Bank of America CEO in Boston

[0:00] ..." WBZ radio was on hand as Ken Lewis the CEO of Bank of America address the Boston College chief executives club in Boston."...

[1:35] ..." pain. Will be required. The past year. It's been very typical for Bank of America shareholders and associates but also for customers' businesses large and small individuals. Our communities. And of course our country. Recession"...

[2:37] ..." same time according to an even more dramatic slowdown. In economic activity. Bank of America is working or to be part of the solution. We're providing capital families and businesses need to take new risks"...

[5:07] ..." With -- markets and spiking credit cost there's no question that many banks are under a lot of pressure. Our challenge is to find the quickest most effective least expensive and most fair way to relieve some of that pressure. So the industry can better support. Economic recovery. But I don't speak the industry as a whole is nearly as -- as some would have us believe. US banks. As a group lost a lot of money in the fourth quarter. But. Of the more than 8300. Banks and savings institutions tracked by the FTSE. 68%. Were -- and 36%. Actually grew earnings year over year. Looking forward. Bank of America in this year to generate more than 100 billion dollars. And close to fifty billion dollars in pretax pre provision earnings fifty billion pounds. That kind of cash flow consult a lot of problems given chain given time. And improving US economy. I'm not one to question adjustments of the stock market. But I do think there are times when the markets judgments based on economic and business fundamentals. And there are times when the judge those judgments are based on greed and fear. Stock prices for Internet startups in the late ninety's were driven by -- And by the same token I think stock prices for food banks today are largely driven by fear. Hear about how deep and long recession will be and fear about what the government may do it could dilute wipe out shareholders. Those fears or not irrational. But they also not reflective of the real strength of this industry. Over the past eighteen months we've seen fewer than fifty banks -- That compares to about 2000. Between 1986. To 1991. More likely will fail. But years of consolidation in the industry have left the survivors in a stronger position. And revenue diversification has helped insulate many thanks for losses. The last thing we need to do -- start nationalizing banks. -- nationalization. I -- a full scale takeover of an institution. -- the government in which common shareholders and possibly debt holders as well would be wiped out. This in my view would be a nightmare. This is one of those theories that looks good. But it might work on paper. And actually does work in limited circumstances. With small banks. The FDIC does all the time and other countries like Sweden have done it or relatively small scale. But leaping from that precedent to an assumption that the government to do the same thing with several very large complex global institutions. His misguided. The announcement nationalization would immediately undermine confidence in the financial system even further and send shudders through the investment community. It would also give a false impression that all banks or insolvent. Investors -- immediately start bidding on which banks would be next. Possibly creating a self fulfilling prophecy. An act government control of large banks would politicize lending decisions and capital allocation process damaging the economy. While some banks may need more public support in the future I don't believe we will. It's possible that the government could compel us to"...

[9:02] ..." growth. The credit crisis is -- real. But for the most part banks or not the problem. Forty years ago bank credit accounted for about 60%. Of the total credit and our economy. When this crisis started banks accounted for less than 30%. What's gone is an easy credit that got us into this mess as unregulated non bank lenders have failed. And the market for many asset based securities all have all but disappeared. It is true that banks to tighten lending standards after a period in which standards were too lax. It's also true that in a recession demand for new loans goes down. As does the number of qualified or. So there a lot of reasons you'll we would expect banks to be lending lists. But according to the fellow reserve data. Bank credit is actually increased. Over the course of this recession. And business lending his modestly so far in 2000. Mortgage finance volume is booming as a result of low interest rates. Most banks from making as many loans as we responsibly can given the recessionary environment. One choice of the banks have had to answer in this environment is very troubling the suggestion that we or lending. More because we -- wasting money and unjustifiable expenses. And that's a tough charge to answer. Taxpayers -- and rightly so. If -- bank has accepted public support. All this financial decisions successes should signal to conservatives over and frugal approach reflecting the difficult times. It's all too easy to type any dollar public support any expanse that is being extravagant or unnecessary. In some cases I think public judgments on this issue actually have been royal. But I also -- Banks have been criticized for activities in fact have very serious business purposes. Compensation is an example. I completely understand the outrage. That people feel when they hear banks that lost money paying out large bonuses to top executives. I do believe in pay for performance. That's why given the decline in -- 2008 earnings. Even though we are more than four billion dollars we pay no year in -- compensation. Numbers are executive management team. Including me. That I think that was the right thing to do. I also think that top bank executives can can handle artificial caps on compensation. Related to public financial support. We're not going to leave the company -- We've invested our careers here in -- he runs BD. But when artificial caps -- out into the organization. They hit associates who were not part of executive management. But his compensation reflects the area high revenue production. We could lose those associates to a foreign bank or up in investment critique that is not operating in the same rules such a loss hurts our company. And our shareholders."...

