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The return of Donald Trump and a Republican-controlled Senate has US bankers, private equity titans and other financial services executives salivating over the prospect of deregulation, a wave of new financial products and the departure of aggressive Biden administration watchdogs.
Companies anticipate a change in personnel at the top of key agencies and in Congress will usher in a more permissive approach to everything from bank capital requirements to takeovers and consumer protection rules in the financial services sector.
Trump has not announced who will take on the top financial roles in his administration. But traditionally, the chairs of US regulatory agencies turn over with the presidency, and financial services groups have high hopes that he will nominate candidates who are more industry-friendly, much as he did after winning his first term in 2016.
Gary Gensler, chair of the Securities and Exchange Commission, has been the bête noire of much of the industry after leading a regulatory blitz that sparked a fierce fightback and allegations — which he always rejected — that he had exceeded his authority.
Although some of his agenda was already being rolled back as a result of lawsuits, money managers now believe Republicans are likely to modify many of the rules that the SEC and other watchdogs have imposed, as well as drop some contentious proposals that are pending or being challenged in the courts.
“We are looking to turn the page . . . and undo the damage of the Gensler years,” said Bryan Corbett, chief executive of the Managed Funds Association, which is challenging the SEC over several rules in court.
SEC measures that have been proposed but are yet to be finalised are as good as “dead”, said Marc Elovitz, partner at law firm Schulte Roth & Zabel.
The SEC declined to comment.
Industry lobbyists warn Trump could shift gears on his choices for top financial jobs.
But within the industry, candidates being discussed include Dan Gallagher, a former SEC commissioner now at Robinhood, and Hester Peirce, a current commissioner, who are being mentioned as possible chairs of the regulator.
Some bankers hope Randy Quarles will return to the Federal Reserve as head of supervision; Jonathan Gould, a Jones Day partner, is a potential candidate for the Office of the Comptroller of the Currency; and Travis Hill is seen to be in pole position for the Federal Deposit Insurance Corporation, where he serves as vice-chair.
“What we’re opening under is whoever they pick [for key government positions] will be better than the status quo,” said one bank lobbyist.
In the Senate, Florida Republican Tim Scott is in line to chair the Senate banking committee. He has advocated for loosening rules for crowdfunding, giving retail investors greater access to unlisted assets such as private credit and setting stiffer requirements for the SEC to justify new rulemaking.
Paul O’Brien, a trustee of the $11.2bn Wyoming Retirement System, said: “If you’re in the business of investing or investing other people’s money or selling investment products, what you want is that confidence of what the rules are going to be. And I think we have a lot of confidence now in what the rules are going to be.”
The biggest difference could be in tone, lobbyists said. President Joe Biden’s White House touted its tough approach to business, while the first Trump administration was much more keen to get the industry onside.
Jack Inglis, CEO of the Alternative Investment Management Association, said: “We anticipate that the administration’s approach to financial regulation will be much more restrained and targeted . . . particularly when it comes to the SEC agenda.”
Banks that have been fighting tooth and nail against efforts to boost their capital requirements scent victory. Although the proposals had already been watered down after a prolific lobbying effort by the largest US lenders, some bankers think Trump appointees to the banking agencies could abandon the so-called Basel III endgame regime entirely.
Mike Mayo, a banks analyst at Wells Fargo, said: “This is an inflection point, a real game-changer. If I were to anticipate the mantra of the new administration, it’d be ‘resiliency with efficiency’ not just ‘resiliency at any cost’.”
The new administration is also likely to be less sceptical of mergers and acquisitions in the sector, paving the way for consolidation — and potentially higher profits. The banks component of the S&P 500 hit an all-time high on Wednesday, and the KBW regional banks index rose more than 12 per cent. Shares in Capital One and Discover, which are seeking to combine forces to challenge the big credit card companies, each shot up more than 13 per cent.
Jason Goldberg, an analyst at Barclays, said: “It’s not dissimilar from what we saw in 2016. Bank stocks continued to show relative outperformance to the rest of the market even after gains that we saw on day one.”
A more relaxed attitude to challenging M&A transactions than current antitrust officials Lina Khan and Jonathan Kanter could also unleash a wider dealmaking spree that would boost earnings at investment banks and provide a fresh spur to the private equity industry.
Shares in private equity groups Apollo, Carlyle and KKR rose between 8 and 10 per cent on Wednesday. The increase was in part driven by hopes among money managers that the Trump administration would make it easier to sell alternative investments including private equity, private credit and cryptocurrencies to individual investors.
But firms are also enthused by the potential renewal of Trump’s tax cuts. “With what looks like one-party control, it just means a much more pro-growth tax policy. That is good for private equity,” said Drew Maloney, chief executive of the American Investment Council, the private equity industry lobbyist.
A European dealmaker said several clients had contacted him after Trump’s victory was announced on Wednesday to explore possible US acquisitions. “CEOs understand that to grow in the world’s largest economy, you need a presence here, and an acquisition is the fastest route,” the banker said.
Other dealmakers have doubts because incoming vice-president JD Vance has spoken positively about some of Khan’s agenda. Trump’s record is also mixed — he attempted to block AT&T’s acquisition of Time Warner because of his animosity towards CNN and recently pledged to prevent Nippon Steel’s acquisition of US Steel.
Amid the soaring financial stocks, some industry participants and observers are warning of potential problems.
While on the campaign trail, Trump mentioned the possibility of capping interest on credit cards, which would be bad for banks’ profits, and some Republicans are keen to limit the ability of financial groups to consider the impact of environmental and social factors, which would complicate lending and investment decisions.
Globally, top financial watchdogs have warned a Trump deregulatory push could rip apart already-fraying efforts to maintain a global set of rules for the financial system and weaken defences against another crisis.
Klaas Knot, head of the Financial Stability Board — which was set up by the G20 countries to co-ordinate financial rulemaking after the 2008 banking meltdown — told an event in New York last month that a splintering of global co-operation “would be a very dangerous point for the world”.
“If we were to have a similar crisis tomorrow, would we all come together and have the same spirit that we did in 2009? Or would there be recriminations and fragmentation?”
Brooke Masters, James Fontanella-Khan, Joshua Franklin, Stephen Gandel and Sun Yu in New York, Stefania Palma in Detroit, Martin Arnold and George Steer in London