BAC - Bank of America Corporation (BAC) BancAnalysts Association of Boston Conference (Transcript)

2023-11-06 13:34:09 ET

Bank of America Corporation (BAC)

BancAnalysts Association of Boston Conference

November 2, 2023, 04:30 PM ET

Company Participants

Aron Levine - President, Preferred Banking

Lindsay Hans - President and Co-head, Merrill Wealth Management

Jeffrey Busconi - Head of Private Bank Services

Nancy Fahmy - Head of Investment Solutions Group

Lorna Sabbia - Head of Retirement & Personal Wealth Solutions

Sharon Miller - Managing Director, President of Small Business

Wendy Stewart - President, Global Commercial Banking

Lisa Clyde - Managing Director, Global Corporate Banking and Leasing

Lee McEntire - Senior Vice President and Head of Investor Relations

Conference Call Participants

Presentation

Unidentified Company Representative

Thank you. On behalf of the BancAnalysts Association of Boston, we're very pleased to have bank America not only host their annual dinner this evening in their corporate office here in Boston at 100 Federal Street, but we also have many of their senior managers, senior executives with us as well to do presentation about their different lines of businesses on the wealth side of the house, as well as the commercial side.

And what we'd like to do is I'm going to start off and rather than me reading all of their backgrounds, I'm going to introduce Aron first and then we'll go down the line. He'll talk a little bit how long he's been with Bank of America, what his history is, and more importantly, a brief introduction of the business he's responsible for.

But with that, Aron, why don't you start? Thank you. Okay,

Aron Levine

Okay, thanks. And always great to be here again. So, good to see everyone and look forward to spending time at dinner. So I am the president of the Preferred Bank. You can see the stats up there. I've been with the company 30 years this year. I celebrated my 30th anniversary.

Really spent those 30 years across different lines of business. I started my career on the corporate side of the bank. I spent some time in wealth management. I moved over to the consumer side of the bank about 12 years ago now to help build out this preferred model. And again, preferred is part of the overall consumer business, 25 million clients out of the total 65 million, which we'll talk about, but certainly great to be here.

Unidentified Company Representative

Lindsay?

Lindsay Hans

Sure. Hi, everyone. Good to be here. Lindsay Hans. Eric Schimpf and I are the presidents and co-heads of the Merrill Wealth Management business. It's one of the two full service wealth management businesses at Bank of America, the other being the Private Bank, with Jeff Busconi here representing there.

Just maybe tell you a minute on the types of clients we serve and then how we're structured organizationally. On the clients we serve, you can see some of that up there. We service clients that are at a part of the wealth continuum that have a level of wealth or complexity where they need a human being to deliver financial advice to them.

Complexity could be different levels. I'd say we tend to sort of move towards that half a million, actually all the way up to the ultra-high net worth space, which can be north of $25 million or $50 million. Those clients, we serve their investing needs, we serve their lending and their core operating banking needs. And we do that through a financial planning approach.

We have $3 trillion in client balances. In terms of organizationally how we're set up, we have, at Bank of America, in the wealth businesses across Merrill, across Aron's business and the Private Bank, we have roughly 20,000 advisors with over half of them sitting in the Merrill business. We operate at Merrill in around 500 to 600 locations across the country. So this is mainly a domestic business. So that's a bit about how we're set up.

Unidentified Company Representative

Thank you. And Jeff?

Jeffrey Busconi

Sure. Hi, everyone. Jeff Busconi. I'm the Chief Operating Officer across Wealth Management here representing the Private Bank today. Private Bank sits on the far side of our continuum. It's the area of wealth management where we really focus on the ultra-high net worth space where clients start at about $3 million and up. Our average client is, of course, much larger than that.

Little bit about the business where $600 billion in client balances, top three private bank in the US. Got to think about all of those acquisitions that Bank of America did over the many years, the regional banks, the super-regional banks, every one of those had a trust department that worked with the wealthy families in that part of the country. US Trust was the biggest acquisition back in 2007. And now all that's put together as really the third largest private bank in the US.

In terms of our operating model, deep, deep focus on trust and estate planning, and serving our families across all their needs. We're the largest trust company in the US.

Unidentified Company Representative

Very good. Nancy?

Nancy Fahmy

Good afternoon. Nancy Fahmy. Great to be here with all of you. I run the Investment Solutions Group for Wealth Management. Really think of it as the investments platform serving the self-directed business, affluent clients, high net worth and ultra-high net worth clients across Merrill and the Private Bank. So think of it as the horizontal investments platform that serves all of those clients across all clients segments.

Three primary responsibilities of the group, really investment products across traditional and alternative investments, as well as personal retirement and trading capabilities to really provide best execution across that entire client continuum. Really delivering the scale of what we deliver across all of that to our clients.

And then lastly, product specialists really serving our advisors and clients, really providing education that's planning based across all of those client segments.

Unidentified Company Representative

And last, but not least, Lorna.

Lorna Sabbia

Thank you. Good afternoon, everybody. My name is Lorna Sabbia. I lead our retirement business for Bank of America. Been with the company for 28 years. And in the retirement space for the last eight or so.

As you can see, it's actually the last bullet under the Merrill line of business. So our numbers roll up to Merrill. But it's a platform that literally enables all the lines of business across Bank of America. So think about it this way, we're in the benefits business, meaning helping companies of all sizes win the war on talent. So you'll see integrated solutions like 401(k)s, like equity compensation, like health savings accounts. And we have roughly 25,000 companies that we currently serve. About $440 billion in total assets.

And then on the other side of that, we help the individuals within all of those benefit programs, ensure that they're well supported, ready for retirement, ready to pay for healthcare costs, and also have a unique offering and employee banking and investing. It's where we partner with Aron and his team to really handle every single day needs around banking, paying down debt, having a budget, and all those topics. So it's really working with the company and the individuals within all of those plans.

Unidentified Company Representative

Thank you all. Investors over the year, over this past year have seen some really strong organic growth that you folks have been able to put up. It's record investment accounts, assets and flows.

And maybe, Aron, starting with you. Can you tell us about the investments you've been making to grow this business?

Aron Levine

Yeah, sure. So if you think about, again, the consumer investments component here, and I think it's important to remember, everything we talk about is highly integrated. So while consumer investments sits within Preferred Banking, there's so much activity of clients that go on between my business, Lindsay's and Jeff's, and obviously with Lorna and Nancy. So, it's highly integrated.

But as relates to preferred banking, you see up on the slide, it's $387 billion in assets. In 2019, it was $240 billion and probably 2.6 million, 2.7 million accounts. So since 2019, we have added over $140 billion in assets and almost a million accounts.

And it's really two big components. We have a self-directed platform that, again, everyone can use. It's not only consumer clients that leverage it, but Merrill Lynch clients, the Private Bank clients. And so, self-directed, that model we've invested in, that's usability, it's client experience, we've gotten quite a number of awards for the obviously integration of bank brokerage, the ability to do everything in one place because, remember, the whole model is geared around supporting those consumer clients and the deposits those consumer clients hold, right? It adds to that stability that we have because 70% of our consumer investment clients have a Bank of America checking account. So it's a very important component of how we support our deposit business.

So we have self-directed model and then we also have what's called Merrill Guided Investing, which is investments we've made – can sort of think of as a robo advisor, although with us, it's our chief investment office. It's really delivering to clients the chief investment office's portfolios in a managed fee based model. And we've grown that from about $14 billion in 2019. We've doubled it to almost $28 billion. And again, I expect to double that again over the next few years.

And so, we have one, as Lindsay alluded to, several thousand, we call, financial solution advisors, which sit in the banking centers and provide advice and guidance in a digital, hybrid model. Right? We leverage the digital platform, but we then have people available for our preferred clients. So that's been a key investment for us. And then we just continue to develop the integration of the entire Bank of America consumer digital capabilities and then the investments on top of it.

So, obviously, it's been a great story for us.

Unidentified Company Representative

Maybe moving over to Lindsay for a second. Can you share with us how the growth in this consumer investment space has benefited Merrill?

Lindsay Hans

Yeah. Yeah, I think just before I get direct to that question, as I look at the way this slide is set up, which is just very factual and has lines through it, what it doesn't show in this format is the reality of wealth management clients, private clients, is they can move in and out and up and – left or right on this spectrum at different points of their life. And also, even just within their family, they may have people that at a given moment in time make a ton of sense for Aron's business.

We see just the evolution of self-directed in this country. When it started in the late 90s. It was that or hire a full service financial advisor. Now there's a lot in between there and choices clients have, robo, otherwise.

