Bank stocks surged Wednesday morning after former President Donald Trump won his bid to return to the White House, which seems likely to bring laxer regulation to the industry.
The KBW Nasdaq Bank Index soared 8.5% as investors eyed the prospect of looser regulations, lower corporate taxes and a potential rebound in mergers — which the Biden administration has taken a skeptical view on.
Capital One Financial's stock price jumped a whopping 14%, as a new Trump administration seems likely to boost the credit card company's
A shift in merger policies from the Trump administration will take time, but banks will no doubt see a "far more supportive environment for consolidation," Isaac Boltansky, a policy analyst at BTIG, wrote Wednesday morning. Smaller bank deals have gotten done under the Biden administration, but bankers have grumbled about how long approvals have taken, and a few transactions have ultimately been nixed.
Shares in other large and regional banks also shot up, as a rule from Biden administration regulators that would raise the level of capital they need to hold for safekeeping appears to be on the rocks.
"In our view, a Trump victory and potential Republican sweep is positive for regulatory risk," Keith Horowitz, a Citigroup analyst who covers the banking industry, wrote in a note to clients.
The stock prices of both JPMorgan Chase and Citigroup jumped over 8%, and Bank of America's rose more than 6%. The KRE exchange-traded fund, which tracks regional bank performance, surged nearly 11%.
The gains in banks' stock prices far outpaced those in the broader stock market. The S&P 500 Index rose 2%.
Wells Fargo's stock jumped 11%, as investors' hope that the megabank may finally get released from a years-old regulatory asset cap appeared closer to fruition. CEO Charlie Scharf has made some progress in repairing the megabank's systems after consumer-related scandals nearly a decade ago, but analysts believed the lifting of the asset cap would be a tougher sell with Biden administration regulators.
Stock prices also jumped for companies that are in the crosshairs of the Consumer Financial Protection Bureau, whether through lawsuits or rules that would limit their revenue.
Those firms include the credit card companies Synchrony Financial and Bread Financial, both of which would be among the lenders hit hardest by the CFPB's proposal to slash credit card late fees to $8, down from upward of $30.
Synchrony and Bread have
Shares in Credit Acceptance Corp., a nonbank auto lender that focuses on subprime customers, rose by 6%. The CFPB sued the company for what it alleged were deceptive lending practices in a lawsuit that
The moves in the market were not all positive for banks, or at least for those that would face pressure under a rise in long-term interest rates.
The Federal Reserve appears
Long-term bond rates are influenced by investors' expectations about inflation and longer-term economic trends. Ian Lyngen, a rates analyst at BMO Capital Markets, pointed to "reflationary" pressures as one explanation for Wednesday's sharp rise in yields for 10-year U.S. Treasury bonds, which rose as high as 4.47%.
Yields on 10-year Treasuries had dipped convincingly below 4% earlier this year but started to tick back up in October.
"The assumption going forward in terms of what to anticipate from Washington, D.C., includes an extension of the 2017 tax cuts and higher spending — as well as a push to lower corporate tax rates," Lyngen wrote in a note to clients, pointing to those policies' potential to raise deficits and increase the need for U.S. government borrowing.
Some banks with
Horowitz, the Citigroup analyst, flagged KeyCorp, Ally Financial, PNC Financial Services Group and Huntington Bancshares as some of the biggest beneficiaries.
"We believe this steepening of the yield curve to be positive for bank fundamentals due to fixed rate asset repricing," Horowitz wrote.
