Three things stand out in a conversation with Brian Moynihan, the 59-year-old chairman and chief executive officer of Bank of America Corp. The first is his ability to retain information, a talent he attributes to genetics. The second is the orderly way he structures his thoughts, an artifact of his legal training. And the third is his disposition, steeled by decades spent in the crossfire of corporate combat.
When you arrive for an appointment to see Moynihan at the bank’s building in midtown Manhattan-one of three cities in which he splits his time-you’re escorted up to a waiting room on the 50th floor, where floor-to-ceiling windows offer a bird’s-eye view of the Empire State Building. The room is quiet, like a museum in the morning. Moynihan’s office is on the opposite side of the building, in the corner, looking out over the city to the north and east. It gives off a modern vibe and is dominated by a large, well-organized desk and a conference table that seats eight. It’s a very nice office but not ornate; spacious but not cavernous.
It’s obvious that Moynihan is busy as soon as you enter his office. He shakes your hand in the process of moving to the conference table, where his assistant has laid out bottles of water and cans of soda. Everything about Moynihan is blue-his eyes, his tie, his suit. He sits down and makes small talk in a voice just above a whisper. “What brought you to Bank Director?” he asks. “How are things in Portland?” The last time Moynihan was in Portland, Oregon, he says, was in the early 2000s, after the bank he worked for at the time purchased an asset management firm based in the city. After two or so minutes of this, the volume, force and inflection of his voice change. “So what are you working on?” he asks in a way that signals it’s time to get down to business. A switch has flipped. This is the true Moynihan, it seems-serious and intense.
Moynihan may be one of the least well-known CEOs of a major financial services company in the United States, and yet over the past eight years he has orchestrated one of the most impressive transformations in the industry’s history. He has reduced Bank of America’s headcount by over 80,000 employees, closed more than 1,500 branches and culled its consumer products from around 1,400 five years ago to about 65 core products today. And he has accomplished all of this in an acutely inhospitable environment. In the decade since the financial crisis, the Charlotte, North Carolina-based bank has absorbed $200 billion in crisis-related costs, been called “too crooked to fail” by the media, and been a frequent target for criticism by regulators and policymakers.
This experience has left Moynihan noticeably guarded in his public comments and observations, particularly to the media, typically defaulting to a barrage of facts and figures about the bank, consumers, businesses and the economy. It’s an understandable impulse, taking advantage of his talent for retaining information, but it also obscures the immense impact he has had at the nation’s second biggest bank by assets. What many outsiders fail to appreciate is that while Bank of America was racking up negative headlines as it worked through the aftermath of the crisis, the understated Moynihan-starting when he became CEO in 2010-was fundamentally changing the institution’s culture and structure.
“Bank of America’s recovery and transformation have been remarkable to watch,” says Tom Brown, founder and CEO of Second Curve Capital, a New York-based hedge fund that invests primarily in financial services companies. “Despite the massive credit and legal expenses they incurred after the crisis, they kept investing, particularly in retail banking. The company has gone from less than a mediocre bank when Brian took over to one of three powerhouse retail banks in the country.”
When Moynihan talks about banking, which he did on a deeper and more philosophical level with Bank Director magazine, he brings up what Jim Collins, the author and management researcher, calls “the Genius of the AND” in his book “Built to Last.” The concept alludes to the need for managers to avoid the so-called “Tyranny of the OR.” Good managers, wrote Collins, “embrace both extremes across a number of dimensions at the same time.” They can, in a sense, have it both ways.
“One principle I use a lot is the Roman proverb ‘all things in moderation,’ which I learned from some of my early mentors,” says Moynihan. “You have to get people to understand that, yes, I’m telling them something that inherently has conflict in it, and they’re telling themselves that. But if we manage the ‘Genius of the AND’ well, then we have a better business model. We’ll grow and be responsible. We’ll invest, and the expense structure will continue to drift down. We’ll serve the customer well, and we’ll be able to turn customers down who don’t meet our risk profile. That’s the subtlety to the message.”
