Finance Brief: Kudlow in Running to Lead White House Council of Economic Advisers

Today’s Washington Brief

  • Lawrence Kudlow, a Reagan administration veteran and CNBC economic commentator, is a top candidate to lead President-elect Donald Trump’s White House Council of Economic Advisers. Kudlow was an early supporter of Trump’s candidacy but has diverged with him on issues such as trade. (The Wall Street Journal)
  • A controversial border adjustment provision is needed to offset other key aspects of the House GOP tax overhaul plan, such as deep cuts to the corporate tax rate and full business expensing. (Morning Consult)
  • Democrats scrutinizing Trump’s business ties may target them through the 2012 STOCK Act, designed to restrict insider trading by lawmakers and staff. The office of bill author Rep. Louise Slaughter (D-N.Y.) is determining how it could apply to Trump. (Politico)

Today’s Business Brief

  • A federal appeals court denied the National Association for Fixed Annuities’ request for an emergency injunction to block the Labor Department’s fiduciary rule. The trade group is appealing a district court ruling in favor of the rule. (InvestmentNews)
  • PayPal Holdings Inc. and Citigroup Inc. have reached a deal to make it easier for customers to pay with mobile phones at cash registers. The partnership is the latest development in a truce between PayPal and banking rivals. (The Wall Street Journal)
  • The sales partnership between Wells Fargo & Co. and Prudential Financial Inc. that’s at the center of the latest chapter of the bank’s fraud scandal netted the insurer $4 million, a small portion of the company’s overall revenue. (Bloomberg News)

Today’s Chart Review

Mark Your Calendars (All Eastern Times)

Friday
SEC administrative hearing 9:30 a.m.

 

General

Lawrence Kudlow in Running to Take Top Economic Adviser Post
Nick Timiraos, The Wall Street Journal

Economic commentator Lawrence Kudlow has emerged as a leading candidate to chair the White House Council of Economic Advisers, according to people familiar with the transition, a move that would place an establishment Republican who served in the Reagan administration in charge of shaping economic analysis in the Trump White House. Mr. Kudlow was an early supporter of Donald Trump and helped craft different iterations of the campaign’s tax-cut proposals.

Rep. Scott Garrett Meets With Trump Transition Team
Andrew Ackerman, The Wall Street Journal

Scott Garrett, a veteran House Republican who lost his re-election bid last month, met with Trump transition officials in New York Thursday morning, a sign he is under consideration for a top position in the administration. Mr. Garrett appeared at Trump Tower in Manhattan at about 10 a.m., according to a pool report.

N.C.’s Dan DiMicco meets with Trump in New York
William Douglas and Anita Kumar, McClatchy News

North Carolina resident Dan DiMicco is in New York on Thursday for a meeting with President-elect Donald Trump at Trump Tower. DiMicco, the former chief executive of Nucor, America’s largest steel company, is overseeing the Trump transition team’s work on the U.S. Trade Representative’s post.

French prosecutor calls for Lagarde charges to be dismissed
Michael Stothard, Financial Times

The chief prosecutor in the trial of Christine Lagarde in Paris called on judges to dismiss the negligence charge against the IMF head on Thursday, saying that the hearing had failed to support the “very weak” accusation against her. Jean-Claude Marin, public prosecutor, said it was already his opinion before the trial that Ms Lagarde should not be found guilty and nothing that came up during the trial that changed his mind, reports Michael Stothard in Paris.

Dollar Hits Speed Bump in Fed-Driven Rally; Bonds Stem Declines
Cecile Gutscher and Natasha Doff, Bloomberg News

The expiration of some futures and options on stocks and indexes Friday, known as triple witching, may add to stock volatility and trading volume in European markets.

Banking

Wells Fargo Tie-Up That Scarred Prudential Generated $4 Million
Katherine Chiglinsky and Jordyn Holman, Bloomberg News

Prudential Financial Inc. said the relationship with Wells Fargo & Co. that led to a whistle-blower lawsuit and state probes over suspected sales abuses generated a tiny fraction of the life insurer’s revenue. “We do not gauge the importance of this matter in financial terms, but for purposes of this call, it’s probably useful to put some financial parameters around it,” Steve Pelletier, chief operating officer of the insurer’s U.S. operation, said at an event Thursday discussing the company’s outlook for 2017.

Why Wells Failed Its Second Living Will Test
Lalita Clozel, American Banker

The question of how and why Wells Fargo failed its living will test is an issue the bank needs to address soon as it faces another deadline to fix problems identified by regulators.

