THE TICKER

The White House stunned the banking industry last weekend by announcing that President Trump would nominate Kathy Kraninger, a White House budget official, to be the next director of the Consumer Financial Protection Bureau.

She has now been hit with questions from Senate Democrats and some others about what role she may have played in the growing crisis regarding separating migrant children from their parents at the southern border. As the Office of Management and Budget's associate director of general government, Kraninger oversees the budgets for Homeland Security and the Health and Human Services departments, both of which are playing key roles in President Trump's “zero tolerance” immigration policy. 

Sen. Elizabeth Warren (D-Mass.), who helped inspire the creation of the CFPB while a Harvard law professor, has put a hold on Kraninger’s nomination, which will slow the process of Senate confirmation. 

“Kathy Kraninger helps oversee the agencies that are ripping kids from their parents. Now @realDonaldTrump wants her to run the @CFPB,” Warren said on Twitter Tuesday.

Together with Sen. Sherrod Brown (Ohio), the ranking Democrat on the Senate Banking Committee, Warren wrote a letter to Kraninger seeking “documents and information” about Kraninger's role in the “zero-tolerance” policy. (See a draft of the letter below).

Even before Warren and Brown began raising questions about her work at OMB, some industry experts were skeptical of her chances of being confirmed. “Her confirmation is far from assured,” Ed Mills, a Washington-based policy analyst with Raymond James, said in a research note. Compass Point Research & Trading put her chances at about 40 percent. With such a slim Republican majority in the upper chamber, Kraninger could afford to lose only one Republican vote.

The surprise nomination of Kraninger quickly drew support from some Republicans and the banking industry, including several executives who said they had to Google Kraninger’s name. “We trust she shares our interest in ensuring consumers have access to the financial products they want and need, while maintaining the protections they deserve,” Rob Nichols, president of the American Bankers Association, said in a statement.

Kraninger has built a reputation as an expert on homeland security issues since the Sept. 11, 2001, terrorist attacks. She helped build DHS but has no direct experience with consumer financial policy issues, consumer advocates and Democrats say.

The bureau has been run by Kraninger’s boss at OMB, Mick Mulvaney, since last November. And if confirmed, she is expected to continue the budget cutting and rollback of the CFPB’s ambitions that Mulvaney began. She would also become one of the country’s most powerful regulators, overseeing an agency with more than 1,500 employees and significant influence over how banks and other financial institutions interact with their customers. 

The White House has defended Kraninger’s nomination, arguing that she has broad management experience that is well suited to fixing an agency that Republicans have complained for years was poorly run. “She has a skill set that matches up” with what the CFPB needs, a senior White House official said. “She is very well-liked here in the administration and up on the Hill. She is viewed as a serious, independent person.”

Still, even if Kraninger’s nomination stalls or ultimately fails, the Trump administration could come out a winner, industry officials say. During his six months at the top of the CFPB, Mulvaney has launched an extensive review of the agency’s operations. Republicans and the financial industry have long despised the CFPB’s aggressive tactics, and Mulvaney has slowed its enforcement work. 

If the Senate fails to schedule a vote on Kraninger’s nomination by the end of the year, under the Federal Vacancies Reform Act Mulvaney could serve another 210 days, industry experts say. If there are several delays, including if the Senate rejects Kraninger’s nomination, Mulvaney’s term as acting director could be ultimately extended through the middle of 2020, said Alan Kaplinsky, head of the consumer financial services group for the law firm Ballard Spahr, which represents financial companies before the CFPB.

“The [Trump] administration is very happy with Mulvaney; the banking industry is happy with Mulvaney. My clients think he is doing a great job,” Kaplinsky said. “The goal appears to be to keep him there as long as you can.”

A senior White House official dismissed the notion that Kraninger was a placeholder. “The president wants Kathy to be the director; he would like to see her confirmed as promptly as possible,” the official said.

A lot may depend on how Kraninger performs before the Senate Banking Committee, industry experts say. “Her performance could be the deciding factor for moderate Republicans and possibly a handful of Democrats,” Isaac Boltansky, an analyst for Compass Point, said in a research note. 

