Last week, during a meeting with business executives, President Donald Trump reignited the conversation around Dodd-Frank, saying he expects “to be cutting a lot” out of the federal law introduced under President Barack Obama.
“I have so many friends of mine that have nice businesses that can’t borrow money,” Trump lamented to the crowd of CEOs, among them, Jamie Dimon of JPMorgan Chase and BlackRock’s Larry Fink.
It didn’t take long for the international financial community to respond.
President of the European Central Bank Mario Draghi expressed his concern over Trump’s remarks before the European Parliament on Monday, stating “the last thing we need is a relaxation of regulation.”
Elsewhere, left-leaning American commentators have warned that Trump’s attempts to deregulate the financial industry could plunge the US and the world back into another recession.
But from the perspective of the investment industry, the matter seems much more complicated. Professionals in financial services have been complaining for years about the strain of running their businesses under the oppressive weight of so much red tape since the global recession.
Setting aside the question of whether Trump could successfully overhaul such a complex piece of legislation entirely, would scrapping Dodd-Frank give the US a competitive advantage or simply blow up in the blowhard President’s face?
The winners and losers in this scenario will be pretty clear-cut, according to Raymond James European Strategist Chris Bailey. Of the British banks, Barclays, which has exposure to the US is a clear beneficiary, he said, whereas the more European-centric HSBC and domestically focused Lloyds are not.
And stateside, he thinks Goldman Sachs, JP Morgan or Citigroup would be the likely victors of financial deregulation under Trump and “could even get back to generating returns in the mid-teens again,” making for a more positive valuations story.
“The European banks on average would be the losers in this situation because their US counterparts would be more competitive and flexible at the margins and have more of the global market share ostensibly,” Bailey added.
But he also believes the dismantling of Dodd-Frank could prompt a shake-up in other nations’ attitudes towards financial regulation. In particular, he thinks China and Hong Kong will be “the ones to watch” as both have been trying to encourage local participants in the capital markets and want to reduce their reliance on US investment banks.