The House Financial Services Committee is lurching to the left.
So far, Wall Street isn’t sweating it.
As Rep. Maxine Waters (D-Calif.) takes the helm of the panel overseeing the financial services industry, she pledged Wednesday to hold “many hearings” examining big bank misconduct. And she’ll be getting reinforcements soon: A platoon of liberal freshman Democrats are set to join the committee, a group that includes rising national star Alexandria Ocasio-Cortez (N.Y.), Elizabeth Warren protege Katie Porter (Calif.), as well as Rashida Tlaib (Mich.) and Ayanna Pressley (Mass.).
At a minimum, the new regime should generate headline headaches for the industry and make for some uncomfortable moments for top executives under the committee’s hot lights.
But industry sources say banking leaders priced in those public relations pains when Democrats retook the House. Beyond that, they don’t expect a divided government to pass major legislation.
“I don't think we really have any surprises” from Waters, says Ian Katz of Capital Alpha Partners. “I think she’s been pretty clear about her priorities.”
And split control of Congress also means the tax cuts that just helped the big banks post record profits in 2018 won’t be going anywhere.
The six biggest U.S. banks have reported an $111 billion profit for 2018 — the first time that group surpassed the $100 billion mark — and the total will grow when Morgan Stanley posts its fourth-quarter results today, per Bloomberg News. Sen. Charles E. Grassley (R-Iowa), newly installed atop the Senate Finance Committee, has made clear in recent days the Republicans will not revisit their sweeping 2017 tax package.
Yet industry leaders need to be wary of the power of Ocasio-Cortez, in particular, to reframe the debate. In a sense, she has already proved the potency of her rapidly growing platform, touching off a multi-day debate over doubling the top marginal tax rate with a single mention of it in a “60 Minutes” interview.
“That will continue,” Katz says, even if the social media star lacks the formal power to move legislation, in part because Democratic presidential hopefuls will feel compelled to respond to her. (Bloomberg BusinessWeek's new cover story, out this morning, focuses on Ocasio-Cortez's new influence.)
The proof of her reach is also evident in how quickly she has eclipsed the most senior members of her party on social media, as this graphic from GOP lobbyist Bruce Mehlman’s latest slide deck illustrates:
“Once upon a time, congressional power was based entirely on seniority, then on ability to raise money. The game has changed,” Mehlman says. “Today virality trumps seniority, with the size and engagement of your social media mob as the new key to driving the discussion.”
So far, though, Ocasio-Cortez has focused on breadth rather than depth — an approach revealed by her tweets upon securing the Financial Services spot:
Personally, I’m looking forward to digging into the student loan crisis, examining for-profit prisons/ICE detention, and exploring the development of public & postal banking. To start. 🙂— Alexandria Ocasio-Cortez (@AOC) January 16, 2019
“It is worth noting that House Financial Services only has clear jurisdiction over the last of those three priorities,” Cowen Washington Research Group’s Jaret Seiberg pointed out in a Wednesday note. “It is hard to see how she focuses less on climate change, healthcare and immigration in order to become an expert of the Volcker Rule or the Stress Capital Buffer.” Seiberg argues while Ocasio-Cortez’s clout “may be significant and growing,” on financial services issues, it “pales in comparison” to that of Waters and Warren.
And despite Waters’s profile as a firebrand, banking interests see opportunities to work with her on lower-profile priorities. Those include streamlining anti-money laundering rules, applying a tough, nationwide standard for data security to retailers; and clarifying the legality of banking for cannabis-related businesses.
Waters, in her Wednesday address at the Center for American Progress, said she would pursue a bipartisan approach to revamping the housing finance system. And she pledged to scrutinize credit reporting agencies in the wake of the 2017 breach of Equifax. (See her here.)
“As an experienced leader with a history of bipartisanship, we are confident Chairwoman Waters will lead a committee focused on issues of interest to the well-being of all Americans,” Financial Services Forum CEO Kevin Fromer said in a statement. His group represents the chief executives of the nation’s eight largest financial institutions, including JPMorgan Chase CEO Jamie Dimon and Goldman Sachs CEO David Solomon.
Kate Childress, the Bank Policy Institute’s head of public affairs, said Waters will “no doubt be a commanding chairwoman, and even if we don’t see eye-to-eye on every point, we are eager to work to with [her] and all members of the Committee on issues that drive economic growth for the benefit of all Americans.”
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— Trump is getting frustrated. NYT’s Maggie Haberman and Annie Karni: “Trump has insisted that he is not going to compromise with Democrats to end the government shutdown, and that he is comfortable in his unbendable position. But privately, it’s sometimes a different story. ‘We are getting crushed!’ Mr. Trump told his acting chief of staff, Mick Mulvaney, after watching some recent coverage of the shutdown, according to one person familiar with the conversation. ‘Why can’t we get a deal?’
