Bank of America Corp. Chief Executive Officer Brian T. Moynihan said U.S. economic growth will be slow next year and that companies aren’t using stockpiles of cash to build their businesses.
“2012 will be another year that’s a grind in the economy,” Moynihan, 52, said today at an economic outlook conference held in Charlotte, North Carolina, where the company is based. “Never have middle-market and large companies been as profitable, had as much cash on their balance sheet, had as much availability on their lines, but they haven’t done anything with the money. They don’t feel the certainty of opportunity to make big investments.”
Bank of America, the second-biggest U.S. lender by deposits, is cutting costs amid stagnant revenue. The company has been hurt by weak economic growth and concern that Europe’s debt crisis will spread through the world’s financial system. Shares of the firm dropped more than 60 percent this year and fell below $5 today for the first time since March 2009.
The U.S. economy may expand about 2.1 percent next year, Moynihan said. Consumer spending was “modestly encouraging” at about 5 percent higher this month than the year-earlier period, he said. Employment won’t improve “a lot” in 2012, he said.
Moynihan’s comments follow an economic report last week from Bank of America researchers that projected that the U.S. economy will slow to 1 percent growth by the fourth quarter of 2012 as Europe enters recession.
The risk from a European sovereign default “is not what people think,” Moynihan said. Bank of America had about $14.6 billion at risk in Greece, Ireland, Italy, Portugal and Spain as of Sept. 30, compared with about $16.7 billion at the end of the second quarter.
“It’s not the bank balance sheets that’s really under attack here for us or our competitors,” Moynihan said. “The risk is that an economy which in the aggregate is as big as the U.S. having a recessionary environment obviously pulls down worldwide growth.”
Record low yields for U.S. Treasuries amid rising borrowing costs for some European nations, a so-called flight to quality, is another sign that “no one is taking risk,” Moynihan said.
There was “no question” that new international rules for bank capital have lowered the lender’s leverage, Moynihan said. An increase of 1 percent in capital requirements cuts the ability to lend by about 10 percent, he said.
“The question is, did we get the balance right,” Moynihan said, “Or did we swing the pendulum too far where we’ve underleveraged financial services to have an effect on growth?”
Moynihan spoke as part of a panel that included Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, who said impediments to economic growth will be “deeper and more persistent than we thought a year ago.”
Obstacles Lacker cited include the oversupply of housing, a mismatch of skills between unemployed people and new jobs, changes in tax policy and regulations and the “murky federal budget outlook.”
Another panelist, Duke Energy Corp. CEO Jim Rogers, drew laughter by referencing Bank of America’s failed attempt to charge some customers $5 per month to use their debit cards.
“Talking about the economy is so depressing,” Rogers said. “I was about to pull some data from Bank of America, but they wanted to charge me 5 bucks.”