So, really, like the model we have up here is like we think the winning hand. Whatever door you need to walk through is represented up here. And so, we even see some of our wealthiest clients both in the Private Bank and at Merrill who have parts of their relationship, some of their accounts with Aron and self-directed. They want a piece of their business there. They want to do with themselves. But they want other parts of their assets more fully advised.

I would say in terms of opportunity that we have won, the 3.7 million clients in the self-directed channel, some of which either – their life changed, their complexity changed and they have a need now for either a full service relationship to replace self-directed or add on. And oh, by the way, we have tons of clients in Merrill Lynch who are doing that self-directed business with us and tons that are not. They're going elsewhere to do that, yet we have an inhouse solution. So those would be a couple of ways.

I would say beyond the edge side, just the broader consumer platform that our clients get to access for their core operating banking needs is a huge growth opportunity. We have about 50% of our clients at Merrill do their core day to day banking – think, their paychecks, paying their bills, about 50% of our Merrill clients do that with us at Bank of America through consumer, but that means another 50% do not. So that's a big growth opportunity for us as well that's highly profitable business and our clients appreciate their lives being made easier as opposed to having multiple providers around them.

Unidentified Company Representative

And then just to follow-up, Lindsay, are there any other initiatives inside of Merrill that have helped driving the organic growth?

Lindsay Hans

Yeah. There are a few. So, just to maybe take a step back before I go right to that. When you think about the evolution of wealth management over the last 40, 50 years in the US, I think that's important context. And I think we'll just – when I talk about what we're focused on the grow, it'll make a lot more sense.

I'll do this quick. 70s, 80s, it was stockbrokers. It was Wall Street to Main Street. Right? What financial advisors at the time stockbrokers did was essentially provide the ability for a regular American to buy an investment. And at that point, it was typically a stock or a bond.

Unidentified Company Representative

That was when Merrill Lynch was bullish.

Lindsay Hans

Yeah. Bullish on America and other firms certainly got in the mix. And then, as you work through and you got to the 90s, technology and product innovation changed a lot of that. And technology changed it because all of a sudden, self-directed was born in the late 90s. Think E*TRADE especially, you saw the commercials with the baby. And all of a sudden, it was, wait a minute, you don't need a financial advisor necessarily to do that. At the time, those of you that follow the business, there was lots of concerns that that would cannibalize entirely wealth management in the traditional form of humans delivering it. Well, it hasn't. It's 25 years later almost and these businesses are booming, and there's just a lot for the taking.

But in that kind of 90s period, you had other choices for clients. And you also saw a move from individual brokerage business of stocks and bonds to professional money management, either in the form of clients wanting access to professional money managers, separately managed accounts, but typically if you walk in off the street, would be a $500,000 minimum. And I could get that a lot lower through my financial advisor.

You also saw the beginnings of financial planning. And you saw a more – just overall, it was more let us solve needs beyond investing. Let us talk to you about your life. And from an investment standpoint, let's go more asset allocated and portfolio based. And then, as it moved through, why just do investing, we should also be able to do all of your banking and lending needs. And that's just quickly been the evolution.

So as we sit here today, while we've made great progress diversifying our revenue, right now, about 60% of the revenue at Merrill comes from our investing side on our fee income, that's our platform our clients pay us a fee for portfolios and about just shy of a third comes from our banking and our lending. And it's only 10% that is our traditional commission brokerage business.

So when we think about our organic growth opportunities, it's doing more, having more and more of our clients experience all of that from us. It's continuing to acquire new clients. We're about 31,000 net new clients so far this year. So just putting more clients into this space, both in Merrill and the whole enterprise and we need more advisors. It's a $65 trillion market of US wealth management. That was $25 trillion 10 years ago. So this is – there's actually not enough advisors in the industry to go around to grab that. And so, we have a lot focused on both continuing to train as well as hire and then, lastly, technology to drive efficiencies in the business.

Unidentified Company Representative

Maybe going over to you, Jeff, many of us know in the Private Bank that one of the real sources of organic growth is to develop that relationship with the future generations of your current clients. And, as you know, this sometimes can prove challenging. Can you share with us any initiatives that you have underway and the focus to drive this organic growth?

Jeffrey Busconi

Yeah, sure. So next generation, I'll talk about two things. One, go back to what I said a minute ago. We're the largest trust company in the country. When you are serving as trustee on a family's trust or you are administering their trust, you have a major head start in working with that next generation. That is how you lock in the next generation of clients. And we are the largest single provider of trust administration in the country. The number two player is about two-thirds of our size. Right? So that is the first thing. Really, really important.

About 80% of the accounts that we open in a given year are actually for our existing clients. So think about this wealth transfer that we all read about. It's happening. As family trees grow, we're capturing those additional family members, those additional assets, those new accounts. That's point one.

Second thing is, we really try to deliver actually all the capabilities that the company has to our families. So this is where Aron's world comes in actually and Merrill Edge. Over the last couple of years, we have actually put some of Aron's Merrill Edge specialists in our Private Bank offices. In fact, in about three quarters of our offices, we now have a Merrill Edge specialist, who is delivering the self-directed platform to our clients in the Private Bank. This is the perfect solution for kids, for grandkids, or even for older generations. And this has resulted in really billions of dollars actually inflows on to the Merrill Edge platform for our clients. So that's a great solution for the next gen.

Unidentified Company Representative

Great. Yeah, go ahead.

Aron Levine

[indiscernible] billions of dollars of referrals from financial centers, right, we have almost 4,000 banking centers, a lot of wealthy people walk in and we have a very close relationship where we can then warm transfer those clients to either Lindsay's world or to Jeff's. So it's a very powerful model for organic growth.

Unidentified Company Representative

Great. And Nancy and Lorna, maybe you could share with us some of the products that you're seeing your customers lean into to give you guys opportunities for growth going forward. And can you say how they're using them across the wealth spectrum as well?

Nancy Fahmy

Maybe I'll start.

Unidentified Company Representative

Sure.

Nancy Fahmy

So just thinking about the client continuum and thinking about the client segments that we serve, in the investments platform, we're able to leverage the size and scale across all of the client segments that we just talked about to really deliver for our clients. So we think about their goals, their values, their preferences, we need to deliver that, deliver that at scale, but also with customization at the same time depending on the client segment.

So one thing that's unique about our platform is we are fully open architecture. So we believe in working with what are the best third party asset managers to deliver for our clients. And we use our scale and size to get them access and to get them best execution on everything we're doing across that continuum.

So what we're seeing, I think, today, just a couple of things, themes to highlight and really following on what Lindsay talked about, one of the biggest areas of growth is model delivery in SMEs in our platform. What it's allowing us to do is create that efficiency for our financial advisors to really go out and focus more on deepening relationships, client acquisition, banking, lending, all of the other things that they need to do by centralizing some of the investment management for them.

So it's really two things. It's with our CIO office, really harnessing our best thinking, our strategic asset allocation to deliver for our clients. So one of the areas that has been a tremendous area of growth in the CIO portfolios is really focused on bond ladders, something that we can scale centrally, instead of each individual advisor managing his portfolios on their own, using our best execution capabilities in our capital markets to deliver that best execution for clients. So just as an example.

Secondly, we launched something called Premium Asset Strategies, which is a customizable SMA structure for clients and it's for clients to be able to really have more control about their investment preferences and to really also be able to have more control around the pricing.

And so, we've got multiple asset managers, we added close to 100 new strategies in that space, it has been a tremendous area of growth for our client base. The second area I'd touch on is alternative investments. So you think about alternatives we are really delivering across our client segments. We have really been locking arms with our asset management partners as an industry leader to really try to create new solutions that allow all clients across all wealth segments to access alternative investments.

We also have the scale that we can achieve with the Private Bank and Merrill's private wealth channel in the ultra-high net worth space to really deliver unique access to these managers in that space. So private credit, as you can imagine, and a number of strategies, very interesting. Clients really focused on yield and really diversification in that space.

And then I would say, lastly, tax efficient management. That's something that's our tax overlay strategies really allowing clients to choose that tax overlay across everything we do to provide tax efficient returns net of returns. So those are just a few to highlight.

Unidentified Company Representative

Lorna?

Lorna Sabbia

So, I'll answer the question looking at companies first and then individuals second in this space. So when you think about companies, it's not a particular product, there's not a company that's saying, 'Hey, I'm really into 401(k) today and I wasn't into it yesterday.' It is really about employees believing that their company owes them the opportunity to become financially educated and financially well.

The great news is that about 98% of the employers that are out there, and we do a ton of research on this topic, actually agree. If we were to rewind the tape about 10 years ago, that was not the case. And so, there's a ton of employers out there that believe it is their responsibility to help their employees feel financially well and have the resources to do that. So I would say financial wellness in general is the growth opportunity truly from a company perspective.

