The Finance 202: Trump wants to make Wall Street great again
President Trump is making Wall Street banks great again.
The biggest banks are reporting windfalls from Trump’s signature tax cut in their first-quarter earnings, powering those results past analysts’ projections. And the slashed corporate rate is only one of the ways the administration’s performance is goosing industry profits. The return of stock market volatility, touched off in part by the president’s trade war threats, is boosting revenue for trading desks. Even more help is on the way for banks’ bottom lines from a slew of deregulatory moves Trump appointees are working on — a process likely to speed up in the weeks ahead.
Bank of America was the latest to beat expectations, on Monday reporting a 30 percent jump in its first-quarter profit over the same period last year. The bank chalked up slightly less than a third of that gain to a $500 million drop in its income taxes. Other banking giants reported similar results Friday: JPMorgan Chase, Citigroup and Wells Fargo together saved $1.6 billion last quarter thanks to the new tax law’s 40 percent reduction in the corporate rate.
“It’s hard to imagine a better political and fundamental environment for banks,” says Isaac Boltansky, director of policy research at Compass Point. “It’s unclear how long this environment will persist, but for this moment in time things are pristine for banks.”
The tax cut-driven salad days for the banks contrast sharply with the law’s popularity. A pair of new polls show the measure, which Republicans hope will form the crux of their midterm election pitch, remains broadly unpopular.
The latest Gallup poll finds 39 percent approve of the law while 52 percent disapprove. And the new Wall Street Journal-NBC News survey found 27 percent of respondents think the law is a good idea, compared to 36 percent who say it’s a bad idea; 34 percent said they have no opinion. Consistent with those results, consumer spending is showing no sign of a big pickup despite the tax cuts, according to Commerce Department data released Monday.
Trump talked up the tax cut Monday, telling a crowd in Hialeah, Fla., the overhaul has produced “tremendous success from the company standpoint and from the people’s standpoint.” He also pointed to his administration’s push to slash regulations. “We’ve cut more regulations than any president, whether it’s four years, eight years, or in one case, 16 years,” he said, although it’s not clear whom he believes served for 16 years. “And we’re not finished yet … They don’t talk about regulation much. I think it’s as important as the big, massive tax cut.”
Those efforts have spelled some good news for the largest banks, with more probably coming soon. Last week, the Federal Reserve and the Office of the Comptroller of the Currency proposed allowing the firms to reduce the extra capital cushion they’re required to hold to ensure they’re not too heavily extended. In the next month, banks could see a proposal to ease their burden under the Volcker Rule, which prohibits certain risky bets with their own money — and another to offer them more leeway with anti-money-laundering rules, among others, according to Capital Alpha’s Ian Katz.
If anything, the Trump administration’s deregulation of the industry may have under-delivered on its own rhetoric: Boltansky in a Monday note wrote that none of the 80 recommendations the Treasury Department called for last summer have been fully implemented, and there has been no movement on about 60 of them. That owes in part to the slow pace at which the Trump team has installed its own people in key oversight positions. But there are “clear signs that the pace of the Trump administration’s bank deregulatory effort will accelerate in the weeks ahead,” Boltansky writes. Just on Monday, Trump announced two picks to help fill four of the empty seats on the Federal Reserve Board.
And when it comes to enforcement, lack of action favors the industry. Since Mick Mulvaney took the reins at the Consumer Financial Protection Bureau, for example, the agency hasn’t taken a single action against banks or other financial services companies, the AP reported last week. That reflects an administration-wide pattern.
Today, Wall Street will get a clearer sense of what policymakers have in store when Randy Quarles — the top banking regulator as the Fed’s vice chair for supervision — testifies on Capitol Hill for the first time since taking the position in October.
In an appearance before the House Financial Services Committee, he’s expected to call for easing liquidity requirements for big, non-global banks and giving the industry more input into their stress test, Reuters reports. “We are mindful that, just as there is a strong public interest in the safety and soundness of the financial system, there is a strong public interest in the efficiency of the financial system,” Quarles says in his prepared remarks.
|You are reading The Finance 202, our must-read tipsheet on where Wall Street meets Washington.|
|Not a regular subscriber?|
— Stocks jump. WSJ’s Michael Wursthorn and Georgi Kantchev: “Transportation companies boosted major indexes Monday, as some strong corporate-profit reports helped investors look past simmering geopolitical tensions. Old-economy companies, such as trucking firms and railroad operators, nudged the S&P 500 higher to help the broad index recoup the losses it suffered Friday… Investors are hoping the latest earnings season, which is expected to be one of the best in years, will help steady a stock market that has stalled and stumbled over the past two months. Analysts predict companies in the S&P 500 will increase earnings by their widest margin in six years and say the benefits of the tax overhaul passed last year and a strong economic backdrop are expected to push profits higher.”
