Big banks may not profit from Trump as much as markets think: UBS's Fitzpatrick

NEW YORK (Reuters) - The stock rally in financial stocks since the U.S. presidential election may slow down if the new administration fails to cut red tape for big banks, a top UBS Group AG UBSG.S asset management executive said on Thursday at the Reuters Global Investment Outlook Summit in New York.

A Citibank ATM is pictured in the Manhattan borough of New York, October 10, 2015. REUTERS/Eduardo Munoz - RTS3W7T

The rally that has broadly driven the S&P 500 Financials Index .SPSY more than 13 percent higher since Nov. 4 is due for a "near-term" pullback, according to Dawn Fitzpatrick, global head of equities, multi-asset and the O'Connor hedge fund businesses at UBS Asset Management.

“One of the things that I think the market might have a little bit wrong here is the relative valuation between regional banks and money-center banks,” said Fitzpatrick, who is responsible for overseeing roughly $300 billion in assets. “The policies you’re going to see on the financial side are going to disproportionately favor the regional banks.”

Still, she disputed “the notion that we’re going to go back to pre-financial crisis backdrop for the big money-center banks.”

Fitzpatrick said regulatory relief for big banks could be limited, but more regionals are likely to win exemption from certain provisions of the 2010 Dodd-Frank financial reform legislation.

In particular, banks with more than $50 billion in assets are subject to additional regulation, and they have been lobbying to have that threshold raised.

A move to change that provision could lead to mergers and acquisitions among regional banks, Fitzpatrick said.

The U.S. stock market has largely reacted positively to the Nov. 8 election of Donald Trump as U.S. president, but bonds and emerging markets have been hammered.

Fitzpatrick said she expected China to push its yuan currency lower before Trump takes office in January. The president-elect has vowed to label China a “currency manipulator.”

Trump will have the support of a Republican-controlled Congress that will lead to short-term “consensus” reforms, such as reducing the corporate tax rate and the complexity of the tax code, Fitzpatrick said.

But measures to restrict immigration could harm the economy in the long run, and the market’s initial reaction to Trump’s presidency may be wrong, she added.

“The knee-jerk reaction of selling everything and anything emerging market-related will prove to be an overreaction,” she said.

Reporting by Trevor Hunnicutt; Editing by Lisa Von Ahn