with Brent D. Griffiths and Tory Newmyer

THE TICKER

SunTrust and BB&T’s $66 billion merger, which would create the country’s sixth-largest bank, will face its biggest test yet Wednesday when the banks’ CEOs face off against skeptics in the House.

During a hearing before the House Financial Services Committee — “The Next Megabank? Examining the Proposed Merger of SunTrust and BB&T” — the banks are preparing to defend their merger plans as an opportunity to increase their investment in local communities. It’s the largest proposed bank merger since the 2008-2009 financial crisis and comes as the Trump administration has rolled back some key rules put in place since then to prevent another economic mess.

“To best serve our clients, we need to invest in the future — and that is one of the primary factors driving this merger,” Kelly S. King, chairman and chief executive of North Carolina-based BB&T, will tell the committee, according to his prepared testimony.

A few weeks before the hearing, SunTrust also announced it would cut business ties with private prison and detention center companies, heading off potentially tough questions from progressive lawmakers, particularly committee member Rep. Alexandria Ocasio-Cortez (D-N.Y.). The bank has already spent more than $1.05 million lobbying during the first half of this year, according to data from Open Secrets. BB&T has increased its spending on lobbying by 8 percent to more than $534,000 so far this year, according to Open Secrets.

Last week, the banks said they had reached a deal with community groups to increase their lending and investment in low- and moderate-income customers to $60 billion over the next three years, addressing another likely Democratic concern.

“The banks didn’t do everything we wanted,” said Jesse Van Tol, chief executive of the NCRC, a research and advocacy coalition of 600 community organizations that promote economic and racial justice, but “I wouldn’t have agreed to it, if I didn’t think it was a good plan.”

But SunTrust and BB&T won’t have an easy job selling Democrats who have said the deal would create another too-big-to-fail bank a decade after the global financial crisis. Leading Democratic 2020 candidates like Sen. Elizabeth Warren have warned of the possible dangers to the economy.

Rep. Maxine Waters (D-Calif.), chair of the Financial Services Committee, has asked regulators to postpone a decision on the merger until after lawmakers weigh in.

“The proposed merger raises many questions and deserves serious examination from banking regulators, Congress and the public to determine its impact and whether it would create a public benefit for consumers,” Waters said in a recent letter to the Federal Reserve and Federal Deposit Insurance Corp.

If approved, the combined bank, known as Truist, would have about $442 billion in assets with more than 50,000 employees, making it the biggest bank merger since the crisis.

“One of the most salient lessons from 2008 is that banks can pose a threat to average Americans, their livelihoods,” said Jeremy C. Kress, an assistant professor at the University of Michigan Ross School of Business. “This merger is creating another large financial institution, and I think that there is some legitimate concern.”

The deal has already gained the approval of a key state regulator, and in prepared testimony, the banks’ CEO says it will not create new risks for the financial system.

“Some have suggested that this transaction will create an institution that is too big. In the case of this merger, however, bigger does not mean riskier,” William H. Rogers Jr., chairman and chief executive of SunTrust Banks Inc., will tell the committee, according to prepared testimony. “Each company has a conservative risk profile now, and we will maintain so as a combined entity. We are adding scale, not complexity.”

This comes at a time when the banking industry is entering what Jamie Dimon, chief executive of JPMorgan Chase, the country’s largest bank, has called a “golden age.” The industry is reporting record profits, and the Trump administration has scaled back many of the toughest post-crisis regulations. If the merger is approved, it could open the way for other larger mergers, industry analysts have said.

And King, the BB&T chief, does not appear concerned about the threat posed by lawmakers. Asked about the hearing during a conference call with analysts last week, Kelly said, “We will be able to satisfy them that there's nothing negative about this. … I kind of view it as four or five hours of free advertising.”

TRUMP TRACKER

TRADE FLY-AROUND: 

— U.S. negotiators head to China for talks: “American trade negotiators will soon head to China for face-to-face talks as the world’s two largest economies try to strike a deal, sources told CNBC,” the network's Kayla Tausche and Jacob Pramuk report

“The U.S. officials will travel to China for discussions sometime between Friday — the start of a six-week congressional recess in Washington — and Thursday, August 1. While the talks represent a critical next step after a truce reached between the countries’ leaders in June, a deal is not viewed as near.”

— JPMorgan says trade threats are clouding risky assets: “Trade uncertainty will be a ‘lingering cloud’ over risky assets for at least 18 months, according to JPMorgan Asset Management,” Bloomberg’s Ben Bartenstein reports.

“Gabriela Santos, the firm’s New York-based global market strategist, said she’s becoming more cautious on developing-nation assets as persistent tension between the world’s largest economies is unlikely to abate anytime soon. It’s important to add more value stocks to portfolios to balance out growth stocks, she said.”

— Apple wants a tariff exemption: “Apple Inc. has asked the Trump administration to exclude components that make up the forthcoming Mac Pro high-end desktop computer from import tariffs, weeks after planning to re-locate production of the line to China from Texas,” Bloomberg’s Mark Gurman and Mark Niquette report.

“The Cupertino, California-based technology giant is seeking relief from duties of 25% on key Mac Pro parts and accessories that go with it, ranging from the stainless steel and aluminum frame, power supplies, internal cables and circuit boards, and its optional wheels, according to filings posted by the Office of U.S. Trade Representative. The documents don’t specifically mention the Mac Pro, but the features and dimensions listed by Apple in the filing closely resemble the planned computer.” 

Meanwhile, Hasbro, the toymaking giant, is accelerating plans to move production out of China to new plants in Vietnman and India, Bloomberg's Jeff Sullivan reports

— Trump sues to protect his state tax returns: “President Trump sued House Ways and Means Committee Chairman Rep. Richard E. Neal (D-Mass.) and New York state officials Tuesday to block any release of his state tax returns to the House under a state law passed this month,” my colleague Spencer S. Hsu reports

“In a 25-page lawsuit filed as a private citizen in federal court in Washington, Trump called the new law unconstitutional and alleges that it is part of a campaign to expose his private information for political gain.”

— Deutsche Bank has a Jeff Epstein problem: “As Deutsche Bank officials this year scrambled to extricate themselves from a yearslong relationship with Jeffrey Epstein, the wealthy financier charged this month with sex trafficking, they uncovered suspicious transactions in which Mr. Epstein had moved money out of the United States,” the New York Times’ David Enrich and Jo Becker report.

“Deutsche Bank reported the transactions to a federal agency in charge of policing financial crimes, according to three people familiar with the bank’s internal processes. The report came as the bank started looking for signs that Mr. Epstein was using his financial resources for the purposes of sex trafficking.”

  • JPMorgan cut him off: "Mr. Epstein appears to have moved his business to Deutsche Bank after JP Morgan Chase cut ties with him. He had been a client of JPMorgan’s private-banking division from the late 1990s until around 2013, five years after he had pleaded guilty to state prostitution charges."
  • Compliance officers raised alarms: "In addition to wealth-management accounts, Deutsche Bank also provided loans to Mr. Epstein and his businesses, according to three people familiar with the relationship... In 2015 and 2016, anti-money laundering compliance officers in Deutsche Bank’s offices in New York and Jacksonville, Fla., raised a variety of concerns about the work the bank was doing with Mr. Epstein. The employees were concerned that the bank’s reputation could be harmed if it became public that Mr. Epstein was a client."
  • Suspicious activty: "The compliance officers on at least one occasion noticed potentially illegal activity in one of Mr. Epstein’s accounts, including transactions in which money was moving outside the United States, two of the people said. The compliance officers produced a so-called suspicious activity report, but it is unclear whether the report was ever filed with the Treasury Department’s financial-crimes division."
POCKET CHANGE

— DOJ launches major antitrust probe into tech: "The Department of Justice on Tuesday announced it is opening a wide-ranging antitrust review of 'market-leading online platforms,' an unprecedented probe of the tech industry that could heighten calls for Amazon, Facebook and Google to be broken up," my colleagues  Tony Romm, Elizabeth Dwoskin and Craig Timberg report.

"The effort aims to explore 'widespread concerns that consumers, businesses, and entrepreneurs have expressed about search, social media, and some retail services online,' according to the agency. It did not mention any major tech giant by name, but its stated interests track closely with Google’s dominance in search, Facebook’s leadership in social media and Amazon’s position as the country’s e-commerce leader. All three control vast amounts of data that give them an edge over smaller rivals, critics say." (Amazon CEO Jeff Bezos owns The Washington Post.) 

  • Facebook deal requires Zuckerburg guarantee. The WSJ's Ryan Tracy and John McKinnon: "Facebook Inc. CEO Mark Zuckerberg will have to personally certify that the company is taking steps to protect consumer privacy under a settlement expected to be announced with the Federal Trade Commission on Wednesday, a person familiar with the matter said. The deal includes a requirement that Mr. Zuckerberg make the certification to the FTC quarterly based on his personal knowledge, the person said. A false statement in such a certification would be subject to potential penalties, this person said."

— New opioid docs show unveil drugmakers' inner workings: "Newly unsealed documents in a landmark lawsuit Tuesday in Cleveland show the pressure within drug companies to sell opioids in the face of numerous red flags during the height of the epidemic," Sari Horwitz, Scott Higham, Aaron C. Davis and Steven Rich report.

"The release of the exhibits — sworn depositions of executives, internal corporate emails and experts’ reports — also reveals the ignored concerns of some employees about the huge volume of pain pills streaming across the nation. In one exhibit, emails show that a Purdue Pharma executive received an order from a distributor for 115,200 oxycodone pills, which was nearly twice as large as that distributor’s average order over the previous three months. The order came in at 4:15 p.m., according to the emails sent in October 2009.

It was approved one minute later."

— FTC alleges that Facebook deceived users: “The Federal Trade Commission plans to allege that Facebook misled users about its handling of their phone numbers as part of a wide-ranging complaint that accompanies a settlement ending the government’s privacy probe, according to two people familiar with the matter,” my colleague Tony Romm reports.

“In the complaint, which has not yet been released, federal regulators take issue with Facebook’s earlier implementation of a security feature called two-factor authentication. It allows users to request a one-time password, sent by text message, each time they log on to the social networking site.”

— Amazon is edging into real estate: “Amazon is branching into real estate through a partnership with Realogy, the nation’s biggest residential real estate broker, the company announced Tuesday,” my colleague Taylor Telford reports.

“It’s a somewhat unlikely match: The greatest disruptor in retail pairing up with an ailing legacy company. But the partnership is positioned to compete with the likes of Zillow, Redfin and Opendoor, which have shaken up the real estate world with their 'instant buying' algorithms and streamlined home-buying processes.” 

MONEY ON THE HILL

— The selling of the budget deal begins: “White House officials and congressional leaders defended a controversial budget deal on Tuesday, hoping to assuage concerns from conservatives and liberals ahead of a crucial House vote this week,” my colleagues Erica Werner, Damian Paletta and Seung Min Kim report.

“Treasury Secretary Steven Mnuchin met with Senate Republicans at a lunch on Capitol Hill, conveying that [Trump] fully supported the deal and would sign it into law. Republicans felt burned by Trump last year after they voted on a budget deal they thought he supported, only to have the White House withdraw its backing at the last minute. 'The four (congressional) leaders and the president are fully on board with this,’ Mnuchin told reporters as he left the meeting. Indeed, support for the legislation appeared to be consolidating, although signs of unease remained plentiful on both sides of the aisle.”

  • GOP shrugs at deficit. The Post's Bob Costa and Mike DeBonis: "The deal marks a significant capitulation to Trump after years of brinkmanship from Republicans claiming the mantle of fiscal responsibility, underscoring the president’s far-reaching hold over his party and a disregard for the budget-cutting and debt reduction that conservatives long claimed as priorities. The move has sparked cries of hypocrisy from many Democrats, who endured routine GOP lecturing about spending and the federal deficit throughout Obama’s two terms in office."

— Warren introduces student debt forgiveness plan: “Sen. Elizabeth Warren, D-Mass., introduced a bill Tuesday that would forgive student loans for tens of millions of Americans. Three-quarters of borrowers would have their balances reset to zero,” CNBC’s Annie Nova reports

“Under Warren’s proposal, introduced along with Rep. James E. Clyburn, D-S.C., borrowers with household incomes under $100,000 would get $50,000 of their student debt forgiven. People who earn between $100,000 and $250,000 would be eligible for forgiveness on a sliding scale — the cancellation amount reduces by $1 for every $3 a person earns over $100,000. And those who earn more than $250,000 would not get any debt relief.”

MARKET MOVERS

Central banks mull strategy shift. Bloomberg's Renee Vollgraaff and co.: "Struggling to hit their targets for inflation, central banks around the world are debating whether they need to alter what they’re aiming for. From the Federal Reserve to the European Central Bank, officials are studying their current strategies and whether they need to be changed to revive inflation as it keeps undershooting the levels deemed to represent price stability."

Fed to host climate change conference. Axios's Courtenay Brown: "On Nov. 8, the Federal Reserve Bank of San Francisco — seated in a place that has seen its share of catastrophes linked to global warming — will host what is believed to be the central bank's first research conference specifically on climate change... 

"Climate change poses systemic risks to the soundness of the U.S. banking system, and the Fed is signaling its appetite to learn more. The conference — together with an invitation to submit related research papers — comes at a time when the Fed is increasingly facing pressure to follow other central banks in considering the threats that global warming poses to the economy."

DAYBOOK

Today:

  • The House Small Business Committee holds a hearing on the Tax Cut and Jobs Act.
  • The House Financial Services Committee holds a hearing on the proposed merger between SunTrust and BB&T.
  • The Senate Finance Committee holds a hearing on a number of pending nominations, including Treasury General Counsel Brent McIntosh’s nomination to become an undersecretary in the department.
  • Facebook, Boeing, Caterpillar, AT&T, Anthem, Tesla, United Parcel Service and PayPal are among the notable companies reporting their earnings, per Kiplinger.

Upcoming:

  • The Financial Services Committee's Task Force on Financial Technology holds a hearing on alternative data in underwriting and credit scoring on Thursday.
  • Amazon, Anheuser-Busch InBev, Alphabet, T-Mobile, Intel, Bristol-Myers Squibb, 3M, American Airlines, Comcast, Unilever and Valero Energy are among the notable companies reporting their earnings on Thursday, per Kiplinger.
  • McDonald’s, Goodyear Tire and AbbVie are among the notable companies reporting their earnings on Friday, per Kiplinger.
THE FUNNIES
BULL SESSION