THE TICKER

Big banks’ slow-motion march on Washington took another big step forward Wednesday as federal regulators moved to ease their burden under the Volcker Rule, that post-crisis bane of Wall Street. 

The development buoyed financial services interests that have been lobbying to scrap the rule since it was adopted five years ago. But it doesn’t amount to the wholesale gutting they have pressed for — and that defenders of the rule have feared. 

The changes — which won unanimous approval from the Federal Reserve — would give the biggest financial firms leeway to resume certain trades. The rule bars commercial banks from placing risky bets with their own and their depositors’ money, a prohibition the Fed says it intends to preserve. But the revamp shifts the burden from bankers, who have been required to demonstrate short-term trades don’t violate the ban, to regulators to prove an infraction. (Read the proposal here.)

“The proposal still must be approved by four other banking regulators, but the Fed’s vote is a major step and brings Wall Street closer to securing one of its biggest victories yet under the Trump administration, which has made deregulation a top priority,” my colleague Renae Merle notes. “Already, Congress has blocked federal rules that would have made it easier for consumers to sue their banks and rescinded a five-year-old Obama-era policy warning auto lenders against allowing minority borrowers to be charged more than their white peers.”

Like most matters of financial regulation, the Volcker changes present as something of a Rorschach test. Consumer advocates and those Democrats who chose to weigh in called the rollback a needless giveaway to banks bulging with profits that will invite the return of the sort of reckless behavior that precipitated the crisis in the first place. Sen. Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee, said the proposal “creates more risk in the financial system … This administration is determined to protect big banks instead of protecting consumers or taxpayers from another financial crisis.”

Sen. Elizabeth Warren (D-Mass.) likewise linked the deregulation to broader “corruption” she framed as a Trump-era hallmark: 

By contrast, unsurprisingly, industry groups cheered the changes as reducing overly burdensome and arbitrary compliance rules. “Greater efficiency would allow our member institutions to comply with the intent of the legislation while allowing them to meet the needs of their clients and to focus more on other core business functions and strengthened risk management, which would support overall safety and soundness,” Financial Services Forum CEO Kevin Fromer said in a statement. His group represents chief executives of the top Wall Street firms. 

Notably, some regulators who have advocated a tougher approach to the industry offered qualified support for the changes. Former Federal Reserve chairman Paul Volcker himself said he welcomed the effort to streamline his namesake regulation, with the caveat that the changes don’t undermine its founding purpose: 

Fed governor Lael Brainard, an Obama-era appointee, said she supports the proposal because “it is crafted to implement the core purpose of the Volcker Rule in a more efficient way.” But she added an asterisk, noting that a requirement for CEOs to certify compliance “is critical for this to work.” And Martin Gruenberg, another Obama-era holdover and the outgoing chairman of the Federal Deposit Insurance Corp., is expected to back the changes when the agency takes up the proposal today. 

Those endorsements should come as no big surprise. Last year, then-Fed governor Daniel Tarullo, the prime architect of the post-crisis regulatory regime, said in a valedictory speech that rather than holy writ, the rule may have been a mistake. Years of experience convinced him it was “too complicated” and ate up “too many supervisory, as well as bank, resources,” he said. 

The proposal is a big deal “insomuch as it clarifies some very difficult provisions of the rule that made it tough for banks to understand whether they were in bounds or out of bounds,” says Michael Alix, a former senior vice president at the New York Fed now with PwC. “But we won’t see a return to prop desks making big bucks on the Street.”

Volcker 2.0, as its been dubbed, “is not expected to be a home run” for the big banks, Barclays analyst Jason Goldberg wrote in a note this week, “but potentially a solid single” — or a double.

PROGRAMMING NOTE: With Congress at home, The Finance 202 won't publish tomorrow. Enjoy the weekend, and see you back here Monday. 

TRUMP TRACKER

TRADE FLY-AROUND:

WH prepares to impose metal tariffs on allies. The Post's David Lynch and Damian Paletta: "President Trump plans to announce as soon as Thursday the imposition of sweeping tariffs on steel and aluminum imports from Canada, Mexico and the European Union, three people familiar with the plan said. Frustrated over the failure of those U.S. trading partners to agree to a range of demands, the president chose to sharply escalate his global trade war rather than grant further tariff waivers. The import taxes could take effect as soon as Friday. The move is likely to have an immediate impact on global trade in steel and aluminum, particularly between the United States and Canada, the nation’s largest source of imported steel. The decision also invites retaliation from each of the trading partners, which have vowed to erect new barriers to a range of U.S. products." Of course, nothing is done until it's actually done when it comes to the Trump administration ...

