Bank of America Corp. Chief Executive Officer Brian T. Moynihan said profit targets are still attainable even after shrinking the company, and he vowed to steadily bring down expenses.
The year-old goal of earning $35 billion to $40 billion annually before taxes could be met if the U.S. economy recovers, interest rates rise and Moynihan’s cost-cutting plan works, Moynihan said today at a conference in New York.
“The earnings capability of this company is there,” said Moynihan, 52, who runs the second-biggest U.S. lender. “It’s just that we need to have three things take place: A more reasonable interest rate environment to help benefit the deposit cost structure especially, an economy growing at 3 percent, and third, we have to see our costs come down.”
Bank of America sold $33 billion in assets and announced 30,000 job cuts last year as part of a plan to build capital and reduce expenses. Moynihan has plans to trim as much as $8 billion a year from expenses to combat stagnant revenue at the Charlotte, North Carolina-based company.
“You’ll see demonstrable progress every quarter,” he said. “We can’t carry these costs in the revenue environment we’re in. Even in an improved revenue environment, we’re still going to have to be hard on costs.”
In March 2011, Moynihan disclosed targets for profit that could be generated when the U.S. economy recovers. He said today that a previous goal for revenue before taxes and provisions of as much as $50 billion per year was no longer reasonable because credit-card units were sold.
The CEO also said today it wasn’t “realistic” to expect interest rates to rise before the first half of 2014. Costs will come down as he cuts employees, closes branches and increases automation, Moynihan said.
Expenses in a unit managing soured mortgages will peak in the first half of this year at about $2 billion per quarter and should decline from there, Moynihan said. The lender has booked about $42 billion in costs tied to repurchases, litigation and writedowns from faulty mortgages and foreclosures since 2007. Moynihan said today the mortgage market is “healing.”
Bank of America rose 1 percent to $8.10 at 2:56 p.m. in New York trading. The company has surged more than 45 percent this year on signs that the U.S. economy is improving.
The CEO has spent the last two years cleaning up after his predecessor’s decision to acquire Countrywide Financial Corp., the biggest home lender during the U.S. housing bubble. Investors who buy loans are entitled to ask for refunds or compensation if they find missing or inaccurate data on home values or the borrower’s income, and Countrywide has been criticized by regulators for lax policies and sloppy procedures.
Bank of America agreed last month to contribute almost half of a $25 billion industry settlement ending probes into abusive foreclosure practices. The accord, which included 49 state attorneys general and the U.S. Justice Department, will include borrower assistance and payments to the government.
Moynihan’s presentation was twice interrupted today by protesters. The first repeatedly called for the lender to be broken apart, and another person cited International Women’s Day before the webcast’s audio was silenced. The CEO resumed his presentation after a few minutes.
“We have modified a million-plus mortgage loans, yet the impressions you might get from people attending today would be that we’d done nothing,” Moynihan said. “The reality is that we need more people pulling for us in this thing. It’s a lot of hard work, and it’s tragic for the consumer.”