The surprising outcome of last week's presidential election is already causing some banks to adjust interest rates on loans and rethink their technology spending.
Yields on five-year Treasury notes have climbed more than 30 basis points since Republican Donald Trump defeated Democrat Hillary Clinton in the presidential contest, and Signature Bank in New York has responded by raising rates on certain commercial real estate loans. Though competition for quality loans remains fierce, the move is a show of confidence by Signature's management that the economy — and loan demand — will improve with Trump in the White House.
Meanwhile, Bank of America Chief Operating Officer Tom Montag said at an industry conference on Tuesday that banks should think twice before making upgrades to compliance software when it is possible that new administration and Republican-controlled Congress could very well move to change or roll back regulations passed after the financial crisis.
Optimism in the banking industry has been running high since Trump was elected, and that was evident at the Bank of America Merrill Lynch Banking & Financial Services Conference in New York.
While most banks are waiting for more policy details to emerge, bankers at the conference are optimistic that Trump will revisit regulations that bankers insist have stymied loan demand and hampered economic growth.
Neal Blinde, the corporate treasurer at Wells Fargo, said he would specifically like to see a Trump administration make changes to rules that now require banks to hold more capital against the value of mortgage servicing rights. Federal Reserve Gov. Daniel Tarullo has seemed to indicate a willingness to consider such a change.
But just the fact that Trump has indicated a willingness to revamp regulations is "positive" for the banking industry, Blinde told investors and analysts at the conference.
Montag agreed. He said banks' compliance and technology expenses could be reduced if a Trump administration changes or eliminates portions of the Dodd-Frank Act, like the Volcker Rule.
"If you spend another $30 million, let's say, to be up to speed … on Volcker, there is a chance they change something in Volcker, maybe they change it appreciably," Montag said at the conference.
Absent a clear plan for reducing regulations, the simple fact that the election is over should boost banks' performance, Doug Petno, chief executive of commercial banking at JPMorgan Chase, said at the conference.
Commercial clients have hesitated to borrow amid broader uncertainty about the election outcome, Petno said. During the third quarter, weak growth in commercial and industrial loans weighed on profits. Now that the election has been decided, clients have a clearer sense of where tax and regulatory policy is heading and that could prompt them to borrow.
"The devil is in the details on what the new policies will look like, but anything that brings certainty brings confidence," Petno said. "There's a tremendous cash build across corporate America and I think there's a lot of appetite to invest in [research and development], company expansion and [acquisitions]."
Anticipating a possible surge in business borrowing, Signature on Monday raised interest rates on some of its multifamily loans. Signature hiked the rate on five-year fixed-rate multifamily loans to between 3.5% and 3.625% from a range of 3.375% to 3.5%; and it raised the rate on seven-year fixed-rate multifamily loans to 4.125% from a range between 3.75% and 3.875%.
Asked how his customers will respond to higher rates, Signature CEO Joseph DePaolo said he expects they will understand.
"I expect the clients to react in a fashion that [they] didn't believe in their lifetime they would have seen [3%] rates," he said. "They may complain, but say, 'Yeah, this is fine, this is something that we had all expected at some point … was going to happen.' "
Many banks may take a similar aggressive approach, as they reflect on the incoming administration, Montag said.
"When is the last time we had a nongridlocked Washington. It has been since Ronald Reagan that we had that kind of environment," Montag said. "There is this sense of optimism that … the government will work better together to supply the foundation for growth that we as a bank can optimize."
Bankers' hopes may be sky-high, but they shouldn't expect to get everything they want, DePaolo said.
There's hope that Congress will raise the asset threshold for designating banks as systemically important, but DePaolo said he will continue to make strategic decisions using the assumption that the $50 billion-asset threshold will remain in place. Signature has $38 billion of assets.
"I didn't think when we have a new president-elect that regulation is going to go away completely," he said. "The growth of expenses may slow a little, but I don't think any of the expenses we have today actually goes away."