In a recent interview on CNBC, Bank of America's (NYSE:BAC) chairman and CEO Brian Moynihan discussed a range of topics. At the top of the list was the same topic that coursed through the 56-year-old executive's annual letter to shareholders this year: growing responsibly.
"When we look at where we stand today, our company is stronger, simpler, and better positioned to deliver long-term value to our shareholders, thanks to the straightforward way in which we serve our customers and clients," he wrote. "The path forward is clearly one of responsible growth."
Moynihan doubled down on this in his CNBC interview on Thursday, saying:
The question right now is: Can we grow and be responsible? Our industry and company have a history of growing in the good times by reaching for credit, reaching for terms, things like that. So we've basically driven this idea of responsible growth. You have to grow, no excuses, but you have to do it the right way.
What does he mean by this?
This may seem like a circular answer, but he means Bank of America learned during and after the 2008 financial crisis that it's unwise to pursue growth at all costs -- i.e., irresponsible growth. That's what Moynihan is referring to in the passage above when he talks about reaching for credit and terms, by which he means lowering credit standards in order to fuel loan growth.
Bank of America was guilty of this when it came to credit cards in the lead-up to the crisis. "In the boom we pushed cards through the branches and in mass mailings," Moynihan told Fortune's Shawn Tully in 2011. "To drive growth we gave cards to people who couldn't afford them."
The damage was considerable. Based on an analysis I did two years ago, it cost Bank of America roughly $60 billion in losses from soured credit card loans.
The solution to this problem, Moynihan went on to explain to CNBC's Wilfred Frost, is to focus on organic growth -- that is, to deepen relationships with existing customers as opposed to going out and trying to get new ones. Here's the example he shared to illustrate this:
Out of 10 customers who get a mortgage, who are Bank of America customers that fully fit out credit requirements, only three of them get it with us. It used to be two, so we've moved that up dramatically. When we're at nine or 10, that's an interesting question, but between three and nine, there's plenty of opportunity to grow and stay within that credit quality.
This is a catch-22 for shareholders. It's good because it implies that Bank of America will avoid the types of aggressive growth tactics that got it into so much trouble a decade ago. But it's bad because it means Bank of America won't grow as aggressively.
Fortunately, the issue facing Bank of America right now is less about growth, and more about interest rates and profitability. Higher interest rates alone could boost Bank of America's share price from less than $16 today to upwards of $20 a share or more, which would still be below its book value per share.
Growth or no growth, then, there's reason right now to be bullish on Bank of America stock.