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Finance Brief: White House Sees Rand Paul as Key to Tax Reform Vote


Government Brief

  • GOP leaders pushing for tax reform are courting the vote of Sen. Rand Paul (R-Ky.), who has publicly expressed skepticism about the tax details that Republicans have released so far. Marc Short, the White House’s legislative affairs director, told conservative groups and business organizations last week that Paul is a crucial vote on the budget plan that would pave the way for a tax reform bill. (Politico)
  • Political analysts say that President Donald Trump’s ongoing public dispute with Sen. Bob Corker (R-Tenn.) has the potential to make Republican efforts to reform the tax code more difficult, since Corker is a leading Republican calling for a tax plan that doesn’t add to the deficit. Corker is also not running for re-election. (Reuters)
  • Sen. Sherrod Brown of Ohio, the ranking Democrat on the Senate Banking Committee, questioned whether Equifax Inc. should be winning any government contracts in the wake of its data breach. Brown said the Treasury Department should review whether the hack should be reason enough for “debarment,” preventing the company from entering or renewing government contracts. (The Washington Examiner)

Business Brief

  • The insurer American International Group Inc. is planning for $3 billion in losses from the natural disasters that have struck North America and the Caribbean in the last several months. In total, the insurance industry is projected to pay at least $100 billion this year. (Financial Times)
  • Brian Quintenz, the newest Republican member of the Commodity Futures Trading Commission, is pushing for the derivatives regulator to re-evaluate the lowering of the trading threshold at which swaps dealers face registration and capital requirements. According to Quintenz, the threshold dollar amount, which will drop to $3 billion from $8 billion at the end of next year if the commission doesn’t intervene, is a “meaningless” metric. (Bloomberg)
  • JPMorgan Chase & Co. has surpassed Bank of America Corp. as the largest U.S. bank by deposits. JPMorgan had $1.31 trillion at the end of June, according to data from the Federal Deposit Insurance Corp., accounting for 11 percent of deposits nationwide, while Bank of America had $1.29 trillion. (CNN)

Chart Review

Events Calendar (All Times Local)

Tuesday
AEI event on monetary policy 10 a.m.
Wednesday
AEI/CRN conference on housing risk 7:45 a.m.
The Hill event on tax reform with CEA’s Hassett, Reps. Neal and Roskam 8 a.m.
Bloomberg Government event on digital payments 8 a.m.
Peterson Institute event with OECD chief economist 8:30 a.m.
CSIS event on MDBs 9 a.m.
House Financial Services markup 10 a.m.
SEC open meeting 10 a.m.
House Agriculture hearing with CFTC’s Giancarlo 10 a.m.
Bipartisan Policy Center event with Rep. Neal 10 a.m.
Financial Services Roundtable event on tax reform 11:30 a.m.
House Ways and Means subcommittee hearing on Pacific trade 2 p.m.
Peterson Institute on Europe’s preparation for future financial crises 3:15 p.m.
Thursday
AEI/CRN housing risk conference 8 a.m.
Speaker Ryan speech at Heritage on tax reform 8:45 a.m.
House Financial Services hearing with HUD’s Ben Carson 9:30 a.m.
SEC Investor Advisory Committee meeting 9:30 a.m.
Carnegie Endowment for International Peace event on 20th anniversary of Asian financial crisis 11 a.m.
Friday
FDIC consumer research symposium 9:15 a.m.
Brookings event on regional development banks 2 p.m.
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General

Senate Democrat: Keep Equifax away from government contracts
Joseph Lawler, The Washington Examiner

Sherrod Brown, the top Democrat on the Senate Banking Committee, called on the Trump administration Monday to consider barring Equifax from entering into any government contracts, the latest in the fallout from the credit reporting firm’s massive data breach. The Ohio senator asked the Treasury Department to review whether the firm’s breach, which compromised the information of 145.5 million people, could constitute grounds for “debarment,” which would prevent the company from winning or renewing contracts with the government.

Shaky NAFTA deal threatens Navistar’s Mexico-made exports to world
Sharay Angulo, Reuters

Less than half the trucks exported from Navistar’s (NAV.N) mammoth Escobedo plant in Mexico are sold in North America but the factory’s success remains tightly tied to the uncertain future of the region’s NAFTA free trade deal. Navistar’s Mexican factory, now the U.S. company’s largest worldwide, exports to around 30 countries and sells less to the United States than competitors such as Daimler AG, one of the top three truck-makers in Mexico, which sends three-quarters of its Mexican-made commercial vehicles north.

