The Finance 202: Trump wants to make Wall Street great again

Tuesday , April 17, 2018 - 6:50 AM

Tory Newmyer

(c) 2018, The Washington Post.

President Donald 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, Florida, 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.

Tuesday, 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.

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