Ross to Europe: Let's talk. FT's Anne-Sylvaine Chassany, Jim Brunsden and Shawn Donnan: “The US commerce secretary has rebuffed Europe’s demands for a permanent exemption from new metals tariffs, calling on the EU to follow China’s example in the latest sign of Washington’s willingness to upset long-term alliances  ... 'There can be negotiations with or without tariffs, it’s not that you can’t talk with tariffs,' [Wilbur] Ross said. 'China is an interesting case in point. They are paying the tariffs, they came into effect in March and they haven't used this as an excuse not to talk. It’s only the EU insisting we can’t negotiate if there are tariffs.'”

Europe to Washington: We will respond. Bloomberg News's Richard Bravo: “German Economy Minister Peter Altmaier, after meeting Ross on Wednesday, said he expects the talks will go right up until the June 1 deadline. 'Let’s see what happens,' Altmaier told reporters on the sidelines of an Organization for Economic Cooperation and Development conference in Paris. 'The European Union is strong enough that we can wait for any kind of decision and respond appropriately.'”

Canada also vows to fight. Reuters's David Ljunggren and Leah Schnurr: “Canada will 'respond appropriately' to any U.S. steel and aluminum tariffs, Foreign Minister Chrystia Freeland said on Wednesday, less than two days before the punitive measures are due to kick in ... 'The government is absolutely prepared to — and will defend — Canadian industries and Canadian jobs. We will respond appropriately,' Freeland told reporters when asked about possible U.S. action. Canadian government officials have said they are prepared to impose retaliatory tariffs should the Trump administration make a move but have not revealed what they have in mind. Trump says the steel and aluminum tariffs would be imposed for security reasons, which Freeland said was 'frankly absurd.'"

— China isn't happy, either. WSJ's Lingling Wei and Yoko Kubota: “The White House’s renewed trade offensive against China is putting this weekend’s planned settlement talks at risk, as well as fueling nationalistic calls for China to take a tougher stance against U.S. demands. A U.S. advance team landed in Beijing Wednesday to prepare for... Ross’s arrival Saturday... But they say the surprise U.S. decision a day earlier to move forward with tariffs against China — less than two weeks after both sides declared a truce — is casting doubt over whether those talks can advance to the next level ... If the two sides’ teams fail to agree on the issues to be discussed, Mr. Ross’s trip could be canceled ... If they succeed, however, the high-level talks would proceed as planned.”

Navarro contradicts Mnuchin on China. Bloomberg's Jenny Leonard and Rich Miller: “White House trade adviser Peter Navarro criticized Treasury Secretary Steven Mnuchin for declaring the U.S.-China trade war was on hold, calling the remarks an 'unfortunate sound bite' and acknowledging there’s a dispute that needs to be resolved. 'What we’re having with China is a trade dispute, plain and simple,' Navarro said in an interview broadcast Wednesday with NPR. 'We lost the trade war long ago' with deals such as NAFTA and China’s entry into the World Trade Organization, he said.”

— Trump's auto tariffs could be a job killer. The Hill's Niv Elis: “Trump's proposed tariffs on imported automobiles and parts would cost the U.S. economy 157,000 jobs, according to a report by the Trade Partnership, a trade policy consultancy. 'We find that the tariffs would have a very small positive impact on high-skilled workers in the motor vehicle and parts sectors, but very large negative impacts on workers — both high- and lower-skilled — in other sectors of the economy,' the study says. In all, the tariff policy would boost jobs in the auto sector by 92,000, but then destroy 250,000 jobs in the rest of the economy, according to the study. The price of foreign vehicles would rise from $30,000 to $36,400, a 21 percent increase. All in all, the economy would lose 0.1 percent of its value. Those effects don't take into account any potential retaliation by American trade partners for the tariffs.”

MELTDOWN WATCH:

— Trump is still really angry at Sessions. The Washington Post's Matt Zapotosky, Josh Dawsey and Robert Costa: “Trump said Wednesday that he wished he had picked someone other than Jeff Sessions to be attorney general, renewing a familiar line of attack against the top U.S. law enforcement official over his self-recusal from the investigation of Russian interference in the 2016 presidential campaign. In morning tweets, Trump quoted Rep. Trey Gowdy (R-S.C.), who during a television interview on CBS voiced sympathy for Trump’s dissatisfaction with Sessions. 'If I were the president and I picked someone to be the country’s chief law enforcement officer, and they told me later, “Oh by the way, I’m not going to be able to participate in the most important case in the office,” I would be frustrated too,' Gowdy said, according to Trump’s tweets. 'There are lots of really good lawyers in the country, he could have picked somebody else!' After that, Trump added, in his own voice: 'And I wish I did!'”

