Celebrity billionaire businessman Donald J. Trump was elected the 45th president of the United States on Tuesday, and it looks like a big win for Wall Street.
“It’s a grand slam home run for the banks,” bank analyst Dick Bove of Rafferty Capital Markets told Yahoo Finance on Wednesday morning.
On Tuesday, Trump led the Republicans in a sweep of Congress, putting the party in control of both the House and the Senate.
As Trump’s victory unfolded, global markets went haywire, with S&P futures dropping 5%. Gold, considered a safe haven asset, soared. Meanwhile, financial stocks, including Goldman Sachs (GS), Bank of America (BAC), JPMorgan (JPM), Morgan Stanley (MS), Wells Fargo (WFC), and Citigroup (C), were trading higher on Wednesday morning.
KBW analyst Brian Gardner also characterized Trump’s win as a positive for the banks and other financials despite the market’s initial broad sell-off reaction.
“Big winners are insurers, brokers, and asset managers since this increases the chances that the DOL’s fiduciary rule is delayed, rewritten or even scrapped. Smaller banks should still do better in Washington than big banks,” Gardner wrote.
The Financial CHOICE Act
For Rafferty Capital’s Bove, the real victory for the banks comes down to the The Financial CHOICE Act, a bill introduced by House Financial Services Committee Chairman Jeb Hensarling (R-TX). According to Bove, the bill is “extremely positive for the banking industry.”
Hensarling’s bill aims to repeal sections and titles of Dodd-Frank, including the Volcker Rule. The bill would basically ease regulations on banking dramatically based upon the amount of capital-to-assets. That capital-to-asset ratio would determine how strong regulators should treat a bank. The bill also gets rid of the “living will” rule and the Durbin amendment.
With Republicans maintaining control of congress, that bill is seen as more likely to pass.
What’s more is with the Republican congress, the rhetoric from Sen. Elizabeth Warren (D-Mass) and Sen. Bernie Sanders (D-VT) “goes right down to the toilet,” Bove said.
“No one is going to let anything they think pass,” he said, adding this is also “a huge success for the banks.”
The Fiduciary Rule
Another change the industry might see is to Obama Administration’s new fiduciary rule, which was finalized by the Department of Labor in April. According to KBW’s Gardner, it’s possible that Trump’s administration may delay, alter, or scrap the new fiduciary rule. This would be positive for brokers and asset managers, the note said.
The DOL’s new rule has many in the investment community up in arms. The rule impacts retirement accounts by requiring brokers to uphold a fiduciary duty and put clients’ interest ahead of the firm by going with the most cost-effective means of providing a product or solution. While its intentions sound good, some are concerned about government over-reaching and unintended consequences such as pushing investors into passive indexes and passive investments.
Ahead of the election, SkyBridge Capital’s founder Anthony Scaramucci, an economic adviser to the Trump campaign, told Yahoo Finance he expects they’ll “be working very, very hard to repeal this silly ruling.”
Julia La Roche is a finance reporter at Yahoo Finance.