Following a Trump victory, these financial institutions – Bank of America, Visa, and Capital One – are experiencing significant declines.
Following a Trump victory, these financial institutions – Bank of America, Visa, and Capital One – are experiencing significant declines.
Election results announced various media outlets and networks declaring Donald Trump as the victor and the upcoming 47th president of the USA caused a surge in bank stocks. The SPDR S&P Regional Banking exchange-traded fund saw a rise of almost 11% at 10:45 a.m. ET, marking one of the significant single-day jumps while observing bank stocks.
Shares of the second-largest U.S. bank, Bank of America (BAC -0.47%), exhibited a near 7% increase. Conversely, shares of Visa (V -0.70%) and Capital One (COF -1.17%) observed a climb of nearly 4% and 20%, respectively, at a certain point this morning, prior to slightly paring back some of those gains.
Improved regulatory scene for banks
I expressed last week that bank stocks would be among the major gainers following a Trump victory. Despite not being a significant campaign topic for either party, banking regulators under the Biden administration may have posed challenges for bank stocks. They delayed merger approvals and have held strict views on capital and liquidity regulations. In contrast, Trump favored deregulation during his first term as president. Furthermore, the Republican victory in the Senate may pave the way for control over the U.S. House of Representatives.
According to TD Cowen analyst Jaret Seiberg, as reported by CNBC, "Donald Trump is the candidate where you ignore what he says and focus on what you expect him to do." Seiberg suggested that deregulation for financials would be promising, as Trump's regulators are likely to repeal several regulations by the Consumer Financial Protection Bureau (CFPB) and reassess safety and soundness changes for big banks.
Trump's ability to appoint a new U.S. attorney general and officials to the U.S. Department of Justice (DOJ) may also benefit corporations like Visa and Capital One. The DOJ under Biden filed several antitrust lawsuits against large companies in various sectors. Recently, the DOJ sued Visa for its debit card practices, claiming the company exerted unfair powers to impose transaction fees that would have been unattainable in a competitive market. The New York Attorney General's office also launched an investigation into Capital One's planned merger with Discover Financial Services, considering whether it breaches state antitrust laws.
While it's premature to draw any definitive conclusions, I don't anticipate a Trump DOJ to be as relentless with antitrust as the DOJ under Biden, given individuals like Elon Musk and JD Vance's presumed influential roles within the Trump administration.
Favorable conditions for the sector
For some time, banks have encountered challenges. The sector grappled with an inverted yield curve since short-term Treasury yields surpassed those of longer-term Treasuries. This curve configuration negatively impacts banks, which generally borrow at short-term rates and lend at longer-term rates. However, the yield curve is now steepening, which generally benefits banks. Lower interest rates should also help bring down deposit costs and bolster investment banking activity.
Moreover, banks might experience improved clarity in final capital rules, enabling them to accelerate share repurchases and pursue mergers and acquisitions as potential growth catalysts for the sector. This situation, along with the aforementioned factors, leads me to the conclusion that bank stocks represent a compelling investment opportunity at this juncture.
In light of the election results, many analysts predict that banking regulators under a Trump administration will favor deregulation, which could potentially boost bank stocks further. This could include the repeal of certain regulations by the Consumer Financial Protection Bureau and reassessing safety and soundness changes for big banks.
The positive outlook for banking regulators under a Trump presidency has led to investors showing interest in investing in bank stocks such as Bank of America, with its shares exhibiting a near 7% increase after the election results.