MARKET MOVERS

— Ross shorted stock amid reporters' inquiries. The New York Times's Mike McIntire: “Commerce Secretary Wilbur L. Ross Jr. shorted stock in a shipping firm — an investment tactic for profiting if share prices fall — days after learning that reporters were preparing a potentially negative story about his dealings with the Kremlin-linked company. The transaction, valued between $100,000 and $250,000, took place last fall after Mr. Ross became aware that journalists investigating offshore finances were looking at his investments in the shipper Navigator Holdings, whose major clients included a Russian energy company. The New York Times emailed a list of questions about Navigator to Mr. Ross on Oct. 26. Three business days later, Mr. Ross, a wealthy investor, opened a short position in Navigator, according to filings released on Monday by the Office of Government Ethics. The company’s stock price slid about 4 percent before Mr. Ross closed his position on Nov. 16, eleven days after the articles were published by The Times and the International Consortium of Investigative Journalists as part of the 'Paradise Papers' project.”

— Tariff threats roil markets. The Washington Post's Thomas Heath: “Global markets sank Tuesday on fears that the United States and China may be veering toward an all-out trade war. The Dow Jones industrial average closed down 287 points, or 1.15 percent, to 24,700 on worries that the tit-for-tat tariff threats between the two countries could expand into an economic brawl. The Dow had regained ground after plunging 419 points in morning trading. With the sell-off, the Dow has wiped out all its gains for the year. Tuesday’s close marked the sixth straight daily loss for the blue-chip composite of 30 stocks — its longest sustained slide in 15 months. The Standard & Poor’s 500-stock index declined 11 points, or 0.4 percent, to 2,762. The tech-heavy Nasdaq Composite fell 0.28 percent, to 7,725.”

— General Electric loses Dow Jones industrial average spot. Reuters's Noel Randewich and Alwyn Scott: “General Electric Co has lost its spot in the Dow Jones Industrial Average after over a century in the blue chip stock index, a new blow to a company that once towered over the American business landscape but is now struggling to retain its standing as an industrial powerhouse. S&P Dow Jones Indices said on Tuesday that GE . . . an original member of the Dow when it was formed by Charles Dow in 1896 and a continuous member since 1907, will be replaced in the 30-component stock average by drug store chain Walgreens Boots Alliance Inc . . . prior to the start of trading on June 26. GE’s stock slipped 1.5 percent in after-hours trading following the announcement while Walgreens jumped 3 percent.”

— FedEx beats expectations. Reuters's Lisa Baertlein and Lewis Krauskopf: “FedEx Corp . . . reported fourth-quarter profit that beat Wall Street estimates on Tuesday, as revenues and operating margins increased in each of the company’s operating units. Shares of the Memphis-based package delivery company extended losses in after-hours trading, following their worst regular session sell-off in two months on worries over the U.S.-China trade war. . . . 'I have never been so optimistic and so sure of our strategy and our ability to deliver an exciting future,' FedEx Chief Executive Frederick Smith said on a conference call.”

— Russia wants to increase oil production. The Post's Steven Mufson: “The Organization of the Petroleum Exporting Countries and Russia will pivot this week and boost output enough to stabilize prices while increasing their revenue. The cartel’s biggest producer and exporter, Saudi Arabia, is seeking to broker an agreement on production levels ahead of the June 22 OPEC meeting in Vienna. The kingdom is hoping to reach a compromise between Russia, which wants to produce at maximum capacity, and Iran and Iraq, which strongly oppose any output increases. Crude oil prices have rebounded since 2016, when OPEC and Russia cut production by 1.8 million barrels a day. Since then, prices have more than doubled, from a low of $27 a barrel for the benchmark West Texas Intermediate grade to $65 on Monday.”

— Construction rises. The Associated Press's Josh Boak: “A surge of construction in the Midwest drove U.S. housing starts up 5 percent in May from the prior month. The Commerce Department said Wednesday that housing starts rose to a seasonally adjusted annual rate of 1.35 million, the strongest pace since July 2007. All of May’s construction gains came from a 62 percent jump in the Midwest, while building slumped in the Northeast, South and West. Home construction can be volatile on a monthly basis, so May’s gains may be a blip rather than a trend. The solid job market has helped to boost demand for new homes. Housing starts have risen 11 percent so far this year, with gains for both single family houses and apartment buildings. Permits to build tumbled 4.6 percent in May, but permits are running 8.9 percent higher year-to-date.”

TRUMP TRACKER

TRADE FLY-AROUND:

— Trump's trade expectations meet reality. The Post's David J. Lynch: “Trump is ready to escalate his trade war with China by imposing tariffs on almost all Chinese goods shipped to the United States. But his administration is still struggling to manage a pair of smaller trade actions announced more than three months ago, casting doubt on the president’s ability to wage a broader conflict. At the Commerce Department, officials have been overwhelmed with pleas from U.S. companies for waivers from levies on foreign steel and aluminum that the president introduced in March. Only last week did the department begin training the roughly 30 evaluators who must review 21,000 petitions from U.S. companies that want to continue importing the metals on a duty-free basis, said one senior Commerce Department official, who spoke on the condition of anonymity because the official was not authorized to speak to the news media.”

— The president chides Canadians. The Hill's Vicki Needham: “Trump on Tuesday lashed out again at close ally Canada, injecting more uncertainty into the future of the North American Free Trade Agreement (NAFTA). Trump accused Canadians of crossing the border with the U.S. to buy products and 'smuggle' them back into their country because their tariffs are so high. 'They buy shoes and they wear them. They scuff them up to make them sound old, or look old,' Trump told the National Federation of Independent Businesses during a summit in Washington. 'No, we're treated horribly,' he said.”

— Navarro defends the new round of tariffs on Chinese imports. Politico's Megan Cassella and Adam Behsudi: “A top trade adviser to . . . Trump said Tuesday that China has more to lose than the U.S. in an escalating trade conflict that threatens American businesses and farmers caught in the crossfire. . . . 'I understand that there is going to be concern about what the impact might be, both in the financial markets and the global economy,' White House trade adviser Peter Navarro told reporters during a press call. 'But our view is that these actions are necessary to defend this country.' 'I assure you, this country is in good hands,' he added.”

And says the Trump administration will support farmers. The Wall Street Journal's Vivian Salama: “The Trump administration is working on measures that protect agriculture and other critical industries from retaliatory tariffs being threatened by China amid an escalating trade dispute between the two countries, a top adviser to . . . Trump said. . . . Navarro told reporters on Tuesday that Agriculture Secretary Sonny Perdue and others in the administration are taking into account the potential impact of retaliatory tariffs on those industries and are making provisions. The administration is 'working on measures that will have the backs of farmers,' he said. 'I can assure you we are not unprepared.'”

— How China could respond to Trump's tariffs. CNBC's Jeff Cox: “China is limited somewhat in the amount of retaliatory tariffs it can apply, simply because it doesn't import nearly as much in American goods compared with what the U.S. takes of Chinese products. China imported just $129.9 billion from the U.S. in 2017, compared with $505.5 billion in exports, according to the Census Bureau. . . . 'In our view, the most likely outcome is that China responds in kind by introducing tariffs or other import restrictions on U.S. goods or services. This could be calibrated to be proportional in response to the U.S. action,' Goldman Sachs economists Alec Phillips and Andrew Tilton said in a research note earlier this year on the potential implications of a U.S.-China trade war. The Goldman analysis set out an additional menu of options outside simple tariffs that China could employ. They include action against U.S. companies operating in China such as boycotts against Apple or Google parent Alphabet, currency devaluation, selling U.S. assets, Treasurys in particular, and changes on geopolitical issues, such as easing sanctions on North Korea.”

 

On top of the tariffs, China has a debt problem. WSJ's Lingling Wei: “While Chinese officials have been bracing for a trade war for months—promising to match the Trump administration measure for measure—signs are rising that China’s recent economic expansion is ebbing, from weakening investment and household consumption to increasing corporate defaults, in part due to a key Xi initiative to contain debt and fend off financial risks. That slowdown is triggering mounting calls from some corners of the government for Beijing to reopen the credit spigot and ease off on Mr. Xi’s program before the trade conflict further dents growth. . . . Soaring levels of corporate and local government debt are seen by economists as potentially dragging down the world’s second largest economy. Getting a handle on debt has been a Xi priority.”

Tesla and GM are vulnerable in the U.S.-China dispute. Bloomberg News's David Welch and Dana Hull: “Tesla Inc. and General Motors Co. are caught in the middle of a collision between . . . Trump and his China counterpart Xi Jinping. Tesla shares plunged as much as 6.6 percent, the biggest intraday drop in more than six weeks, while GM slumped as much as 4.1 percent after China vowed to 'forcefully' retaliate against Trump’s threatened tariffs on another $200 billion in imports from Asia’s largest economy. The carmakers are among the companies with the most to lose if Trump ups the ante on the tariffs placed on $50 billion of goods announced last week. GM has for years vied with Volkswagen AG to be the biggest foreign automaker operating in China, while Elon Musk’s electric-vehicle manufacturer has been rapidly expanding sales and in talks for months with the Shanghai government about opening its first assembly plant in the country.”

