Following the news that Steve Mnuchin would be US Trasury Secretary, Wall Street analysts offered mixed predictions on which policies Donald Trump’s choice for Treasury secretary may pursue, as they have little to go on other than Mnuchin’s background with Goldman, buying/selling the former Indy Mac.
The prevailing consensus is that Mnuchin’s Wall Street past will lead to easing regulations, tax policies; but at the same time, Mnuchin may not help larger banks as he may focus on regionals and/or seek to distance himself from his GS/IndyMac past. For now optimism dominates, as banks gain, with the KBW banks index up as much as 2% to highest intraday since May 2008. Not surprisingly, Goldman Sachs is up as much as 3.5% to highest since Dec. 2007.
Earlier, Mnuchin said that FNMA, FMCC should exit government’s grip and didn’t mimic Republicans who’ve said FNMA, FMCC should be wound down or eliminated. As a result the stock of the GSEs has soared, with Fannie up as much as 32% to highest since Aug. 2014; Freddie up as much as 28%, also since Aug. 2014
Among Mnuchin's biggest fans, Carl Icahn had a glowing review of Mnuchin, and new Commerce Secretary Wilbur Ross:
1/2 Congrats to @realDonaldTrump on making excellent choices for Treasury and Commerce.
— Carl Icahn (@Carl_C_Icahn) November 30, 2016
2/2 Steve Mnuchin and Wilbur Ross will both help to do what American needs most – stimulate companies to invest.
— Carl Icahn (@Carl_C_Icahn) November 30, 2016
Also not surprisingly, former Goldman CEO and former Treasury Secretary Hank :Paulson also applaued the pick of Mnuchin:
Others were more reserved. Here is a sampling of reactions:
FBR (Edward Mills)
- Mnuchin’s Wall Street, banking background sends “strong signal” he’ll pursue “much less aggressive” regulatory, policy agendas, though little is known of specific policy positions
- Likely “net positive” for financials as shows Trump’s willingness to pick individuals from industry who may change current financial policy; may foreshadow painting DoddFrank as drag on the economy, economic growth
- Has “significant powers” related to FNMA, FMCC conservatorship; tenure as head of mortgage bond trading at GS, role at OneWest demonstrate “significant background” in mortgage industry
COWEN (Jaret Seiberg)
- Positive for regional banks; cautious about influence on biggest banks, GSEs, as Trump adviser Steve Bannon (mega- bank critic, self-described “economic nationalist") may play bigger role on bank policy from White House
- Nomination isn’t GS ‘‘revival"; cites Mnuchin’s ‘‘second career’’ distancing him from GS, including creating OneWest from IndyMac’s remains, selling it to CIT, which suggests he understands regional banks’ challenges; GS ‘‘lineage” might force him to be tough on mega banks
- Notes Trump on campaign trail “ripped” Wall Street, vowed not to let Wall Street control the country, yet picked former GS partner as Treasury secretary, met Nov. 29 with top GS official, is expected to name another GS alumnus/SkyBridge’s Anthony Scaramucci as top Treasury deputy
- Says Scaramucci “best known as the former Obama supporter” who once asked president when he’d stop bashing Wall Street
- Cowen still worried about push to leverage capital from risk-based capital (supported by conservatives); watching for Trump nomination of Fed vice chairman for supervision; may give job to conservative to build goodwill with party; doesn’t see “quick deal” for FNMA, FMCC
KBW (Brian Gardner)
- “Unorthodox” pick creates uncertainty about future policy as Mnuchin is “blank slate,” with broad experience in finance, who seems to have said or written little on financial regulation, tax policy
- Too early to know whether selection will be positive or negative for financial services
- Notes any Dodd-Frank changes will have to pass Senate, possible Senate Democrats filibuster; Mnuchin political skill in achieving compromise “remains to be seen”
HEIGHT SECURITIES (Edwin Groshans)
- Mnuchin’s comments positive for GSE pfd, common shareholders
- At the same time, est. FNMA would need to raise at least $190b of capital, FMCC would need $119b in order to meet minimum risk-based capital requirements -- which means no capital would flow to shareholders for a decade or longer
- April 20, If Fannie, Freddie Holders Win, Need ‘a Lot’ of Capital: Height
- Trump expected to direct Mnuchin early in his term to designate China as currency manipulator; Mnuchin will be “heavily involved” in shaping tax reform package congressional Republicans will shepherd through legislative process next year
- Reported choice of Scaramucci as deputy means neither of Treasury’s top 2 people will have had prior government experience
COMPASS POINT (Isaac Boltansky)
- Mnuchin may be “comparatively moderate voice” on financial regulations vs other potential candidates like Rep. Jeb Hensarling or John Allison, who may have advocated for “far more draconian” Dodd-Frank rollback
- Sees populist anti-big bank rhetoric reemerging as Mnuchin will join fellow Goldman alum, at least 2 billionaires in Trump’s inner circle; Trump may face pressure to renew populist “bona fides”