Wall Street rejoices as the bell rings for Biden-era regulation

The return of Donald Trump and a Republican-controlled Senate has U.S. 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.

The companies are anticipating a change in personnel at the top of key agencies and will introduce a more permissive approach in Congress on everything from bank capital requirements to takeovers and consumer protection regulations in the financial services sector.

Trump has not announced who will take the top financial positions in his administration. But traditionally, U.S. regulatory leaders alternate with the presidency, and financial services groups have high hopes that he will nominate more industry-friendly candidates, as he did after winning his first term in 2016.

Gary Gensler, chairman of the Securities and Exchange Commission, was the black terror of much of the industry after leading a regulatory push that sparked a fierce backlash and accusations – which he always denied – that he had overstepped his authority.

Although some of its plans have already been rolled back as a result of lawsuits, asset managers now expect that Republicans are likely to change many of the rules imposed by the SEC and other regulators and drop some controversial proposals that are pending or in development in court contested.

“We want to turn the tide. . . and undo the damage of the Gensler years,” said Bryan Corbett, chief executive of the Managed Funds Association, which is challenging the SEC in court over several rules.

Proposed but not yet finalized SEC measures are as good as “dead,” said Marc Elovitz, partner at the law firm Schulte Roth & Zabel.

The SEC declined to comment.

Industry lobbyists warn that Trump could chart a new course in his pick for top financial positions.

However, industry candidates being discussed include Dan Gallagher, a former SEC commissioner now at Robinhood, and Hester Peirce, a current commissioner, who have been mentioned as possible chairs of the regulator.

Some bankers hope Randy Quarles will return to the Federal Reserve as supervisory chief; Jonathan Gould, a partner at Jones Day, is a potential candidate for comptroller of the currency, and Travis Hill is considered a front-runner for the Federal Deposit Insurance Corporation, where he serves as vice chairman.

“We expect whoever they choose (for key government positions) will be better than the status quo,” a bank lobbyist said.

In the Senate, Republican Tim Scott of Florida is in line to take over as chairman of the Senate Banking Committee. He has advocated for relaxing crowdfunding rules, giving retail investors greater access to unlisted assets like private loans, and imposing stricter requirements on the SEC to justify new rules.

Paul O'Brien, a trustee of the $11.2 billion Wyoming Retirement System, said: “If you're in the business of investing other people's money or selling investment products, you want to be confident in what you're getting.” the rules effect.” Be. And I think we now have great confidence in the future rules.”

The biggest difference may be in tone, lobbyists said. President Joe Biden's White House touted its tough approach to the economy, while the first Trump administration was much more interested in getting the industry on side.

Jack Inglis, CEO of the Alternative Investment Management Association, said: “We expect the government's approach to financial regulation to be much more restrained and targeted.” . especially when it comes to the SEC agenda.”

Banks that have fought tooth and nail against efforts to increase their capital requirements smell victory. Although the proposals had already been watered down after intense lobbying by the largest U.S. lenders, some bankers believe Trump appointees to the banking agencies could abandon the so-called Basel III endgame regime entirely.

Mike Mayo, banking analyst at Wells Fargo, said: “This is a game-changer, a real game-changer. If I were to anticipate the new administration's mantra, it would be “resilience with efficiency” and not just “resilience at all costs”.

The new administration is also likely to be less skeptical of mergers and acquisitions in the industry, paving the way for consolidation – and potentially higher profits. The banking component of the S&P 500 hit an all-time high on Wednesday and the KBW regional bank index rose more than 12 percent. Shares of Capital One and Discover, which are looking to join forces to challenge the major credit card companies, each rose more than 13 percent.

Jason Goldberg, an analyst at Barclays, said: “It is no different to what we saw in 2016. Bank stocks continued to outperform relative to the rest of the market, even after the gains we saw on the first day.”

A more relaxed approach to sophisticated M&A deals than current antitrust officials Lina Khan and Jonathan Kanter could also unleash a larger dealmaking fleet that would boost investment banks' returns and give new impetus to the private equity industry.

Shares of private equity groups Apollo, Carlyle and KKR rose between 8 and 10 percent on Wednesday. The increase was driven in part by asset managers' hopes that the Trump administration would make it easier to sell alternative investments such as private equity, private credit and cryptocurrencies to retail investors.

But companies are also excited about the possible renewal of Trump's tax cuts. “What looks like one-party control just means much more pro-growth tax policy. This is good for private equity,” said Drew Maloney, chief executive of the American Investment Council, the private equity industry’s lobbyist.

A European dealmaker said several clients contacted him to explore possible U.S. acquisitions after Trump's victory was announced on Wednesday. “CEOs understand that to grow in the world's largest economy, you have to have a presence here, and an acquisition is the quickest way,” the banker said.

Other dealmakers have doubts because new Vice President JD Vance has spoken positively about some of Khan's plans. Trump's record is also mixed – he tried to block AT&T's takeover of Time Warner due to his hostility to CNN and recently promised to block Nippon Steel's takeover of US Steel.

Amid the surge in financial stocks, some industry participants and observers warned of potential problems.

During his campaign, Trump mentioned the possibility of capping interest on credit cards, which would negatively affect banks' profits, and some Republicans are interested in limiting the ability of financial companies to take into account the impact of environmental and social factors, which the whole thing would make lending and investment decisions more difficult.

Top financial regulators around the world have warned that a deregulation push by Trump could undermine already faltering efforts to maintain a global framework of rules for the financial system and weaken defenses against another crisis.

Klaas Knot, chairman of the Financial Stability Board – set up by G20 countries to coordinate financial regulation after the 2008 banking crisis – said at an event in New York last month that fragmentation of global cooperation “would be a problem.” A very dangerous point for the world. . . If we were to experience a similar crisis tomorrow, would we all come together and have the same spirit as we did in 2009? Or would there be recriminations and division?”

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