Moynihan has labeled his strategy one of “responsible growth.” It’s an inert phrase for a sophisticated philosophy that emphasizes discipline, soundness and profitability. It’s also meant to be forward-looking, although one can’t help but interpret it as, at least in part, a repudiation of the bank’s former strategy, which often resembled a drive for growth irrespective of cost, much of it through a decades-long acquisition spree led by its iconic former chairman and CEO, Hugh McColl.
Yet, while Bank of America’s strategy under Moynihan represents a change in trajectory that was catalyzed by the crisis, the operating principles underlying it crystallized in his head years earlier, when he was an executive in the late 1990s at what was then the biggest bank in New England, FleetBoston Financial-a Boston, Massachusettsu2013based bank created in 1999 by the merger of Fleet Financial Group and BankBoston Corp. It was there that he first learned what can happen if things get out of balance. “When I say that I know what it’s like to have your bank taken away, that’s what happened to FleetBoston’s investment in Argentina [when the country defaulted on its debt] in 2001,” says Moynihan. At the time, FleetBoston operated the sixth largest bank in the South American country, with 137 branches. “We lost all the money we had made there from 1914 to 2000 in a day, in a day. So the lesson was how to avoid getting yourself in that position.”
The driving force of Moynihan’s philosophy is that a bank should organize itself, both culturally and structurally, around customers, not products. It’s a luxury banks didn’t always have. “A lot that we do in banking nowadays, somebody 30 years ago couldn’t do,” explains Moynihan. “Before interstate banking, you could only grow past a certain point. Even if you had 100 percent market share in your home state, you could only be so big. The bank I started working at first was in Rhode Island. So if there were 1 million people in our market area, that’s all we could serve. That’s it. So then they said, ‘well let’s go outside the state.’ But because bank holding companies weren’t allowed to have a physical presence outside their home state, everyone expanded through product lines-mortgages, credit cards, commercial loans, whatever.”
However, just because banks could adopt a more customer-centric approach after the barriers to interstate banking came down in the 1980s and 1990s, it didn’t mean they were obligated to make the shift. It gave them the capability to do so, explains Moynihan. The ability then required a deliberate decision about whether to take that path or not.
In Moynihan’s case, he began reorienting FleetBoston around customers as opposed to products when he was put in charge of its wealth management franchise in 1999. He then introduced the same principles when he led Bank of America’s wealth management unit following its 2004 acquisition of FleetBoston. And it was in 2010, after becoming CEO of the combined bank, that he started the process of reorienting all of Bank of America away from a product-centric culture.
An early overt sign of this came in September 2011, when Moynihan named a pair of executives as co-chief operating officers. David Darnell, who has since retired from Bank of America, was tasked with overseeing segments serving consumers and small businesses. The other, Tom Montag, who is today the sole chief operating officer, was given oversight of the operating units serving commercial customers and institutional investors. “The intent of this reorganization was to better align our operating units to serve our three groups of customers,” Moynihan wrote in his shareholder letter that year.
Bank of America followed this up over the next few years by consolidating its business units in the consumer banking space. “The way we were set up before was that we had a mortgage company, a credit card company, a deposit company and an auto loan company, and they would all serve the same client separately,” says Dean Athanasia, co-head of consumer banking at Bank of America. “So if you were the client, you’d think, ‘hey, Bank of America is coming at me in six different ways.’ We changed that. It’s one client now, we look at them holistically, figure out their financial needs, then serve those specific needs instead of coming at them from multiple directions all at once.”
These moves have translated into improved customer satisfaction. “Our client satisfaction has gone from 60 to 70 percent of clients rating us a nine or 10 up to 83 percent,” says Athanasia. “When you consider we have 66 million clients, that’s a big change.”
