THE TICKER

Banks aren’t the only ones newly flush these days. They secured a big win Tuesday on Capitol Hill as the House approved a rollback of banking regulations, sending it to President Trump’s desk. 

The industry — which raked in a record $56 billion in profits during the first quarter of the year, up more than 27 percent from last year, the FDIC reported Tuesday — is sharing the wealth with Senate Democrats who lent crucial support to the package. 

Specifically, three of the four top recipients of campaign cash from commercial banks this election cycle are Democrats on the Senate Banking Committee who worked with Republicans to forge the Dodd-Frank compromise. The three — Joe Donnelly (Ind.), Heidi Heitkamp (N.D.), and Jon Tester (Mont.) — are all facing potentially tough reelection fights in the fall. 

Through the first quarter of this year, bank employees and political action committees have handed those senators between $140,000 and $181,000 each, according to figures from the Center for Responsive Politics. That’s more than twice as much as the senators together collected from the same sources over the same period in the past election cycle (when they weren't up for reelection).

More to the point, each has also collected about twice as much this cycle from those sources as Sen. Sherrod Brown (D-Ohio), the top Democrat on the Banking Committee, who is also running for reelection in a state Trump carried. But Brown has been an outspoken critic of the industry. When his talks with Banking Chair Mike Crapo (R-Idaho) on a regulatory relief measure broke down last fall, Crapo turned to Donnelly, Heitkamp and Tester, along with Sen. Mark R. Warner (D-Va.). 

At a minimum, the lopsided giving points to a schism in the party over how to approach the industry. The package could not have passed without the support of more moderate Democrats — first the four on the committee that helped write it, then 17 in the Senate who got it past the chamber’s 60-vote threshold. In the House on Tuesday, 33 Democrats crossed party lines to back it. Supporters from both parties frame the measure as a set of tweaks to free up lending by regional and community banks. Liberal Democrats called it a reckless giveaway to some of the same firms that precipitated an economic crisis less than a decade ago.  

Aides to the three Senate Democrats receiving the most from the sector say they draw a line between Wall Street banks and more mom-and-pop outfits in their home states. “Jon has received more than 12 times the amount of money from Montanans than what he's received from commercial banks,” Tester campaign communications director Chris Meagher said in an emailed statement, adding there is “little question he's held Wall Street accountable.” 

Donnelly communications director Sarah Rothschild noted the Indiana Democrat has been working on the issue “since he began serving in the Senate in 2013, and for him this always has been about needed regulatory relief for Indiana’s 154 credit unions and 103 main street community banks that have been inadvertently burdened by rules and regulations intended to hold Wall Street accountable.” A Heitkamp representative similarly noted the senator has been “working to provide targeted relief for small community banks, mid-sized banks, and credit unions across North Dakota and rural America” since joining the Senate five years ago.

While the measure inflamed the left, it also left some on the right frustrated it didn’t go further. House Financial Services Committee Chairman Jeb Hensarling (R-Tex.), who advocated a more wholesale gutting of the post-crisis regulatory regime, held up the package for weeks as he sought to broaden its scope.

“The bill leaves major pieces of post-financial crisis rules in place, and it does not touch the Consumer Financial Protection Bureau, a watchdog agency created after the financial crisis,” my colleagues Erica Werner and Renae Merle write. “Former House Representative Barney Frank (D-Mass.), one of the 2010 measure’s authors, said that, although he would have voted ‘no’ on the new plan, it does not undo the rules he helped pass. ‘This is not a 'big number’ on the bill,” Frank said in an interview. ‘It’s a small number.' ”

Capital Alpha’s Ian Katz seconded that view in a Tuesday note. “We think the bill is positive for the small and mid-sized banks,” he wrote. “It does almost nothing for the giant firms.”

That said, the measure relaxes oversight for about two dozen firms with between $50 billion and $250 billion in assets, including SunTrust and American Express. And it exempts those with less than $10 billion from the Volcker Rule, which bars banks from making some risky bets with their own money. Pressure from an array of those firms helped dislodge the measure in the House. “This is what PACs are for,” one banking lobbyist says. “They say, ‘We’re with you; we support you.’ And they’re saying it more loudly now for these senators because they went out there and did something big. They delivered.”

