water, and we have a 250 pound backpack. What we are doing is taking stuff out of our backpack. I am confident we have taken enough out we are starting to propel through our competition'.
On whether he believes the worst is over in Europe
'I would be careful about complacency. When you talk to finance ministers and central bankers, there is serious management of the withdrawal of the liquidity as things get better at the same time the fundamental policies promote growth. I would say there is a worry about complacency as opposed to complacency…From a year ago from where it was going to break up to a year where the structures and strategies are in place and actually working is a much different place. So the tail risk is much different. I would not say the complacency is what they are doing, it is what they are worried about doing'.
On whether we're in the middle of a credit bubble and the impact of a currency war
'Something like a currency war, there are people far more export in the town who can talk about that. I was just on a panel for you guys where we talked about the types of things you are talking about. I think you have to separate a credit bubble--the issue that people are concerned about is that rates move up, the impact of price valuations on long-term instruments that people bought have very long durations--that is different than a credit bubble where you have extensions of credit fueling the economy.
'This is more of a re-pricing question. [In 2007] that was fuelling people's purchasing power…I think if you think about how this works, the overextension of credit and stuff is not the issue. It's more if the rates move to fast it will cause shocks to the system…We worry about it. Everybody worries about. I am not sure it is a high probability, but we worry about it. I think risk for downside in the economy is still there. We have to keep working these economies through to fundamental constructive growth. That is the issue that's still on the table'.
On what's going on in the U.S. economy
'In our consumer base, we have credit and debit cards and we see cash movements. If you look at the spending patterns of consumers, it is pretty unbroken month after month compared to the year before. So far in January 2013 we've seen the same pattern emerged...You have seen this happen over and over again. What that tells you is consumers continue to spend. If you look at the average consumer spending, it is higher than it was at the peak of the market.
That is good for the economy. The risk in their mind of life- they could be more aggressive. Fundamentally we see consumers doing very well. The middle market companies are still conservative. They are working through the things they learned a lot about--the fiscal cliff, Europe and all the things last year...They are not hiring a lot yet. They are so profitable and productive that they can grow fairly dynamically. I had a company who is a 200 person company who grew their sales 25% by adding only five people. That shows how productive companies are. Employment levels are where we need to see more progress'.
On where the housing recovery is right now
'Everything we see is very fundamentally constructive. The first thing we see is the delinquency rate of the product has gone down a lot so the 60+ delinquency rate at Bank of America is down about $750,000 down from 1.6 million at the peak. That is good news. The second thing we see is house price increases…The third thing is inventories coming down. This idea that you would have asked two years ago or even last year is the massive overhang of the foreclosure…It's worked its way through. It went down and we are coming back. It is still down from the peak. If you look at the longer-term trend we are back on trend…They cannot go back to a level that they were. We are overbuilt again. But they can move up'.
On how closely correlated BofA is to the recovery of the housing market
'There is leverage because of - housing is better, delinquencies are down, we had a lot lest costs to work the loans through, charge offs go down. That is an impact. If housing is recovering that means the economy is recovering'.
On how worried he is about a loss of confidence in the U.S. because of the sequesters or debt ceiling
'We are worried about it because the consumers have been so consistent. The first perspective we have is that consumers are spending at that rate, and that provides fundamental fuel. You are worried if that comes down a lot what would be the impact on the economy…The number worry i have around fiscal debate is to educate the consumers. If every day they open up the paper and there is not good news about something that is happening that could be adverse, could they slow down….I would say we are pretty good shape on that if the course continues to be rational dialogue on how we attack problems in the U.S. as opposed to everything is going to stop someday. Very worried about it'.