Bank of America Corp (BAC)’s Fourth Quarter 2014 Earnings Conference Call Transcript

Marty Mosby, Vining Sparks

Then there is a lot of noise in the markets business, and I tried to take out as much as I could. What I’m trying to look at is expense elasticity relative to the revenues, third quarter to fourth quarter looked very effective, was about 80% in relation to expenses to revenue reduction. But over the last year, when you take out the litigation expense, looks like operating expenses only declined about 20% of what revenues declined. So I was just curious what you thought maybe the right elasticity number would be there?

Brian Moynihan, Chief Executive Officer

I think largely we saw in the fourth quarter was reflection of the change in incentive levels due to the low revenue and you’d expect that to happen. But let me bring that a little higher to more broader point, which is about two years or three years ago, Tom Montag and his team made a fundamental restructuring of that business to drop its expense phase to where as long as we get $2.5 billion more revenues, more or less we start making some money. And if you adjust the FVA charge which is the one-time charge they made somewhere around $300 million this quarter, to give you a sense, so it’s the worst quarter $300 million and best quarter runs over $1 billion and that largely is really marginally profitable when you see those revenues go from the high $2 billion to the $3 billion level up to the $4 billion, most of that comes through to the carry on compensation of 19%, 20% or something like that. So there is elasticity base, you get the lower level start to hit the floor on the fixed cost structure.

Marty Mosby, Vining Sparks

Very helpful and then Brian, lastly, you’ve talked several times about the core expenses and the investments you’re making. A lot of the core businesses, really all except banking, showed declines in net income sequentially and year-over-year. Do you feel like you’re investing to try to reignite some of that growth going forward?

Brian Moynihan, Chief Executive Officer

One of the things you got to be careful, they reflect this — all these charge that we talk about and pushed out all the businesses, so there is some elements that really aren’t the businesses control, for a lack of a better term. And then secondly, you’re still seeing — as we move from a period where reserve releases were going along the business level, you’re seeing provision changes across the board to have it. But, by and large, if you look at the fees and address expenses which is two things they control the most you see a pretty good relationship going on and pretty good stability and I’d say if you look across the businesses, the consumer bank continues to make good progress on sales capabilities and if actual sales, look at some of the later pages, you can see it. I said wealth management, we got to make sure the expenses in the revenues stay on line there. We talked about that last quarter and John Thiel and team especially at Merrill Lynch are doing good job getting after that. And in the banking, I think you’ve seen a pretty good relationship if you back out sort of the unfundamental impacts of FAS 91 and the provisions, things like that, which meant those are adjustments we make at the top of the house and push through.

Marty Mosby, Vining Sparks

Thanks.