The Trump administration is vexing Wall Street with a Jekyll-and-Hyde routine this week, simultaneously moving to slash regulations on the financial industry while threatening to launch an economy-rattling trade war that would take a bite out of its bottom line.
The state of play highlights the confusion that has always presided at the heart of Trump’s economic approach: The president won on a populist pledge to avenge dispossessed blue-collar workers by savaging entrenched power on Wall Street. But he also promised to dismantle post-crisis restrictions on the financial industry and stocked his administration with former financiers. Despite each other, both causes look primed to advance this week.
To cheers from the industry, the Trump-blessed drive to roll back Dodd-Frank rules is making progress both on Capitol Hill and at the regulatory agencies. The Senate today is set to take an initial vote on a package that would cut the list of banks considered “too big to fail” by two-thirds. It would also increase the odds taxpayers will be back on the hook to bail out a failed bank, according to a report released Monday by the Congressional Budget Office. The bill’s proponents pitch it as primarily benefiting small and regional banks, though the CBO report also found it stands an even chance of easing capital requirements for JPMorgan Chase and Citigroup. In January, National Economic Council Director Gary Cohn said the measure would “change the regulatory environment for the vast, vast majority of banks in the United States.”
Also Monday, Federal Reserve Vice Chairman Randal Quarles, the central bank’s regulatory chief, said regulators are working swiftly to trim the Volcker Rule. That Dodd-Frank provision, a bête noire of the big banks, bans firms from making certain kinds of risky investments for their own gain.
Quarles, a Trump appointee, said the Fed and four other agencies with jurisdiction over the rule will “proceed with dispatch” in reworking it. As it stands, it’s too complex, he said. “As a result, banks spend far too much time and energy contemplating whether particular transactions or positions are consistent with the Volcker Rule,” he said at the International Institute of Bankers conference in Washington.
But if Trump’s regime is a well-oiled machine making steady progress for Wall Street, the president himself looks like a frustrated pilot lashing out at the controls.
Congressional Republicans pushed back on Trump's plans to impose global tariffs on steel and aluminun exports. GOP leaders who have hewed ever closer to Trump in recent months broke sharply, calling out his tariff push as economically dangerous. But the president remains undeterred, telling reporters, “We’re not backing down.”
Investors are skeptical enough of the president’s follow-through that the Dow Jones industrial average added more than 300 points yesterday. Hedge fund billionaire Ray Dalio called Trump’s saber rattling a “political show.”
But Wall Street lobbyists are still sweating the specter of a trade war. The industry scored a major win in November when the Chinese government announced it would remove limits on foreign banks owning majority stakes in their local ventures. The worry is the Chinese could yank back that concession if trade tensions continue to flare. Similarly, the industry harbors aspirations for expanding its reach in a post-Brexit United Kingdom. But those rest on the prospects of a bilateral trade agreement that could be imperiled if Trump includes the country in his crackdow.
Cohn, the former Goldman Sachs president and avatar of Wall Street’s ambitions for the Trump era, is making a last stand against the tariffs later this week, Bloomberg reports. The avid free-trader is arranging for the president to meet Thursday with “representatives of breweries, beverage-can manufacturers and automakers, along with the oil industry,” before Trump makes a final call on the matter, potentially by the end of the week. “This decision is viewed inside the White House as a possible breaking point for Cohn… and some insiders believe he will depart if Trump doesn’t take his advice on the issue.”
He can point to wins in the pipeline. But as the Wall Street saw goes, you’re only as good as your last trade.
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— Tester warns. Bloomberg's Elizabeth Dexheimer: "Citigroup Inc. and JPMorgan Chase & Co. won’t be getting any gifts from lawmakers in a bill overhauling financial rules that is headed for a Senate floor vote this week if Senator Jon Tester gets his way. Tester, one of the roughly 12 Democrats who supports the legislation, dismissed the idea of changing a provision in it that is meant to help custody banks such as Bank of New York Mellon and State Street Corp. Giving more banks relief from post-crisis capital rules would probably upend the bipartisanship that has gotten the bill this close to passing the Senate, he said in an interview Monday on Capitol Hill. 'What we’ve got right now is pretty tightly negotiated,' Montana’s Tester said. 'I think we run the chance of dumping the bill if we start making any kind of changes that are pretty significant.'"