— Russia has tariffs in the works. Reuters's Polina Nikolskaya: “Russia said on Tuesday it would impose import duties on U.S. road-building machinery, a measure likely to help Russian oligarch Oleg Deripaska, who was hit by U.S. sanctions and controls Russia’s biggest maker of road-building equipment. . . . The tariffs will target goods that have domestic equivalents in Russia, Economy Minister Maxim Oreshkin said. 'There is road-building machinery and a number of other items that Russia imports,' Oreshkin said when asked to specify the list of goods that Moscow plans to levy tariffs on.”

MELTDOWN WATCH:

— Trump tells House GOP to revamp the immigration system. The Post's Mike DeBonis, Philip Rucker, Seung Min Kim and John Wagner: “Trump implored anxious House Republicans to fix the nation’s broken immigration system but did not offer a clear path forward amid the growing uproar over his administration’s decision to separate migrant families at the border. Huddling with the GOP at the Capitol on Tuesday evening, Trump stopped short of giving a full-throated endorsement to legislation meant to unite the moderate and conservative wings of the House Republican caucus. Instead, Trump told Republicans in the closed-door strategy session that he would support either of the bills slated for votes later this week. . . . Earlier Tuesday, a defiant Trump had defended the administration policy of separating migrant children from their parents at the border and demanded Congress produce comprehensive immigration legislation to address what he called a 'massive crisis.'”

— Parscale says Mueller's probe must end. The Post's Wagner: “Trump’s campaign manager, Brad Parscale, brashly called Tuesday for the firing of Attorney General Jeff Sessions and ending the investigation into Russian election interference led by special counsel Robert S. Mueller III. It was not immediately clear whether Parscale — who shared his views in a tweet — was speaking for the president. His tweet was sent as Michael E. Horowitz, the inspector general of the Justice Department, testified before Congress about the release of a report last week highly critical of several key FBI figures in the Hillary Clinton email probe, including former FBI director James B. Comey.”

National Security
Peter Strzok already had been reassigned to the FBI’s Human Resources Division after he was taken off the special counsel investigation for anti-Trump texts.
Matt Zapotosky
POCKET CHANGE

— Microsoft employees say their company shouldn't work with ICE. NYT's Sheera Frenkel: “In an open letter posted to Microsoft’s internal message board on Tuesday, more than 100 employees protested the software maker’s work with Immigration and Customs Enforcement and asked the company to stop working with the agency, which has been separating migrant parents and their children at the border with Mexico. 'We believe that Microsoft must take an ethical stand, and put children and families above profits,' said the letter, which was addressed to the chief executive, Satya Nadella. The letter pointed to a $19.4 million contract that Microsoft has with ICE for processing data and artificial intelligence capabilities. Calling the separation of families 'inhumane,' the employees added: 'As the people who build the technologies that Microsoft profits from, we refuse to be complicit. We are part of a growing movement, comprised of many across the industry who recognize the grave responsibility that those creating powerful technology have to ensure what they build is used for good, and not for harm.'”

— Fracking expands globally. WSJ's Sarah Kent: “A BP PLC project deep in Oman’s desert shows how big oil companies are taking hydraulic-fracturing techniques perfected in Texas to the global stage, where they had long struggled. BP’s $12 billion Khazzan project launched last year on a complex roughly the size of London, surrounded by sand dunes and little else. One of the biggest fracking projects ever completed outside the U.S., Khazzan produces natural gas from rock so dense and deep beneath the desert that it was long thought too difficult and expensive to exploit. It’s a breakthrough for a technology that revolutionized the oil-and-gas industry in the U.S. but had failed to gain ground elsewhere, with early setbacks in China, Europe and Russia. Now, big oil companies are drawing on expertise gained from their U.S. operations and making investments around the world again.”