Financial Products & Investments

Appeals court denies NAFA motion for emergency injunction of DOL fiduciary rule
Mark Schoeff Jr., InvestmentNews

The D.C. Circuit Court of Appeals on Thursday denied a motion for an emergency injunction of a Labor Department investment advice rule, leaving it in place as the Trump administration comes into office. The National Association for Fixed Annuities sought a preliminary injunction against the regulation in the D.C. district court earlier this year.

Trump’s businesses could trip insider-trading law
Isaac Arnsdorf, Politico

Democrats are exploring a new strategy to pressure Donald Trump over his business conflicts of interest, arguing that an insider trading law would make it a crime for him to profit on information he learns as president. The STOCK Act, adopted in 2012, was designed to restrict insider trading by members of Congress and their staff.

SEC Takes No Further Action Against Wells Fargo Over Portfolio Accounting
Michael Rapoport, The Wall Street Journal

The Securities and Exchange Commission questioned how Wells Fargo & Co. valued and accounted for a portfolio of soured loans, but the agency concluded its review without further action, after the bank provided more information.

Finra enforcement chief Brad Bennett to resign
Mark Schoeff Jr., InvestmentNews

Finra pursued broad, sweeping cases and also ramped up its crackdown on smaller violations during the six-year tenure of J. Bradley Bennett as the organization’s chief of enforcement. The Financial Industry Regulatory Authority Inc., the broker-dealer self-regulator announced on Thursday that Mr. Bennett, 54, will step down early next year.

JPMorgan Draws IRS Whistle-Blower Complaint Over Pension Funds
Neil Weinberg, Bloomberg News

JPMorgan Chase & Co. paid more than $300 million a year ago to resolve regulators’ claims that the bank had failed to tell wealthy clients it was steering them into its own funds. Now it may have unfinished business with the Internal Revenue Service.

Securities Guru Rakoff Sparked Insider Trading Reversal From Afar
Kimberly Strawbridge Robinson, Bloomberg BNA

A fortuitous panel assignment in the Ninth Circuit allowed district court Judge Jed Rakoff to craft the decision that ultimately unseated a ground-breaking insider trading opinion from his home circuit. The U.S. Supreme Court sided with the retired New York judge Dec. 6 when it held in Salman v. United States that a close relationship between a tipper and tippee can be enough to impose insider trading liability.

Swap Group Taps ICE to Govern Rulings For $11.5 Trillion Market
Katie Linsell, Bloomberg News

The International Swaps & Derivatives Association, which oversees the $11.5 trillion credit-default swaps market, appointed Intercontinental Exchange Inc. to manage the process for determining when insurance contracts pay out. The trade group is replacing itself as secretary for regional committees that make binding decisions for the credit derivatives market.

How Donald Trump’s Infrastructure Plan Could Be Financed
The Bond Buyer

Direct pay bonds similar to Build America Bonds may wind up forming the backbone of Donald Trump’s proposed 10-year $1 trillion infrastructure investment plan.

Housing & GSEs

Fannie and Freddie Outline New Respite For Troubled Borrowers
Joe Light, Bloomberg News

Distressed mortgage borrowers will get a new lifeline from Fannie Mae and Freddie Mac after a critical foreclosure-prevention program expires this month. The mortgage-finance giants on Wednesday outlined a plan to replace the Home Affordable Modification Program, one of the first responses to the financial crisis by President Barack Obama’s administration.

Fannie-Freddie Regulator Said to Plan to Stay on Under Trump
Joe Light, Bloomberg News

When Barack Obama leaves office on Jan. 20, Democratic appointees across the government are expected to follow him out the door, to be replaced by officials chosen by Donald Trump. Not Mel Watt — he isn’t planning to go anywhere. As head of the little-known but powerful Federal Housing Finance Agency, Watt oversees Fannie Mae and Freddie Mac, the companies that underpin nearly half of U.S. mortgages.

Taxes

Controversial Import Tax in GOP Plan Needed as Revenue Raiser
Ryan Rainey, Morning Consult

Republican lawmakers who have committed to passing a comprehensive tax overhaul next year already have a problem on their hands: a controversial provision on imports will be needed to offset popular corporate tax reductions. In the past week, a swell of industry opposition to the GOP “border adjustment” plan has emerged, spearheaded by Koch Industries.

Trump Tax Cut to Magnify CEOs’ Retirement Bonanza, Study Finds
Carol Hymowitz and Alicia Ritcey, Bloomberg News

Chief executive officers are poised to collect an additional retirement windfall if President-elect Donald Trump succeeds in cutting the taxes of the highest U.S. earners, according to a new study. The CEOs of Fortune 500 companies, who had accumulated almost $3 billion in tax-deferred accounts at the end of 2015, will owe the Internal Revenue Service about $990 million if the top federal tax rate is reduced to 33 percent, or $180 million less than they’d currently pay, the Institute for Policy Studies, a liberal think tank in Washington, said in a study released Thursday.

Financial Technology

PayPal Taps Citigroup For New Mobile Push
Telis Demos, The Wall Street Journal

PayPal Holdings Inc. has struck a new partnership with Citigroup Inc. to make it easier for customers use mobile phones to pay at the checkout register. The pact between the New York bank and credit-card issuer follows a decision by PayPal earlier this year to stop fighting Visa Inc. andMasterCard Inc.

Bitcoin is Being Monitored by an Increasingly Wary U.S. Government
Leah McGrath Goodman, Newsweek

Newsweek has learned hundreds of experts inside the nation’s defense and intelligence agencies, as well as private-sector researchers in finance, technology and various think tanks across the country—some of them under contract with the U.S. government—are now investigating how virtual currencies could undermine America’s long-standing ability to disrupt the financial networks of its foes and even permanently upend parts of the global financial system.

Opinions, Editorials & Perspectives

Why the ‘One China’ Policy Works
The Editorial Board, Bloomberg View

In questioning the “One China” policy that’s governed U.S.-China relations for nearly four decades, President-elect Donald Trump seems to believe he’s wielding powerful leverage to persuade leaders in Beijing to give the U.S. a better deal on trade. In fact, he’s setting himself up to fail — and ignoring the more effective tools at his disposal.

Regulation 2.0
Gina Chon, Reuters Breakingviews

The future of tough post-crisis U.S. bank regulations is up in the air. President-elect Donald Trump and his Republican allies have vowed to unwind the Dodd-Frank rules enacted in 2010. Given their slim majority in the Senate and regulators’ support for key reforms, they may have to pick their battles. Breakingviews assesses which rules may stay or go.

America’s New Dealmakers-in-Chief
William D. Cohan, Politico

When we think of our Treasury secretaries, we imagine a group of august, sober-minded business leaders who combine refined management skills with knowledge of finance and the capital markets. And that’s mostly what we’ve gotten over the years: Both Henry Paulson and Robert Rubin ran Goldman Sachs after long careers at the firm (as a banker in Paulson’s case; as an arbitrageur in Rubin’s case).

Even Barney Frank Wants to Reform Dodd-Frank. The Trump Administration Should Make It Happen
Alfredo Ortiz, Independent Journal Review

When even a law’s namesake is speaking out against it, you know it is in trouble. Last month, former Massachusetts Representative Barney Frank criticized the Dodd-Frank financial legislation he crafted for disproportionately hurting community banks by setting too low of a compliance threshold.

Wells Fargo is conducting itself like Enron did
Steve Glazer, The San Francisco Chronicle

San Francisco’s Wells Fargo set up an incentivized system of rewards and punishments for its staff at every level that led to the creation of phony accounts and illicit fees being charged to millions of customers. Yet Wells Fargo, the nation’s second-largest bank, has ducked government inquiries into how such a system came to be.

The Federal Reserve has economic and political headaches
The Editorial Board, The Economist

The complexion of the central bank’s task has altered since the election of Donald Trump. Stockmarkets in America have rallied, the dollar has surged and Treasury yields have jumped in anticipation of fiscal stimulus. Such a stimulus would imply, all else being equal, that the Fed should now raise interest rates more quickly. The political backdrop is more complicated, too.

Trump must see that small business is the engine of America
Karen Mills, The Hill

Half of the people who work in this country own or work for small businesses, which historically create nearly two-thirds of new jobs. It is a positive step that President-elect Donald Trump signaled this month that the administrator of the U.S. Small Business Administration (SBA) will continue to have a seat at the cabinet table.

Research Reports, Issue Briefs & Case Studies

Economic Report of the President
The White House

Today, thanks to the resilience of the American people, our economy has emerged as the strongest and most durable in the world. By nearly every economic measure, America is better off than when I took office.

First Steps for the Trump Administration: Restore Financial Freedom
John Berlau, Competitive Enterprise Institute

Over the past 15 years—beginning with the George W. Bush administration and accelerating rapidly in the Obama administration—Congress and the executive branch have imposed a series of laws and regulations that place obstacles in the way of entrepreneurs, investors, and consumers. These policies have led to greater concentration in the financial industry and fewer options for credit and capital for consumers and entrepreneurs.