Midsize banks endorse. American Banker's Ian McKendry: "Thirteen midsize banks sent a letter to the Senate Banking Committee on Monday supporting a regulatory relief bill that is likely to be voted on later this week. 'This bipartisan legislation is a common-sense approach that maintains regulatory authority but makes reasonable changes that allow traditional lenders to better meet the credit needs of the people and businesses in our rural and urban markets,' said the letter to Banking Committee Chairman Mike Crapo, R-Idaho, and Sen. Sherrod Brown, D-Ohio, the panel's ranking member." (So does the Koch-backed Americans for Prosperity — see their letter to Crapo here.)
Good for bank stocks. Evercore ISI's Terry Haines, in a note to clients: "We expect the bill to be approved by the Senate by the end of this week and think a virtually identical bill is 80 per cent likely to become law by June. This action is broadly market positive for financials because sector investors react positively to deregulatory headlines regardless of actual sectoral impact. On policy, the Senate legislation is not major structural deregulation that markets want and may still expect: it is mostly small bank relief and does not attempt to gut Dodd-Frank in any fundamental way."
— Cochran to resign. The Post's Sean Sullivan and Paul Kane: "Sen. Thad Cochran (R-Miss.) will resign from the Senate on April 1, he announced Monday, ending a four-decade congressional career and triggering a fall election that could carve new divisions in the Republican Party and put the GOP Senate majority at greater risk. Cochran, 80, has been suffering from health problems in recent months. He missed several weeks in the Senate last fall while recuperating from a urinary tract infection. He has appeared frail since his return and has been keeping a low public profile."
— GOP fights back. The Post's David Lynch and co.: Republican congressional leaders stepped up their efforts Monday to stop President Trump from implementing global tariffs on steel and aluminum imports, warning that the protectionist move would damage the economy and muddle the party’s message in the run-up to November’s midterm elections... 'We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,' said AshLee Strong, a spokeswoman for House Speaker Paul D. Ryan (R-Wis.). Members of the House Ways and Means Committee circulated a letter urging the president to narrow the tariffs’ focus, while high-ranking Senate Republicans voiced their own opposition. Sen. Orrin G. Hatch (R-Utah), chairman of the Senate Finance Committee, predicted that the president ultimately will scrap the trade levies. 'I think it would be a tragedy if they continue on the course that was announced,' said Hatch, who blamed White House trade adviser Peter Navarro for steering the president toward protectionist policies."
Cornyn seeks hearings. Reuters: "Noting that Trump was 'pretty determined' to finalize the tariffs, [Sen. John] Cornyn [R-Tex.] said he would meet later on Monday with Senate Finance Committee Chairman Orrin Hatch to discuss the possibility of setting up a hearing. 'I do think it would be appropriate for Congress to have hearings and listen to the experts and become a little bit better informed about this,' Cornyn said, adding: 'Clearly the president is listening to some people who have some ideas about trade that many of us don’t share.'”
Political timing? Reuters's David Morgan and Roberta Rampton: "Some Republican strategists said Trump’s tariff threat appeared to be timed, at least in part, to sway voters in the steel country of Pennsylvania, including its 18th District where Republican Rick Saccone and Democrat Conor Lamb are facing off. In a special election on March 13, the two will vie to replace Republican Tim Murphy, who resigned in October in a sex scandal. If Saccone loses, it would be a blow to Trump, the first loss by Republicans of a seat in the House of Representatives since he took office in January 2017. The results will not affect Republican control of the chamber."
Defense industry objects. The Post's Aaron Gregg and Christian Davenport: "A growing chorus from the defense industry has come out against the move. In an interview on CNBC Friday, the head of one of the largest industry associations said the tariffs have the potential to increase costs for the military and hurt U.S. exporters. 'This is going to impact companies big and small in the aerospace and defense world [and] more importantly we’re worried about retaliation,' said Eric Fanning, chief executive of the Aerospace Industries Association, which represents more than 300 aerospace and defense manufacturers and suppliers."
So does a big donor. NBC's Jonathan Allen: "A major Republican donor and businessman asked... Trump in a letter Monday to reconsider his decision to impose costly tariffs on steel and aluminum imports. 'While I am a strong supporter of your administration's pro-growth policies and energy dominance agenda, imposing broad tariffs on steel risks unintended consequences that could jeopardize America's resurgent oil and natural gas industry,' Dan Eberhart, CEO of Canary, an oilfield services company, wrote in the letter."
EU's retaliatory hit list: bourbon, Harleys and Levi's. Bloomberg's Viktoria Dendrinou and Jonthan Stearns: "The European Union is preparing punitive tariffs on iconic U.S. brands produced in key Republican constituencies, raising political pressure on... Trump to ditch his plans for taxing steel and aluminum imports. Targeting 2.8 billion euros ($3.5 billion) of American goods, the EU aims to apply a 25 percent tit-for-tat levy on a range of consumer, agricultural and steel products imported from the U.S. if Trump follows through on his tariff threat, according to a list drawn up by the European Commission and obtained by Bloomberg News. The list of targeted U.S. goods -- including motorcycles, jeans and bourbon whiskey -- sends a political message to Washington about the potential domestic economic costs of making good on the president’s threat.
