ETF News

Bank shares surge as Trump win could ease regulations

NEW YORK, Nov 9 (IFR) - Bank shares surged Wednesday after Donald Trump’s presidential election win, seen by many as presaging at least an easing of the regulation of financial institutions.

By midday shares of JP Morgan were up 5.7% at US$74, Morgan Stanley was up 8.1% at US$36.9 and Bank of America Merrill Lynch was up 6.1% at US$18.03.

Goldman Sachs saw its shares climb 6.3% to US$193.43.

Citigroup meanwhile was lagging a bit at midday but gained as the day wore with a 4% jump to US$51.91. Some analysts attributed the initial sluggishness to the bank’s exposure to Mexico - a target of Trump’s attention on trade and immigration.

Trump sided with leading conservatives in calling for the repeal of the 2010 Dodd-Frank Financial Reform Act, including the Volcker Rule, which forced banks to abandon their proprietary trading groups.

Many bankers have blamed Volcker, intended to stop banks from making short-term speculative bets with money that was essentially insured by US taxpayers, for drying up liquidity in bond markets.

Legislation to upend the massive financial reform bill is already teed up.

Earlier this year US Congressman Jeb Hensarling, chairman of the Financial Services Committee in the US House of Representatives, unveiled a bill to replace Dodd-Frank.

The bill included a full repeal of the Volcker Rule, and its ban on proprietary trading, as well as most risk retention rules.

Hensarling call the bill a “Dodd-Frank off-ramp” that would allow banks to avoid the toughest aspects of the regulations.

Previous moves to gut Dodd-Frank, however, have rarely been taken up in the US Senate, primarily because the efforts faced certain rejection by President Barack Obama.

With a president Trump presumably willing to sign relief legislation, the Senate may be inclined to fight for repeal of Dodd-Frank - or at least some parts of it.

Still, it only takes 40 senators to block most legislation in the Senate, and Democrats will hold 47 seats in the next session.

“Despite Republicans keeping both houses of Congress, we think chances for wholesale changes to Dodd-Frank are still low,” Keffe, Bruyette & Woods analyst Brian Gardner wrote on Wednesday.

“We think the main result of Donald Trump’s election will be that Trump will be able to appoint regulators who are more industry-friendly than regulators appointed by President Obama,” he wrote.

“The regulatory implications are more important than what might come out of Congress but are broadly positive for financials in our view.” (Reporting by Philip Scipio; Editing by Marc Carnegie)