— Trump accuses Russia, China on currency. The Post’s Damian Paletta: “Trump on Monday accused China and Russia of improperly manipulating their currencies in a way that gives them unfair trade advantages. ‘Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!’ the president wrote on Twitter.
“The accusation, delivered without any evidence or corroboration, directly contradicts a report issued Friday by Trump’s Treasury Department, which did not accuse either country of artificially lowering the value of its currency. Instead, the report found that China’s currency had recently moved in a direction that should benefit U.S. exporters.
“The Twitter post also could serve as Trump’s first criticism — even if done indirectly — of new Federal Reserve Chairman Jerome H. Powell. The second half of Trump’s post mentions the United States ‘raising interest rates,’ followed by the two-word sentence, ‘Not acceptable!’ It could not be immediately determined whether Trump meant Russia and China’s behavior was unacceptable, the Fed’s decision to raise interest rates was unacceptable, or the whole dynamic was unacceptable.”
— Tech escalation. WSJ’s Bob Davis: “The U.S. is examining ways to retaliate against Beijing’s restrictions on U.S. providers of cloud computing and other high-tech services, effectively opening a new front on its trade offensive against China… The U.S. trade representative’s office is putting together a fresh trade complaint, probably under Section 301 of the Trade Act of 1974, arguing that Beijing unfairly restricts U.S. trade in these high-tech services. The trade representative has yet to decide whether to go ahead with the complaint… But USTR, which has taken the lead in the China trade fight, views China’s restrictions on cloud computing as providing a clear-cut example that might garner public support.”
Chinese peace offering. NYT’s Keith Bradsher: “China offered a potential trade peace offering to the Trump administration on Tuesday, saying it would allow electric car companies to set up shop there this year without a local joint venture partner, and that it would set a timetable for the rest of the auto industry to build or run their own Chinese factories in the coming years. The move, announced on Tuesday by China’s top economic planning agency, follows through on a long-promised effort by Beijing to further open its markets to foreign companies. It could be seen as a potential opening toward smoothing relations with the Trump administration, which has threatened to levy tariffs on $150 billion in Chinese-made goods.”
For shipbuilders and aircraft makers, too. Bloomberg: “China will remove foreign-ownership limits for ship and aircraft manufacturing among key industries it’s liberalizing this year. The nation will abolish foreign limits for the shipbuilding industry in areas such as design, manufacturing and maintenance, and for makers of aircraft including planes, helicopters and drones, the National Development and Reform Commission said in a statement on its website Tuesday.”
Companies line up for tariff relief. More from Heather: “How far the Trump administration will go to protect America’s steel and aluminum industries now rests largely in the hands of Commerce Department officials, who face a flood of applications from American companies seeking exemptions from… Trump’s newly imposed tariffs… More than 1,200 applications for waivers from the steel tariffs and 125 requests for exemptions from the aluminum tariffs have come in so far… an early indication of pressure building on Trump to back off on additional tariffs and lower the import taxes that are in place. The tariffs have only been in place for three weeks, and many lawyers and business leaders involved in the steel industry say this is just the beginning of the push for greater exemptions.”
Germany’s recession odds rise. The Post’s Rick Noack: “The risk of a recession in Europe’s biggest economy rose significantly between March and April amid the fallout over… Trump’s increasingly restrictive stance on global trade, researchers said Monday. While economists with the German Institute for Macroeconomics and Economic Research saw only a 6.8 percent likelihood of a recession within three months in March, they now believe that an imminent economic downturn is 32.4 percent likely.”
MONEY ON THE HILL
— GOP’s debt binge. The Post’s Damian Paletta and Erica Werner: “By 2022, the U.S. government is projected to spend almost as much money on interest payments for its massive debt as it will on the Pentagon, more than $600 billion every year. The spiraling expense underscores a frightening reality in Washington: President Trump and Congress have not only massively expanded the U.S. government’s debt, they have broken free of multiple guardrails intended to keep budgets balanced, freeing future lawmakers to further expand the yawning gap between what the government takes in and what it spends. The latest increase has come at a time when Republicans control the White House and Congress, cementing a GOP indifference to balancing the budget despite making deficit reduction their rhetorical North Star during the Obama administration.”
— Republican leadership scramble. WSJ’s Siobhan Hughes: “In endorsing his top lieutenant as his successor, House Speaker Paul Ryan has sought to project an air of inevitability around Majority Leader Kevin McCarthy and lock in the California Republican’s status as the heir apparent. It is a perception that could be hard to sustain. Many members of the House Republican conference say the race is wide open and will be so long as Mr. Ryan maintains his plans to stay through the end of the year. They are also openly discussing it as a chance for several candidates to compete.”