Paul Ryan, Republican speaker of the House of Representatives, comes from the same state -- Wisconsin -- where motorbike maker Harley-Davidson Inc. is based... Other U.S. officials will also feel the pressure. Bourbon whiskey hails from Senate Majority Leader Mitch McConnell’s home state of Kentucky. San Francisco-based jeans maker Levi Strauss is headquartered in House Minority Leader Nancy Pelosi’s district."
Ottawa on line one. Reuters: "Canadian Prime Minister Justin Trudeau called U.S. President Donald Trump on Monday about proposed steel and aluminum tariffs and 'forcefully defended' Canadian workers and the industry, a government official said. The official, who spoke on the condition they not be named, said the two leaders had a constructive conversation."
Maybe Trump's all bark. Reuters's David Chance: "From Bush-era steel duties to the European Union’s “bra wars” skirmish with China, global trade wars have often threatened but never quite gotten off the ground and... Trump’s planned steel and aluminum tariffs will likely play out the same way. The steel tariffs were ruled illegal by the World Trade Organization in 2003 and the 2005 spat over Chinese brassiere exports, dubbed a 'storm in a D-Cup' by Britain’s media, was resolved in emergency talks between Brussels and Beijing. That is a pattern that could be repeated now, economists say. While Trump has talked tough on trade since taking office in January 2017, he has little to show so far from his aggressive rhetoric."
— NAFTA could split. Politico's Adam Behsudi: "U.S. Trade Representative Robert Lighthizer warned that the United States is prepared to break up NAFTA into separate agreements with Canada and Mexico if it can't make headway on its priorities in the renegotiation. 'We would prefer a three-way, tripartite agreement. If that proves impossible, we are prepared to move on a bilateral basis if agreement can be made,' Lighthizer said at the close of the seventh round of talks Monday in Mexico City... Lighthizer complained of the slow progress in the talks, as he did at the conclusion of the previous round."
Countdown. CNN Money's Patrick Gillespie: "Trump's top trade negotiator sent Mexico and Canada another warning on Monday: We're running out of time... He said the United States is prepared to walk away from the three-way negotiation and seek separate deals with Mexico or Canada. Everyone better act fast, he warned. 'Now our time is running very short,' Lighthizer said at a press conference."
Car trouble. Bloomberg's Josh Wingrove and co.: "Lighthizer says he’s working with the auto sector to try and find a breakthrough on automotive rules of origin, one of the biggest sticking points in Nafta negotiations... 'It’s clear that autos are a huge part of the problem and you have to rebalance in that area, and we’re trying to do that in a sensible way,' that works for companies and all three countries, Lighthizer said."
— Stubborn loophole. Bloomberg's Miles Weiss: "Treasury Secretary Steven Mnuchin’s plan to fix a gaping loophole for hedge funds in President Donald Trump’s new tax law could face legal challenges. Tax experts say a notice from Treasury and the Internal Revenue Service issued Thursday fails to give the legal basis for their power to close the loophole. Congress would need to amend the statute, accountants and lawyers said, and Treasury’s attempt to do so through regulation sets the stage for a court battle by one or more hedge-fund titans with a lot of money at stake."
— The full Nunberg. The Post's Josh Dawsey and Philip Rucker: "Former Trump campaign aide Sam Nunberg publicly defied the Justice Department special counsel on Monday, announcing in an extraordinary series of media interviews that he had been subpoenaed to appear in front of a federal grand jury investigating Russia’s interference in the 2016 presidential election but that he will refuse to go. 'Let him arrest me,' Nunberg told The Washington Post in his first stop on a media blitz, saying he does not plan to comply with a subpoena from special counsel Robert S. Mueller III to hand over emails and other documents related to President Trump and nine current and former Trump advisers.
'Mr. Mueller should understand I am not going in on Friday' to the grand jury, he added. It is unclear what actions Mueller might take if Nunberg does not appear. In a remarkable act of rebellion, Nunberg seized the national media spotlight for much of Monday afternoon to denounce Mueller’s investigation as a “witch hunt” and to detail what he said he had learned about the probe from his private interview last month with Mueller’s team." He at times sounded nervous and self-doubting, openly questioning his legal fate. And by Monday evening, he signaled a possible shift, telling the Associated Press he might cooperate with Mueller after all."