Nevertheless, not all banks have followed suit. The most obvious example is Wells Fargo & Co., which made a name for itself cross-selling financial products to customers under its former chairman and CEO Richard “Dick” Kovacevich, who ran the bank for a decade after its 1998 merger with Norwest Corp. Wells Fargo maintained its product-oriented sales culture under Kovacevich’s successor, John Stumpf, who became CEO in 2007. But less than a decade later, in September 2016, this strategy came to haunt the bank. That was the month the Consumer Financial Protection Bureau revealed that Wells Fargo had spent years artificially inflating its cross-sale ratio by signing millions of customers up for products they neither wanted nor, in many cases, consented to use.
What seems like an obvious strategy today, in other words, went against conventional wisdom when Moynihan first started pushing Bank of America to abandon its product-centric mindset in the lead-up to the financial crisis. “That’s what people were judged on, how many units they sold, and we started changing that a long time ago, based on our view that we were producing a lot of units but without a central view of the customer and the relationship,” says Moynihan.
A natural corollary to Bank of America’s shift away from product sales is the reorientation under Moynihan of the bank’s growth strategy, replacing external expansion through mergers and acquisitions with an emphasis on organic growth by building out existing client relationships. This wasn’t entirely voluntary, as Bank of America is barred by the Riegle-Neal Act of 1994 from buying other banks, given that it controls more than 10 percent of the country’s total deposits. But even if this weren’t the case, the focus on organic growth is another core principle of Moynihan’s approach to banking.
To wean the bank off growth through acquisitions, Moynihan first had to convince his team of the opportunity. Numerically speaking, at least in the case of credit cards, this wasn’t hard to do. “Only two-thirds of our current customers have a credit card with us, maybe a little more, and about two-thirds of those don’t use our card as their primary card. So think about that dynamic. Before I have to worry about finding another credit card customer, if I get that third of current customers that don’t have our card, that’s a 50 percent growth in the number of cards. The other objective is for our customers to use our card as their primary card.”
One ancillary benefit to Bank of America’s inward turn has been lower marketing costs. It costs the bank significantly less to get an existing customer signed up for a credit card than it does to go out and attract a new customer through direct mail or some other type of marketing outreach, says Moynihan. A second ancillary benefit is that, at least in theory, focusing on its own customers exposes Bank of America to less risk. It eliminates any latent risk that might be inherited in an acquisition, and because Bank of America can see everything its customers do, it’s in an ideal position to assess their credit worthiness.
It was in Moynihan’s 2010 shareholder letter that he most fully articulated this two-pronged reorientation of Bank of America’s culture. In it, he laid out a vision and strategy, coupled with a half-dozen operating principles revolving around culture, building a fortress balance sheet, risk management, efficiency and cleaning up legacy issues dating back to the crisis.
But the timing wasn’t right.
In January 2011, around the time Moynihan would have been sitting down to draft his 2010 letter, Bank of America announced nearly $3 billion in legal settlements with Fannie Mae and Freddie Mac related to mortgages the agencies had purchased previously from Countrywide Financial, which the bank had acquired in 2008. Five months later, the bank agreed to pay $8.5 billion to 22 institutional investor clients of Bank of New York Mellon Corp. for similar practices. Over the next five years, Bank of America paid a total of $64 billion in legal expenses, an amount roughly equivalent to its combined earnings from 2004 through 2008. It accordingly took years for analysts and commentators to grow receptive to a more optimistic narrative about the bank’s transformation.
The turning point came in 2015 after Bank of America had finally laid the last of its major crisis-related legal disputes to rest, with a $16.7 billion mortgage-related settlement with state and federal agencies in the latter half of the prior year. “A lot was going on from the day the management team took over [in 2010] before people recognized it,” says Moynihan. “And then we just started talking about it once people were willing to listen to something other than what our [legal] provision was and which pieces of litigation were still out there.”
It was around the same time that operational progress the bank had been making really began to bear fruit, providing the foundation upon which the bank’s revamped culture and structure could thrive. In the third quarter of 2014, the bank completed Project New BAC, a multiyear expense initiative targeting $8 billion in annual cost savings the bank rolled out soon after Moynihan took over. And that was just the beginning. All told, from 2011 to 2015, the bank’s annual expenses, excluding litigation costs, declined $15.8 billion. And if you include litigation costs, the number dropped by $22.3 billion.