On the individual side, when you think of underlying investments, for example, in a 401(k) space, when you think about target date funds, that's traditionally where the dollars go.

With that being said, we also launched a robo advisor inside of a 401k plan. So it's considered a managed account inside of a 401(k) plan. So, it's considered a managed account inside of a 401(k) plan. It is exactly the same experience that Aron actually referenced, meaning that for employees that say the Merrill CIO will go ahead and manage my money on behalf of me, so I don't have to spend the time and invest the time to actually come up to speed or I just simply don't find the joy in it, they actually can use that robo advisor for the funds that are inside of their 401(k) plan. It's the same exact experience that they would get when their dollars roll off and they're now outside of the retirement plan. The only difference is they have access to many more investment options. And so, that, in particular, has been very popular with companies making the choice to put it on the platform and then individuals saying, I want Merrill to manage it for me.

Unidentified Company Representative

Very good. Now, here's a question for all of you to answer. We know Bank of America has a strong integration across many of the local markets around the country, even Portland, Maine. And so, can you talk about how you're delivering your business, as well as serving your clients across the wealth spectrum and the importance of this integration driving new organic growth.

Aron Levine

I can start and then everyone jump in. One of the, I think, great parts of our company is we have a model called market president, which many of you probably have probably heard of us talk to us over the years.

So in every good markets, 97 markets around the country, we identify a leader, someone who might be in any of our businesses, but has a strong presence in the market and we identify them as the market president. And they represent us in our host-aways with the community, local governments as our – but the key part of their job is what we call business integration where leaders from all of our businesses as well as the other businesses represented after us, those leaders come together and literally say, how are we going to grow market share in this market, and that's growing market share, whether it's retail deposits, whether it's wealth management, small business, business banking, corporate banking. And so, literally, you have effectively a board of directors at the local market level that can make decisions and drive. As Lorna said, how do we go after the prospects of these companies that could have a 401(k) plan with us or could have that employee banking plan? How do we get more referrals from the private bank to Merrill and from the consumer business across the way. So, it's a really phenomenal model because it takes this nationwide franchise and puts a team in place in every single market to think about what the resources we need in that market, should we get more bankers, do we want to add more financial centers and it's on the ground every day working with clients. And it's just very powerful. And I think we quote 7 million referrals go through all the different businesses on a yearly basis.

Lindsay Hans

Yeah. Just even two hours ago, while I spent the day in Boston – I'm based in New York, but spent the day in Boston two hours ago, sat with the Boston team that Aron's referring to. But I would say for us, in our client base, I mentioned earlier, we have 600 locations, formal Merrill Lynch locations across the country. That means we have very wealthy business owners in Boston and in Boise.

So, when you are a wealthy client, business owner, and you have then a potential transaction, which could be a small business, a medium sized business, a large that could be a core investment banking client, what I think a lot of our competitors often do in the way they're set up is, we tell that person go fly to New York. And the beauty of our model is we have those folks for the most part all right around in that location. And we bring the bank and the broader company to that client. And we think that's a differentiated model, when you think about some of the wealthiest people in this country are business owners and just how much opportunity there is.

Jeffrey Busconi

Gerard [ph], we have an office in Portland, Maine in the Private Bank. We may come knocking – we may come knocking and look for you in your boat.

So, really, just to build on what Lindsay and Aron were saying, you've got – Private Bank clients, who are they, right? They're business owners, they're real estate operators, they are entrepreneurs, they need everything that we have at the company. And I think one of the most valuable things we can sometimes do for clients is actually help them navigate around the company to get exactly what they need, whether that's a commercial loan or real estate loan, capital markets capabilities, research, et cetera. And so, that's the power of the model, right, they can work with us and get what they need.

Nancy Fahmy

I would just add that this specialist organization, the investment product specialists are also local in those markets to be able to deliver where the clients are, to Lindsay and Jeff's point, but also work across Private Bank and Merrill in those local markets, right? And then I would say also locking arms with our investment bank partners, as well as our global markets partners to bring all of that to the client, deliver it locally, across all the businesses that we serve.

Lorna Sabbia

Yeah. And where I would go as well – and Aron sort of touched on this – but when you think of the fact that, first of all, in the retirement space, we're one of only few opportunities to have an integrated offering. Here at our company, there's a ton of competitors that are in the equity and equity only space or in the 401(k), the 401(k) only space, so there's a benefit to having an integrated offering.

The bigger benefit is the fact that the next panel, you're going to recognize that we have about 45,000 companies of size and that's before we get into the millions of smaller companies that we work with. So when I think about the opportunity for our solution set first to ensure all of those companies are aware that we're in the retirement space, but second, if I think of Wendy's business, in particular, of the current clients in that space, there's over 275,000 retirement benefit plans because every single company uses benefit programs. And so, the opportunity before we even win a new client at Bank of America, is to ensure that we continue the partnership and working with Wendy and her team, for example, and making sure that we actually meet with every single client across the entirety of the company. That's unique.

What's unique also is having the opportunity for a consumer bank. If I take a look at the plan participants on average in 401(k)s that we win, roughly 20% of them are already banking with us in the consumer bank. That is unique to the way that we actually do the business. And so, it's really around us being organized and efficient and bringing what everybody's saying up here, which is the entire bank, to that particular – whether it's a company or individual, and that's what's a differentiated opportunity, particularly in the retirements.

Lindsay Hans

Yeah. And I'll pull that thread through one more step, Lorna, is that 6 million individuals that basically are part of a financial life benefit plan through Lorna's org, only a very small subset that currently have a wealth management relationship. So they may walk through the door of the retirement plan, the institution retirement plan, but there are individuals who then say, well, wait a minute, I've got a wealth management need or my stock compensation has grown, and so that that thread pulls through across this side of the panel as well.

Aron Levine

Yeah. The same thing applies. We have 25 million preferred clients, 15% roughly have an investment relationship. So that is a massive opportunity that we could pursue for the next decade to go after that population that could be in any one of our areas, but those clients do have needs and then we have to figure out how to go after. And that's what we do.

Unidentified Company Representative

What's interesting now in the banking industry, obviously, is that digital is so important. When we think about it, it's really only been around since 2008. And as we know from your quarterly calls with Brian, he's very clear on how successful you guys have been in penetrating. Maybe, Jeff, starting off with you, can you share with us the benefits of your strong digital presence that you have with your clients, your advisors, as well as businesses across the different business lines?

Jeffrey Busconi

Yeah, sure. So starting the question on digital with the individual representing the private bank, right, to actually take note of that up there on the slide, the highest level of digital engagement across the entire company, 92% Private Bank clients. So I'm not sure that's necessarily intuitive to a lot of people.

But, look, what it shows is, yes, our business and our relationships start with that human interaction in the relationship with the team, of course, especially at this level of wealth, but our clients want convenience, they want access, they want to be able to do things themselves, they're busy, they're successful people, and they engage with us across mobile, online, et cetera.

What our client surveys actually show is our most satisfied clients, our happiest clients are those that engage with us in multiple ways. So they are our most active digital users and they're also interacting with their team a lot. So it's really the combination of the two things that I think, at least at the high end, the private bank clients, are looking for.

One other interesting note on this is, what we see in the Private Bank is our clients use the consumer online and mobile capabilities. They use the private bank online and mobile capabilities. And they use our commercial banking, commercial grade digital capabilities for things like treasury management, cash management, which is offered through, of course, our commercial bank and our CashPro application. So we really run the gamut, given our client base.

Unidentified Company Representative

Nancy, any thoughts on your area with digital?

Nancy Fahmy

Yeah. I think, ultimately, the end delivery to the client really sits with the team here. But I would say on the product side of it, even the most complex areas, like alternatives, which are really difficult to deliver digitally, we have been fully digitized on. So clients can get e-delivery documentation on things like alts, where I think we're really ahead of a lot of the competition to become efficient across all of our businesses.

Unidentified Company Representative

Yep. Lorna, in retirement solutions, how important is digital in your area?

Lorna Sabbia

First of all, from a company perspective, that's the number one thing that they ask for. And so, when you think about different companies, sometimes there's employees that never sit in an office, right? So digital first is what we usually hear from companies.

In the retirement space, we have great adoption as well. It's an area that we've invested a lot of money into. So we have about 85% of our transactions being done digitally inside of the retirement space, which is terrific.

What's also different, though, is here at our company, digitally, you can see your investments, your banking balances, and your benefits, right? So regardless, what's nice about that integrated experience for a client is – then it's on demand whenever they want to take action. And so, to have that full financial picture is a differentiator as well. So we'll continue to invest in digital perspective, as it relates to making that experience even more simple, even more intuitive.

