Moynihan's Challenge: Make B of A 'More Real' to Customers

In his first year as chief executive of the largest U.S. bank, Bank of America Corp.'s Brian Moynihan endured more criticism and formidable challenges than many CEOs face in their entire career.

But Moynihan, 51, is not one to dwell on the past or on the missteps of his predecessors (read: the purchase of Countrywide Financial Corp.) that were often the source of the crosses he bore.

Instead, he says he is keenly focused on the bank's future — and fully prepared for whatever new challenges may come his way.

On Tuesday, Moynihan and his executive management team laid out their blueprint for returning B of A to profitability. The plan includes tapping into cross-selling opportunities within its Merrill Lynch unit; reducing expenses; expanding the business globally; and, eventually, returning capital to shareholders.

At once soft-spoken and matter-of-fact, Moynihan sat down with American Banker on Wednesday to talk about his first year at the helm and to explain how B of A can be both "big and good" — a notion that seems almost sacrilege at a time when many institutions are still trying to distance themselves from the "too big to fail" label.

A condensed version of the interview follows.

How can a bank be both "big and good"? What exactly did you mean by that?
BRIAN MOYNIHAN: You can do it. It's just the assumption typically is, you can't. I've always disagreed with the assumption. But I think it proves out. But we know we're not doing as good a job as we can do. And we strive to do a better job every day.

You have spirit, capabilities, the ability to have talented people in the field who can work with customers or on the phones or in other areas.

And then you have to measure. You have to ask the customers if you're doing a good job. … You say, "OK, if you don't like what we've done, what don't you like about it?" And then say, "How do we improve that process or capability?"

What you find about customers is, they very much like the people who work with them locally and things like that. But the institution sometimes is the thing that they get concerned about. So the idea is, how do you make the institution more real to them.

What's the biggest lesson you've learned in your time as CEO?
My biggest observation is how many times you have to say the same thing to make sure people really understand.

You've got to trust your team. We have the talent. We have a great management team. … But you've got to get that team to do more together than they do separately.

You've got to keep that optimism despite the issue of the moment, make sure people are always moving forward.

What challenges were you not prepared for, or were tougher than you anticipated?
Getting the mortgage situation solved has been very difficult because it's real people who are losing their homes. It's a very difficult situation … that's harder than you'd ever want it to be. The lesson from all that is never to let this happen again.

What do you think the mortgage unit could have done better in servicing loans and handling foreclosures?
I'm not sure it's any one thing. The reality is … the whole industry and ourselves underestimated how fast this was going to grow to how big a number, and so we were always staffing to catch up. And now we've caught up.

We've added … tremendous numbers of people, 20,000 people to help. We have a total of 30,000 people. If I look back, could we have had 30,000 12 months ago? I'm not sure we could have actually gotten all the people hired and trained, but the amount of resources I would have sped up probably.

What do you see as your biggest accomplishment so far?
We stabilized the company. We built the balance sheet. We have a strategy in place. And we're out there winning in the market every day. Those aren't individual accomplishments. Those are accomplishments of the team, which I lead and help to make happen. This is a great company. Getting through the crisis and getting it all behind us is an important issue for us.

But I think the greatest accomplishment is we moved the ball down the field dramatically in those regards last year.

Do you think that's been fully appreciated?
I'm not sure the important thing is to be appreciated by anybody but our customers and our teammates and our shareholders. And I think they understand.

What is the biggest risk to the bank's future?
The biggest risk is just to not lose focus, not keep the discipline, execution, not manage the company on a risk basis, on an efficiency basis well; not manage the customer interactions … well. Those are the risks.

Because at the end of the day it's our reputation, our brand and our people that make this company unique and we can't risk having anything damage any of that.

How is this bank going to make money?
We've got to make loans; we've got to take deposits; we've got to provide good service. We've got to help companies borrow, reach the capital markets.

We've got to help investors find great ideas and execute on them and that comes to life in spread income, fee income and the cost to do it. It's a pretty straightforward equation.

Do you regret the quote from the third-quarter conference call describing private mortgage investors as Chevy Vega owners who want a Mercedes out of the deal?
No.

Is that still your stance on putbacks to private mortgage investors?
Professionals who made investment decisions, who were paid by the clients to make investment decisions, are going back and saying, "I wish I didn't make the decision." That's not a legal standard. So, in reality, that's what I was trying to address.

What are your thoughts on the potential servicer settlement? Both you and Terry Laughlin, head of the legacy asset servicing unit, have stressed that principal reductions aren't the answer. What do you propose as a viable solution instead?
In terms of negotiations and stuff, you know as much as I know about it. Our view is that we need to move America along and get moving to normalize the real estate markets.

What we both said [Tuesday] is we're not sure principal modifications help in that regard because there's a real fairness question about who gets them. … If people don't have cash flow to make their payments because they've lost their job, I don't think changing the balance they owe is going to make a difference.

What we owe our customers, both the consumers and the servicers, is to live by the rules and documents and make sure it's fair. And we know we need to get through it. And so if you look at our modifications, we've done three-quarters of a million modifications. … We've been ramping up this effort and driving people through it. … And so I think if we let the world go on, this will go through the system and the system will adjust to it and go on.

If you were CEO in 2008, do you think you would have bought Countrywide? Merrill Lynch?
That's a question for somebody else. I wasn't CEO.

What can Bank of America do better?
We're tougher on ourselves than anybody could be. We can do better with our customers. Our customer scores are as good as anybody's, but not what they were historically. We can drive them.

We've continued to simplify our products and make that easier for our associates to explain to the customers. We can do that better. We can keep managing our risk well. I think we've managed it better than we had in the past but we've still got to make sure the way we're managing it holds through the next cycle.

We're a company that's got great capabilities and great things we can do for our customers, but we're absolutely not complacent in that we can't be better tomorrow or the next day.

Our vision for our company is to be the best financial services company in the world. But the way we measure it is, we'll never achieve that because we always put a higher goal on ourselves tomorrow. And that's what we're up to.

And so we can do everything better.

What about the WikiLeaks threat? Is a possible leak of internal documents a concern to you?
Like anything else, we prepared. We had the same information you did. We've watched the same interviews you have. We've prepared ourselves for it, and we don't know what will happen. But we've been doing everything we can to be prepared.

How so?
We just said, "What are the outcomes? What could it be? What would the reaction be?" All those types of questions.

Is there anything in particular that you oppose in the Basel III proposal? Did they go too far?
You could have an opinion about various components of it but the reality is that the old Basel rules allowed people to leverage too much and we found that out. The new rules change that. We'll get through adopting new rules five years ahead of when they're effective, when they first become effective, without the phase-in. We'll adopt them. … It's a lot more capital, but it doesn't fundamentally change the business that we have.

What will Bank of America look like five years from now?
It will look a lot like it does today. Probably more global than it is … just because of the faster growth rates. But basically, we have the businesses, we have the franchise, we have the capabilities. And it's just executing and driving those forward.