[12:53] ..." earnings. This is not wasted money. It's money that drives business results. Bank of America for years has been the most -- financially efficient bank with our business mix in the country. We have a harder and reputation for galaxy and not extravagance. We compensate associates engaged"...

[13:45] ..." household leveraging. It's sobering. One -- and in my view is that banks must embrace business models that a bill revenue diversity which helps produce balanced earnings. We have university also helps with customers. When you say you want to help customers achieve financial balance this great credibility and having to products that back it up. We have to reassess our approaches to managing risk. In the past cycle banks have relied too much on computer modeling and not enough more instincts and knowledge about economic cycles. We have to resist the"...

[14:57] ..." very large diversified. Global financial firms want -- and thousands of community banks on the other. Credit markets will feature feature simple. -- simpler. -- more transparent products. Regulation will be tighter and more conservative. Especially in sectors lightly regulated before. Mortgage lending hedge funds credit markets and investment banking. Investment banks have to decide what they want to be large in systemically important. Whether they want to be largely unregulated risk takers they"...

[16:05] ..." and economy. The government's goal was to act quickly to stabilize surviving banks have been a total meltdown. And enable banks to lend more. Measured by the standards of the talk has been great success. We have not suffered a collapse of the banking system. The vast majority of -- continue to be viable. And everybody anchor I've talked to who was receipt for Monday says it's it's able them to actually them. And -- side benefit of -- is that taxpayers most likely make a lot of money. Banks that received four lines was scheduled. To make about thirteen billion dollars in dividend payments to the US treasuries. Bank of America already made our first payment of 400 million dollars 170. For funds -- loans -- anywhere from 5% to 8%. This is a win win banks are getting the capital they need and taxpayers are getting a strong return on the investment. And except that. I'm must also say that art goes to pay back the tore bonds as soon as we possibly can. There also is the issue. Of all the more down assets many -- bank balance sheets. If we learn anything from this episode. It should be that mark to market accounting can be both useful during"...

[17:48] ..." flows. Somewhere in that gap -- a price that would help the banks but also provide taxpayers with a likely prop. Pretty investment entity that combines public guarantees for private capital. Would create a new market for the securities and lure private investors all the sidelines which is exactly. What we need. Other government actions and help. The Fed is providing sufficient liquidity has helped lower mortgage rates which is feeling the surge in mortgage -- finance. The stimulus bill will help boost economic activity. The government's term asset backed securities loan facility itself would do a lot of liquefied credit markets. And the administration's housing foreclosure relief plan is very well thought out. It will be very helpful to both homeowners and banks to -- to stabilize housing markets across the country. Right now it's hard to find tangible glimmers of hope in the economic data we see every day. But"...

[21:19] ..." still have and help us rebuild. Are abundant natural resources. The best higher education system in the world a flexible and dynamic economic system the work ethic and values of our people. The culture of innovation risk taking not terrorism has made us the world's economic leader for the last 100 years. Today the world needs only to -- up more than ever. And Bank of America this is our singular focus. Doing all within our power to turn around our company and help rebuild our industry"...

[0:00]" WBZ radio was on hand as Ken Lewis the CEO of Bank of America address the Boston College chief executives club in Boston."