— Giuliani: Mueller shouldn't do like ComeyBloomberg's Shannon Pettypiece and Justin Sink: “Trump’s lawyer Rudy Giuliani said Special Counsel Robert Mueller should complete his investigation by September to avoid influencing midterm congressional elections, a mistake Giuliani says former FBI director James Comey made in handling the Hillary Clinton probe. 'If he doesn’t file his report by Sept. 1 or mid-September, he is clearly doing a Comey,' Giuliani told reporters at the White House Wednesday after attending a fitness event there. 'People should have an answer even if they put together whatever the heck they have.' He added that Mueller should meet the deadline regardless of whether Trump agrees to an interview with Mueller, who is investigating Russian meddling in the 2016 presidential election and whether anyone close to Trump colluded with the Russians.”

Trump's net worth slides. Bloomberg's Caleb Melby: "Trump’s net worth slipped to $2.8 billion, a decline of $100 million over the past year, as revenue at his namesake Fifth Avenue tower and golf courses fell. The drop, the second in two years... occurred as Trump began his second year in the White House and his name was stripped from buildings in Toronto, Manhattan and Panama. The most recent estimate, down from $2.9 billion last June, is the lowest since Bloomberg began tracking Trump’s wealth in 2015. The biggest declines, totaling $220 million, came from adjacent buildings in midtown Manhattan: 6 E. 57th St., which previously housed a Niketown store, and Trump Tower, where lower occupancy resulted in less income."

President Trump endorsed Rep. Dan Donovan, R-N.Y., citing Donovan's vote the tax cut bill signed by Trump at the end of last year as a reason. The problem: Donovan didn't vote for the tax bill.
USA Today

Here are the Trump tweets in question from last night:

MARKET MOVERS

Stocks rebound. CNBC’s Thomas Franck and Matt Clinch: “U.S. stocks rebounded Wednesday as financial stocks rebounded from steep losses in the prior session and Italian credit fears eased. The Dow Jones industrial average rose 306.33 points — or 1.26 percent — to close at 24,667.78. Boeing, Chevron and Home Depot led the blue-chip stocks higher. The S&P 500 added 1.27 percent to finish at 2,724.01 as a rise in U.S. interest rates ushered financial stocks higher and a rise in oil prices provided relief to a recently battered energy sector.”

… But the Italian crisis is far from over. The Post’s Michael Birnbaum: “European leaders thought they had broken free from doubts about the future of the European Union that plagued them after Britain voted to leave two years ago. Instead, a fast-moving political crisis in Italy this week has come as a gut punch, reviving fears of a fresh assault on unity. The worries came after Italian President Sergio Mattarella on Sunday blocked an academic who once called Italy’s adoption of the euro a “historic error” from becoming finance minister. That appeared to blow up a coalition deal between two populist parties that have been seeking to form a government since Italy’s March elections. Now, backlash to Mattarella’s move may deliver the opposite of what he intended when he said he was defending Europe and Italy’s constitution.”

Survey: 178k jobs added in May. AP's Christopher Rugaber: "U.S. businesses added 178,000 jobs in May, according to a survey, a solid total but below the average monthly gains accumulated over the winter. Payroll processor ADP said Wednesday that hiring was strong in construction, education and health care, and professional and business services, which includes accounting, engineering and legal services. Retailers cut jobs. The figures suggest companies continue to hire at a healthy pace but may be pulling back as the number of people who can’t find jobs dwindles, making it harder to find new employees. From November through March, monthly job gains averaged well over 200,000."

Manufacturing shifts into gear. WSJ's Sarah Chaney and Sharon Nunn: "Economic activity expanded at a moderate pace across most of the U.S. this spring, driven in part by a pickup in manufacturing activity despite trade tensions, according to a Federal Reserve report released Wednesday. Most of the Fed’s regional districts reported moderate economic growth in late April and early May, the Fed said in its latest roundup of anecdotal information about regional economic conditions known as the beige book. The Dallas district was an exception, reporting a solid pickup in economic activity. The report was based on information collected through May 21."

The underlying trend for profits, however, showed some signs of strain.
WSJ
POCKET CHANGE

Buffett can't hail Uber. Bloomberg’s Eric Newcomer and Olivia Zaleski: “Warren Buffett proposed investing $3 billion in Uber Technologies Inc. earlier this year, but the talks fell apart following disagreements over the terms and size of the deal… The now-dead Uber transaction is reminiscent of the winning bet Buffett’s Berkshire Hathaway Inc. made on Goldman Sachs Group Inc. during the financial crisis… Buffett would have effectively lent Uber his sterling reputation, along with some capital, in exchange for cushy deal terms."