We have Erica, which is our AI assistant in the retirement space as well. And I think there's more opportunity for that. And when I think about that, those were traditionally calls that would go into a call center, that would take time, somebody would have to interact with a person. Our sort of high tech, high touch strategy will always continue, we'll have people ready to go and be prepared when an individual decides that's what they want.

So in the retirement space, we call it, it is a participant led strategy, however they want to interact with us is the answer. We're here to support them, whether it's digitally or through people as well.

Unidentified Company Representative

Great. Aron, any thoughts?

Aron Levine

Yeah. Well aware of how important digital is to a consumer business. I think when you think about the strength and shows up there, right, nearly a trillion dollars in deposits, 36 million – now close to 37 million checking accounts, again, those clients core checking, that's funds that is used every day from just people's general – how they operate their life. These are not funds that are going to move to because of rate, right? This is the core checking account. Having the ability through our Bill Pay, through Erica, through Zelle that have such a strength on digital is what creates another layer of that stickiness and why our client attrition rates are so historically low in the consumer business. It's just a very powerful tool to have the ability to have that level of convenience, to be able to anything you want to do with your accounts, moving money, paying bills, all of those things is just very powerful.

And then as it relates to the consumer investment business, it is a digital platform. You're basically doing everything via – opening up the account, funding and moving money back and forth. And the fact, as Lauren said, that you can see all these things in one place, the Bank of America app, which we put a lot of money in, David Tyrie and his team have done a fantastic job of bringing all of these different legacy sites together under one app, which is really powerful. But it's really one of the key competitive differentiator of why our deposit base is so sticky, so stable, and so powerful year in and year out.

Unidentified Company Representative

Lindsay, any thoughts in the Merrill…

Lindsay Hans

Agree with all. Probably most aligned to where Jeff went because we have a similar client base.

Unidentified Company Representative

Great. In fact, speaking of deposits, Aron, can you share with us – when you think about it, are customers moving or still moving from deposit accounts to alternative higher yielding? Also, when you guys think about the behavior of your customers, is there asset allocation changes?

And then, finally, on this topic of interest rates, if we're here higher for longer, how do you think that's going to impact your guys' businesses from lending or on the deposit side?

Aron Levine

Yeah. So, certainly, in our client base, and then Lindsay and Jeff told us, we're seeing it slow down in terms of moving from – because, again, a lot of our clients, the money that they had to move to alternate investments, they've done already. And so, we definitely have seen – and the good news is we capture a much larger percent of that than we used to. So, consumer clients that move to investments, we capture 70%, 75%. Two years ago, it was probably 40%. So when they are moving it, they actually stay within our organization, within our company, either within the Edge platform or with one of the others. But we are definitely seeing that slow as, again, consumers continue to spend. And so, that'll obviously drive some deposits down, higher rate environment, but it is stabilizing. It's plateauing. And so, we see that trend start to shift from where it was even 12 months ago.

Unidentified Company Representative

Lindsay?

Lindsay Hans

Yeah. Just in terms of client behavior, right now, I'd say, just bringing back something I said earlier, if you were working in an average wealth management branch 25, 30 years ago, and there was a big sell off day, you'd see a lot more advisors running around panicked because clients would be panic selling because the composition of the business at that point, like I said earlier, was so much more stock and bond transactional driven.

This movement over the years to more of fee-based and portfolio allocation, you get a lot less panic selling because you're then really – sort of what are you going to sell? You may reduce some of your equity portion. But then you're back to, well, wait a minute, let's go back to your financial plan, do you really need that liquidity in the near term. So it's been really healthy and changed a lot of sort of whipsaw when we're going through these really volatile periods.

To putting that kind of to the side, what are we seeing in the sort of last six months, our deposit declines have definitely stabilized. So we've been bouncing around that $240 billion, $245 billion in Merrill over the last couple months. I'd say three to four months.

I would say there's a ton of dry powder, though, in cash on the sidelines. A lot of that is sitting in short term treasuries and CDs. We're at really probably three times the level of that type of, call it, investment cash than we were before the current rate cycle. So there's just – that's just a timing. We're seeing clients who are paying, let's say, tax payments. They may be paying that a little bit out of their investment portfolio versus 'hey, I'm getting north of 5%, close to 6% on cash and I'm going to sit and wait. And I'm going to sit and wait a bit. But we're not seeing sort of panic sell-offs out.

One last point I'd say, just data driven. Typically when we bring in a new relationship, a new client, in a normal environment, about 45% of that, right out of the gates goes into Nancy's, our fee base platform. That dipped to 20% in the late spring, which means just people were really waiting on the sidelines, we're back to more like 45%. So you're starting to see private clients edge back in.

Unidentified Company Representative

Jeff, in the Private Bank?

Jeffrey Busconi

Very similar to what Lindsay said in terms of trends, deposits, very much stabilizing. Our clients tend to, I think, be earlier movers in the cycle. And so, that's what we saw and things have been pretty stable.

Unidentified Company Representative

We're running out of time here. We can focus on people, the advisors, which are critical to your guys' businesses. And maybe can you share with us, Lindsay, just the recruiting strategy that you guys use and then also how important it is to develop these advisors? And Jeff and Aron, same thing, the development program and benefiting your advisors, can you share with us some of the insights there? But, Lindsay, why don't you start?

Lindsay Hans

Yeah. So, Wall Street to Main Street also is the Merrill Train the Street. So Merrill, if you followed us, even before, 50 plus years into training programs at scale, and that remains today. Of course, over 50 plus years, you do something long enough, you figure out all the things you do wrong and you keep trying to get better. But as we sit here today, it's almost 2,500 people in our training program. We have innovated it over the last couple of years to partner much closer with Aron because when we think about – again, let's go back 30 years, it was cold calling, it was pick up a phone, here's a phone book. Not many of us have a hard line at home, and not many of us take a phone call from somebody that we don't know. And then there's, of course, regulation that didn't exist before as well and how you can do that and just how clients find services is very different.

So we took a lot of – and then last point, when people talk about the changing hands of wealth, whether that's women or other diverse – that's not a future phenomenon, that is today. And then when you think about the industry and the demographics of financial advisor, it's still predominantly male on the more experienced side and certainly not very ethnically diverse.

So when we think about sort of how do we attract the talent that can serve the current marketplace and when we think about $65 trillion and growing in the total market opportunity, you need more advisors and you need them to have different backgrounds in many cases, not just, hey, I belong to a country club, and therefore I'm going to come into this business. So that is key for us when we think about the on ramp to come in. And we now start our trainees with Aron and we give them access to leads. So lead generation, which is a huge opportunity for us, right now is happening daily in our training program, and then they work their way into the Merrill branch. We've extended that runway longer. And we train them early on in this portfolio based approach in a combination of human and digital delivery advice with the right financial planning. So that's a big part of it.

And then, we're selectively going back to some recruiting some experienced advisors with the competition. And that's been something we had turned off that we're turning back on for the right markets.

Unidentified Company Representative

Jeff and Aron?

Aron Levine

Yeah, I can add real quickly. The entire model for our business is a career growth model. So, obviously, in the consumer business, I can hire very diverse talent that can come in from all kinds of different places, give them an opportunity to ultimately get registered and licensed and serve in a base salary and bonus structure. That's very sort of a limited thing. Merrill Edge is self-direct, Merrill Guided Investing, but great training ground, every day working with clients, every day helping them on banking, lending and investing and just giving them a fantastic, early start to their career. And then, either they can stay with us and it's a destination job for many of my, we call, FSAs or a great program to then move on to a Merrill or a private bank.

So we've really built a model, in that we can source talent from all kinds of places that historically was challenging for the wealth industries, especially getting more female advisors, more diverse advisors, consumer bank is a great 12, 24 month program, and then all that talent can kind of continue on in their career. It's a really powerful model.

Jeffrey Busconi

I'd just add, for this group, it's probably obvious. Private bankers don't grow on trees, right? That's why there's historically been a lot of competitive recruiting in the space. And it's been an apprenticeship model in terms of how you grow up in the business.

What we've tried to do is actually break that and create a real business system around training and development. And the way we do that is actually through leveraging what Aron just talked about, creating pathways and bridges for his folks in consumer to actually work through different roles up into the private bank and also give a nod to our commercial banking partners who are going to come up in a second here.

In the Private Bank, a lot of our best private bankers and leaders are former commercial bankers, think about people who know corporate finance, know balance sheets, are great relationship managers of bank companies for decades. They transition into great private bankers, and so that's really how we've developed our talent and grown our sales force.