— Score one for privacy advocates. The Post's Brian Fung: “Verizon, AT&T and Sprint will no longer share its customers' location information with several third-party companies who failed to handle the data appropriately, the companies said Tuesday. The move to cut off access follows an investigation by Sen. Ron Wyden (D-Ore.) into the commercial relationships between Verizon; a pair of obscure data vendors, LocationSmart and Zumigo; and those companies' corporate customers. Wyden's investigation found that one of Verizon's indirect corporate customers, a prison phone company called Securus, had used Verizon's customer location data in a system that effectively let correctional officers spy on millions of Americans. In a letter to the Federal Communications Commission last month highlighting the probe, Wyden said prison officials using Securus's surveillance system could obtain real-time location data on Americans with little more than a 'pinky promise' of propriety, leading to “activities wholly unrelated” to prison management.”

The Switch
The space-age car company may be facing more chaos at the factory than its drivers and investors understand.
Drew Harwell and Danielle Paquette
MONEY ON THE HILL

— The tax overhaul gets additional funding for its implementation. The Hill's Naomi Jagoda: “A Senate Appropriations subcommittee on Tuesday approved a $23.688 billion financial services spending bill for fiscal 2019 that would provide the IRS with additional funds to implement the tax law . . . Trump signed last year. The financial services and general government subcommittee advanced the bill by voice vote. The measure will be considered by the full Senate Appropriations Committee later this week. The IRS earlier this year had requested $397 million for tax-law implementation, saying it would spend the bulk of that money on technology and hardware. The omnibus spending law Congress passed in March provided the IRS with $320 million of its request, and the bill the Senate subcommittee approved Tuesday would provide the IRS with the remaining $77 million.”

— The House GOP presents a 2019 budget plan. Bloomberg News's Erik Wasson: “House Republicans unveiled a 2019 budget proposal Tuesday to send a message to their core supporters that repealing Obamacare, cutting taxes and partially privatizing Medicare remain high on their agenda. The budget, which claims to balance by 2027 through $8 trillion in spending cuts, seeks to revive the deficit-cutting mantle for Republicans after a two-year deal that increased spending by $300 billion. A massive tax cut approved last year is expected to add $2 trillion in deficits over 10 years. . . . To win conservative support, the budget would fast-track at least $302 billion in spending cuts over 10 years through a process that requires only 50 votes to pass the Senate, avoiding a Democratic filibuster, as long as the plan doesn’t increase deficits after 10 years.”

THE REGULATORS

— Merrill Lynch will pay an SEC fine. Reuters's Lisa Lambert and Jonathan Stempel: “Bank of America Corp’s Merrill Lynch unit admitted to misleading brokerage customers about which firms processed their trades and agreed to pay a $42 million fine under a settlement with the U.S. Securities and Exchange Commission announced on Tuesday. The settlement follows a similar agreement with the New York attorney general in a related probe nearly three months ago, under which Merrill Lynch also admitted to wrongdoing and agreed to pay a $42 million (£36.9 million) fine. Merrill 'fell far short of the standards expected of broker-dealers in our markets,' preventing customers from making informed decisions about their orders and broker-dealer relationships, Stephanie Avakian, co-director of the SEC enforcement division, said in a statement.”

— McWilliams lays out her vision for FDIC. American Banker's Rachel Witkowski: “Two weeks after taking the helm, Federal Deposit Insurance Corp. Chairman Jelena McWilliams on Tuesday announced an ambitious agenda to review old regulatory policies, including long-established supervisory ratings, and to accelerate agency decisions on new bank applications. In her first public speech since being sworn in, McWilliams said FDIC staff is currently working on a massive list of all rulemakings, guidance and other policies that might be worth opening or reopening to the public for comment. This includes the Camels system for rating banks' health, which McWilliams said has not been open to public discussion since the mid-1990s.”

— Industry groups tell FHFA to let Fannie Mae and Freddie Mac restore capitalAmerican Banker's Hannah Lang: “Days after the Federal Housing Finance Agency proposed a risk-based capital regime for Fannie Mae and Freddie Mac, industry groups representing smaller lenders called on the agency to take more immediate steps to release the two government-sponsored enterprises from conservatorship. In a letter this week, the trade associations, along with civil rights groups, urged FHFA Director Mel Watt to 'direct Fannie and Freddie to develop capital restoration plans' and to suspend the companies' profit sweeps into the government.”

CHART TOPPER

From The Post's Christopher Ingraham:

DAYBOOK

Today

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THE FUNNIES

— From The Post's Tom Toles:

BULL SESSION