Release Date: April 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Investment Banking fees grew 35% from Q1 2023, reaching nearly $1.6 billion, indicating strong market share growth.
- Brokerage Services revenue across Merrill and the Private Bank grew 11% year-over-year to nearly $3.6 billion.
- Sales and trading revenue improved for the eighth consecutive quarter, achieving the highest first quarter result in over a decade at $5.2 billion.
- Net Interest Income (NII) exceeded guidance, reporting $14.2 billion, which was $100 million higher than Q4 2023.
- Strong expense management with year-over-year expenses adjusted for the FDIC assessment up less than 2%, below the inflation rate.
Negative Points
- Ending loans were down modestly due to expected credit card seasonality, indicating a slight decrease in loan growth.
- Consumer Banking earnings declined 15% year-over-year due to lower deposit balances and increased provision expense from credit card loss normalization.
- Global Banking earnings decreased by 22% year-over-year, impacted by lower net interest income and higher provision expense.
- Commercial net charge-offs increased due to commercial real estate losses, particularly in office exposures.
- Efficiency ratio, while improved from 66% to 64%, still indicates room for improvement in operational efficiency.
Q & A Highlights
Q: Excellent capital position, there may be still some uncertainty around Basel III end game and where the proposal could ultimately shake out. I was hoping you could just speak to where you're comfortable running on CET1 that and when can we expect that you'll return to 100%-plus type payout?
A: (Brian Moynihan - CEO) You should expect that we run a cushion, whatever rules come out and when they come out and get clarity, we'll expect to run the requirements plus 50 basis points, up to 100 basis points of excess. And anything above that, we'll be either used to continue to grow the company, if needed. If not, it will be returned. So expect us to continue to return capital at a fairly strong rate as that we were the second quarter and beyond in the rules become clear.
Q: Alistair, it sounds like you're still assuming some modest deposit growth in the back half as part of that NII trajectory, that recovery off the trough in 2Q. Just given your deposit balances increased $500 billion since COVID, and I know some of that's going to be a function of share gains, but as we prepare for some Q2 driven outflows, how do you handicap the risk of deposit attrition?
A: (Alastair Borthwick - CFO) We've been up against (inaudible) for the last couple of years. So the deposits are beginning to settle in now. We're still in this belief that Q2 is going to be -- Q3 may be the turning point for Consumer. You can see that slowing though. The rest of our business, if you look at the exhibit we put together on deposits, if you look at that bottom left chart on wealth, you'll see it slowed and grew this quarter. And then in Global Banking on the right-hand side of that page, they're kind of back to pre-pandemic growth rates. They're up 7% year-over-year. So we're seeing some structure now in the deposit base. Even with Q2 over the course of the past year, our deposits are up $100 billion. So it has been a point of conviction of ours that, as we get towards NII will go up in Q3 and Q4, we're in that transition period right now.
Q: Well, thanks for the outlook for NII and consumer charge-offs. But once again, I go back to efficiency. And you highlight the 2 billion Erica interactions, the last 1 billion in the last 18 months. You mentioned Zelle transaction now double the check transactions or more than checks plus cash withdrawals from ATMs, plus cash withdrawal from tellers. So for all the great tech work, the efficiency ratio improved 66% to 64% quarter-over-quarter. But I know you're still not happy with that 64%. So as you have the NII decline and as you have this tech evolutions continuing, when do you think you can get below a 60% efficiency ratio?
A: (Brian Moynihan - CEO) As NII sort of moves along the path that Alistair mentioned, all that sort of flows through because there's no more activity attach, as you're pointing out, and we continue to reduce. Marginal expense of that activity because largely, that's a Consumer Wealth Management and Global Banking, which don't add lots more clients and stuff and lots more activity even though the numbers go up is out of efficiency. So that continue to improve our efficiency ratio. We're at 64%. You'd expect that to improve as the deposit balance has stabilized and for many quarters now and starting to grow. The rate paid has really flattened out sequentially by quarter, and the yield of the portfolio and the yield the assets continue to grow. So we feel good about how it's going. Our focus is really on deploying expenses in operating leverage. And as we get through the twist in the NII, you start to see us return to that again. And that would then obviously drive down the interest ratio.
Q: I wanted to follow up on the helpful deposit commentary, Alastair. So you mentioned the tumor, you're thinking that, that will stabilize in the back half loan deposits. Wondering what your mix shift expectations are. Earlier this year, you kind of thought that those customers have moved for rate seeking already had. I'm just wondering at higher rates for longer could put some pressure on rate-seeking behavior again. And what you're baking in, in terms of mix shift from noninterest-bearing it's interest-bearing in your outlook and your planning?
A: (Alastair Borthwick - CFO) We don't expect a massive change in how the deposits are structured from a -- what's in money markets, what's in savings, what's in checking, what's in that. It's really slowed down and been relatively stable. So things dump around, but it's all very good value, even the highest paid balances in the Wealth Management business are good value for the company. But if you look at what really drives the value to the $950-odd billion in checking balances, you can see on Page 7 the core checking balances, that's what drives it.
Q: I guess I just wanted to follow up on the conversation you're just having. And Alastair, I know that, look, your NII guide improved this quarter due to 1Q results being better than what you anticipated a quarter ago. My question is on the second half '24 improvement. I get that it's going to be an improvement from first half, right? That's basically the base that you're looking at. I'm wondering how you're thinking about the NII trajectory on a year? I believe NII is down about 3% year-on-year in 1Q. Should we anticipate that, that is kind of stable pace throughout the year? Or that reduces as well when we're talking about second half '24?
A: (Alastair Borthwick - CFO) We haven't changed our perspective in terms of this idea of Q2 being the low point and the trough for the year. We haven't changed our point of view on growing in terms of Q3 and Q4. I think the important thing we're trying to convey is because of the continued stability in pricing rotation and because of this continued stability in deposits, we feel like that extra couple of hundred million in Q1 is something that should flow through in Q2, Q3 and Q4. And then there'll be a second dynamic to watch for as well, which is if we have less rate cuts, we're going to benefit from that. We wouldn't necessarily benefit a lot in Q2 because there isn't enough cuts or time in Q2. But I think by the time we get to Q3 and Q4, we'll know more about the rate structure at that point, and we'll be able to tell you more about how
