Finance Brief: Senate Confirms Mnuchin for Treasury Secretary

Washington Brief

  • The Senate confirmed Steven Mnuchin as the next treasury secretary on Monday in a mostly party-line vote, with Democrat Joe Manchin (W.Va.) voting with Republicans. Mnuchin now faces challenges on tax policy and regulation. (The Los Angeles Times)
  • Four Republican senators — Susan Collins (Maine),  Johnny Isakson (Ga.), Lisa Murkowski (Alaska) and Tim Scott (S.C.) — told GOP leadership they’re reluctant to vote for labor secretary nominee Andy Puzder. With no Democratic support expected, Republicans would need votes from at least 50 GOP senators to ensure his confirmation. (CNN)
  • Commerce secretary nominee Wilbur Ross plans to keep millions of dollars invested in 11 offshore entities, including a co-investment with a Chinese government fund. Ross, a billionaire private equity investor, plans to divest at least 80 other assets. (The Wall Street Journal)
  • Federal Reserve Chair Janet Yellen testifies before the Senate Banking Committee today.

Business Brief

  • The European Union and other U.S. trading partners are building a possible World Trade Organization challenge to the House GOP’s proposed border adjustment tax. (Financial Times)
  • Chief executives from eight large retailers, including Gap Inc., Target Corp., and Best Buy Co., are meeting on Wednesday with House Ways and Means Committee Chairman Kevin Brady (R-Texas) and some senators in an effort to effort to fight the border adjustment tax, which would tax imports and exempt exports. (Reuters)
  • Global banks are considering adding risk disclosures in their annual reports that reference the Trump administration as a source of market uncertainty, but without mentioning President Donald Trump by name. (Bloomberg News)

Chart Review

Real GDP Growth
Bloomberg News

Events Calendar (All Times Local)

Tuesday
Richmond Fed’s Lacker speaks at University of Delaware 8:30 a.m.
Fed Chair Yellen testifies before Senate Banking Committee 10 a.m.
House Ways and Means Committee markup 10:15 a.m.
Dallas Fed’s Kaplan speaks at Greater Houston Port Bureau luncheon 11:15 a.m.
Wednesday
SEC Advisory Committee on Small and Emerging Companies meeting 9:30 a.m.
Fed Chair Yellen testifies before House Financial Services Committee 10 a.m.
House Ways and Means Committee hearing on the geography of poverty 10 a.m.
Boston Fed’s Rosengren speaks at New York Association for Business Economics 12 p.m.
Philadelphia Fed’s Harker speaks at La Salle University 12 p.m.
Thursday
Crain’s New York Business event with NYC regulators 8 a.m.
Washington International Trade Association event on U.S.-China trade 8:30 a.m.
Brookings Institution event on regulation 9 a.m.
Asia Society event on North American trade 9:15 a.m.
Andy Puzder confirmation hearing before Senate HELP Committee 10 a.m.
House Financial Services Committee hearing on covered agreements 10 a.m.
CFPB’s Cordray speaks at field hearing in West Virginia 11 a.m.
National Economists Club event on destination-based cash flow tax 12 p.m.
Peterson Institute for International Economics trade event 12:15 p.m.
Friday
SEC Miami office director speaks at panel discussion 1:45 p.m.

 

General

Steven Mnuchin wins slim vote for Treasury secretary — now he goes to work on taxes and regulations
Jim Nuzzanghera, The Los Angeles Times

Following a bruising confirmation battle that centered on his actions as head of Pasadena’s OneWest Bank, Wall Street executive Steven T. Mnuchin was narrowly confirmed by the Senate as Treasury secretary on Monday.

Labor secretary nominee Andrew Puzder in Jeopardy
John King, CNN

Four Republican senators have told GOP leadership they are withholding support for President Donald Trump’s choice for labor secretary, setting off an intense effort by Majority Leader Mitch McConnell and business groups to bring at least two back into the fold so that the nomination does not fail, several sources involved in the effort tell CNN. The four, these sources say, are GOP Sens. Susan Collins of Maine, Lisa Murkowski of Alaska, Tim Scott of South Carolina and Johnny Isakson of Georgia.