MARKET MOVERS

Stocks slip. Reuters's Caroline Valetkevitch: "U.S. stocks ended lower on Tuesday, weighed down by lingering uncertainty over the outcome of trade talks between the United States and China and declines in energy and industrial shares... Trump on Tuesday said he was not pleased with recent trade talks between the United States and China and earlier said there was no deal yet with China on ZTE Corp... Trump also said there was a “substantial chance” his summit with North Korean leader Kim Jong Un will not take place as planned on June 12... The industrial sector .SPLRCI dipped 1.3 percent, a day after posting its best percentage gain in nearly two months on the trade truce, while the energy index .SPNY also fell 1.3 percent."

Trucking signals inflation. CNBC's Jeff Cox: "Investors and policymakers have gone looking for inflation over the past decade and largely have come up empty. It could, however, come barreling at them soon like an 18-wheeler. Multiple signs of inflation in freight-related industries are at or near historical highs, in what could be an early sign that price pressures are building and ready to reverberate around the economy... Recent readings show demand for vehicles skyrocketing, a sign that generally points to inflationary pressures building up in the supply chain."

Fed minutes out this afternoon could offer inflation insight. "Divisions among Federal Reserve officials over the yield curve and inflation will be under scrutiny on Wednesday when the U.S. central bank releases minutes of its policy meeting at the start of the month," per Bloomberg's Christopher Condon. "While the Federal Open Market Committee left interest rates unchanged at the May 1-2 session, new information on how officials discussed those topics could help analysts gauge how many additional hikes are likely this year. The Fed lifted its benchmark rate in March and another move is widely expected in June. Odds are currently about split between the probabilities for three and four increases over the year as a whole, according to pricing of federal funds futures contracts."

TRUMP TRACKER

Trump acknowledges NK summit could fall through. The Post's David Nakamura and co.: "Trump acknowledged Tuesday that there is a “substantial chance” a scheduled summit with Kim Jong Un could be canceled, as top aides prepared to travel to Singapore for a crucial planning meeting this weekend with North Korean officials. Their trip comes less than two weeks after a North Korean delegation failed to show up for a similar planning meeting with U.S. officials in the island country, a failure that raised red flags at the White House, according to people familiar with the situation."

Navarro clashes with State over airline deal. AP's Josh Lederman: "After striking a delicate deal with the United Arab Emirates this month on rules for airline competition, the Trump administration went to war with itself. It’s a story of how a wonky aviation pact became a bitter, lobbyist-fueled international incident when Peter Navarro, ...Trump’s trade adviser, repeatedly contradicted the State Department’s carefully crafted script about what the agreement actually said. The Emiratis complained to the administration... 

"In the airlines dispute, the most explosive issue was so-called Fifth Freedom flights, by which Emirati airlines fly directly from the United States to places like Europe, never stopping in the UAE. The major U.S. airlines loathe such flights, which compete with their own lucrative routes. Navarro has insisted that the deal includes a 'freeze' in such flights. The State Department, which overseas international civil aviation agreements, insists it does not. From the start, Navarro sought to exert influence over the negotiations, pushing for stricter limitations on Persian Gulf airlines."

TRADE FLY-AROUND: 

Lawmakers unite against ZTE deal. Politico's Adam Behsudi: "Members of both parties on Tuesday stepped up their battle against a potential move by Trump to ease sanctions on Chinese telecommunications giant ZTE in a bid to strike a broader deal with Beijing on trade... The latest response came from the Senate Banking Committee, which approved an amendment that would bar the president from modifying any civil penalties against 'Chinese telecommunications companies' unless he could certify that the company has not violated U.S. law in the past year and is fully cooperating with an investigation... The provision was approved by a panel vote of 23-2 as an amendment to a larger bill that would overhaul the process the U.S. government‘s process for scrutinizing the national security risks of foreign investments under the Committee on Foreign Investment in the United States."