[0:08]" Thank you -- you you're -- for change. It it's great to be back in Boston and and it's -- right to have to look out entity to the only instance recently Franzen -- more important importantly. Cuts on the clients and and so I'll say when I always say we appreciate your business and -- so and if you need a -- we're in the lending business. It is -- back in Boston and and Peter Robinson and all of the members. The blossoms -- club thanks for having me back in and out. Don't wait five years next time we use whatever -- it's it's always fun being here not had a right to a few days you calling compliance and and and talked about the businesses in one point that it is that needs to be made is not everybody is doing poorly. There are a lot of companies out there that actually aren't doing well and are investing in the businesses that week. We sometimes get so focused I -- chance when about on the negatives. That there's another rule out it's outside the financial world that actually. Is is is it is -- more optimistic we'll have some of the places that we -- We wouldn't even think about. But today as I stand before you Americans. In the economic -- lines. It's taken time -- to get us this far and unfortunately. More time in more pain. Will be required. The past year. It's been very typical for Bank of America shareholders and associates but also for customers' businesses large and small individuals. Our communities. And of course our country. Recession we're in today is already the most severe and most costly. In generations. We still don't know how long how -- it will be or how long it will last one thing we do know is that there is no easy solution. We would have found it already. Severe imbalances have been building up in the US economy for long time. And excessive consumer and public debt. Domestic trade and current account deficits. To credit bubble was both huge and global. What's happening now is a massive -- leveraging of household and business balance sheets worldwide. -- challenge is finding a way to allow this necessary balancing to happen. While the same time according to an even more dramatic slowdown. In economic activity. Bank of America is working or to be part of the solution. We're providing capital families and businesses need to take new risks for the future. We announced a new lending and investing initiatives through which we reported to the public our progress and lending. Community development foreclosure mitigation philanthropy. And -- investments and many other activities. We're also working with our partners in government to implement immediate ideas to jumpstart the economy. And long term solutions to build a more sustainable financial services industry for the future. As bad as our economy is right now I'm still optimistic. About a long term prospects. Our financial system is stronger and more resilient than most people seem to thing. I believe the financial services industry in the federal government we're doing me any of the right things to turn the cycle around and restore economic growth. My -- today. Does provide some much needed clarity. On some of the issues that are shaping the debate about the state of our industry. And offer few of my thoughts on how we can best move forward. Together. There's some things that set this economic episode apart from previous crises. For example more globalized economy. We have in the past. The rapid growth of complex sophisticated securities markets. And a chance point. The 247 news cycle. In which information and opinions. About the economy spread faster than people can digests them. But most fundamental ways the story of this crisis has the story of every great market bubble in history. Excess liquidity led to a credit bubble that grew out of control for years. Almost every group of participants in the economy. Lenders borrowers regulators policy makers news media appraisers rating agencies investors. Investment bankers. Had a motive to push economic excesses forward and most did. Institutions that gave in completely to the frenzy around them or no longer with us. Those that balance the need to compete with the need to maintain prudent lending standards survive today. With -- markets and spiking credit cost there's no question that many banks are under a lot of pressure. Our challenge is to find the quickest most effective least expensive and most fair way to relieve some of that pressure. So the industry can better support. Economic recovery. But I don't speak the industry as a whole is nearly as -- as some would have us believe. US banks. As a group lost a lot of money in the fourth quarter. But. Of the more than 8300. Banks and savings institutions tracked by the FTSE. 68%. Were -- and 36%. Actually grew earnings year over year. Looking forward. Bank of America in this year to generate more than 100 billion dollars. And close to fifty billion dollars in pretax pre provision earnings fifty billion pounds. That kind of cash flow consult a lot of problems given chain given time. And improving US economy. I'm not one to question adjustments of the stock market. But I do think there are times when the markets judgments based on economic and business fundamentals. And there are times when the judge those judgments are based on greed and fear. Stock prices for Internet startups in the late ninety's were driven by -- And by the same token I think stock prices for food banks today are largely driven by fear. Hear about how deep and long recession will be and fear about what the government may do it could dilute wipe out shareholders. Those fears or not irrational. But they also not reflective of the real strength of this industry. Over the past eighteen months we've seen fewer than fifty banks -- That compares to about 2000. Between 1986. To 1991. More likely will fail. But years of consolidation in the industry have left the survivors in a stronger position. And revenue diversification has helped insulate many thanks for losses. The last thing we need to do -- start nationalizing banks. -- nationalization. I -- a full scale takeover of an institution. -- the government in which common shareholders and possibly debt holders as well would be wiped out. This in my view would be a nightmare. This is one of those theories that looks good. But it might work on paper. And actually does work in limited circumstances. With small banks. The FDIC does all the time and other countries like Sweden have done