It's a cliché but it's still true: since the financial crisis, banking jobs have been a bit boring. What with all the new regulations and the new compliance staff (3,000+ at J.P. Morgan and 3,000 HSBC), bankers have been fettered. Senior people who were having fun before the financial crisis have been having a lot less fun since. Some have even turned to career coaches for help.
Thanks to Donald Trump, banking jobs could become great again. On the campaign trail, Trump indicated his dissatisfaction with the 2,300-page Dodd Frank act. Since its enactment in 2010, Trump said Dodd Frank has made it, "impossible for bankers to function." Trump's transition website reiterates the promise to do something about this, promising that his 'financial services policy implementation team will be working to dismantle the Dodd-Frank Act'.
Cue excitement among front office securities professionals, fear among the thousands of extra compliance staff hired to implement Dodd Frank, and a rally in banks' share prices. Suddenly, bank shares are surging above analysts forecasts for the first time since Dodd Frank was conceived. Most exciting of all will be if Trump repeals the Volcker Rule which banned banks from engaging in proprietary trading and making bets with their own money, thereby turning most traders in investment banks into a simple matching service for buyers and sellers with a bit of hedging on the side.
There are reasons to think the Volcker Rule might go. Jeb Hensarling, a House Republican close to Trump and chairman of the House Financial Services Committee wants to overturn it; under a Trump administration, he'll be in a position to do so. Trump himself has been somewhat ambiguous on the subject. Asked specifically about the Volcker Rule in 2015, he referred only to his respect for the rule's author, Paul Volcker, saying: "Well I'm not sure if he likes it, but if he's happy, I'm happy. He was a terrific guy. I've met him a few times. And I thought he was terrific. But I think his policy and his demeanor there was something very solid about him. His demeanor were very good."
Before prop traders get too excited about having their old banking jobs back, however, it's worth bearing in mind that most of the rhetoric about Dodd Frank from the Republicans has focused not on Volcker but on the regulatory impact on 'too big to Fail' and consumer lending. The policy document issued by House Speak Paul Ryan earlier this year, has a whole section on Dodd Frank, for example, but makes no mention of Volcker whatsoever.
Nonetheless, there may be hope. Brad Hintz, a former Lehman Brothers CFO, turned top banking analyst at Bernstein Research, turned adjunct professor of finance at New York University, says that above all else, the Trump administration is likely to be pragmatic.
"Mr. Trump was a frustrating candidate to analyze, in large part, because he did not appear to be an ideologue," says Hintz. "With little fixed political philosophies to guide a banking agenda, we can only assume that as a successful businessman, who's empire has weathered multiple recessions, Mr. Trump is likely to be very pragmatic in his reasoning and this will drive his administration."
That pragmatism could lead to a reduction in banking regulation, says Hintz. If U.S. economic growth falters, Trump may be encouraged to reduce banking regulation as a palliative. "If bond market illiquidity began to impact credit spreads and the pricing in the bond market, it may be prudent to loosen the regulations of the Volcker Rule," adds. "If lending for middle market companies is being stymied by regulatory limits then cost benefit analyses would be made to determine optimal rules for origination that enhance economic growth."
Equally, Hintz says Trumpism could spell the end of the huge fines that have plagued Wall Street banks under Obama: a pragmatic Trump administration would likely punish wrongdoers but desist from the, "multi-million dollar settlement agreements that provide no restitution and simply extract money from the banks for perceived past failings." Had Hillary Clinton been elected, KBW banking analysts note that the hawkish Elizabeth Warren would likely have taken over from Mary Jo White as chairman of the SEC. Suddenly, that "worst case scenario" is off the table.
While a Trump administration may not making banking jobs riotous fun again, it may therefore make them more interesting and exciting than would otherwise have been the case. Nothing, however, is certain. "The banking industry was not popular on November 8th before the election and it did not become miraculously become lovable on November 10th," says Hintz, adding that it is, "pure speculation to guess at the regulatory agenda of any new administration."
Even so, if Trump is indeed a pragmatist, and if his administration behaves pragmatically in the event of serious illiquidity in the bond markets, traders in investment banks could yet have the shackles lifted. Whether there are many left with the requisite experience is another question.
Photo: Wolf of Wall Street