Steel, aluminum tariffs against China still on. Politico's Doug Palmer: "The Trump administration won't lift new tariffs on steel and aluminum from China as part of a deal aimed at reducing the huge trade deficit with that country and addressing U.S. concerns about intellectual property theft, Treasury Secretary Steven Mnuchin told lawmakers on Tuesday. 'As it relates to China, the steel and aluminum tariffs will remain in force. Those were not part of our discussions,' Mnuchin said before the Senate Appropriations Financial Services Subcommittee. The news should please steel producers and workers who support the increased protection. But it won't help U.S. farmers because China has vowed retaliatory tariffs on about $3 billion of their exports because of the duties."

WH drives hard bargain with EU. WSJ's Emre Peker: "Trump is weighing measures to cut European Union steel and aluminum exports to the U.S. by about 10%, in a sign the bloc’s concessions to secure tariff exemptions aren’t meeting White House demands, EU officials familiar with the talks said...  'We are under the impression that somehow they want to limit steel imports to the U.S.,' European Trade Commissioner Cecilia Malmstrom said of continuing negotiations with Washington before briefing EU governments. 'Aluminum as well,' she said, without providing details. The EU is still trying to figure out precisely what Mr. Trump wants ahead of his June 1 deadline, when the bloc’s temporary exemptions will expire, European officials said. Quotas are one idea floated by U.S. negotiators, but their scope and details aren’t yet clear, EU officials said."

NAFTA talks stall. WSJ's Robbie Whelan: "Talks to renegotiate the North American Free Trade Agreement have reached a stalemate, with Mexico and the U.S. accusing one another of intransigence and inconsistency after missing a key deadline. The most troublesome points remain the rules governing auto production and the so-called America First provisions that President Donald Trump wants in any new deal, in a bid to bring manufacturing jobs back to the U.S. These include removing the international arbitration panels that currently resolve commercial disputes and creating a sunset clause that would terminate the deal every five years. Both Mexico and Canada have described those measures as unacceptable."

MELTDOWN WATCH: 

Cohen's partner agrees to plea deal. NYT's Danny Hakim, William Rashbaum, and Vivian Wang: "A significant business partner of Michael D. Cohen, ... Trump’s personal lawyer, has agreed to cooperate with the government as a potential witness, a development that could be used as leverage to pressure Mr. Cohen to work with the special counsel examining Russian interference in the 2016 presidential election. Under the deal reached with the New York attorney general’s office, the partner, Evgeny A. Freidman, a Russian immigrant who is known as the Taxi King, specifically agreed to assist government prosecutors in state or federal investigations, according to a person briefed on the matter."

Mnuchin: Treasury investigating leak of Cohen records. Bloomberg: "Treasury Secretary Steven Mnuchin said that banking records of... Trump's lawyer Michael Cohen appear to have been leaked from a database maintained by his department. 'Our inspector general is reviewing the issue of leaks. There is the appearance that some of the information may have gone out,' Mnuchin told the House Appropriations Committee on Tuesday. 'There is no excuse whatsoever for anybody who has access to these important systems to release information on an unauthorized basis.'”

Treasury Secretary Steven Mnuchin said the "United States will not tolerate Iranian support for Houthi rebels who are attacking our close partner, Saudi Arabia."
Politico
A former top energy and environment adviser to President Trump is leading an industry-backed effort to crack down on corporate shareholders’ resolutions on hot-button controversies like climate change.
The Hill
MONEY ON THE HILL

CFIUS bills advance. Reuters's Diane Bartz: "Committees in the U.S. Senate and the House of Representatives voted on Tuesday to approve bills aimed at tightening oversight of foreign investment to slow China’s acquisition of sensitive U.S. technology. The Senate Banking Committee and the House Financial Services Committee approved laws that would strengthen the Committee on Foreign Investment in the United States (CFIUS), which reviews potential foreign investment to ensure it does not compromise national security... Congress is considering the bills to address Defense Department concerns that U.S. soldiers could some day face on a battlefield U.S. technology like robotics or drones that was acquired by foreign adversaries."