it or relatively small scale. But leaping from that precedent to an assumption that the government to do the same thing with several very large complex global institutions. His misguided. The announcement nationalization would immediately undermine confidence in the financial system even further and send shudders through the investment community. It would also give a false impression that all banks or insolvent. Investors -- immediately start bidding on which banks would be next. Possibly creating a self fulfilling prophecy. An act government control of large banks would politicize lending decisions and capital allocation process damaging the economy. While some banks may need more public support in the future I don't believe we will. It's possible that the government could compel us to take more capital pending the results of a stress test but I'm confident we will pass mr. -- And I strongly agree with chairman Bernanke that nationalization. Is not necessary to stabilize the banking system. We all agree that we've -- in -- credit crunch for awhile now. And that restored a healthy for credit is vital to restoring economic growth. The credit crisis is -- real. But for the most part banks or not the problem. Forty years ago bank credit accounted for about 60%. Of the total credit and our economy. When this crisis started banks accounted for less than 30%. What's gone is an easy credit that got us into this mess as unregulated non bank lenders have failed. And the market for many asset based securities all have all but disappeared. It is true that banks to tighten lending standards after a period in which standards were too lax. It's also true that in a recession demand for new loans goes down. As does the number of qualified or. So there a lot of reasons you'll we would expect banks to be lending lists. But according to the fellow reserve data. Bank credit is actually increased. Over the course of this recession. And business lending his modestly so far in 2000. Mortgage finance volume is booming as a result of low interest rates. Most banks from making as many loans as we responsibly can given the recessionary environment. One choice of the banks have had to answer in this environment is very troubling the suggestion that we or lending. More because we -- wasting money and unjustifiable expenses. And that's a tough charge to answer. Taxpayers -- and rightly so. If -- bank has accepted public support. All this financial decisions successes should signal to conservatives over and frugal approach reflecting the difficult times. It's all too easy to type any dollar public support any expanse that is being extravagant or unnecessary. In some cases I think public judgments on this issue actually have been royal. But I also -- Banks have been criticized for activities in fact have very serious business purposes. Compensation is an example. I completely understand the outrage. That people feel when they hear banks that lost money paying out large bonuses to top executives. I do believe in pay for performance. That's why given the decline in -- 2008 earnings. Even though we are more than four billion dollars we pay no year in -- compensation. Numbers are executive management team. Including me. That I think that was the right thing to do. I also think that top bank executives can can handle artificial caps on compensation. Related to public financial support. We're not going to leave the company -- We've invested our careers here in -- he runs BD. But when artificial caps -- out into the organization. They hit associates who were not part of executive management. But his compensation reflects the area high revenue production. We could lose those associates to a foreign bank or up in investment critique that is not operating in the same rules such a loss hurts our company. And our shareholders. Marketing activities especially sports marketing but also come under far. I'll admit that it's easy to be skeptical about the business value multi million dollar marketing contracts with sports teams. And obviously there -- a lot of business executives who just really enjoy having access to access the teams and the athletes but for the record I don't. I really enjoyed going in the mountains when my wife over the weekend. So I was never inclined to -- psalms a large sums into. Money into sports market. Until. Passed all the facts in the numbers. In general terms for every dollar we spend on sports marketing we get ten dollars back in revenues and three dollars in earnings. This is not wasted money. It's money that drives business results. Bank of America for years has been the most -- financially efficient bank with our business mix in the country. We have a harder and reputation for galaxy and not extravagance. We compensate associates engaged in marketing and advertising campaigns when investing green building technologies. We do so to grow our business is enhanced profitability and generate returns for investors. A group that now includes taxpayers. It is that work to rebuild our industry and economy one of the biggest challenges we face is balancing the need to pump credit into the system. With the needs of households to pay down excessive debt. For an industry that became too dependent upon debt debt driven consumption to create growth prospects of household leveraging. It's sobering. One -- and in my view is that banks must embrace business models that a bill revenue diversity which helps produce balanced earnings. We have university also helps with customers. When you say you want to help customers achieve financial balance this great credibility and having to products that back it up. We have to reassess our approaches to managing risk. In the past cycle banks have relied too much on computer modeling and not enough more instincts and knowledge about economic cycles. We have to resist the temptation to -- innovation and growth overrun our ability to control when your risk we're creating. We have to Northrop nurture a culture in which contrary and thinking is welcomed. And we have to return to business fundamentals. In re calibrate assessments of credit worthiness portfolio concentrations. And market trends to account for new economic. Realities. We must rethink and reform the financial services industry. Industry that emerges. From mr. crisis will be accelerated toward the Barbell which we've been predicted pretty predicting for years a handful of very large diversified. Global