People
&Markets
Banks face headline risk in US election
Will US bank stocks lose the lustre they
ACHIEVEDûINûTHEûlRSTûTWOûYEARSûOFûTHEû$ONALDû
Trump administration if his Republican
party is wiped out in Tuesday’s US election?
Most analysts say no.
In the US, Republicans control both
CHAMBERSûOFû#ONGRESSûnûTHEû(OUSEûANDûTHEû
Senate – helping Trump pass legislation
such as that cutting the corporate tax rate to
ûORûCONlRMINGûHISûPICKSûTOûHEADû
regulatory agencies. The president’s party
has also shielded him from investigation
and largely kept oversight of regulators to a
minimum.
4HATûCOULDûCHANGEûIFû$EMOCRATSûAREûABLEû
to seize even one chamber. They are
currently expected to take control of the
(OUSE ûBUTûHAVEûAûTOUGHûROADûAHEADûINû
taking the Senate.
3HARESûOFûTHEûTOPûlVEû53ûBANKSûHAVEûHELDû
considerable gains after Trump’s election
two years ago unleashed hopes of tax cuts
and regulatory reform. So far this year
shares in MORGAN STANLEY, BANK OF AMERICA,
CITIGROUP and GOLDMAN SACHS are all down,
while JP MORGAN is up 2%. But all of the banks
are still up more than 25% since Trump’s
election, and up 43% on average.
“Many investors have eyes on November 6
and the elections. Our view of the consensus
is that bank stocks will perform better so
LONGûASûTHEû$EMOCRATSûDONTûWINûBOTHû
chambers,” said Wells Fargo analysts Mike
Mayo.
Mayo is bullish on bank stocks and
expects to remain so. “Our bullish view is
not dependent on the election outcome,” he
said. “The tax reductions are in place, the
changes at the agencies are in place. These
are real concrete changes that are not going
to be reversed as a result of an election,”
Mayo said.
“If anything, we wonder if investors are
giving bank stocks enough credit for the
changes in regulation that have already
been made,” he said.SENATE TOO?
Following the election, the heads of
regulatory agencies, including the Federal
2ESERVE û&EDERALû$EPOSITû)NSURANCEû#ORPûANDû
Securities and Exchange Commission, willNOTûCHANGEûANDûTHEûmOWûEMANATINGûFROMû
regulatory change that has already
transpired is unlikely to reverse, Mayo said.
Analysts at UBS put the chances of
$EMOCRATSûCAPTURINGûTHEû(OUSEûATû û
potentially leading to increased gridlock and
a higher chance that important legislation is
passed through last-minute deals. That could
disrupt markets in the short term, according
to UBS strategist Justin Waring.
)FûTHEû$EMOCRATSûTAKEûTHEû(OUSE û7ARINGû
EXPECTSûlNANCIALûlRMSûWILLûFACEûHIGHERû
“headline risk” from major committees
UNDERûTHEIRûCONTROL ûINCLUDINGûTHEû(OUSEû
Financial Services Committee.
)Fû$EMOCRATSûTAKEûTHEû3ENATEûASûWELL û
efforts to unwind regulations enacted after
the crises will slow. Waring put the
LIKELIHOODûOFû$EMOCRATSûTAKINGûTHEû3ENATEûATû
20%.
“A less friendly Congress could work to
slow the pace of deregulation and would
eliminate hopes of legislation aimed at
ROLLINGûBACKûPARTSûOFûTHEû$ODD
&RANKû!CT vû
wrote UBS strategist Bradley Ball.
Philip ScipioStanChart keeps lid on costs
STANDARD CHARTERED eased concerns about its
growing cost base as the Anglo-Asian lender
booked a 4% increase in revenues during the
THIRDûQUARTERûWHILEûOPERATINGûEXPENSESûmAT
lined.
StanChart said operating income for the
July–September quarter stood at US$3.72bn,
versus US$3.59bn during the same period
last year. Operating expenses edged up 1% to
US$2.51bn.
0RE
TAXûPROlTûJUMPEDûûTOû53BNûASû
THEûEMERGING
MARKETSûLENDERûBENElTEDû
from double-digit growth in Greater China
and a stronger balance sheet, with credit
impairments halving.
4HEûLATESTûlGURESûWEREûWELCOMEûNEWSûTOû
the bank’s management, which undertook
an aggressive restructuring, overhauling
lending practices and writing off bad debts,
after Bill Winters took over as chief
executive three years ago.
More recently, Winters has sought to draw
a line under the restructuring, instead
emphasising revenue growth, although
investors have queried the bank’s ability to
increase revenues while keeping costs down.
In August, it reported a 6% rise in
REVENUESûFORûTHEûlRSTûHALFûTOû53BN û
although that was overshadowed by a 7%
jump in operating costs to US$5.1bn.
,ASTûMONTH ûCHIEFûlNANCIALûOFlCERû!NDYû
(ALFORDûEXPRESSEDûCONCERNûABOUTûTHEû
DIFlCULTYûOFûKEEPINGûAûLIDûONûCOSTSûINûANû
email to senior managers that was
subsequently leaked, showing he had asked
managers to possibly reduce investment
spend and cut jobs.
“The spirit of that was very much one of:
this is a tough world out there and we know
that every business needs to earn its keep,”
(ALFORDûTOLDûREPORTERSûAFTERûTHEûRESULTS
“We do have the ability and the capability
TOûINmUENCEûTHEûCOSTSû)ûTHINKûSOMEûPEOPLEû
were questioning that in the second quarter,
INûTHEûlRSTûHALFûOFûTHEûYEAR û;AND=ûTHATûISûNOTû
true.”TRADE TENSIONS
StanChart eked out modest revenue growth
in its three main business groups as
operating income from corporate and
institutional banking and retail banking
both edged up 1%, to US1.65bn and
US$1.27bn respectively, while revenues
from commercial banking rose 2% to
US$346m.(ALFORDûCONCEDEDûTHATûRESULTSûWEREûHITûBYû
rising trade tensions between China and the
US, which had a knock-on effect in
particular on its wealth management and
markets businesses.
h7EûSAIDû;ATûTHEûENDûOFûTHEûlRSTûHALF =ûTHATû
uncertainties resulting from escalating trade
frictions and geopolitical risks were
emerging and we’ve seen the indirect effect
of that,” he said.
“That most obviously affected our wealth
MANAGEMENTûBUSINESSûANDûPARTSûOFûlNANCIALû
markets, where we have seen some clients
transacting less [and] deleveraging.”
2EVENUESûFROMûlNANCIALûMARKETSûSLIPPEDû
5% to US$631m, which compared
UNFAVOURABLYûWITHûMOSTûRIVALSû(3"#û
reported a 5% increase in revenues from its
global markets business for Q3.
Revenues from credit and capital markets
fell by almost half to US$48m. The capital
structuring and distribution group, a new
entity introduced last year comprising the
various private-side distribution and
structuring teams in the corporate and
institutional banking division, was roughly
mATûATû53M
Thomas Blott