Finance Brief: Deutsche Bank Is First Bank Fined for Breaking Volcker Rule

Washington Brief

  • President Donald Trump is expected to sign three executive actions today. One will direct the Treasury Department to examine Dodd-Frank’s “orderly liquidation authority,” and another will order an analysis of the risks of placing systemically important nonbank firms under Federal Reserve scrutiny. The third will order examination of taxpayer burdens, statutory overreach or unnecessary complexity from tax rules. (Politico)
  • Treasury Secretary Steven Mnuchin said the White House will release its tax-overhaul plan “very soon,” adding that he hopes tax legislation “won’t take until the end of the year.” His remarks came a day after House Speaker Paul Ryan (R-Wis.) suggested Congress might not pass a tax bill until much later this year. (The Hill)
  • Trump’s tax plan will rely heavily on future economic growth to finance large tax cuts, according to Mnuchin and National Economic Council Director Gary Cohn. That strategy could diverge from House GOP revenue-raising plans to tax imports and eliminate some deductions. (Reuters)

Business Brief

  • The Federal Reserve levied its first major fine related to the Volcker Rule to Deutsche Bank AG, which will pay about $157 million after the Fed said it failed to ensure traders adhered to the ban on proprietary trading and failed to detect online chats with competitors. (Bloomberg News)
  • The Securities and Exchange Commission’s enforcement actions against broker-dealers increased 20 percent in the first half of fiscal year 2017 compared to the same period a year earlier. (InvestmentNews)
  • The Trump administration is scrutinizing steel imports into the United States, a move that could complicate U.S. trade relations with China. Trump took a step closer to imposing tariffs on steel imports by citing a 1962 law allowing limits on imports that threaten security readiness. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Friday
IMF/World Bank meetings in Washington 9 a.m.

 

General

Trump plans executive actions on finance, tax rules
Victoria Guida, Politico 

President Donald Trump on Friday plans to order a review of key financial rules — less than three months after he directed an even broader examination of Wall Street regulations. Trump will send a signal that two important regulatory powers adopted in the wake of the financial crisis are in the crosshairs, along with tax rules put out by the Obama administration last year.

Donald Trump moves towards imposing tariffs on steel imports
Shawn Donnan, Financial Times 

The US has set the stage for a global showdown over steel, launching a national security investigation that could lead to sweeping tariffs on steel imports in what would be the first significant act of economic protectionism by President Donald Trump.  The decision to use a 1962 law allowing the US government to limit imports that threaten its security readiness is intended to deliver on Mr Trump’s campaign promises to bolster heavy industry and “put new American steel into the spine of this country”, officials said on Thursday.

White House’s Cohn says ‘fair trade’ means reciprocal tariffs
Jason Lange and Lindsay Dunsmuir, Reuters 

The Trump administration wants to tax imports from countries that put tariffs on the United States, said Gary Cohn, director of President Donald Trump’s National Economic Council. “Fair means we treat our trading partners the way they treat us,” Cohn told a conference on the sidelines of the IMF and World Bank’s spring meetings in Washington on Thursday.

Bonds Rise as Stocks Languish Before French Vote: Markets Wrap
V Ramakrishnan, Bloomberg News

Futures on the S&P 500 rose 0.1 percent as of 6:20 a.m. in New York. The underlying gauge rose 0.8 percent Thursday, with American Express surging nearly 6 percent to pace gains in the financial group after its results topped estimates.

Banking

Deutsche Bank is First Bank Busted for Breaking Volcker Rule
Jesse Hamilton, Bloomberg News

Deutsche Bank AG was hit with the Federal Reserve’s first major fine for failing to ensure traders abide by the Volcker Rule’s ban on risky market bets — and will also pay even more for letting currency desks chat online with competitors, allegedly revealing positions. The simultaneous sanctions, totaling almost $157 million, fault lax oversight of traders that persisted into last year.

Mnuchin targets FDIC powers, Volcker as top reg priorities
John Heltman, American Banker 

Treasury Secretary Steven Mnuchin criticized provisions in the Dodd-Frank Act allowing regulators to unwind failing financial institutions and barring banks from proprietary trading, saying fixes to those measures would be included in regulatory recommendations to the president due this summer.

High-stakes vote on Wells Fargo board also tests proxy adviser ISS
Ross Kerber and Dan Freed, Reuters 

A high-stakes shareholder vote at Wells Fargo & Co (WFC.N) next week will determine whether the bank has done enough to retain investor confidence after its phony-account scandal, and whether a leading proxy adviser wields enough clout to help oust most of its board. In one of its toughest shareholder notes, Institutional Shareholder Services (ISS) recommended earlier this month that investors vote against 12 of the 15 directors on Wells Fargo’s ballot at the company’s annual meeting on April 25, including independent chairman Stephen Sanger. ISS argued they had all failed in their oversight duties.

Trump’s Pick to Regulate Banks is Hardly a Shake-Up
Peter Coy, Bloomberg News

The populist, end-the-Fed wing of the Republican Party isn’t going to like President Trump’s choice for the critical job of overseeing bank regulation at the Federal Reserve. Randal Quarles, who founded and runs a Utah investment firm named Cynosure Group, is a Wall Street lawyer who worked for both Bush presidents and is married to a member of the powerful and wealthy Eccles family—as in Marriner Eccles, who was chairman of the Federal Reserve from 1934 to 1948.

Financial Products and Investments

SEC enforcement actions against broker-dealers up 20%
InvestmentNews

SEC enforcement actions against broker-dealers were up 20% in the first half of the government’s fiscal year, and now account for a quarter of all enforcement actions by the agency, according to a report from Cornerstone Research. Last year during the October-through-March period, actions against broker-dealers accounting for one-fifth of the SEC’s enforcement activities.

AIG Said Considering Duperreault Among Options for CEO Role
Sonali Basak et al., Bloomberg News

American International Group Inc. is weighing a plan to hire Brian Duperreault as the company’s seventh chief executive officer since 2005, according to people familiar with the board’s deliberations. Other candidates are still being considered as the board seeks a replacement for outgoing CEO Peter Hancock, said one of the people, who asked not to be identified discussing private deliberations.

Housing and GSEs

MBA to Congress: Here’s the roadmap you need to tackle GSE reform
Brena Swanson, HousingWire

On Sept. 6, 2008, the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac into conservatorship. Nearly nine year later, this is where the two government-sponsored enterprises remain, with little meaningful effort over the years to change the status quo. Until now.

Morgan Stanley Treasurer Celeste Mellet Brown to Leave for Fannie Mae
Liz Hoffman, The Wall Street Journal 

Morgan Stanley Treasurer Celeste Mellet Brown is leaving after 17 years at the firm to become deputy chief financial officer at Fannie Mae, according to people familiar with the matter. Ms. Brown, who will be taking the new job in June, will succeeded by John Ryan, a finance executive who has worked over the years in Morgan Stanley’s trading division and its private bank, the people said.

Taxes

Mnuchin: White House tax plan coming ‘very soon’
Naomi Jagoda, The Hill 

Treasury Secretary Steven Mnuchin said Thursday that the White House will release a tax-reform plan “very soon.” At an event hosted by the Institute of International Finance, Mnuchin said that he hopes tax reform “won’t take until the end of the year.”

Trump tax plan to rely on future U.S. growth to fund cuts: officials
David Morgan, Reuters 

U.S. President Donald Trump’s tax reform plan will rely largely on future revenue gains from faster economic growth to justify major tax cuts, top Trump advisers said on Thursday. As Trump’s first 100 days in office draw to a close, the disclosure is the latest sign that the White House could part ways with congressional Republicans who want to pay for tax cuts by taxing imports and eliminating a business tax deduction for debt interest payments.

GOP tax reform hearing postponed
Jonathan Swan, Axios 

The House Ways and Means Committee planned to kick off its tax reform hearings next week, but staff were told today that a hearing planned for Thursday would be postponed. The hearing was to be on the border adjustment tax — the centerpiece of the House tax plan, which would raise about $1 trillion over 10 years by hiking taxes on imports (this was all done privately, the hearing schedule was never made public).

Top Retailers Boost Spending on Lobbying Amid Border-Tax Battle
Ben Brody and Matthew Townsend, Bloomberg News

Three top U.S. retailers almost quadrupled their combined spending on lobbying in Washington during the first quarter of 2017, as they work to defeat a corporate-tax proposal that some have said threatens their industry. Target Corp., Best Buy Co. Inc. and Gap Inc. spent almost $3.2 million combined on lobbying during the quarter — up from $830,000 in the same period a year ago — according to federal lobbying disclosures filed Thursday.

13 groups that could muck up tax reform
Nancy Cook and Aaron Lorenzo, Politico 

The Trump White House has its own warring factions of senior advisers jockeying for power, yet that may pale in comparison to the camps gearing up to fight over tax reform, or already doing so. These groups of industries, lawmakers and other interests know all about protecting their turf.

Financial Technology

Wire Transfer Problems Worsen for Digital Currency Exchange Bitfinex
Stan Higgins, CoinDesk 

Digital currency exchange Bitfinex can’t send wire transfers abroad due to its ongoing banking issues, representatives said today. Responding to users on Reddit, a rep for the firm said that despite initial signs to the contrary, outbound wire transfers are unavailable in Swiss francs and Hong Kong dollars.

Plastc swiped $9 million from backers and just completely vanished
Ashley Carman, The Verge

Plastc launched in 2014 with the promise of shipping a single card that could digitally hold 20 credit or debit cards that a user could switch between. The company raised more than $9 million through preorders, and today, after shipping to no backers, the company said it’s planning to file for bankruptcy and will shut down.

Opinions, Editorials and Perspectives

Whose Tax Is It Anyway?
Rick Helfenbein, Morning Consult 

In a recent TV interview, President Donald Trump showed financial acumen and gave us hope that the administration’s new proposed tax plan might have a solution that works for everyone. He used the word “reciprocal” in relation to our international trading partners, and that’s a word (if handled properly) we all might like.

Teeing Up Trump Tariffs
Editorial Board, The Wall Street Journal 

Financial markets have been discounting the risks from President Trump’s trade policy, but maybe that’s premature. This week’s actions on “Buy American” and steel aren’t immediately dangerous, but they do make protectionist blunders more likely.

Need Revenue? Try Slashing the Capital Gains Tax Rate
Mark Bloomfield and Oscar S. Pollock, The Wall Street Journal 

In the debate over tax reform, the biggest challenge is always how to raise enough revenue to offset proposed tax cuts. Yet there is a relatively simple and painless way to maintain the federal coffers: Restore long-term capital-gains tax rates to the levels in place before President Obama took office.

Nearly 100 days in, Trump’s near-180 on trade good for US
Simon Lester, The Hill 

Last week, President Trump went back on his campaign promise to name China a “currency manipulator.” When he did so, most economists breathed a sigh of relief.

Robert Pittenger is wrong: The CFPB helps the economy
Chris Kukla, The Charlotte Observer 

One clear lesson from the financial crisis is that common-sense rules of the road in our financial markets would have prevented the damage. It may seem amazing now that banking regulators would have to pass rules requiring lenders to make sure borrowers could actually repay mortgage loans, but that was the case only seven years ago.

Research Reports

Competitiveness Impact of Tax Reform for the United States
Jack Mintz and Philip Bazel, Tax Foundation 

Among 43 nations surveyed, the United States has the second highest statutory corporate income tax rate at 39.1 percent and is one of the few nations that has not reduced its statutory tax in the past seven years.

Briefings

Finance Brief: Week in Review & What’s Ahead

President Donald Trump signed three executive actions affecting the financial services industry. The actions included two presidential memorandums — one directing the Treasury Department to examine the Dodd-Frank process for winding down failing banks, and another directing the agency to review the Financial Stability Oversight Council’s authority to designate firms systemically important. The third item was an executive order directing the Treasury Department to analyze tax rules adopted in the last 18 months and identify any regulations deemed convoluted or onerous.

Finance Brief: Week in Review & What’s Ahead

President Donald Trump expressed support for the Export-Import Bank, a longtime target of fiscal conservatives who see it as a government interloper in private markets. The export credit agency has faced limited financing powers for more than a year due to board vacancies. To resolve that, the White House said Trump intends to nominate two Ex-Im candidates, both requiring Senate confirmation: former Rep. Scott Garrett (R-N.J.), who voted against renewing the bank’s charter while he was in Congress, would be head of the credit agency; and former Rep. Spencer Bachus (R-Ala.), who previously led the House Financial Services Committee, would serve on the agency’s board.

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