The Trump Trade: Time To Buy Banks

Summary

Trump has vowed to dismantle Dodd-Frank.

Based on current valuations and the belief that banking is basically a commodity business, Citigroup is in a position to benefit most from deregulation.

The Trump presidency offers a premium to bank stocks with limited or no additional downside if he loses.

The presumptive Republican nominee, Donald J. Trump, has made a number of politically incorrect, often outlandish comments. That’s what disruptors do and, to the establishment’s dismay, the general populace seem to love it. In a wide ranging interview a couple of weeks ago, Trump indicated he was willing to talk to North Korean leader Kim Jong Un, renegotiate the Paris climate accord, and dismantle most of the Dodd-Frank financial regulations, the last of which, to use Trump’s favorite catch phrase, would be huge for financials.

Making Sausage

The Dodd-Frank Act is named after these two likable guys:

As most know, the guy on the right is Barney Frank. Frank was a liberal Democrat who chaired the House Financial Services Committee from 2007 to 2011. His Democratic buddy and co-sponsor of the bill to his right is Chris Dodd. Dodd was Chairman of the Senate Banking Committee.

The massive legislation, formally named the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, was a response (some would argue over-response) to the Great Recession and various well-publicized Wall Street indiscretions that helped create it. The legislation was over a year in the making and when finished touched nearly every aspect of the U.S. financial system. Once it was enacted and signed into law on July 21, 2010, it was up to the regulators to implement, which is ongoing even up to today.

In order to avoid turning the article into nighttime reading material for insomniacs, I’ll just hit some of the highlights, starting with the Volcker Rule, named after the former U.S. Federal Reserve Chairman Paul Volcker. The rule restricts banks from making speculative investments that don’t benefit its customers. Basically, prohibiting proprietary trading and investing and owning hedge funds.

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