“The president is confronted by a divided and partially shuttered government with an untested staff that has undergone yet another shake-up. Polls show that most Americans blame him for the government shutdown, and his advisers are warning him of its negative effects on the economy. And as the shutdown enters its 27th day on Thursday with no end in sight, most of his top aides would like him to find a way out.”
— Pelosi undercuts Trump in shutdown fight. The Post's Paul Kane, Phil Rucker, and Josh Dawsey: "House Democrats on Wednesday were making plans to undermine President Trump at his Jan. 29 State of the Union address. Just past 8:30 a.m., the leadership’s communications arm sent an email to lawmakers urging them to bring furloughed federal workers or other “message-related” guests to the nationally televised event. Unknown to most of her caucus, however, House Speaker Nancy Pelosi (D-Calif.) had decided on a more confrontational approach. Addressing a closed-door meeting of House Democrats, the speaker read a letter she had just sent to Trump asking him to either postpone the speech until the federal government reopens or deliver the text in writing, citing security concerns...
"In the two weeks since she reclaimed the speaker’s gavel, Pelosi has moved aggressively to leverage her decades of congressional experience to needle, belittle and undercut Trump with swipes at his competence and even his masculinity. The two leaders are locked in a standoff over a partial government shutdown instigated by Trump’s demand that U.S. taxpayers fund a portion of his promised border wall. Both Trump and Pelosi are gambling that the other will bear the brunt of the blame as the economic impact worsens, with the shutdown now dragging on for nearly a month."
— Stiffed contractors exacerbate shutdown's drag. Bloomberg's Ari Natter: "The cumulative effects [on] more than 1 million contractors is enough to slow U.S. economic growth. The White House on Tuesday doubled its estimate of the cost of the government shutdown on the economy -- saying it hadn’t been counting the effects on government contractors. As the government shutdown that began Dec. 22, federal contractors are being hit particularly hard by the budget impasse over President Trump's demand for a border wall. On Wednesday, he signed legislation authorizing back pay for federal government workers once the shutdown ends."
— Federal workers start tapping retirement. Bloomberg’s Brandon Kochkodin: "Growing numbers of federal workers have been tapping their retirement funds in a sign of how the government shutdown is squeezing day-to-day finances. Federal Retirement Thrift Investment Board data show a 34 percent jump in the number of hardship withdrawals in the two and 1/2 weeks after Christmas when compared to the same period last year... The outflows mostly come from investments run by BlackRock Inc., the sole manager for four of the Thrift Savings Plan’s five individual funds."
— Stocks rise, propelled by banks. Bloomberg’s Randall Jensen and Reade Pickert: “Stocks gained as signs of a better-than-expected start to the earnings season countered concerns about rising U.S.-China tensions. The dollar rose, while Treasuries declined. The S&P 500 advanced for a second day to within a whisker of its average price over the past 50 days, a level it hasn’t breached since early December. Financials buoyed major indexes as Goldman Sachs and Bank of America surged following quarterly reports."
Warning signs in the bond market. NYT’s Stephen Grocer: “The huge swings that defined stock trading in December have ended. That doesn’t mean investors think everything is fine. In the bond market, traders of government debt are still signaling concerns about the direction of the United States economy. Among the clearest of these signs is the yield curve. …
"Investors tend to turn to long-term government bonds as a safe place to park money, pushing down their yields, while eschewing shorter-term government debt, causing the rates on those securities to rise. In the worst case, when the rate on shorter-term bonds rises above that of longer-term ones, the yield curve is said to have inverted. And for the past 60 years, when that has happened for a sustained period, it has accurately predicted a recession. We’re not there yet, but the gap between the two rates has been moving steadily closer for two years as the Federal Reserve has raised short-term interest rates.”
— With government shutdown, IPOs may pile up. CNBC’s Bob Pisani: “The government shutdown is starting to get the IPO markets nervous. There is a robust pipeline for initial public offerings in 2019: Already, 160 companies have filed to go public with the SEC, according to Argus, including big names like the ride-hailing companies Uber and Lyft. There is also a backlog of companies that decided not to go public during the market tumult in the fourth quarter of last year.
“The good news: EDGAR, the SEC’s filing system, is still open, and companies are continuing to file for IPOs, including several biotech companies in the last week. The bad news: If the partial government shutdown, now in Day 26, continues into the end of January, a substantial IPO backlog will likely develop. Even if the shutdown ends soon, there is already likely some collateral damage: ‘I could easily see this pushing back everyone by at least 30 days, and it’s possible now you will not see a substantial IPO market until March,’ Pat Healy, who runs Issuer Network, an IPO advisory service, told CNBC.”
— May survive's no confidence vote. The Post's William Booth and Karia Adam: "Prime Minister Theresa May survived a no-confidence motion in the House of Commons on Wednesday evening, in a close party-line vote of 325 to 302, a day after the humiliating defeat of her Brexit plan imperiled both her leadership and Britain’s departure from the European Union. Normally, a British leader who the previous day had so badly lost a vote on her government’s most important legislation — by 432 to 202, the worst parliamentary loss in a century — might be expected to resign or be swept away. But these are not normal times... May now must return to Parliament on Monday to present lawmakers with some sort of Plan B for exiting the 28-member union. Yet the deep disagreements over how and whether Britain should leave the European bloc persist."
Exasperated E.U. leaders, meanwhile, aren't budging.
— U.S. prosecutors pursue Huawei. WSJ's Dan Strumpf, Nicole Hong and Aruna Viswanatha: "Federal prosecutors are pursuing a criminal investigation of China’s Huawei Technologies Co. for allegedly stealing trade secrets from U.S. business partners, including technology used by T-Mobile US Inc. to test smartphones, according to people familiar with the matter. The investigation grew in part out of civil lawsuits against Huawei, including one in which a Seattle jury found Huawei liable for misappropriating robotic technology from T-Mobile’s Bellevue, Wash., lab, the people familiar with the matter said. The probe is at an advanced stage and could lead to an indictment soon, they said."
— Ahead of Davos, a trade war looms. WSJ’s Joanna Sugden: “The threat of a full-blown global trade war and rising political tensions between world powers are the dominant global risks, according to a report by the World Economic Forum ahead of its annual gathering in Davos, Switzerland, next week.Cyberattacks and climate change also feature high on the list of potential hazards drawn up from a survey of around 1,000 lawmakers, academics and business leaders for the group that organizes the Davos meeting. In January 2018, President Trump slapped steep tariffs on imports of solar panels and washing machines, turning the ignition on his long-promised ‘America First’ trade policy. Tariffs that the U.S. then placed on steel and aluminum imports and countermeasures by Beijing began an economic standoff that the WEF report says has weakened the outlook for global growth.”
— U.S.-China trade deal would bring a bullish surge. CNBC’s Berkeley Lovelace Jr.: “The markets would see a bullish surge in investor sentiment if the U.S. were to reach a trade deal with the China, BlackRock Chairman and CEO Larry Fink told CNBC on Wednesday. The deal would need to be substantial enough to reduce tension and include both sides calling off tariffs on each others goods, Fink said. In the latest tariff moves, the U.S. levied 10 percent duties on $200 billion worth of goods from China, prompting Beijing to put tariffs on $60 billion worth of U.S. goods. ‘Until we see better certainty on trade and China, we’re not going to see super elevated flows,’ said Fink, co-founder of the world’s largest money manager. ‘If there was a resolution between the U.S. and China, related to trade, we would see a surge in investment sentiment.’”
- "New court filing indicates prosecutors have extensive details on Manafort actions not yet made public." The Post's Spencer S. Hsu.
- "Trump and Putin have met five times. What was said is a mystery." NYT's Peter Baker.
- "Republicans break ranks over move to lift sanctions on Russian oligarch’s firms." NYT's Kenneth P. Vogel.
- "Rudy Giuliani: ‘I never said there was no collusion’ between Trump campaign and Russia." The Post's Allyson Chiu.
From CNN's Andrew Kaczynski:
Rudy Guiliani to @ChrisCuomo tonight: "I never said there was no collusion between the campaign or between people in the campaign... I have not. I said” no collision with, “the President of the United States.” pic.twitter.com/Smb0OuNzL9— andrew kaczynski (@KFILE) January 17, 2019
From The Post's Greg Miller:
I'd never seen this footage before - Trump sending clenched-fist solidarity signals to Putin at a G20 dinner. https://t.co/lU5h2Ajdt7— Greg Miller (@gregpmiller) January 16, 2019
— Goldman's 1MDB tactic: Smear ex-partner. NYT's Matthew Goldstein, Emily Flitter and Kate Kelly: "They sound like the ingredients of a pulpy thriller: Bigamy. Secret religious conversions. A doctorate from a mail-order diploma mill. Affairs with powerful women. The sordid list — a mixture of facts, accusations and insinuations, packaged in a glossy slide show — represents the crux of a well-orchestrated campaign by Goldman Sachs to discredit one of its former partners and to minimize the Wall Street bank’s role in the looting of a big Malaysian investment fund.
"In recent presentations to American regulators and law enforcement authorities, according to people familiar with their contents, Goldman executives and their lawyers have depicted Tim Leissner, a former top investment banker, as a master con man, someone so sneaky that even the retired military intelligence officers who work for the bank couldn’t sniff him out. The scorched-earth tactics, especially against someone who had been a star banker, reflect just how worried Goldman is about the criminal investigations into its role in the theft of at least $2.7 billion from the 1Malaysia Development Berhad, or 1MDB, sovereign wealth fund."
From CNN's Julia Horowitz:
Goldman CEO David Solomon's message on 1MDB: “It is very clear that the people of Malaysia were defrauded by many individuals. ... For [fmr GS banker Tim] Leissner’s role in that fraud, we apologize to the Malaysian people."— Julia Horowitz (@juliakhorowitz) January 16, 2019
— Sears survives bankruptcy. The Post’s Rachel Siegel: “Sears — the iconic retail chain that was forced into bankruptcy in October — avoided a total shutdown after billionaire Eddie Lampert, the company’s chairman and largest shareholder, won a bankruptcy auction for Sears Holdings Corp., according to a person familiar with the matter. Last week, Lampert upped his offer to more than $5 billion as part of a pitch to keep about 400 stores open nationwide. The proposal was made through Lampert’s hedge fund, ESL Investments, and will save as many as 45,000 jobs. Reuters reported the bankruptcy auction concluded early Wednesday morning, with Lampert ultimately prevailing with a $5.2 billion takeover bid. But it remains to be seen how Lampert will turn his remaining stores into lasting footprints in a retail landscape that looks far different from the one Sears once conquered.”
— Legendary investor Jack Bogle dies. WSJ's Jason Zweig and Sarah Krouse: "American investors have lost the fiercest advocate they may have ever had. John Clifton Bogle, founder of Vanguard Group and a crusader for investors’ rights for more than three decades, died in Bryn Mawr, Pa., on Wednesday at age 89. The company announced Mr. Bogle’s death. 'If all investors had heeded his ideas, they would be hundreds of billions of dollars better off than they are now,' financier Warren Buffett told The Wall Street Journal in 2009. Through the sheer force of his will, Mr. Bogle, known as Jack, almost singlehandedly made index funds—which hold virtually every security in a given market—a practical and popular option for institutional and individual investors alike. He created the first mutual fund tied to an index in 1975."
Vanguard has saved investors $175 billion in fees since it was founded in 1974. This is based on the historical difference between the asset-weighted average expense ratio of an active mutual fund versus that of a Vanguard fund. https://t.co/GCVDamOFPM— Barry Ritholtz (@ritholtz) January 16, 2019
CNBC has this rememberance:
— Fighting fake news. NYT’s Edmund Lee: “On the internet, conspiracy theories, propaganda and plain old inaccuracies can stump even the most thoughtful readers, spreading faster than you can say ‘fake news.’ A small start-up, NewsGuard, says it may have a solution. The effort is led by a pair of veteran news executives — Steven Brill, an author and the founder of the magazine The American Lawyer, and Gordon Crovitz, a former publisher of The Wall Street Journal. On Wednesday the company announced that it had signed Microsoft as its first major client.
“NewsGuard has created the equivalent of nutrition labels for news organizations, rating more than 2,000 news and information sites with tags: red for unreliable, green for trustworthy. A team of roughly 50 journalists and analysts is making the evaluations. … The start-up hopes to become a regular part of the reading experience on the web. Its premise is that it is more efficient to rate news organizations than the endless stream of articles rolled out each hour. The service, free to readers, offers a browser extension that shows a news operation’s rating when a reader lands on its site."
- Brookings hosts an event on the "top priorities for Africa in 2019" on Thursday in Washington.
- The Center for Strategic and International Studies hosts an event on the Indian economy in 2019 in Washington on Thursday.
- The Wilson Center hosts an event on the "domestic and international impacts of kleptocracy" in Washington on Thursday.
- The Bipartisan Policy Center hosts "Energy Innovation: Fueling America’s Economic Engine" in Washington on Thursday.
- The Bipartisan Policy Center looks at "The Year Ahead for Capital Markets" on Jan. 22 in Washington.
- The Heritage Foundation hosts "Taxing Wars: The American Way of War Finance And the Decline of Democracy" in Washington on Jan. 28.
— From The New Yorker's Shannon Wheeler, circa 2013:
‘I blame every single elected official’: One Coast Guard family talks about the toll of the shutdown
José Andrés opens new relief kitchen in D.C. for federal workers
'Unpresidented': Fake edition of Washington Post claims Trump resigned