Unidentified Company Representative

Please sit tight. We are going to now transition to the other side. Please sit tight and we're going to get the other group up here, commercial banking side from small business, commercial to corporate.

And maybe, ladies, we could start off, talk a little bit about your background, but also, more importantly, the areas of responsibility that you have. And maybe, Sharon, we could start with you.

Sharon Miller

Great, thank you. Sharon Miller, and I'm responsible for small business. And my partner, Raul Anaya, who is responsible for business banking, he couldn't be here today. So I'll talk about both segments because we really go to market together in our 97 local markets. I've been with the company 27 years. And we'll talk about just how we go to market and how we serve clients across startup, all the way to $50 million in revenues.

Wendy Stewart

I'm Wendy Stewart. I'm the President of Global Commercial Banking. And I've been with the company for 20 years. And global commercial banking, so when you think about the spectrum of just companies within this country and really around the world, you start with small business all the way to the multinational corporations. And so, we sit in global commercial banking in the center of that. We work with companies that are, on average, $50 million in revenue to $2 billion in revenue. They are US and Canadian based companies. And we also cover their international subsidiaries. So if you think about a company that is based here in Boston that's doing business in three different regions outside of the US, we have bankers not only here in Boston to cover that company locally, but we also have bankers on the ground in 15 countries outside of the US and we choose 15 countries as opposed to Lisa's 35 because we really do follow the international subsidiaries and where they're going, and that is not – it's broad, but not quite as broad as Lisa's client.

Unidentified Company Representative

Lisa?

Sure. Lisa Clyde. I've been at the company almost 20 years. Grew up on the investment banking side and now run Global Corporate Banking and Leasing. I will talk about global corporate and investment banking as a business. Matthew Koder runs that business, and he's in Tokyo right now speaking of the globality of our business.

But we have about 12,000 clients, covered by 4,000 bankers in 35 countries. And when I look at our business, 35% of the GCIB business is with clients outside of the US. If we actually look at that within corporate banking, that's 50% of our clients are outside of the US. And when we look at our business, of the 12,000 clients, our investment bankers cover all 12,000 of those clients. Those are clients that range in size from small, emerging, high growth companies to large multinationals. Of our investment banking clients, that 25% of that set of clients is co-covered with Wendy's team in commercial banking. And then, in corporate banking, we cover 2,000 of the largest and lend to 2,000 of the largest multinational corporates around the world, and we co-cover almost all of those with investment banking. So investment banking kind of sits over the top of both of our businesses in terms of helping to deliver kind of solutions and coverage to clients.

And like Wendy's business with the subsidiaries, we have a very significant subsidiaries business within corporate banking. We have 100 bankers, also in 35 countries, who provide local insights and local solutions to our multinational clients. They also spend a lot of time connecting with our corporate bankers who cover the parent companies, so that we can then translate some of that local advice to the headquarters, but also take the headquarters' global objectives and translate that into local product solutions.

It's a very integrated model that we delivered and make sure that, truthfully, our objective is really just to bank our clients wherever they need us to bank them. And that's an increasing number of countries all the time.

Unidentified Company Representative

Great. No, thank you for that. And it's really unique to have all three of you here in the sense of the different areas that you represent. And maybe you can share with us how you support your businesses as they grow? And then how do you work to cross fertilize when moved from small business into commercial and vice versa? How do you guys do that successfully?

Sharon Miller

Well, we're very connected. Not only to this panel, but to the panel that was just on the stage a few minutes ago, we have the unique advantage that we can bank. So when I think about just small business and business banking, those are business owners, so they have a personal life, they have a professional life with their business. And so, these are huge opportunities for us as a company. We bank 11 million business owner clients. And so, when you think about that, you say, well, you have 3.4 million small business clients total. So the rest of those are sitting in Aron's space only. They don't have a business relationship. But we know that they have business accounts because we review the data and analytics, we know what's happening on their accounts and their portfolio. So these are huge opportunities for us. We want to bank the business and the person. And so, that's one area we go after.

The other thing is we're able to serve that company as they go across that continuum. So as they grow, as their needs change, we're able to give them local delivery within Wendy's space. So, for example, small business, we have a business within our small business that is called Practice Solutions. It is the number one practice financing business in the country. We bank 40% of all dental practices in the US. And so, when you think about where's our loan growth coming from, how are we the number one small business lender in the US, according to FDIC, the last three years? The reason why is because we're there with our clients, we're there for our clients, and we have extreme client selection and the focus on industries that we want to go after and that we want to be experts. So that translates as well. We work with Wendy's team and Lisa's team when they're banking these multinational corporations and they may want to come out and open standalone offices in cities. We'll help them with that financing. So it goes both ways. And we're here to connect that across the client continuum.

Unidentified Company Representative

Wendy?

Wendy Stewart

So I would say alignment is really important for us, and we are very well aligned. And we're all aligned under responsible growth. When you think about what – we are very focused on as a company around responsible growth, that is how we organize ourselves. The client is always in the middle. It's a banker-led model and a team-based approach.

And so, I'll share a story with you that probably brings it to life more than me just telling you a bunch of facts. We had a startup company, just gotten their angel round of investment, probably about $10 million, walked into a financial center, so that's Aron's space in Austin, Texas. Went to go open an account with a small business specialist who was on Sharon's team, who very quickly recognized that this company was going to probably need some additional expertise. And this was in what we call an emerging growth space. It was in software, which is growing rapidly in Austin. And so, was able to call the commercial banker on my team in Austin, who specializes – has a team that specializes in emerging technology, including software, got them involved, and then we got a local investment banker who was on the ground. And so, we were able to put all the resources that we have across the organization against this client.

You may be surprised to see that that's maybe where we find some of our clients, but they come into the bank – Lindsay talked about doors, they come in to a variety of doors. And not only were we able to help that founder with his business needs, but also connecting that individual into our wealth management platform and making sure that his personal needs were being met and the needs of some of the employees that may not be quite as robust as what Merrill or the Private Bank platform can deliver, but certainly through the employee banking and investments platform, which we call EBI, we can meet the needs of all of the employees of the company, even though it was small. But rapidly growing and will be a really good capital markets opportunity.

Unidentified Company Representative

Lisa?

Lisa Clyde

The other thing I'd add is the fact that one of the benefits of the BofA platform is the range of product solutions that we have. And we've touched on that, but if I think about it within our business and GCIB, part of it's even just the range of products we can offer clients through their lifecycle.

And so, one of the fastest growing parts of our business is our equity – US equity private placements business. And so, when I think about banking small companies, which we do a lot of with Wendy's team and investment banking, they're at a stage of their capital structure and lifecycle where debt is not the right solution right now. They need to fund their growth with equity capital, and so are US – our equity private placements group is able to offer solutions to help them raise growth equity capital.

And then, as they grow over time, we can layer in other products and it can be cash management services, it can be – it's obviously debt over time, whether that's asset backed or cash flow type loans. And then, of course, we move up the spectrum to the public capital markets as they get bigger, and of course, IPOs or M&A depending on where they go in that lifecycle. But I do think that broad range of products enables us to really deliver across the board for our clients.

Unidentified Company Representative

Lisa and Wendy – and, Lee, correct me if I'm wrong – about seven or eight years ago, Merrill or Bank of America made a real push to push investment bankers down into local markets. And it sounds like you guys are really starting to harvest some of that strategy. Maybe I don't know if you want to…

Wendy Stewart

So when you think about global commercial banking, we have bankers in 117 cities around the United States and in Canada. And so, when you think about the depth and breadth of those bankers covering clients, if the only strategy to cover their investment banking needs is to have bankers fly in from New York or maybe somewhere in California, it's going to be very difficult to cover 16,000 clients that way.

And so, what we recognized was that when you look at the fee pool, about 40% of the fee pool in investment banking in the US and Canada today – 40% of the people is in US and Canada. And of that people, a lot of that is actually driven by middle market size companies. So there's tremendous opportunity.

And we saw that we needed to have bankers that were local, working in partnership with that GCB banker, so that we can co-cover clients more effectively. And so, since 2018, we have increased our banker headcount by 400%. And we've doubled the number of cities around the US. So we are getting close to covering the top 30 markets in the US. We'll continue to grow that. And we have found that to be extraordinarily helpful.

And the other thing that's a little bit different about the commercial banking client is they want that local resource. They want somebody that they know, that their kids go to school together, they may play sports together, they've got a relationship. And it's hard to do that and really develop deep relationships if you're not based in the same place. So it has absolutely been a winning strategy for us. And then on top of that, we leverage a lot of the industry expertise that we have within corporate banking – or within investment banking, excuse me.