— Qualcomm interrupted. WSJ's Kate O’Keeffe and co.: "The U.S. government inserted itself into the technology industry’s biggest potential takeover, postponing a key shareholder vote on grounds that the deal could endanger the country’s technological prowess and, in turn, national security. The Committee on Foreign Investment in the U.S., an interagency group chaired by the Treasury Department that can recommend the president block deals, ordered Qualcomm Inc. to delay its annual shareholder meeting by 30 days to give CFIUS time to review Singapore-based rival Broadcom Ltd.’s proposed $117 billion takeover of the chip maker. Qualcomm has rejected Broadcom’s advances, consistently flagging a national-security review as a potential stumbling block to a deal. The company in January requested CFIUS review Broadcom’s bid."
CFIUS rises. "It appears to be the first time the committee has intervened on a deal before it has been finalized, a signal that Cfius may play a more prominent role in the Trump administration’s America First policymaking," NYT's Kevin Granville writes. "Cfius 'is the No. 1 weapon in the Trump administration’s protectionist arsenal, the ultimate regulatory bazooka,' said Hernan Cristerna, co-head of global mergers and acquisitions at JPMorgan Chase."
From Dan Primack of Axios:
Broadcom's move raises an interesting question: Does CFIUS have jurisdiction if a buyer is currently foreign, but will be U.S.-based when deal closes?— Dan Primack (@danprimack) March 5, 2018
— Hailing a Fed meeting. Politico's Victoria Guida: "Contact between the Federal Reserve Bank of New York and six of the largest U.S. banks seems to increase around the Fed’s key interest-rate-setting meetings, according to a new academic study that raises questions about whether this could give top Wall Street institutions an unfair competitive edge. The study, from the University of Chicago’s Booth School of Business, examines granular data on cab rides released by New York’s taxi regulator. It singles out lunchtime trips between the New York Fed and the major offices of six banks: Goldman Sachs, Citigroup, JPMorgan Chase, Morgan Stanley, Bank of New York Mellon and Bank of America... 'I cannot conclusively demonstrate a link between rides and face-to-face meetings, but evidence that individuals are in very close proximity to each other more often around FOMC meetings would complement more indirect evidence of regular informal communication,' the study says."
— HQ2 to DC? The Post's Jonathan O'Connell: "Officials from Amazon.com toured sites in Washington, Montgomery County, Md., and Northern Virginia last week — the latest sign that the tech giant is seriously considering adding a second headquarters with as many as 50,000 jobs to the D.C. area, according to officials in all three jurisdictions. There are at least nine sites in the D.C. area proposed for the tech giant’s expansion, dubbed HQ2. Officials from the firm toured sites in Northern Virginia early in the week, Washington, in the middle and Montgomery County at the end, according to the officials, some of whom spoke on the condition of anonymity because they had signed agreements not to disclose company information."
— Bloomberg News's Elise Young and Demetrios Pogkas report on how President Trump's Hudson Tunnel feud threatens the national economy. And check out the graphics shared on Twitter by Bloomberg's Tim O'Brien and David Levitt:
President Trump’s opposition to building a new rail tunnel linking New York and New Jersey overlooks the fact that that the existing tunnel predates World War I and is key to 20% percent of the nation’s GDP https://t.co/oEgh5K1nV7 pic.twitter.com/gI2ECej9Lf— Tim O'Brien (@TimOBrien) March 5, 2018
- The House Appropriations Subcommittee on Financial Services and General Government holds a hearing with Treasury Secretary Steven Mnuchin.
- The House Appropriations Subcommittee on Labor, Health and Human Services, Education, and Related Agencies holds a hearing with Labor Secretary Alexander Acosta.
- The House Financial Services Subcommittee on Financial Institutions and Consumer Credit holds a hearing on data security on Wednesday.
- The House Financial Services Subcommittee on Housing and Insurance holds a hearing on the State Insurance Regulation Preservation Act on Wednesday.
- The House Appropriations Subcommittee on Agriculture, Rural Development, Food and Drug Administration, and Related Agencies holds a hearing with Commodity Futures Trading Commission’s J. Christopher Giancarlo on Wednesday.
- Wilson Center holds an event on TPP on Wednesday.
- Politico holds an event on the Future of Prosperity on Thursday.
- SEC Investor Advisory Committee holds its quarterly meeting on Thursday.
From The Post's Tom Toles:
Fact-checking Trump's tough trade talk:
French President Emmanuel Macron urged the European Union to take strong steps against U.S. imports if President Trump goes through with tariffs on foreign steel:
Trevor Noah says President Trump doesn't think twice about his looming trade war: