Bankers are celebrating the prospect of lower corporate taxes and fewer regulations under President Donald Trump and a Republican-controlled Congress. “It’s a new day, and we’re excited about it,” said Kelly King, CEO of BB&T Corp. (NYSE: BBT), in an earnings call on Jan. 19, the day before Trump’s swearing in. “It’s a really good proposition for the banking industry.”
Other bank CEOs are similarly optimistic, contending that Trump’s proposed policy changes – which also include investing heavily in infrastructure and repealing and replacing the Affordable Care Act (ACA) – will be a boon to banks’ bottom lines.
“It’s remarkable the difference an election can make in the economic outlook,” said James Smith, CEO of Webster Financial Corp. (NYSE: WBS), on the company’s fourth-quarter earnings call Jan. 26. “Nearly all of the forecasted policy changes in a Trump administration, supported by a Republican Congress, appear to be positive for our business and our company.”
Much, of course, depends on how quickly Trump and his fellow party members can move on implementing their proposed changes – and how much pushback they get from Democrats in Congress. Bank CEOs should be cautious about setting expectations too high too soon, said Terry McEvoy, an analyst at Stephens Inc..
“There’s very little upside for management teams to be overly bullish in light of the high amount of uncertainty around changes coming out of Washington,” McEvoy said. “For any bank to be overly optimistic, given the uncertainty, may be doing injustice to shareholders.”
On BB&T’s Jan. 19 earnings call, King said that after the election he directed his 26 regional presidents at the Winston-Salem, N.C., company to canvass their best business customers and gauge their interest in investing in expansion. All of them expect the economy to pick up steam in 2017, he said. “Everybody was optimistic,” King said. “Individual companies are already requesting loans to buy trucks, to expand their plant, expand inventory.”
Smith, the longtime CEO at Waterbury, Conn.-based Webster, said he is keeping close tabs on the potential reform of the ACA, known as Obamacare. Many experts believe that reform would result in higher out-of-pocket costs for insured Americans, and that could mean more people enrolling in health savings accounts. Webster’s HSA Bank subsidiary manages more than 2 million health savings accounts.
Nationwide, the number of people with HSAs is increasing at a rate of about 20 percent a year, “and that could increase significantly, given the recent election results and the increasingly likely reform of the Affordable Care Act,” Smith said. “While no action has been taken, it’s possible that eligibility for HSAs could expand by multiples of previous expectation, and contribution limits could potentially double. Hundreds of millions of Americans may ultimately qualify for HSA plans versus the 18 million who had them as of midyear 2016,” he said.
Also high on bankers’ wish lists, of course, is regulatory relief, though big-bank CEOs said that they expect most reform efforts to be directed toward smaller institutions.
Many bankers say they hope to see a change in the tone of bank supervision under the Trump administration. “It's not just the regulations, it's the degree of intensity with which the regulators apply those regulations,” King said.
The Consumer Financial Protection Bureau (CFPB), under the leadership of Richard Cordray, has focused too heavily on setting policy through enforcement actions, said Richard Davis, CEO of U.S. Bancorp (NYSE: USB). “I’ve pleaded with Richard Cordray to consider making the CFPB an endorsement agency, not an enforcement agency,” Davis said during a Jan. 18 earnings call. The White House may influence the mission of the bureau by replacing Cordray, suggested White House National Economic Council Director Gary Cohn in an interview with The Wall Street Journal in early February.
Joseph DePaolo, the CEO of Signature Bank (NASDAQ: SBNY), said he hopes the administration and Congress will place a high priority on raising the threshold for determining if a bank is systemically important to well above the current $50 billion-asset mark. Signature has $39 billion of assets and at its current rate of growth it will cross the threshold sometime in 2019.
The $50 billion threshold is “anti-competitive and protectionist of the big banks,” because it gives smaller banks a disincentive to cross the threshold, DePaolo said in an interview with American Banker. Policymakers “should want more banks to grow past $50 billion, because these banks are the only ones that can compete with the megabanks.”
DePaolo said that a bill that would raise the cutoff to $125 billion would win bipartisan support in the House and the Senate if it were its own piece of legislation. It will fail, though, if its passage hinges on changes to other aspects of Dodd-Frank.
“If they just tried to move the number to allow more competition in the marketplace, then they could deal with the rest of later,” DePaolo said.
--Andy Peters and Kristin Broughton contributed to this story.