Lisa Clyde

So just to add on to what Wendy said from the investment banking perspective, we have, obviously, quadrupled the size of the team. So we now have 200 investment bankers in 25 cities focused on local coverage. And that number has grown. We've also grown rapidly the number of clients that we have within our emerging – we call it emerging growth and regional coverage because it's both middle market type companies, as well as new economy clients. But we've also increased the scope of the client base. And so, within our emerging growth and regional coverage group, we now cover over 3,000 clients. And that has been dramatic growth over the past few years. And a lot of those, obviously, all covered with Wendy's team.

And then what we've also done is grown our middle market presence within our industry groups in investment banking. And so, if we step back and look at it, we cover in investment banking, of the 12,000 clients that we cover, 9,000 of them are actually technically middle market, by definition. They're less than $2 billion of revenues. And so, it's even bigger than just the footprint that we have in our middle market group.

And there's huge – while we've grown this business significantly, there's huge growth ahead. And one of the things we're proud of is, from a market share perspective and investment banking with – in partnership with Wendy's team, we're number three in middle market investment banking with 7.4% market share, and that's up 80 basis points this year, in a year where fee pools are down, right? And so, that just shows that this strategy is working.

And what we're excited about is the fact that there's a lot of growth ahead. We can continue to add more clients to the platform overall, both on Wendy's team and within GCIB. We have the opportunity actually to continue to have investment bankers cover more of Wendy's client base, and that's an important area of growth. And we've dramatically increased our investment banking presence with the commercial banking clients.

And the other area of growth is actually for the commercial bank to lend to more of the investment banking only clients that we have. And that's actually really important because one of the things that you may not know is the fact that our market share is actually higher in investment banking products for those clients where we lend, and that's true if we lend at the corporate banking level and that's true if we lend at the commercial banking level, and it's a big delta. And so, being able to lend to more clients and expand that footprint is really critical.

Unidentified Company Representative

In fact, just a moment ago, with your colleagues, we were talking about them having wealth management products for the business customers. Can you talk to us about the opportunities that you have integrating the wealth management? And do you guys actually go out together possibly, maybe from Jeff's area, where you go with each other to go visit a client and how that how that transaction works?

Sharon Miller

I would say that, even with Lindsay and Eric's team and certainly Jeff's and then with the consumer bank too, we have within Merrill offices small business bankers that are in those complexes that they're together, they're side by side, they're reviewing opportunities to say, is this a business owner, can we help them? And likewise, we have 3.4 million clients that don't have business with Merrill or the private banks that could use some help on their personal side. So not just consumer opportunities, but wealth. Obviously, people need help managing their wealth.

And then the retirement space, so what Lorna delivers, we have a huge opportunity to deploy specialists with our bankers side by side to let these companies know that we offer this solution through Bank of America. This is a differentiator. We do thought leadership, thought research every year. And we ask what are your issues, how can we help you. And it continues to be around attracting employees. And a lot of times when companies are smaller, they may not have an employee benefits plan, but we can set that up for them. And so, that's the work that Lorna is helping us with.

So we are finding where there's a need in business, and we're matching that with our solutions. So we're getting great feedback on that.

Wendy Stewart

So for us, when you think about companies, they're made up of people. And what we find with our client base, you've got wealthy people, typically executives, they've got a variety of wealth needs, and a combination of Merrill and the Private Bank are perfect to help them. And so, we're constantly making introductions to make sure that the needs of the executives of these companies that we cover have the best advice and guidance from our wealth management team.

The second thing that companies have are a lot of employees. And those employees may not necessarily be the best client for Merrill or the private bank just yet, but they certainly want to make sure that their financial lives are taken care of. And so, the best way that we refer that business over to Aron is through the employee benefits and investment program. That has been a great program. Every month, I'm blown away at the number of our clients in commercial banking that sign up for that program because they see the value in being able to give the – it is truly a benefit. And I think that, next to health, it is one of the biggest concerns that employees have today, and we've got a terrific offering.

And then finally, Lorna touched on it within, we call it, financial life benefits, but making sure that that company has 401(k), all of their retirement could be the equity plan that she talked about. Certainly, HSA, health care savings is a big, big concern that employees – that the employer has on behalf of their employees. And so, we absolutely go to market together. And I talked about, it's a lot easier to do that when you're in the same city together in the same building. And we have made sure around the country that we're co located not only between commercial banking and with investment banking, but also with our wealth businesses. And so, it's really easy to grab your partner and go out on a call together and have these conversations holistically, and it works very, very well.

Lisa Clyde

In GCIB, it's very much the same. But couple of things I would just to what everybody talks about. One is, in wealth management, we didn't think we were doing a good enough job coordinating between our corporate and investment banking clients and the private bank and Merrill business. And so, we actually made a very strategic hire, I guess, about a year ago to bring someone on board to change that and to fundamentally change the –build trust across the parts of the organization, so we can incentivize bankers in a positive way to connect the dots and feel comfortable about doing that. And that has yielded great results for us in terms of kind of what I would call wealth referrals from Wendy's point.

And the other thing I think we've taught our bankers to really think about are what are those pivot points. You're selling a company, you should think about the fact that we should be thinking about whether they want to wealth management introduction, same thing for IPOs. And so, really getting the mindset to shift, but a lot of that is also kind of changing – upping our game, if you will, in the way that we're going to market.

And even on the employee benefit and investing part of our business, that's relatively newer than some of the retirement benefits that we offer to our clients across the organization. And we were talking with Aron earlier that we had a call with his team earlier this week to talk about the EB&I program and how can we do a better job of targeting our large corporate clients and making sure we're doing – we represent half of the programs that we do, but we should be bigger, and we can be bigger.

And I also think there's ways that our organizations can better connect within the firm with our local market organization to make sure we're coming at it, both from a top down perspective and a bottoms up perspective. And so, I'm excited. I think there's a lot of good momentum around some of this kind of business integration.

Wendy Stewart

Yeah. The other thing I would say, too, is that not only is it important that we're connecting our commercial banking clients and their needs into wealth management, our partners in Merrill and at the private bank do a terrific job with the client base they work with because when you heard Lindsay talk about this, a lot of those clients, they own companies. And so, those companies have needs that my team is uniquely positioned to handle. And when we get an introduction from Merrill or from the private bank, and it is a business owner, these are large, multi-generational, privately held companies, they may be on the third or fourth generation of ownership, when we get those introductions, what could take years to convert that relationship becomes months because the trust that that owner has in the Merrill or the private bank team is immediately transferred to us. So it absolutely accelerates the relationship building because we already have that partnership, so that is critically important for us.

Unidentified Company Representative

Very good. Maybe, Sharon, if you look at your area, you've had some real strong consistent growth. In fact, on your third quarter earnings call, Brian pointed out 35 consecutive quarters of net new checking account growth.

Sharon Miller

No pressure.

Unidentified Company Representative

What do you attribute the success to?

Sharon Miller

It's all about our investment in people. We operate in 97 local markets. And so, when you think about the coverage, from startup all the way to $50 million in revenues, that's 3,000 specialists that we have in these local markets, whether they're sitting in the financial center or they're sitting in offices where they're able to go out and meet with clients. And so, I think that's a huge driver.

Our people, we're training them, we're investing in their training. Our technology, we have digital capabilities. In fact, best-in-class digital capabilities. We listen to our clients. What do they need, they need help with management of their cash flow, they need help with treasury, they need help with merchant processing. All of these capabilities, we're able to deliver to the clients in the local markets. And so, that's very, very important.

90% of our clients are digitally active. And when you think about our balances within those 35 consecutive quarters of net checking growth, we're at $160 billion in deposits. Raul's at $50 billion. So that's over $210 billion combined. And we continue to have a very low cost of funds. We're not – these are primary operating accounts. And we want to make sure we start there. That is really – we want to be your primary bank. We want to be – you may have other relationships, but we want to be the one that you come to, that you're using your card, top of wallet, that we're here to help you with your business, your growth. And I think that's how we do it every day. It's about the client. It's about going to market together. It's about having the best partnerships and the ability to grow with that client along the continuum.

Unidentified Company Representative

One of the questions that we all are wondering about is just the health of the commercial side of the business. And maybe all three of you, maybe start with you, Sharon, about the health of the small business environment, but Wendy and Lisa, also about the corporates and multinationals, what are people most concerned about?

Sharon Miller

And we just released our latest business owner report last month. We survey our clients twice per year and we ask them what's on your mind, how are you feeling about expectations? Their concerns are about inflation. Certainly, the political environment. I think they're typical of what we hear in the news, those are their concerns.