A multitude of efforts to simplify Bank of America’s business model have played into this as well, with the reduction in its consumer product offerings serving as a case in point. “We started with more than 20 different checking accounts and are now down to three. Because, guess what, we don’t need any more than that. Now we can spend our time perfecting those three,” says Paul Donofrio, chief financial officer at Bank of America. “The benefit to doing this is that you can run the company more efficiently and build customer relationships instead of dealing with complaints.”
Bank of America has also sold off tens of billions of dollars’ worth of non-core assets, like its U.K.-based credit card business, and spent years working behind the scenes to consolidate its operating systems. “We had three deposit systems. How can we be customer-centric if people in the Northwest can’t get the online improvements because they’re on a separate system?” says Moynihan. “The cost of doing it, giving them 100 percent of our capabilities, was so expensive relative to the number of customers on the system that it had been like that for 15 years. So we invested half a billion dollars in it and got it done.”
This progress has enabled Bank of America’s digital banking platform to grow to 35 million users, 25 million of which actively use its mobile application. Today, 24 percent of sales in the consumer bank come from digital channels, and three-quarters of all deposit transactions are done on mobile devices or ATMs. This has made it possible, in no small part, for Bank of America to cull a quarter of its branch network since Moynihan became CEO. These improvements also enabled the bank to develop Erica, an artificial intelligence-powered digital assistant that is available to mobile customers nationwide. “Erica can’t exist if I have to wire into three different mobile platforms,” says Moynihan. “So at the same time not only were we changing the culture, we were also building the underneath systems to get us in a position that we could actually be customer-centric.”
Another aspect of this is Bank of America’s focus on sustainability, a term the bank interprets broadly and which includes environmental, social and corporate governance-related issues. A major part of the job, says Anne Finucane, vice chairman of Bank of America and leader of its sustainability efforts, is to decide “how to deploy our financial and intellectual capital and technology to drive business results and benefit the communities we serve.” That has included leading the charge on so-called green bonds and helping more generally to finance the transition to cleaner energy sources. “These aren’t political issues,” stresses Finucane. “They’re pragmatic. They have a tangible impact on communities. [And] if we want to attract the best of the next generation of workers, we need to be seen as a positive force for good.”
The net result of these efforts is that, starting in 2015, Bank of America’s performance across a broad swath of metrics has improved and grown more consistent. It has reported 14 consecutive quarters of positive operating leverage, growing revenue faster than expenses. Its efficiency ratio has come in below 60 percent for two consecutive quarters, after regularly eclipsing 70 percent in the years following the crisis. Propelled by last year’s tax reform, Bank of America’s return on assets is settling near or above the new industry benchmark of 1.2 percent for the first time in a decade. And it earned $6.8 billion in the second quarter alone, making it the fourth most profitable company in the United States and translating into an average tangible common equity ratio of 15.2 percent-“almost all you could have hoped for,” wrote bank analyst Glenn Schorr at the time.
The objective now is to protect these gains, a priority Moynihan discussed at a recent meeting with senior leaders. One way the bank is doing so is by refreshing the pain from the financial crisis, revisiting the mistakes made by the bank and the industry through a series of “lessons learned” so they’ll never make the same mistakes again.
“We’re not trying to scare people,” says Moynihan. “We’re trying to give them the courage to accept there are times when other people will grow faster than us, and that’s okay. We’ll make it.”
In the final analysis, Moynihan will never be another Hugh McColl, who spent the 1980s and 1990s storming from state to state assembling the first truly national bank. But Moynihan isn’t interested in that image-at least it doesn’t seem like that when you meet him. His is a difference in style, but not one of impact. It may take years for analysts and commentators to acknowledge, but make no mistake. What was once the bank of McColl is now the bank of Moynihan.