Ryan is losing his grip on the House. The Post's Mike DeBonis: "Speaker Paul D. Ryan is losing his grip on the feuding House Republican conference just months before pivotal midterm elections, caught between dueling factions vying for power inside the party and facing scattered calls for his departure ahead of a planned year-end retirement. The unrest comes in the wake of a humiliating defeat for Ryan and other GOP leaders last week, when conservatives sank a farm bill amid a broader dispute over immigration policy, and threatens to spark months of bitter infighting as Republican lawmakers try to make the case that they should be returned to power in Washington. But there is no clear way out for the party. Numerous aides and lawmakers said Tuesday there is not a viable alternative to Ryan who can win enough support within the GOP for a clean transition before November — and there is little stomach at the moment for the messy battle that would ensue when Ryan departs."

POCKET CHANGE

Morgan Stanley eyes $1 trillion in asset management. Bloomberg's Ben Bain and Sonali Basak: "James Gorman would like his asset management division to join the $1 trillion club. Morgan Stanley’s chief executive officer said he wants the unit to hit that level of client assets, in response to a question about his view on the next five to seven years at a conference hosted by the Investment Company Institute in Washington. The unit -- the smallest of the bank’s three major divisions -- had $469 billion in assets at the end of March. The asset-management industry has seen a wave of mergers as investors’ shift to passive strategies has put pressure on firms to increase scale and cut costs. Morgan Stanley’s business is smaller than those at rivals Goldman Sachs Group Inc. and JPMorgan Chase & Co., which both have more than $1 trillion, leading some analysts to question whether the firm should make an acquisition."

Has Spotify changed the IPO game? CNBC's Bob Pisani: "When Spotify went public April 3, it attracted a lot of interest, and not just because the company was well known to the public. Instead of hiring underwriters to sell new shares to the public, Spotify went public on the NYSE in what is called a 'direct listing.' ... By almost any standard, the IPO has been a success: After opening at $165.90 on April 3 (above the 'reference price' of $132 provided by Morgan Stanley), the stock has traded in a fairly narrow range. The fear that sellers would come out in droves and dump their shares has not materialized, as volume has not been particularly heavy... Is this a successful model for other unicorns on the 2018 CNBC Disruptor 50 list announced Tuesday, like Uber and Airbnb or smaller companies? Perhaps, but only for companies that have a particular set of needs."

Lobbyists cash in on crypto. Politico's Patrick Temple-West and Colin Wilhelm: "Bitcoin may end up being a bubble, but cryptocurrencies are fueling real revenue for Washington lobbyists. As digital currencies face a growing threat of government regulation, companies and trade associations are increasingly enlisting help from K Street. For the first time in their lobbying disclosures, three big trade groups have listed cryptocurrency as an issue: the Association of National Advertisers, the Investment Company Institute and the National Venture Capital Association.  In an April 20 disclosure, financial services giant Fidelity said it is lobbying on Bitcoin and digital assets... The lobbying comes as the SEC and CFTC are weighing regulations for digital currencies. The CFTC on Monday published new guidance on virtual currency derivatives this week."

Many U.S. households remain in a precarious financial position despite unemployment falling to the lowest level in years, a new Federal Reserve survey shows.
Bloomberg
The Switch
Amazon has been providing facial recognition tools to law enforcement agencies in Oregon and Orlando for only a few dollars a month, paving the way for a rollout of technology that is causing concern among civil rights groups.
Elizabeth Dwoskin
DAYBOOK

Today

  • The Senate Budget Committee holds a hearing on the Government Accountability Office’s annual report.
  • The House Education and Workforce Subcommittee on Workforce Protections holds a hearing on “Regulatory Reform: Unleashing Economic Opportunity for Workers and Employers."

Coming Up

  • The Peterson Institute for International Economics holds a webcast on “What We Can Do to Make Open Economies Inclusive” on May 30.
  • The American Enterprise Institute holds a conversation with former Federal Reserve chairman Ben S. Bernanke on June 7.
THE FUNNIES

From the New Yorker: 

A cartoon by @larskenseth. #TNYcartoons

A post shared by The New Yorker Cartoons (@newyorkercartoons) on

BULL SESSION

Democrats hammer President Trump over ZTE reversal:

Treasury Secretary Steve Mnuchin said the department's inspector general is looking into the “appearance” of leaks related to Michael Cohen’s banking records:

From the Fact Checker: Has the administration obtained $2 billion for school safety?