Inside Trump’s Head: An Exclusive Interview With the President, And The Single Theory That Explains Everything
Randall Lane, Forbes

If Trump really did call the White House a “dump,” he’s over it. Inside the small West Wing study–where he stacks his papers and takes his meals atop what he calls his “working desk,” the president talks volubly about a chandelier he had installed and the oil paintings of Lincoln and Teddy Roosevelt.

Politics in Focus as Spanish Stocks, Dollar Drop: Markets Wrap
Cormac Mullen, Bloomberg

Politics remained the dominant theme in the markets on Tuesday as Spanish stocks declined and the euro rose before a pivotal meeting of Catalan’s regional parliament. The dollar weakened on concerns over U.S. tax reform and sterling rose as U.K. Prime Minister Theresa May won support for her Brexit stance.

Banking

New No. 1: JPMorgan tops Bank of America for deposits
Matt Egan, CNN

JPMorgan Chase is the undisputed king of banks after dethroning Bank of America as the biggest holder of deposits. Bank of America had held the bragging rights since it was formed by a merger in 1998, according to S&P Global Market Intelligence.

UK to delay selling down RBS stake until US case settled
Emma Dunkley and Martin Arnold, Financial Times

Bankers are preparing for the UK government to sell a stake in Royal Bank of Scotland worth about £3bn once the state-backed lender has cleared a significant mis-selling fine with US authorities. Two bankers involved in the process said the government was likely to wait for RBS to settle a potentially large fine with the Department of Justice over mis-selling mortgage-backed securities during the financial crisis, before it recommenced selling its 71 per cent holding.

Banking panel Dems push chairman for bipartisan reg relief bill
Sylvan Lane, The Hill

Four moderate Democrats on the Senate Banking Committee on Friday asked the panel’s chairman to help strike a bipartisan deal to amend Obama-era financial regulations. Sens. Joe Donnelly (Ind.), Heidi Heitkamp (N.D.), Jon Tester (Mont.) and Mark Warner (Va.) “strongly encouraged” Chairman Mike Crapo (R-Idaho) to “reach an agreement on a regulatory reform package that can come before the committee” within weeks.

Deutsche Bank Has a Plan to Ease Fund Managers’ MiFID II Start
Silla Brush and Will Hadfield, Bloomberg

Deutsche Bank AG and UBS Group AG each have plans to win trading business by trying to ease clients’ transition to the European Union’s sweeping new MiFID II law. The German and Swiss lenders will launch a new type of fixed-income trading platform for MiFID’s Jan. 3 start date, ahead of a requirement that will become mandatory for most big banks in September.

Financial Products and Investments

AIG warns of $3bn hit from hurricanes and Mexico earthquake
Alistair Gray, Financial Times

AIG has warned of a $3bn bill from a recent succession of hurricanes and earthquakes that its chief executive described as “unprecedented”. The insurer said it expected to take a $1.2bn hit in the third quarter from Hurricane Harvey, which ruined swaths of Houston, $1bn of losses from Irma, which struck Florida, and $700m from Maria, which devastated Puerto Rico. Other catastrophe losses, including earthquakes in Mexico, will cost it another $150m.

CFTC Swaps Dealer Threshold Criticized by Its Newest Republican
Benjamin Bain, Bloomberg

The U.S. Commodity Futures Trading Commission’s newest Republican is jumping right into a contentious debate over a registration requirement for swaps dealers. Brian Quintenz, who joined the CFTC as a commissioner in August, is calling for a rethink of the scheduled lowering of the annual trading threshold that determines which financial, energy and agricultural firms face stricter margin and capital rules.

Paris and Berlin at odds over key plank of eurozone reform plans
Jim Brunsden, Financial Times

French president Emmanuel Macron’s plans to make common cause with Germany to reform the eurozone have suffered an early setback as Berlin pushes proposals for sovereign debt writedowns that Paris fears could shatter investor confidence in the single currency. Mr Macron wants ambitious overhauls of eurozone governance ranging from the creation of a large common budget to the appointment of a European finance minister.

Housing and GSEs

Inspector questions Fannie Mae’s new controversial Washington D.C. headquarters
Brena Swanson, HousingWire

An updated report from the Federal Housing Finance Agency Office of Inspector General thrust Fannie Mae’s new headquarters back into spotlight, further fueling those in Congress who say the building costs are excessive and expensive to taxpayers. The government-sponsored enterprise’s new headquarters have been under fire ever since the FHFA OIG received an anonymous hotline complaint in 2016 that accused Fannie Mae of excessive spending on its consolidation and relocation of offices.

Taxes

White House pressures Rand Paul to back tax plan
Burgess Everett and Josh Dawsey, Politico

At a large gathering last week of conservatives and business groups pushing tax reform, one lawmaker in particular was on the mind of President Donald Trump’s top lobbyist: Rand Paul. Marc Short, the White House’s legislative affairs director, singled out the libertarian-leaning senator as crucial to the tax reform push, according to two sources familiar with the meeting at the American Action Network.

Trump-Corker spat complicates drive for tax reform in U.S. Senate
David Morgan, Reuters

A public feud between U.S. President Donald Trump and Senate Republican maverick Bob Corker could narrow the path for tax reform in the U.S. Senate, where a Republican go-it-alone effort is already showing signs of disunity. Days after the Republican-controlled Congress took two important steps toward advancing tax legislation, a Trump-Corker shouting match threatened to further alienate Trump from key Republican senators such as John McCain, who prevented the party earlier this year from repealing Obamacare.

These Are the Tax Issues Threatening to Divide Republicans
Sahil Kapur, Bloomberg

President Donald Trump and Republican congressional leaders unveiled a framework in September for far-reaching changes to the U.S. tax code. Now it’s up to the House and Senate tax-writing committees to turn the framework into legislation that can pass both houses.

Grover Norquist: Corker is a ‘grown up’ — he can fight with Trump but support tax cut
Berkeley Lovelace Jr., CNBC

Sen. Bob Corker can spar with Donald Trump on issues and still support the president’s plan for a major tax cut, anti-tax crusader Grover Norquist told CNBC on Monday. Trump blamed the Tennessee Republican on Sunday for the Obama administration’s nuclear deal with Iran, and suggested that Corker actively pursued a re-election endorsement from Trump and a top ranking Cabinet post.

Conservative groups unite around GOP tax framework
Naomi Jagoda, The Hill

A group of more than 30 conservative organizations is sending a letter to House members in support of the tax-reform framework Republicans released last month. “It’s past time to give tax relief to American middle-class wage earners and allow job creators to compete,” the groups wrote in the letter, which is being sent Tuesday to every House office.

Trump calls for tax law changes for NFL over protests: Twitter post
Susan Heavey, Reuters

President Donald Trump on Tuesday called for changes to U.S. tax law affecting the National Football League, fueling a feud with the league and its players over protests that he says disrespect the nation. “Why is the NFL getting massive tax breaks while at the same time disrespecting our Anthem, Flag and Country? Change tax law!” Trump wrote in a post on Twitter.

Goldman Sachs predicts only minor boost from Trump’s tax cuts
Heather Long, The Washington Post

According to President Trump, there’s one overriding reason America needs tax cuts: They’ll get the economy humming. “It’s called a middle class miracle,” Trump said at the end of September.

Financial Technology

Why Bitcoin’s Bubble Matters
Rob Curran, The Wall Street Journal

Ask most people about the bitcoin bubble, and they’ll probably have the same reaction: It’s interesting, but it won’t affect me. After all, they’ll figure, they aren’t investing in bitcoin, so if there is a bubble, and it does burst, they’ll be just fine.

Opinions, Editorials and Perspectives

What President Trump’s tax plan means for stocks
Ken Fisher, USA Today

There’s a lot of hot and heavy haggling over whether President Trump’s tax plan is good or bad, and who wins and loses. I’ve no clue what Congress will do. Nor does Congress. But I do know – cold – the ultra-long history of tax changes and parallel stock price wiggles.

Giving Capitalism a Social Conscience
David Bornstein, The New York Times

For more than 40 years, Muhammad Yunus, the Bangladeshi founder of the Grameen Bank and recipient of the 2006 Nobel Peace Prize, has been asserting that the most powerful way to eradicate poverty is to unleash the untapped entrepreneurial capacity of people everywhere. “Poverty is not created by poor people,” he says.

Guarded Optimism About the Global Economy
Mohamed A. El-Erian, Bloomberg 

The vast majority of high-level economic officials gathering at the International Monetary Fund-World Bank annual meetings in Washington this week will welcome and embrace both the recent and the prospective improvements in the global economy. And they should.

Research Reports

A Standard ESG Framework Is Key to Unleashing Markets’ Responsible Growth
Jason Gold, S&P Global

President Donald J. Trump’s decision in June to pull the United States out of the Paris Accord was met with hand-wringing in nearly every corner—with one notable exception. While politicians, business leaders, and activists made their voices heard, loudly, the financial markets, which typically react strongly to such headline events, were unperturbed.