Dick’s shares zoom. CNBC’s Angelica LaVito: “Dick's Sporting Goods shares gained nearly 26 percent Wednesday after it beat fiscal first-quarter expectations and hiked its full-year earnings forecast, easing concerns that restrictions it placed on gun purchases would hurt its sales… In February, Dick's stopped selling all assault-style rifles in its stores after the school shooting in Parkland, Florida, which killed 17 students and staff members. CEO Ed Stack told analysts in March that it was ‘too early to tell’ how the decision would affect the company's financial performance long term, but that it ‘wouldn't be positive from a traffic and sales standpoint.’"

Wells Fargo resists timetable. American Banker's Kevin Wack: "Wells Fargo is facing pressure from shareholders to provide more information about when its regulatory woes are likely to subside, but the embattled bank is refusing to play along. 'That whole "mission accomplished" thing has failed for other people before,' Wells Chief Financial Officer John Shrewsberry said Wednesday at an investor conference in response to a question about whether the bank would be willing to establish a timetable. 'I don’t think you’re going to hear those words. We’re just going to keep trying to get better all the time.'”

"I'm sorry" gets expensive. WSJ's Suzanne Vranica: "Brands such as Wells Fargo, Facebook, and Uber are spending millions of dollars on advertising campaigns to apologize for a range of corporate missteps and to win back consumers’ trust. The pitches blanketing media channels in recent weeks show how the latest wave of atonement tours has become more sophisticated, as customers themselves increasingly tap multiple forums to express their dissatisfaction with a brand... Many of the apology campaigns include digital, print, billboard and TV ads, with television commercials airing during expensive programming like the NBA playoffs and 'The Voice.' ... Today, companies are under pressure to launch more-elaborate campaigns, largely driven by the adoption of social media."

Toyota's Trump problem. WSJ's Sean McLain: "Toyota Motor Corp. said Wednesday that its shipments from Japan to the U.S. rose 22% in April, highlighting the problem it faces if the Trump administration makes good on threats to impose higher tariffs on imports. The problem is crystallized in one model: the RAV4 sport-utility vehicle. It is the most popular Toyota among American consumers—and none are made in the U.S. More than half are imported from Japan, while the rest are made in Canada and imported tariff-free under the North American Free Trade Agreement."

Business
With the unemployment rate at a 17-year low, it's getting harder for retailers to attract — and retain — workers.
Abha Bhattarai
Nobel Prize-winning economist Robert Shiller gives a bitcoin doomsday scenario.
CNBC
The embassy of Saudi Arabia has bought ‘Merrywood,’ a childhood home of Jacqueline Kennedy Onassis, setting a record for the most expensive home ever sold in the Washington, D.C.,​ area.
WSJ
THE REGULATORS

A private power behind the Fed. Bloomberg's Jeanna Smialek and Craig Torres: John "Williams’s promotion from San Francisco district president was important for the Fed, because the New York chief is among the most powerful central bankers in the world. It was a big moment for the Hutchins Center, because Williams is Yellen’s protege and was a Fed colleague of another affiliate, former Chair Ben Bernanke. And it was consequential for Glenn Hutchins, the private-equity financier who launched the center with a $10 million donation five years ago. He co-led the New York Fed search committee that chose Williams. In backing a haven for top Fed expats and guiding a personnel move that will shape monetary policy for years, Hutchins has exerted remarkable outside influence at the central bank—arguably more than any living financier."

Ex-Goldman banker sues the Fed. Bloomberg's Bob Van Voris: "A former Goldman Sachs Group Inc. banker facing a possible lifetime ban from the banking industry sued the Federal Reserve, claiming the regulator is taking to long to reach a final decision in his case. Joseph Jiampietro asked a federal court in Manhattan Wednesday to force the Fed to dismiss its internal enforcement action against him or to finalize a decision in the case so he can appeal. An administrative law judge recommended the ban last year over Jiampietro’s alleged misuse of information taken from the Fed to help Goldman Sachs get business."

DAYBOOK

Coming Up

  • The American Enterprise Institute holds a conversation with former Federal Reserve chairman Ben S. Bernanke on June 7.
THE FUNNIES

From The Post's Ann Telnaes: 

BULL SESSION

House Minority Whip Rep. Steny H. Hoyer (D-Md.) questioned Republican motives behind proposed budget rescissions:

White House press secretary Sarah Huckabee Sanders did not defend Roseanne Barr’s racist tweet, but called for ABC to apologize to Trump: