Small Banks Cheer Trump. So, After a Pause, Do Big Ones.

2016-11-22 01:12:20

 

Small Banks Cheer Trump. So, After a Pause, Do Big Ones.

Washington lobbyists, financial and policy analysts and Wall Street insiders are all trying to figure out what the Trump administration will mean for the banking industry.

But Rusty Cloutier never doubted that Mr. Trump would be good for the small bank he runs in Lafayette, La.

Mr. Cloutier sees in the new administration a chance not just for regulatory relief, but for a reordering of priorities away from the wealthy interests of the big cities and toward the rural and blue-collar communities where he operates.

“My customers are very hard-working people,” said Mr. Cloutier, the president of MidSouth Bank. “They work in the oil fields and they hear they are racist, and they just got tired of it being slammed in their face.”

He added, “Tell your editors that they need to run a headline that says ‘Main Street Won.’”

And yet, in the weeks since Mr. Trump’s surprise election, Wall Street has been winning, too.

The stocks of Bank of America and JPMorgan Chase have been soaring to their highest levels in years — a rally of such force that it has caught many bank executives and analysts by surprise.

The surge, for example, has more than restored all the value in Wells Fargo’s share price that was eroded after the scandal over the rampant creation of unauthorized bank accounts erupted in September.

For now, banks both large and small are benefiting from expectations that the president-elect will roll back regulations on just about every aspect of the industry, including the fees banks can charge, whom they can lend to and how much capital they have to hold.

Banks would also benefit from the higher interest rates that are expected if a Trump administration’s fiscal stimulus program revives inflation. Higher rates would increase the value of some of the banks’ holdings and would widen banks’ margins on loans.

But like nearly all of Mr. Trump’s policy positions, his plan for banking regulation has not been explained in any great detail. Mr. Trump’s feelings on banks, perhaps more so than other industries, are difficult to sort out.

On one hand, he has called for dismantling the 2010 Dodd-Frank financial overhaul that is credited with reining in risk taking but blamed for crimping profits. On the other, he has railed against Wall Street elites for keeping down small-town America.

How, then, will Mr. Trump justify policies that bolster bank profits, while also delivering on his promises of economic populism?

Community bankers see themselves in the sweet spot. They say Mr. Trump can limit regulations — particularly on banks with less than $10 billion in assets — while still being tough on the Wall Street banks that were the driver of the financial crisis and so much anger among the general public.

Freeing up community banks from the qualified mortgage rule and rigorous anti-money laundering guidelines, for example, would allow them to spend less time and resources complying with regulation and more on making loans and lifting the fortunes of the rural America Mr. Trump championed in his campaign.

Several community bankers said they also wanted the Trump administration to rein in the Consumer Financial Protection Bureau by installing a five-person bipartisan oversight board, rather than a single director.

Among community bankers, support for Mr. Trump has been pervasive and consistent.

Roughly 84 percent of community bankers supported Mr. Trump, according to a poll that the industry’s trade group conducted after the political conventions this summer.

“I didn’t have any Trump signs in my yard,” said Tim Zimmerman, president of Standard Bank, which operates in communities outside Pittsburgh. “But I want the bank to do well and to be able to help people in the community. And I can’t do that if things go the way they are going.”

In reality, the nation’s roughly 5,800 community banks represent a relatively small part of America’s banking activity. About half of the nation’s deposits are held by just a handful of mega-banks, where there was deep support for Hillary Clinton.

Many on Wall Street helped bankroll Mrs. Clinton’s campaign in the hope that she would protect the forces that drive their global profits, like free trade. Many executives at large banks feared that Mr. Trump was a loose cannon who could destabilize the economy.

The chief executive of Goldman Sachs, Lloyd C. Blankfein, went so far as to publicly voice support for Mrs. Clinton. He made a cameo in a pro-Trump ad — along with Janet L. Yellen, the chairwoman of the Federal Reserve, and the investor George Soros — that painted the Democrats as puppets of the global financial elite. Critics called the ad anti-Semitic because it focused on Jewish figures.

But as the stock market soared, the big banks began talking about the upside of a Trump presidency. Two days after the election, Mr. Blankfein said at the DealBook conference sponsored by The New York Times that he believed Mr. Trump’s policies would be “market supportive.”

Unprepared for a Trump victory, executives inside the big banks began drawing up lists of regulations or rules that the new administration and the Republican-controlled Congress might change for their benefit.

They are not arguing for the repeal of Dodd-Frank, which large banks have spent hundreds of millions of dollars complying with.

Nor do they want a less powerful consumer protection agency, which some credit with helping big banks by cracking down on players on the industry’s margins, like payday lenders.

At the top of their wish list: rolling back the so-called Durbin Amendment, which limits the fees banks can charge on debit cards, and tweaking the Volcker Rule so that large banks can engage in more types of trading activity to help their clients.

As banking lobbyists seek inroads with the new administration over regulation, Democrats are trying to pressure the industry to denounce other actions by Mr. Trump, including his selection of Stephen K. Bannon as his chief strategist. The former executive chairman of the Breitbart News Network, Mr. Bannon has been criticized for inflaming racist and xenophobic views.

In a letter last week, Representative Maxine Waters of California, the ranking member of House Financial Services Committee, and other Democrats said the banking industry had a “moral obligation to speak out against this appointment as contrary to the values of this country and to the values of your industry.”

The banking groups are declining to weigh in. Some say their input is not relevant because Mr. Bannon is not likely to have a direct role in regulating the financial industry.

“Personally, I don’t think he is a racist,” Scott McComb, chief executive of Heartland Bank, which operates across Central Ohio, said of the president-elect. “I think it is propaganda that is made to make him look bad.”

Mr. McComb said while Mr. Trump said things during the campaign “that are not becoming of a president,” he expected that Mr. Trump would act with more decorum in the White House.

“He conducted himself like a New York City developer,” during the campaign, Mr. McComb said. “That is how a New York City developer acts.”

Mr. Cloutier, the Louisiana banker, said even if Mr. Trump appointed someone like Steven Mnuchin, the former Goldman executive, to a top economic post, the president-elect would not forget his promises to working-class America — and by extension small banks.

“He’s not going to be taking care of the sugar daddies who look down on the hardworking people of America,” Mr. Cloutier said. “But if he don’t deliver on that, he won’t be around four years from now.”

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