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

Operator

We will take our next question from Mike Mayo with CLSA, please go ahead.

Brian Moynihan, Chief Executive Officer

Morning, Mike.

Mike Mayo, CLSA

Hi. So you highlighted that the expenses are at the lowest levels since the Merrill merger, and we estimate that they are down almost one-fourth over five years so that’s certainly good, but we also note that revenues are down quite a bit over that time frame too. So how do you evaluate the trade-off between more aggressive restructuring and investing in the franchise? And specifically, you’re pretty much done, I think, with New BAC. Would you have a program — maybe even newer BAC, or a new restructuring plan?

Brian Moynihan, Chief Executive Officer

Mike we have a piece of that, obviously credit cost you got to think about in terms of — if you look back look at the higher revenue levels at the time, the charge off run rate was $2 billion to $3 billion a quarter and one quarter was $10 billion for cards especially so be careful about that. But I’d say your point really is what you do from now forward and we see — that we talked about in core expense space we decide the LAS litigation all that stuff, it is just the core expense space. Basically what we continue to do is to take out non-productive expenses and the best part of that back in the franchise and bring part of that to the ability to see that core line continue to move that and that’s down. Remember that when we’re doing this, we’re absorbing housing cost increases, wage and salary increases, incentive comp increases, so we’re heavily focused on maintaining a rational balance between the core revenue and the core expense dynamic going forward. And so you should expect, assume that there is a continuous program looking at this. This is continued simplifier company could being take out divestitures of the cost of the crisis. And as we have downsized the company take out the overhead that was hard to shake out as you’re all aware. So we’re laser focused on it but I think on the other hand we continue to invest in sales capacity and you see that reflecting thing like card sales and home equity sales and auto loan sales, direct auto loans sales are increased.

Mike Mayo, CLSA

So, don’t expect another new program with the expense targets is more of a day-to-day perspective now?

Brian Moynihan, Chief Executive Officer

No. We absorb — if you think 50% of our cost being people cost and you think of inflationary level of cost increase of the 3% on this, basically to keep cost down and flattish, you got to work your tail off. That’s the sort of process going forward. We’ve got to drop the cost down again to the reasonable level. We’ll continue to make improvement relative to revenues. And the rules get different, we will then have to revisit it but right now in this revenue environment, the slow growth environment, we can keep the cost while as revenue start to rise.

Mike Mayo, CLSA

Then a separate question: what are your key financial targets for 2015? I know you’ve expressed some of your targets, assuming interest rates increase. But if interest rates don’t increase, what should investors evaluate you on at the end of 2015? All I had to go on without the higher interest rates is page 42 of the proxy that talks about the PRSUs. It says as long as you get over a 50 basis point ROA, you go in the money on the PRSUs. So I’m not sure if I should be looking at the 50 basis point number or its 80 basis point, 100% in the money or the 1% number that you’ve talked about before. But again, assuming rates don’t go up, what’s your ROA and ROE target for 2015?