Getting the right employees, when you have a company with less than 500 employees, every hire counts. So back to the retirement planning, why we need to help, get the right benefits in place for these companies.

But I would say too that our lending is up 15% year-over-year. So when you think about the lending and you hear no one is lending, we are. We are extending credit to our clients, we are continuing to manage in a very responsible way. And every day we get up and we learn more about our clients, what they're trying to do and how they're trying to evolve, and we're here to support them.

Wendy Stewart

In commercial banking, it's been interesting to watch the cycle through the pandemic. And so, the concern initially was supply chain and inflation and inventory levels. And as that has sort of moderated, now the concerns are around recession and will there be a recession, and as soon as we think there won't be a recession, then fears that there might be a recession. So, that kind of uncertainty, along with interest rates, will they be higher for longer, you've got a presidential election next year, and then the geopolitical environment that we're in today all creates a lot of concern. And concern of that magnitude means uncertainty and then the clients sit on the side and wait.

And so, while we saw rapid growth in our lending portfolio, that has slowed down the second half of the year. And it is not a supply issue, it is a demand issue. And in fact, we are growing and we do have some nice opportunities where we continue to grow. Believe it or not, there's a lot of M&A that's going on right now. You won't read it on the front page of The Wall Street Journal. A lot of these are privately held companies that are doing tuck-in acquisitions, and they want financing for that. And so, we're seeing growth in this area. It's hard to outrun that growth with some of the revolver paydowns. Because if you think about a company, if they have excess cash and they're not in a net borrowing position, they're not going to hold on to that cash, they would rather just pay down the debt and not pay the interest because of the higher interest rates. So, when I look at credit quality, though, we're actually in a net reserve release position after the third quarter. Our credit quality is very strong.

And the other question we always get is around our commercial real estate portfolio, and our commercial real estate portfolio is solid. When you look at the total assets across the bank, our commercial real estate portfolio is only 7% of that and office is 2%. So, we just don't have the exposure that some of the regionals have. So we feel like we're in very good shape there. And listen, we're open for business and we are happy to lend.

Lisa Clyde

From a large corporate perspective, I'd say a couple of things. One, they have lots of cash. And I think if you use the S&P 500 as a proxy for cash balances, average cash balances are $4.7 billion right now versus $4 billion in the 2017 to 2019 period pre-COVID. So we have high cash balances. Our lending is similarly down, just because there's so much cash, and most of our corporate clients in the corporate bank are largely investment grade clients, and most of their capital structures depend on the investment grade debt market for how they fund their business. And that market has been wide open. And we've seen a trillion of issuance in that market this year, and that's similar to last year, right? So a lot of issuance there. I think our clients had to come to grips with the rate levels and whether they got so attuned to being able to issue money, issue bonds in the 2%, 3% type level, it was hard getting them to come to grips with rates are here and they're going to stay higher for longer and this is just the new normal, if you will. So that's taken time. But we've definitely seen that change. And I do think that's why we started to see our loan growth slow this year as our clients are just going to the capital – or re-going to the capital markets, those reluctant ones have kind of jumped off the edge, knowing that this is kind of what it's going to be like.

Look, the other thing our large corporate clients were focused on right now is navigating the geopolitical crises around the world. And that is a huge area of focus and concern for a lot of our clients. They're thinking a lot about how to derisk their business, if you will, in China and Hong Kong. And by that, how do you create diversification of your funding partners? Do you have local liquidity in the market? And do you have the right diversification of your payment rails and other things which everybody learned through the Russia crisis you need, right? And so, there's a lot of thinking about really just about kind of geopolitical navigation, which gets more tricky every day. But that's where we spend a lot of time with our clients.

Our clients are also thinking about the decoupling of supply chains and the China plus one that's occurring, and making sure that they're set up supply chain wise around the world and reshaping their supply chains. And so, we fully expect that some of our biggest areas of growth are in Mexico with nearshoring. And in GCIB, we have the potential to double our business in the next five years just through that.

And then, other big areas of growth for us are going to be India and Southeast Asia, not so much that we're going to go at a lot of clients from a corporate or investment banking perspective, but our multinational clients are going to make a bigger push into those regions. We're also seeing a lot of attention on Japan right now. And so, it's also helping our clients navigate these shifting supply chain dynamics and geopolitical dynamics that have huge implications candidly for their business. But the good news is a lot of these are places where we have phenomenal capabilities and can deliver for our clients. And so, I'm kind of excited that the way this is all shaking out plays to many of our strengths.

Unidentified Company Representative

Actually, Wendy and Lisa, you both touched on this with the higher cash balances of your customers. And so, I'm going to intertwine two questions. Have the customers changed pre-pandemic because we went through such a difficult time? Have the businesses become smarter, more efficient, more leaner, and at the same time, they just want to keep more cash as part of that thinking? Have you noticed the real change? Or is it not that at all, just high interest rates?

Lisa Clyde

I would say, for our large corporate clients, they're running with higher liquidity than they used to. And part of that is, they are – if you actually look at – and we track all of this, but if you look at the S&P 500 trends as a proxy for dividends and share buybacks, the share buyback levels are not back to where they were pre-COVID. We're not seeing 2018, 2019 share buyback levels.

And the interesting thing is, our clients feel – they feel in this environment where they don't – it's really hard to predict their businesses. And all the supply chain changes and other things that I talked about, they just want to run with more liquidity. And the interesting thing in talking to them is their investors aren't asking them to return more to investors. And I think there's – certainly, our fund manager survey would say there's a preference for higher liquidity and strong balance sheets. So that's the mindset shift we're seeing with our customers.

Wendy Stewart

When you look at our client base, about 65% of our client base are privately held companies. And so, again, these are typically third to fourth generation owned companies. They're the largest companies in any city around the United States that you've never heard of if you're not from that city. But they really are the economic backbone of this country.

And so, when you think about their priorities, they don't have the same pressure that a multinational company is going to have managing a company quarter by quarter, and they can take a long view. And so, they can be more opportunistic and they don't have the same scrutiny. And when you think about, did they get lucky or what happened? I think those companies, especially companies that are in manufacturing, when they saw all the challenges they had with inventory and supply chain, they really wanted to make sure that they got ahead of that, and so they were proactive, they invested in inventory, they really thought about how to manage their supply chain more effectively. And so, that actually was more of a use of cash for clients that are net borrowers that they were funding that using their revolvers.

As that sorted itself out, I think they still want to be in a position where they're not as heavy on inventory as they were, but to Lisa's comments around cash, we see our clients that are in that space where they hold inventory, they are a little heavier than they were, say, pre-pandemic, but it has come down.

And as it relates to cash, it just depends on what the company's strategy is. So some companies are looking at how they might – some companies are looking at what the – they've got competing priorities. And, look, some of this, if they have excess cash and they're privately held, they're returning that cash back into a family office or to the owners. And some of the dynamics are just a little bit different.

Unidentified Company Representative

Since we have both of you here, I think it would be important to talk about investment banking activity. We've heard a lot about pipelines and backlogs, green shoots, and so on and so forth. And the activity is still very muted here in 2023. It's not as bad as 2022. Maybe what are you hearing from your clients? Why we're maybe not seeing more activity? And then what's holding them back? What it will take to get – nobody expects us to get back to 2020 or 2021, but pre-pandemic levels, what do you think it will take and any idea when that may happen?

Lisa Clyde

If I had a crystal ball…

Wendy Stewart

What you wouldn't be doing here?

Lisa Clyde

Yeah, exactly. Look, let me give you some context on fee pools because I think that's how you have to set the context for this conversation. So if we go back from 2010 to 2019, average investment banking fee pools were $75 billion, $76 billion, right? So that's kind of the run rate.

We then saw, in 2020, a spike to $92 billion and then we saw a spike to $133 billion in 2001. 2022 was actually not a bad year. It was $79 billion. So it was back to pre-COVID levels, but actually ahead of pre-COVID levels, right?

Now, what are we seeing in 2023? Fee pools are down 20%. We think fee pools will end up somewhere around $66 billion, $68 billion, something like that is where they end up. And the big question then is, okay, great, but where do they go? And that is the question you asked. And we actually think we're going to see a reversion starting next year, back to pre-COVID type levels. And we should expect to see a reversion back to those mid-70s type levels. We're hopeful that we might actually see a little bit more than that.

And part of the reason that gives us hope is if I look at our M&A business, and Wendy touched on this in terms of what she's seeing in terms of loan growth, what we've seen from an M&A perspective – okay, year-to-date M&A is down, right? It's down almost 20%. But the reality is, in the third quarter, M&A was up and the volumes were up.

