Trump's Surprise Victory Changes the Game for Financial Services
WASHINGTON – Republican presidential nominee Donald Trump's shocking victory late Tuesday left world markets rattled, and financial services companies facing an uncertain future.
The surprise vote invoked memories of the recent "Brexit" decision in the United Kingdom, leaving political and financial observers unprepared for an outcome that did not go as anticipated.
Once the uncertainty settles down, however, financial institutions are likely to embrace Trump's deregulatory stance.
"Clearly, there is going to be an easing of regulation," said John Stadtler, head of PricewaterhouseCoopers' financial services practice.
Republicans will now have control of the House, Senate and White House for the first time in over a decade. That provides a viable path to a number of big changes to the Dodd-Frank Act, including restructuring the Consumer Financial Protection Bureau and raising the threshold for tougher bank regulation above its current $50 billion asset level.
"The odds of the $50B threshold being altered" are more than 70% "if Trump takes the White House," Isaac Boltansky, an analyst at Compass Point Research & Trading, wrote in a note to clients this week.
Still, the Trump campaign has been largely devoid of policy details on financial services outside of promises to freeze all new regulations, repeal Dodd-Frank and reinstate the Glass-Steagall divisions between commercial and investment banking.
Observers, including Consumer Bankers Association Chief Executive Richard Hunt, said Trump will likely to look to more experienced policymakers for advice on financial policy.
"He will look to the Senate for guidance," Hunt said.
Trump could also turn to a package that is being put forth by House Financial Services Committee Chairman Jeb Hensarling R-Texas, that would create an alternative regulatory framework for banks and credit unions and rollback a number of Dodd-Frank measures.
"How do you begin to get back to a system that works for average Americans that would be the questioning spot?" David Malpass, a senior economic adviser for the Trump campaign, said during an interview with reporters in October. "Jeb Hensarling has a comprehensive bill on various segments of that problem and those are well received in the campaign."
Stephen Moore, another economic advisor for Trump said the campaign hasn't had a lot of discussion of finance policy but said in an interview that "Dodd-Frank hasn't worked."
"One of the reasons we want to roll it back is because we think it has had a very negative impact on small community banks," Moore said. "The regulatory costs and the compliance costs have contributed to a big consolidation of the industry and if it is not corrected in ten years we are not going to have community banks in this country. The regulatory burden can only be absorbed by big banks."
Even though Republicans will control both chambers and the White House, Republicans will still have a challenge in the near term to pass legislation.
"The main takeaway is that the minority party in the Senate will have a check on any legislation it opposes," Brian Gardner, a policy analyst at Keefe, Bruyette & Woods, said in a note to clients.
"Some form of gridlock is the most likely outcome of the election. That will prevent either party from pushing through its agenda unaltered and will require compromise in order to pass legislation and, in some cases, approve personnel appointments."
Who Trump chooses for key spots will be a big issue in the coming days and weeks. Trump is reportedly leaning toward tapping his campaign finance chairman and former Goldman Sachs banker Steven Mnuchin to be Treasury secretary, but progressives have already voiced their opposition to a Mncuhin appointment.
"Key positions like Treasury Secretary and Attorney General should be filled by nominees with a proven track record of challenging corporate power," a statement from the Progressive Change Campaign Committee said. "Steven Mnuchin is a second-generation Goldman Sachs banker who made a fortune by foreclosing on working families' homes, says there is 'way too much regulation,' and is unsure on both Glass-Steagall and Dodd-Frank."
While the Republicans may have a narrow majority in the Senate, they are poised to pick up a larger one in 2018 when the Senate map flips and 25 Democrats, many of them moderates, will be up for election. That may incentivize them to cut deals with Republicans.
Trump is likely to push to deregulate the industry, but his populism, including his criticism of Wall Street, may prove a challenge for big firms.
"Legislation breaking up the big banks is unlikely, and the regulatory regime should become less restrictive, but a Trump White House will still drive negative headlines for the nation's largest banks," Boltansky wrote.
There is another potential downside for financial institutions, in that Hillary Clinton's losses in traditionally Democratic states like Wisconsin will likely embolden the progressive wing of the party.
Sen. Bernie Sanders, D-Vt., performed well in those states during the primary, and many pundits were already suggesting late Tuesday that Clinton's losses there were a sign that she did not do enough to court white, working class voters.
If true, that may make Sen. Elizabeth Warren, D-Mass., even more powerful within Democratic ranks.
Already on social media, Democrats anxious about a Trump victory were calling on Warren to run for president in 2020, a nightmare scenario for many institutions.
Things to do tomorrow: 1. Get over hangover. 2. Begin campaigning for Elizabeth Warren 2020.
— Blake Garris (@blakegarris) November 9, 2016