Bankers count ways Trump will boost financial services

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Donald Trump was sworn in as president of the United States on Friday, and bankers could not be happier.

BB&T Chairman and CEO Kelly King predicts that the gross domestic product could expand as much as 4% as Trump and a Republican-controlled Congress aim to boost growth by lowering corporate taxes and easing up on regulations. King did not specify how quickly that could happen; most economists are forecasting GDP growth of around 2% this year.

Other CEOs are similarly optimistic, contending that Trump’s proposed policy changes – which also include investing heavily in infrastructure and repealing and replacing the Affordable Care Act – will be a boon to banks’ bottom lines.

“It’s remarkable the difference an election can make in the economic outlook,” Webster Financial Chairman and CEO James Smith said on the company’s fourth-quarter earnings call Thursday. “Nearly all of the forecasted policy changes in a Trump administration, supported by a Republican Congress, appear to be positive for our business and our company.”

Much, of course, depends on how quickly Trump and his fellow party members can move on implementing their proposed changes – and how much pushback they get from Democrats in Congress. Terry McEvoy, an analyst at Stephens, said this week that bank CEOs should be cautious about setting expectations too high too soon.

“There’s very little upside for management teams to be overly bullish in light of the high amount of uncertainty around changes coming out of Washington,” McEvoy said. “For any bank to be overly optimistic given the uncertainty may be doing injustice to shareholders.”

Yet most bankers are more bullish about the sector than they have been in years.

On the BB&T earnings call Thursday, King said that after the election he directed his 26 regional presidents at the Winston-Salem, N.C., company to canvass their best business customers and gauge their interest in investing in expansion. All of them, he said, expect the economy to pick up steam this year.

“Everybody was optimistic,” King said. “Individual companies are already requesting loans to buy trucks, to expand their plant, expand inventory.”

Smith, the longtime CEO at Waterbury, Conn.-based Webster, said he is keeping close tabs on the potential reform of the Affordable Care Act, or Obamacare. Many experts believe that reform would result in higher out-of-pocket costs for insured Americans and that could mean more people enrolling in health savings accounts. Webster’s HSA Bank subsidiary manages more than 2 million health savings accounts.

Nationwide, the number of people with HSAs is increasing at a rate of about 20% a year, “and that could increase significantly given the recent election results and the increasingly likely reform of the Affordable Care Act,” Smith said.

“While no action has been taken, it’s possible that eligibility for HSAs could expand by multiples of previous expectations…and contribution limits could potentially double. Hundreds of millions of Americans may ultimately qualify for HSA plans versus the 18 million who had them as of midyear 2016,” he said.

Also high on bankers’ wish lists, of course, is regulatory relief, though big-bank CEOs said this week that they expect most reform efforts to be directed toward smaller institutions.

Both King and U.S. Bancorp’s Richard Davis said that what they hope to see from the Trump administration is a change in the tone of bank regulation.

“It's not just the regulations, it's the degree of intensity with which the regulators apply those regulations,” King said.

Davis said that the Consumer Financial Protection Bureau, under the leadership of Richard Cordray, is an example of an agency that has focused too heavily on setting its policy agenda through enforcement actions.

“I’ve pleaded with Richard Cordray to consider making the CFPB an endorsement agency, not an enforcement agency – and I’m not being clever here,” Davis said on the bank’s earnings call Wednesday.

Rather than focusing on “trying to get you,” and creating a contentious relationship with banks, the agency should focus on rulemaking and setting a high bar for compliance, he added.

Joseph DePaolo, the CEO at Signature Bank in New York, said he hopes the administration and Congress will place a high priority on raising the threshold for determining if a bank is systemically important to well above the current $50 billion-asset mark. Signature has $39 billion of assets and at its current rate of growth it will cross the threshold sometime in 2019.

“We believe this section of [Dodd-Frank Act] is anti-competitive and protectionist of the big banks” because it gives smaller banks a disincentive to cross the threshold, DePaolo said in an interview Thursday. Policymakers “should want more banks to grow past $50 billion, because these banks are the only ones that can compete with the megabanks.”

DePaolo said he believes that a bill that would raise the cutoff to $125 billion would win bipartisan support in the House and the Senate if it were its own piece of legislation. It will fail, though, if its passage hinges on changes to other aspects of Dodd-Frank.

“If they just tried to move the number to allow more competition in the marketplace, then they could deal with the rest of [regulatory reform] later,” DePaolo said.

Andy Peters and Kristin Broughton contributed to this story.

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Regulatory reform Regulatory relief Commercial lending SIFIs Donald Trump