BofA Chief Moynihan Says Fiscal Cliff Already Hurts Economy
Businesses have held back on buying capital goods until the outcome of negotiations in Washington becomes clear, Moynihan said today at a New York investor conference sponsored by Bank of America. Tax increases and spending cuts could equal 4 percent of gross domestic product, he said.
“The impacts of the potential cliff are already being felt,” Moynihan said. In the bank’s survey of chief financial officers, “the number one issue they see is the fiscal cliff. They tell us it’s affecting their business plan. That uncertainty continues to hold back the recovery. Simply put, our clients tell us they will not be aggressive in times of uncertainty.”
Moynihan, 53, is trimming staff and operations to reduce costs after revenue was “regulated away” by legislation affecting consumer accounts, cards and trading at investment banks, he said. The company sold more than $60 billion in assets through 30 deals since he took over as CEO in 2010 to streamline the firm and build capital.
The so-called fiscal cliff refers to more than $600 billion of tax increases and federal spending cuts that are set to kick in automatically in January, unless Congress acts, as part of a deal last year to raise the debt limit.
The Standard & Poor’s 500 Index (SPX) had its biggest weekly decline since June after President Barack Obama’s re-election set up a budget showdown with the Republican-controlled House of Representatives. Market swings may continue until the sides agree to a solution, Goldman Sachs Group Inc. (GS) CEO Lloyd C. Blankfein said today at the conference.
“Whether or not it gets resolved -- which I believe it will -- we’re going to have uncertain moments and insecurity between now and then, which will roil the markets,” Blankfein said. “My best guess -- it might not turn out this way -- but we are at least braced for a ride here.”
Goldman Sachs is the fifth-biggest U.S. bank by assets and is based in New York. Moynihan’s company ranks second and is based in Charlotte, North Carolina. Bank of America’s Tier 1 common capital ratio under the latest rules rose to 9 percent in the third quarter from 8 percent a year earlier.
“We’ve gone from lagging the industry to leading the industry,” Moynihan said.
Macroeconomic signals are mixed and unemployment remains high even with the most recent improvement, he said. Profit margins on loans are still under pressure, “economic activity is sluggish and loan growth remains sluggish behind prior-period recoveries,” Moynihan said. The bank is forecasting annualized economic growth of about 1 percent this quarter, he said.
To contact the reporter on this story: Hugh Son in New York at firstname.lastname@example.org