The Status Quo Would Be Better Than Trump For Growth: Goldman
Luke Kawa, Bloomberg News

Add Goldman Sachs Group Inc.’s chief economist to the list of those concerned that President Donald Trump won’t jumpstart economic growth. A week after a group of the bank’s political analysts warned of risks from protectionist moves, Jan Hatzius and economist Jari Stehn wrote that they anticipate a delayed boost from increased government spending because a bill likely won’t pass until late 2017 or early 2018.

Democrats May Have Upper Hand in Fight to Preserve CFPB
Gregory Roberts, Bloomberg BNA

The top-ranking House Republican on financial services issues has laid out two aggressive lines of attack on the Consumer Financial Protection Bureau, but both could run into daunting opposition from Democrats – and big banks. “It would be an uphill battle for Republicans to eliminate the CFPB or to make substantial changes to its mission,” George Washington University political science professor Sarah Binder told Bloomberg BNA.

Stocks, Dollar Falter as Investors Await Yellen: Markets Wrap
Cecile Gutscher and Natasha Doff, Bloomberg News

Futures on the S&P 500 edged lower, after the benchmark index closed up 0.5 percent at a record 2,328.25 on Monday.

Banking

Global Banks Weigh Adding Trump-Related Risk Disclosures
Richard Partington et al., Bloomberg News

The world’s biggest banks are poised to warn investors President Donald Trump has the potential to roil global markets and impact their firms by redrawing regulations and limiting the free movement of employees, according to people familiar with the matter. U.S. and U.K. banks are considering adding to their risk disclosures or beefing up particular sections in their annual reports due later this month, according to people familiar with the drafting of the documents.

Banks Ask Lawmakers to Ease Capital Rules, End Card Fee Cap
Elizabeth Dexheimer, Bloomberg News

Chief executives at the biggest U.S. regional banks are asking U.S. lawmakers to consider easing capital requirements and repealing part of the Dodd-Frank financial overhaul that caps fees banks charge retailers on debit-card transactions. Regional banks don’t pose risks to the financial system that have caused concern among policymakers, executives of 18 banks said in a Feb. 13 letter to the top Republican and Democratic lawmakers in Congress.

Reg relief may not mean lower compliance costs for banks
John Heltman, American Banker

Nearly 10 years since the onset of the financial crisis, the once all-consuming demand for improved safety and soundness in banking has been replaced by a single-minded pursuit of a streamlined regulatory structure emphasizing economic growth.

Hensarling’s Offensive on Dodd-Frank Seen as Negotiating Move
Doug Sword, Roll Call

House Financial Services Chairman Jeb Hensarling appears to be doubling down on his Dodd-Frank repeal legislation, adding more features objectionable to Democrats in the wake of a White House announcement of a four-month review of the nation’s financial laws and regulations. In a staff memo circulated last week, Hensarling filled five single-spaced pages with changes to a bill approved by his committee in September 2016 over the opposition of every Democrat and one Republican.

Financial Products and Investments

Commerce Nominee Wilbur Ross Will Keep His Stake in Chinese Government-Backed Company
Jean Eaglesham and Lisa Schwartz, The Wall Street Journal

Wilbur Ross Jr. plans to keep millions of dollars invested in offshore entities whose values could be affected by policies that he implements as commerce secretary. Mr. Ross, the 79-year-old private-equity billionaire whom President Donald Trump has nominated to run the Commerce Department, has said he would sell at least 80 business assets and investment funds over the next several months if he is confirmed.

Mnuchin G-20 Debut Clouded as U.S. Unspools World Currency Pact
Saleha Mohsin and Enda Curran, Bloomberg News

With President Donald Trump’s Treasury secretary finally in place, finance chiefs around the world have a direct link into an administration not shy about criticizing foreign currency policies. Group of 20 finance ministers were left in limbo during Trump’s first weeks in power without a counterpart to explain the inward-looking trade policies that the president and his advisers were calling for.

Investors plan tougher action to tackle excessive corporate pay
Madison Marriage, Financial Times

Several of the world’s most powerful shareholders are planning to take even tougher action on excessive bonuses for company bosses in 2017 after investor protests over executive pay reached a five-year high last year. Large investors including Fidelity International, Aberdeen Asset Management, Calpers, Standard Life and Henderson Global Investors have told the Financial Times that they are planning to crank up pressure on boards to reduce excessive pay and introduce greater transparency in 2017.

Sen. Elizabeth Warren presses Andrew Puzder on DOL fiduciary rule
Mark Schoeff Jr., InvestmentNews

Sen. Elizabeth Warren, D-Mass., is pressing Andrew Puzder, President Donald J. Trump’s nominee for labor secretary, on what he intends to proceed in reassessing a major investment-advice rule. In a 28-page letter to Mr. Puzder on Monday, Ms. Warren included several questions about the DOL rule, which would require financial advisers to act in the best interests of their clients in retirement accounts.

Trump’s impact on commodities: 6 things to watch
Henry Sanderson et al., Financial Times

US president Donald Trump has upended the equity, bond and foreign currency markets. But his proposed policies have also got commodity traders and producers on high alert.

Housing and GSEs

Regulators deny JPMorgan Chase, Redwood Trust securitization innovation
Ben Lane, HousingWire

Thanks to the government-generated regulatory environment, nearly all of the mortgage securitizations since the crisis have come from government-controlled entities, like Fannie Mae and Freddie Mac. As the government-sponsored enterprises’ share of the securitization market grew to outsized proportions, the private market all but disappeared, with private-label securitizations largely confined to jumbo mortgages.

Taxes

EU and others gear up for WTO challenge to US border tax
Shawn Donnan et al., Financial Times

The EU and other US trading partners have begun laying the groundwork for a legal challenge to a US border tax proposal in a move that could trigger the biggest case in World Trade Organisation history.  The preliminary moves come as Republicans in Congress are working to convince President Donald Trump to back a major shake-up of the US corporate tax system that would include a new “border adjustment” system.

Retail CEOs head to Washington to try to kill U.S. border tax – sources
Ginger Gibson, Reuters

Chief executives of some of America’s largest retailers, including Target Corp (TGT.N) and Best Buy Co Inc (BBY.N), are headed to Washington this week to make their case that a controversial tax on imports would raise consumer prices and hurt their businesses, according to people familiar with the plan. The group of eight retail bosses, that also includes chief executives of Gap Inc (GPS.N) and Autozone Inc (AZO.N), will meet on Wednesday with Kevin Brady, chairman of the tax-writing House Ways and Means Committee, and with members of the Senate, four people said in recent days.

House Chairman Says Border Tax Plan Would Survive EU Challenge
Sahil Kapur and Lynnley Browning, Bloomberg News

A news report that the European Union and other U.S. trading partners are preparing to challenge House leaders’ proposal to overhaul U.S. corporate taxes spurred the plan’s leading congressional advocate to declare that it would survive “any challenge that they bring.” Representative Kevin Brady, the Texas Republican who chairs the tax-writing House Ways and Means Committee, said he fully expects other nations to challenge the proposal for a “border adjusted” tax.

Trump and the tax plan threatening to split corporate America
Barney Jopson et al., Financial Times

Rick Woldenberg views US economic policy through an unconventional lens: a multicoloured toy microscope that retails for just $20. Copyrighted in the US but manufactured in China, My First Microscope is one of hundreds of toys sold by Learning Resources, his Chicago company, which he uses to measure the effect of Washington on his business.

Financial industry works to keep bank tax on ice
Naomi Jagoda, The Hill

Powerful lobbying groups in Washington are on guard against the revival of a proposed tax on banks and other financial institutions in the new Congress. A bank tax was part of the 2014 tax reform proposal offered by then-House Ways and Means Committee Chairman Dave Camp (R-Mich.), drawing fierce pushback from the financial industry.

China forex regulator surveying Shanghai firms about potential impact of higher U.S. tariffs: sources
Reuters

China’s foreign exchange regulator began surveying firms in Shanghai in early February about the impact on cross-border trade of possible protectionist measures by the United States, two sources said on Tuesday. The State Administration of Foreign Exchange (SAFE) is asking firms with large trading operations and cross-border payments with the United States whether they have U.S. production facilities, their tolerance for higher tariffs, and how they would deal with the higher tariffs, said one of the sources.

Financial Technology

Banks Look to Cellphones to Replace A.T.M. Cards
Stacy Cowley, The New York Times

Wallets can be lost, stolen or forgotten, but most people today wouldn’t be caught dead without their phones. Banks understand, and are grabbing on to that trend.

A Message from the National Black Chamber of Commerce:

Did you know the Durbin Amendment has made big box retailers $42 billion in profit? These corporations promised they would pass on profits made from lower debit transaction fees to consumers. But they have not kept their word and in many cases are charging consumers more.

Opinions, Editorials and Perspectives

Andy Puzder’s Grilling
Editorial Board, The Wall Street Journal

President Trump’s early troubles are starting to affect his ability to govern—to wit, Democrats think they have a shot at defeating his nominee for Labor Secretary, Andy Puzder. The White House had better get all hands on deck lest it lose a nominee who knows the damage that the Obama labor agenda did to workers.

President Trump, Keep the Federal Reserve Independent — It’s Too Expensive Not To
Tim Worstall, Forbes

It’s entirely true that the President makes such appointments and of course he’s entirely at liberty, should in fact, appoint people who share his general world view. But there’s a definite limit to how far this should go for, as not enough people know, the point of the Fed is to curb the enthusiasms of the politicians.

Voters Don’t Like Cutting Corporate Taxes
Justin Fox, Bloomberg View

On Sunday, Swiss voters rejected a reduction in corporate tax rates by a 59 percent to 41 percent margin. Some of the factors that drove their decision were unique to Switzerland and this particular referendum.

The tax reform flip-flop Trump desperately needs to make
David Smick, Fox News

Under the current proposed legislative agenda, Congress will not be able to take up the issue of tax reform until members of Congress get a firm picture of a replacement health care plan. That plan, which cannot be passed under the 51-vote majority reconciliation vehicle, but instead will require 60 votes, could take longer than expected to develop.

Why Trump’s Wall Street agenda will harm consumers and the world
Patrick Jenkins, Financial Times

So are Mr Trump’s principles a concise and aspirational riposte to an era of asphyxiating red tape? Or should the world worry about the dangers of deregulation? Below are the seven principles, decoded by a sceptic.

Federal financial agency should get axe in Dodd-Frank overhaul
Norm Champ, The Hill

As the Trump administration undertakes a review of Dodd-Frank, the 2010 financial reform law arising from the 2008 financial crisis, I nominate for repeal the parts of the statute that created the Financial Stability Oversight Council (FSOC). Dodd-Frank created the council of ten federal financial regulators to identify systemic risks and gave it the power to designate large financial services institutions as “systemically significant.”

Currency Manipulation is a Real Problem
Judy Shelton, The Wall Street Journal

Passionate defenders of the “global rules-based trading system” should be wary of thinking their views are more informed than President Trump’s. He has been branded a protectionist and thus many conclude he is incapable of exercising world leadership.

A Message from the National Black Chamber of Commerce:

Enactment of the Durbin Amendment has led to $42 billion in extra profit for giant retailers. These corporations said they would pass on the profits to consumers in the form of lower prices, but they’ve broken that promise, pocketed the money and in many cases are charging consumers even more.

Research Reports

Trade vs. Productivity: What Caused U.S. Manufacturing’s Decline and How to Revive It
Adams Nager, Information Technology & Innovation Foundation

Manufacturing is all over the news these days, as President Trump has made revitalizing the sector and bringing back its jobs a centerpiece of his administration’s agenda. But there is little agreement among experts about what happened to U.S. manufacturing in the last two decades, much less what is likely to happen in the near future.

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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