— Equifax board under fire. WSJ’s AnnaMaria Andriotis: “Proxy advisory firm Institutional Shareholder Services Inc. in a note to institutional investor clients on Saturday called for Equifax investors to vote against the re-election of five Equifax board members, including the board chairman, all of whom were on the board’s technology committee and some who were on the audit committee at the time of the company’s massive cybersecurity breach last year. The five board members in their roles on the technology committee ‘had clear lines of responsibility for risk management related to technology security,’ ISS’s report states. The breach and Equifax’s failure to quickly notify the public ‘suggest a failure to adequately oversee some of the most significant risks facing the company,’ it added.”
— Fink joins three comma club. Bloomberg’s Tom Metcalf: BlackRock CEO Larry “Fink’s personal fortune… has at last eclipsed $1 billion, according to the Bloomberg Billionaires Index. His holding in BlackRock is valued at $570 million with dividends, stock sales and compensation — $27.7 million in 2017 — making up the rest. ‘Fink is up there with names like Jamie Dimon and Warren Buffett,’ says Kyle Sanders, an analyst at Edwards Jones & Co. ‘You have to look at Larry when you think of asset management.'”
— Retail apocalypse. The Post’s Gene Marks: “Bankruptcies in the retail sector were at a record high during the first quarter of 2018. There were nine defaults in the sector — including Sears and Claire’s — during the three months ended March 31… The reasons are familiar. Consumer behavior is changing, mall traffic is down and competition from e-commerce continues to challenge brick-and-mortar store operators. Rising interest rates are also putting pressure on the more highly leveraged retailers and merchants.”
— Trump nominates two. The Post’s Heather Long: “Trump nominated two more people Monday to serve on the board of the Federal Reserve, the institution that sets interest rates and plays a large role in steering the U.S. economy and banking system. Trump nominated Richard Clarida, a Columbia University economics professor and longtime adviser to one of the world’s largest bond firms, to be vice chairman at the Fed serving under Chairman Jerome H. Powell. The Fed has indicated it intends to raise interest rates at least three times this year and another three times in 2019. If that path holds, interest rates would probably be over 2 percent by the end of this year and near 3 percent by the end of the following year. The president also nominated Michelle Bowman, the current bank commissioner in Kansas, to be a Fed board member. She is Trump’s first female choice for the Fed out of the five people he has nominated so far.”
— Fed weighs stress test tweak. American Banker’s John Heltman: “The Federal Reserve is considering allowing banks a chance to comment on stress tests before they take them and dropping any qualitative review for the largest banks’ performance, according to Randal Quarles, the central bank’s vice chairman for banking supervision. Quarles is set to testify Tuesday in his first semiannual testimony before the House Financial Services Committee as vice chairman, a role that was created by the Dodd-Frank Act but which went unfilled during the Obama administration.”
- The Brookings Institution holds an event on the global monetary system.
- The Brookings Institution holds an event on digital currencies.
- The Senate Banking, Housing and Urban Affairs Committee holds a nomination hearing.
- The Consumer Advisory Board Card, Payment, and Deposits Markets holds subcommittee meeting.
- The House Appropriations Subcommittee on Financial Services and General Government holds a hearing on the 2019 budget on the General Services Administration.
- Vice chairman of the Federal Reserve Randal Quarles testifies before the House Financial Services Committee.
- The House Ways and Means Committee holds a hearing on federal perspectives on the jobs gap.
- The Federal Deposit Insurance Corporation holds an open meeting.
- The U.S. Chamber of Commerce holds an event on tax cuts.
- The Senate Commerce, Science and Transportation Committee holds a hearing on robocalls on Wednesday.
- The Securities and Exchange Commission holds an open meeting on Wednesday.
- The Senate Appropriations Subcommittee on Transportation, Housing and Urban Development and Related Agencies holds a hearing on the 2019 budget for the Housing and Urban Development Department on Wednesday.
- The House Agriculture Committee holds a markup on Wednesday.
- The Consumer Advisory Board Consumer Lending holds a subcommittee meeting on Wednesday.
- The Senate Finance Committee holds a hearing on the opioid epidemic on Thursday.
- The American Enterprise Institute holds an event on the future of corporate taxation on Thursday.
- The Senate Banking, Housing and Urban Affairs Committee holds a hearing on the Federal Reserve’s supervision and regulation of the financial system on Thursday.
- Vice chairman of the Federal Reserve Randal Quarles testifies before the Senate Banking, Housing and Urban Affairs on Thursday.
- The American Bankruptcy Institute’s annual spring meeting starts on Thursday.
From the New Yorker:
The president claims former FBI director James Comey lied to Sen. Charles Grassley (R-Iowa), but the claim is undercut by a new report
Adult-film actress Stormy Daniels made a statement outside a Manhattan federal court where President Trump’s longtime personal lawyer Michael Cohen appeared as part of a criminal investigation
Here’s how a poll of 1,000 people represents the entire country: