Finance Brief: Wall Street Concerned Comey’s Firing May Delay Tax Reform Efforts

Washington Brief

  • President Donald Trump said it’s OK if his tax plan leads to an increase in the deficit because it would be temporary and because the tax-code rewrite would help stimulate growth. Trump said he needs a “little bit” of Democratic support for a tax overhaul, and that he’s considering aligning his tax plan with an infrastructure investment package to attract Democrats. (The Economist)
  • Trump said he plans to nominate David Kautter, a tax consultant at the firm RSM, to serve as assistant treasury secretary for tax policy. The position means Kautter would likely be part of the administration’s tax reform efforts if he’s confirmed by the Senate. (The Washington Examiner)
  • The Treasury Department announced the sale of more than $57 million in bank stocks purchased during the 2008 bailout of big banks. Troubled Asset Relief Program investments totaling $66.2 million are still outstanding, according to the Treasury Department. (The Hill)

Business Brief

  • Some Wall Street analysts are concerned that Trump’s firing of Federal Bureau of Investigation Director James Comey may lead to a slowdown in congressional action on pro-growth GOP priorities like tax reform. (Bloomberg News)
  • Wells Fargo & Co., in an investigation separate from its cross-selling scandal, is probing whether three of its Chicago executives inappropriately steered business toward certain individuals in its private-banking division. (The Wall Street Journal)
  • Barclays Chief Executive Jes Staley apologized to shareholders at an annual meeting for attempting to identify an anonymous whistleblower. He has been formally reprimanded by the bank’s board and faces a pay cut. (Financial Times)

Chart Review

Events Calendar (All Times Local)

Thursday
Senate Banking Committee hearing on housing finance 10 a.m.
Center for Strategic and International Studies trade event 11 a.m.
National Economists Club event with Mercatus Center’s Robert Graboyes 12 p.m.
American Bar Association Section of Taxation meeting 1 p.m.
Friday
FDIC community banking event in Kansas City, Mo. 8:30 a.m.
Drexel University urban economic policy conference 12 p.m.
American Bar Association Section of Taxation meeting 12 p.m.

 

General

What Wall Street is Saying About FBI Director Comey’s Ouster
Julie Verhage and Felice Maranz, Bloomberg News 

In the wake of President Donald Trump’s firing of FBI Director James Comey, Wall Street is weighing whether the political fallout will kill any momentum the White House had for its economic agenda. The abrupt decision has investors raising questions about whether the president’s pro-growth, tax-cutting reforms will stall as the focus shifts to why Comey was dismissed amid probes into possible Russian ties to Trump’s campaign.

Transcript: Interview with Donald Trump
The Economist

Donald Trump, the President of the United States, along with Steve Mnuchin, the treasury secretary, and Gary Cohn, the director of the National Economic Council, sat down for a conversation with editors from The Economist on May 4th, 2017. What follows is a lightly edited transcript.

McCain, Sasse to oppose Trump’s trade nominee over NAFTA
Damian Paletta, The Washington Post

Two Senate Republicans on Wednesday said they would vote against President Trump’s nominee for U.S. trade representative, questioning the White House’s adversarial negotiating tactics with Canada and Mexico. Sens. John McCain (R-Ariz.) and Ben Sasse (R-Neb.) said in a joint statement that they would oppose Trump’s nominee, Robert E. Lighthizer, during his Senate confirmation vote on Thursday.

Wyden puts ‘hold’ on nominee in push for Trump-Russia financial details
Jordain Carney, The Hill

Sen. Ron Wyden (D-Ore.) said Wednesday that he’s placed a hold on President Trump’s pick to oversee the administration’s sanctions policy, adding that he’ll only lift the hold if the Treasury Department provides documents about the financial ties between Russia and Trump associates. “I have stated repeatedly that we have to follow the money if we are going to get to the bottom of how Russia has attacked our democracy.

Mnuchin to brief G7 on Trump tax, regulatory plans: official
David Lawder, Reuters 

Finance officials from the Group of Seven industrial economies this week will discuss U.S. President Donald Trump’s tax and regulatory reforms, efforts to combat terrorist financing and a brightening economic picture, a senior U.S. Treasury official said on Wednesday.

In Trump’s shadow, Fed official says trade barriers a ‘dead end’
Suvashree Choudhury and Jonathan Spicer, Reuters

Trade protectionism is a “dead end” that may score political points but will ultimately hurt the U.S. economy, one of the most influential Federal Reserve officials said on Thursday in the central bank’s strongest defense yet of open borders in the face of a skeptical Trump Administration. William Dudley, head of the New York Fed, did not mention U.S. President Donald Trump by name in a speech at the Bombay Stock Exchange.

Europe Stocks Slip as Oil Leads Commodity Rebound: Markets Wrap
Samuel Potter and Cecile Gutscher, Bloomberg News

Futures on the S&P 500 slipped 0.2 percent after the underlying gauge rose 0.1 percent Wednesday to an all-time high.

Banking

Treasury recovers $57M in bank bailout funds
Sylvan Lane, The Hill 

The Treasury Department on Wednesday announced the sale of more than $57 million in bank stocks purchased during the 2008 bank bailout. The Treasury will sell more than 1 million shares of Puerto Rico-based First BanCorp at $5.61 per share.

Barclays chief Jes Staley apologises for pursuit of whistleblower
Martin Arnold, Financial Times 

Jes Staley, chief executive of Barclays, has apologised to shareholders for the “error” he admitted he had made in trying to uncover the identity of a whistleblower. In an attempt to take the sting out of the bank’s annual meeting on Wednesday, the Barclays CEO said: “I feel it is important that I acknowledge to you, our shareholders, that I made a mistake in becoming involved in an issue which I should have left to the business to deal with.

Fed’s Kashkari: Keep Dodd-Frank regulations in place for big banks
Lindsay Dunsmuir, Reuters 

Minneapolis Federal Reserve Bank President Neel Kashkari said on Wednesday that there should not be any relaxation of regulations that have tightened oversight of Wall Street. “Progress has been made. I wouldn’t want to roll that back off the biggest banks,” Kashkari said at an event in Minneapolis, when asked about the fate of the Dodd-Frank reform act that was passed in part to prevent big banks from causing a repeat of the 2007-2008 financial crisis.

Blankfein Says Banks Should Be Unshackled From Volcker Rule
Dakin Campbell, Bloomberg News

U.S. banks with federally insured deposits should be freed from Volcker Rule restrictions that prevent them from taking some types of principal risk, a market-making function that provides a valuable public service, Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said. Banks are hamstrung by rules that make it more difficult to hold inventory and act as principals, and should be unshackled to foster a more healthy market, Blankfein said Tuesday in an interview on CNBC.

The Volcker Rule: How Trump’s New Regulator May Unleash Big Banks
Ryan Tracy and Liz Hoffman, The Wall Street Journal

The nation’s main national bank regulator could act on its own to give banks relief from the Volcker rule trading ban, the agency’s acting chief said in his first interview since taking the job. Keith Noreika, on his third working day in office since becoming acting comptroller of the currency, also criticized aspects of the Depression-era Glass-Steagall law that had separated commercial and investment banking until its 1999 repeal, and said he wants to work to streamline banking rules.

Financial Products and Investments

Wells Fargo Probes Client Handling at Chicago Wealth Branch
Michael Wursthorn, The Wall Street Journal 

Wells Fargo & Co. is investigating whether three senior executives in Chicago inappropriately steered business toward certain individuals in its private-banking unit, according to people familiar with the matter, a move that comes months after the bank settled claims it engaged in “widespread illegal” sales practices in its retail unit. Two weeks ago, Wells Fargo suspended Chip Flannagan, a senior vice president and regional managing director for the bank’s Chicago private-banking operations, ordering him to keep away from the bank’s offices as it interviews dozens of employees as part of its investigation, according to the people.

US SEC taps IPO legal guru for Corporation Finance unit
Sarah N. Lynch, Reuters 

U.S. Securities and Exchange Commission Chairman Jay Clayton unveiled his first major personnel decision on Tuesday, saying he had hired an attorney who worked on prominent initial public offerings to lead the SEC’s division that oversees public company filings. The SEC said that William Hinman, a retired partner at the Silicon Valley office of the law firm Simpson Thacher & Bartlett, will serve as director of the Division of Corporation Finance.

Barclays will refund $97 million to advisory, brokerage clients
InvestmentNews

In a settlement with the Securities and Exchange Commission, Barclays Capital has agreed to refund more than $97 million in advisory and mutual fund fees to clients who were overcharged. Barclays, which neither admitted nor denied the SEC’s findings of three sets of violations, agreed to create a fund to refund advisory fees to overcharged clients, the SEC said in a release.

AIG Plans to Name Brian Duperreault as Next CEO
Joann S. Lublin and Leslie Scism, The Wall Street Journal

American International Group Inc. plans to name Brian Duperreault —a onetime lieutenant to former CEO Maurice R. “Hank” Greenberg—as the firm’s chief executive officer, with an announcement expected as soon as Thursday, according to people familiar with the matter. Mr. Duperreault, 70 years old, is the founder and CEO of Bermuda-based Hamilton Insurance Group Ltd. Mr. Duperreault and AIG are working out final details of his employment contract‎but are very close to final agreement, according to the people.

Hedge Funds Facing U.S. Criminal Probe Over Bond Valuations
Matt Robinson et al., Bloomberg News

U.S. prosecutors are investigating one of Wall Street’s darkest markets, focusing on hedge funds suspected of inflating the value of debt securities in their portfolios to juice the fees they collect. Having prosecuted traders who lied to customers about bond prices, the government is now scrutinizing hedge funds that allegedly solicited bogus price quotes from brokers, according to three people familiar with the matter who asked not to be identified.

Housing and GSEs

Trump Administration, Senators Put Fannie, Freddie Overhaul Back in Play
Andrew Ackerman, The Wall Street Journal

The Trump administration and a bipartisan group of U.S. senators are working to address an issue that has gone unresolved for nearly a decade: how to overhaul Fannie Mae and Freddie Mac, the mortgage-finance giants the government took over in 2008. The Senate Banking Committee has begun behind-the-scenes work on the issue of how, exactly, to revamp the companies.

Taxes

Trump nominates David Kautter for Treasury tax expert
Joseph Lawler, The Washington Examiner

President Trump announced Wednesday evening that he will name tax consultant David Kautter as the assistant secretary of the Treasury for tax policy, a position that will be key in the administration’s push for tax reform. Kautter is a partner in the tax practice for RSM, a firm that provides tax and audit services. Previously, he served as the director of the Kogod Tax Center at American University and had a long career at Ernst and Young.

GOP senators meet with administration officials on tax reform
Naomi Jagoda, The Hill

A group of Republicans senators met with administration officials to discuss tax reform on Wednesday, as the White House works to flesh out President Trump’s tax plan. Members of the conservative Senate Steering Committee met with Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn in the Eisenhower Executive Office Building.

Cohn, Mnuchin Oppose Border Tax, Hatch Says
Laura Davison and Kaustuv Basu, Bloomberg BNA

White House economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin oppose including the border adjustment tax in a plan to reform the tax code, Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said. “They’re against that,” Hatch told reporters May 9. “I think it’s hard to pass” in the Senate.

The GOP’s responsible taxman
David Rogers, Politico  

As a former White House budget director, Sen. Rob Portman still cares about deficits. But as a pro-trade Ohio Republican, he’s every bit as anxious to enact long-sought corporate tax reforms to spur industrial investment back home and lift worker wages. Where to draw the line is the big question.

Paul Ryan pitches tax reform to the public – and his own party
Ylan Mui, CNBC 

House Speaker Paul Ryan is taking his pitch for tax reform on the road in an effort to shore up public support for one of Republicans’ signature issues. Ryan is scheduled to hold a roundtable with local businesses Wednesday in New Albany, Ohio, near the capital of Columbus.

Financial Technology

Capital One deal aims to streamline data sharing for small business
Mary Wisniewski, American Banker 

The data deals are mounting as bankers seek alternatives to screen scraping. Capital One Financial and Xero have announced a data-exchange agreement that is expected to simplify data sharing for small-business customers.

Opinions, Editorials and Perspectives

The Financial Choice Act Will Roll Back Wall Street Regulations – And That’s a Good Thing
Alex Verkhivker, Forbes 

Earlier this month, the House Financial Services Committee held hearings on the Financial Choice Act, a 500+ page bill introduced by U.S. Representative Jeb Hensarling (TX-5). The Texas Congressman chairs the House Financial Services Committee, is a proponent of the free markets and has a stronghold over the future of the U.S. financial system.

Farmers Know the Benefits of Trade
Sonny Perdue, The Wall Street Journal

Trade is critical for American farmers and the economy as a whole. By value, about 20% of U.S. agricultural products are sent abroad.

An Invitation to Wage Theft
Editorial Board, The New York Times

It’s called the “Working Families Flexibility Act,” but it would accommodate only employers and could cheat families. The bill, which the House recently passed, would supposedly let employees who work overtime choose paid time off rather than time-and-a-half wages.

Research Reports

Globalization and Executive Compensation
Wolfgang Keller and William W. Olney, The National Bureau of Economic Research 

This paper examines the role of globalization in the rapid increase in top incomes. Using a comprehensive data set of thousands of executives at U.S. firms from 1993-2013, we find that exports, along with technology and firm size, have contributed to rising executive compensation.