financial firms want -- and thousands of community banks on the other. Credit markets will feature feature simple. -- simpler. -- more transparent products. Regulation will be tighter and more conservative. Especially in sectors lightly regulated before. Mortgage lending hedge funds credit markets and investment banking. Investment banks have to decide what they want to be large in systemically important. Whether they want to be largely unregulated risk takers they were not a lot they will not be allowed to devote. The entire financial services industry will be smaller. And one would hope. In Israel also must work in partnership with the government to. It's all the toughest problems in our economy including finding new ways to attract private capital back into the system. Congress and administration have taken several positive steps. The Troubled Asset Relief Program. Contrary to popular opinion has actually worked pretty well. Last October when -- was enacted systemic risk threaten our entire financial system and economy. The government's goal was to act quickly to stabilize surviving banks have been a total meltdown. And enable banks to lend more. Measured by the standards of the talk has been great success. We have not suffered a collapse of the banking system. The vast majority of -- continue to be viable. And everybody anchor I've talked to who was receipt for Monday says it's it's able them to actually them. And -- side benefit of -- is that taxpayers most likely make a lot of money. Banks that received four lines was scheduled. To make about thirteen billion dollars in dividend payments to the US treasuries. Bank of America already made our first payment of 400 million dollars 170. For funds -- loans -- anywhere from 5% to 8%. This is a win win banks are getting the capital they need and taxpayers are getting a strong return on the investment. And except that. I'm must also say that art goes to pay back the tore bonds as soon as we possibly can. There also is the issue. Of all the more down assets many -- bank balance sheets. If we learn anything from this episode. It should be that mark to market accounting can be both useful during normal economic times and extremely destructive. During times of great market stress. When a market -- given security ceases to auction market he loses its meaning. I think the ideas that the administration is exploring to sell and manage these assets make a lot of sense. Right now -- such a huge gap between the current market value community's assets and the value that is implied by continuing cash flows. Somewhere in that gap -- a price that would help the banks but also provide taxpayers with a likely prop. Pretty investment entity that combines public guarantees for private capital. Would create a new market for the securities and lure private investors all the sidelines which is exactly. What we need. Other government actions and help. The Fed is providing sufficient liquidity has helped lower mortgage rates which is feeling the surge in mortgage -- finance. The stimulus bill will help boost economic activity. The government's term asset backed securities loan facility itself would do a lot of liquefied credit markets. And the administration's housing foreclosure relief plan is very well thought out. It will be very helpful to both homeowners and banks to -- to stabilize housing markets across the country. Right now it's hard to find tangible glimmers of hope in the economic data we see every day. But I believe we're going to break the back of this thing and I still believe we will do it this year. There's too much ammunition being fired from too many directions to not bring this beast down. Working in partnership the government and financial services this industry will stop the slide. We will turn the economy around and build a new sustainable economic expansion. Our generation's greatest economic crisis began in June 2000 stuff. When two hedge funds collapsed under the pressure and deteriorating subprime mortgage loans. That was almost two years ago. It's been a long journey from a very dark road and it's far from over. Over the past two years. Which a lot of time and energy leveling accusations. And placing blame. And some of that is necessary. We want to know how this happened so we can figure out how to fix it and hopefully prevent it from happening again at least on this scale. My view is that we've spent enough energy on line. Maybe that's because my industry in my company is getting at least it's this year. But maybe it's also because I think it's no longer productive. The worst offenders or out of business. The rest of us are working hard to rebuild financial services industry that will better serve the American people. This is -- economic challenge of our lifetimes. But it is far from the greatest challenge in our nation's history. America has overcome wars natural disasters. And economic calamity but for -- in this one without sacrificing our dignity our hope. And our spirit of unity. Our history of hard work and success provides the road map today. After all economic cycles do not come and go mysteriously. And without reason like waves. On the open sea. The other result of people engaging in economic activity. They are not to be passively in Steward. They are to be worked through in overcome. Those were discouraged because they've lost something in this downturn need only look around to see people who have lost even more. People are responding by working even harder. Becoming even more determined more creative in their efforts to bring a little progress. From the -- of this hardship. For all that we've lost in this recession. There's so much more. We still have and help us rebuild. Are abundant natural resources. The best higher education system in the world a flexible and dynamic economic system the work ethic and values of our people. The culture of innovation risk taking not terrorism has made us the world's economic leader for the last 100 years. Today the world needs only to -- up more than ever. And Bank of America this is our singular focus. Doing all within our power to turn around our company and help rebuild our industry and to help individuals and businesses across America and around the world. My confidence to take risk again to place bets on the future and to build a new prosperity. This is that this is a task we undertake with determination. And yes with humility. Thanks again man."