And see that, in our business, like Wendy does, so when I look at kind of what's in the pipeline from an acquisition financing perspective, there's a lot to get optimistic about. And we've seen some really big deals, particularly recently in the energy space. I wish they had financing components to them, but they were stock deals, but important that we're seeing some of that big deal activity, which says CEO confidence is coming back.

So we're actually optimistic on the M&A front. We're starting to see the green shoots. And by the way, we just talked about all the cash sitting on everybody's balance sheets that they don't feel the pressure to do return of capital around. So, I think you're going to see some of that cash go to M&A.

And, look, on the equity side, that's the other big question, right? And what happens in the equity markets, when does the IPO market come back, and we need the IPO market in the US to come back to then drive the engine of growth around the globe. We have huge pipelines of deals in Latin America and in other places that we're dying to kind of get done.

We think what we're going to see in 2024, as we start to see hopefully rate – the Feds actions stabilize and rates stabilize and then eventually start to come down, that pivot point is what we need to see for IPO activity to pick up. But in the meantime, we've seen incredibly strong growth in the convertible debt area and that kind of private equity placement part of the business that I talked about earlier, as well as follow-on. So I think we're going to see some of that activity more in the front part of 2024 and then, hopefully, as we see a pivot to rate cuts, we see the IPO market start to come back. And that'll trickle into other markets into 2025 and beyond.

Unidentified Company Representative

Wendy, when you answer, can you also touch on the middle market specifically?

Wendy Stewart

Again, what's interesting about our space is that we have a lot of activity that you've never heard of or seen. And so, while the fee pool for investment banking is down 21% across the industry, we're flat this year. And so, Lisa talked about the – we grew our share 7.4% and we're in the number three position. When you look at the clients that we co-cover, we're ahead of that. And so, the investments that we are making locally with the emerging growth and regional coverage and then really coordinating effectively with the industry bankers, when you take that – it's back to the comment I made on trust. And so, when we bring in an investment banker into a commercial banking relationship that we've had for decades, and in many cases, these relationships are 10, 20, 30 years covered by the same banker, and we bring in a very talented investment banker, those opportunities, they just move fast. And we have seen a lot of that. Third quarter for us was the best quarter in terms of our investment banking fees that we generated. We were ahead of last year. And so, we're pretty bullish on the ability to keep growing. And what we're seeing, the two biggest drivers for that are absolutely M&A and then ECM. So we'll continue to focus on those opportunities.

Lisa Clyde

And I'd be remiss in not saying that our investment banking market share generally is 40 basis points this year, which I think is impressive, just given the market backdrop that we talked about. So we're psyched about the momentum in our business, despite the backdrop.

Unidentified Company Representative

We're running out of time. And Lee is going to want to make some comments after we finish here. But maybe in the last couple of minutes we have with you folks, can you update us on your digital progress, the investments you're making, and then how clients are embracing it?

Sharon Miller

Well, we are continuing to invest in our platform. We talked about that a little bit earlier, whether it be through our treasury solutions, Business Advantage 360, all of the different tools and capabilities that we give to our business owners to help them run their business.

The other piece that we're working on internally is really digitizing that lending experience end-to-end. So, a client journey of coming in and getting a loan, we're able to take the application digitally, we're able to go through the entire process. So front to back office, how do we digitize all of this to really take out cost and be most efficient, and so those are some of the things we're working on. And we're making progress, and we invest more and more year after year.

Wendy Stewart

So digitizing everything is critically important for us. And so, we really need to have a digital experience that's terrific for bankers and for clients. And so, for bankers, it's all about giving them client insights, they're action oriented around what's going to happen, not what has already happened. And so, we're investing a lot in that front and excited about the new CRM system that will launch next year, and then being able to connect a lot of the information that we have on clients into one portal, so that it just makes it easier for bankers to be able to cover clients.

The other area where we're really investing heavily is around the client experience. And so, we use a client portal called CashPro. It is an award winning portal. It's not me just saying it. We get lots of third-party awards. And what's been terrific about CashPro is just the way that clients are aggressively adopting it. And so, we see double-digit growth in CashPro adoption across global banking.

But what's unique about CashPro is all of the features and functionalities – so it does a variety of things. It can be a place where clients go for information. So if they want to look at receipts, payments, just kind of basic information. It's a place where they can go for transactions. So think about like if they've got FX flow business or they've got trade finance, they can do all of that on their own via CashPro. It's a place where they can go for service. And you've heard Erica, the AI that we have, and we've embedded Erica into CashPro. So it can do a lot of servicing work for clients.

And then, there are additional features and functionality like CashPro Forecasting, which has been very, very popular this year. So, we will continue to invest in CashPro, clients keep adopting.

We also look at the number of digital solutions clients are using with us because there is a lot they can do in CashPro and that number is growing rapidly. And then the client experience scores we get are absolutely improving. So that's been terrific.

And then, the final thing I would say is we have to digitize and automate every process. And we've got to take all the manual work out, we've just got to get rid of it because it's bad client experience, it creates errors, and it's too expensive to do the rework. So one of the areas we're very focused on is AML KYC. Probably every client in our space that works for the bank will tell you it's probably the most torturous thing they deal with every day. And so we're going to make it a great experience. Our clients are going to say – and we're actually got – heard from a client who said we actually like doing AML with you. Who knew, right? But we're very focused on making sure it's a good experience.

And one of the things that we're doing is digitizing it end to end. We've got to make it easy for us to use CashPro, clients can upload documents, they can self-certify that what they've sent us is correct. So by the end of 2024, we will be able to complete 36% of our AML KYC that way digitally where nobody will have to touch anything. So we're excited about that and we know clients are going to love it.

Lisa Clyde

And then, in corporate and investment banking, it's a lot of the same initiatives Wendy talked about, 75% of our clients are on CashPro. But I would say the other area of focus for us – because globalizing our business, whether that's expanding our lending footprint internationally or doing more business with our clients in the countries that they operate in, in region, those are the biggest growth – those are big growth drivers for us within GCIBG. We've got kind of the middle market, but we've got the globalization at the other end of the extreme too.

And so, we've got a lot of investment that we're making to further invest in our capabilities, particularly around cash management, payments, et cetera, in our highest priority markets. And as a firm, we're actually going through a holistic exercise right now, which I think is going to be phenomenal for our business, to basically prioritize countries, so that we can then prioritize where we want to put this, what we call, GTS spend and put that in the countries where we see the biggest or regions where we see the biggest opportunities. And so, that's a big exercise.

We're also using digital tools in our capital markets business in a pretty meaningful way to enhance deal execution, actually predict deal activity, which is – we're doing in the block business for equity. We're also using it in our investment grade business to try to help predict, is this a good day to launch a deal or not launch a deal, and we're using AI technology to be able to try to quantify that in a more robust way rather than saying this feels like a good day. And so, I think there's – we're excited about a lot of the things that are in store for us.

Sharon Miller

And just to add to just one thing because I think it connects it all, when Wendy's talking about AML willing the small business space, we've already automated that process. So our digital person along the continuum, he works with me, he works with Raul, he works with Wendy, he works with Lisa on all of this. So we already have the blueprint on how to do this. And so, we're taking best use of each area and say, okay, how do we translate that across? And so, I do think that's another piece of connectivity, not just in the forefront, but in the background. That's how we're operating across the continuum.

Unidentified Company Representative

And if you please stay in your seat as Lee makes his way up here. Join me in a round of applause thanking these executives for their insights.

Lee McEntire

So, the only thing that I wanted to say is, like, look, what we're trying to do – what I wanted to try to do today is not only to let you understand, we have the biggest consumer business, number one retail share, so the largest Merrill Lynch practice, the largest wealth manager, private bank, the largest trust business, the number one small business lender and deposits, the largest commercial non-real estate lender, largest corporate bank, number two or number three in investment banking, and the largest Treasury services business platform.

So, what I'm trying to say is, but what makes us even more impressive is the way that we connect all these businesses. So, whether it's in the commercial space, there's only one, two or three platforms in the world that can move, store or transfer money for clients. There's only a handful of those. And then to have the commercial platform and the number one research platform to be able to connect all the dots, there's only a certain amount of people on the planet that could do that.

And so, that's what makes us unique and differentiated. And that's what's going to help us grow. And these guys are growing – they're growing the underneath platforms and gaining share in the business. And so, that's what helps us feel good about the future. And so, thank you for letting us spend a couple hours with you.

Unidentified Company Representative

And then just finally, the buses are outside. That will take us over to dinner and we'll see you over at 100 Federal Street. Thank you, everyone. Thank you again.

Question-and-Answer Session

Q -

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Bank of America Corporation (BAC) BancAnalysts Association of Boston Conference (Transcript)