Bank CEOs Expect a Pro-Growth Shift in Regulation -- WSJ

By Christina Rexrode Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (July 20, 2017).

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U.S. Bancorp, the largest regional bank in the country, is bullish on the regulatory outlook for banks.

In a call with analysts Wednesday to discuss second-quarter earnings, CEO Andrew Cecere said expected changes to bank regulation have "the promise to be conducive to growth."

"I just spent time in Washington last week and left very encouraged by the open and productive dialogue that is taking place," Mr. Cecere said.

Executives at Morgan Stanley, which reported second-quarter earnings Wednesday as well, were enthusiastic about prospects for regulation that would be more favorable to the industry. In a call with analysts, CEO James Gorman expressed hope for simpler regulation and lower corporate taxes to "allow U.S. banks to be greater engines of economic growth."

Their remarks stand in contrast to those made by J.P. Morgan Chase & Co. CEO James Dimon, who said last week that Washington gridlock has so hamstrung the U.S. economy that "it's almost an embarrassment" to be an American citizen.

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While other banks want a lighter regulatory touch as well -- one of the promises of the Trump administration -- they have focused their recent remarks instead on Washington gridlock over health care, trade policy, tax policy and other issues.

U.S. Bancorp suffered from sluggish loan growth at the beginning of the year, but officials there said they expect loan demand to bounce back a bit in the third quarter. They also said they expect consumer lending demand to "remain fairly strong" for the rest of the year.

In an interview, Chief Financial Officer Terry Dolan said he was also optimistic about what policy makers in Washington could do for the economy. "There's a very strong focus on how we move the economy forward, how we're going to create jobs, what we can do within the banking industry in order for us to help stimulate that economic growth," he said.

Just last month, Mr. Cecere said a lack of clarity on tax policy, trade policy, health care and infrastructure spending was forcing corporate customers into a wait-and-see mode, wary about expanding until they knew what to expect. Mr. Dolan said Wednesday that the bank's large corporate customers are taking out loans for small acquisitions, not capital expenditures or business initiatives.

Darren King, the chief financial officer of M&T Bank Corp., based in Buffalo, N.Y., said in an interview Wednesday that Washington gridlock was keeping corporate customers from taking loans to grow their business.

"If you're in health care, it's uncertainty about the Affordable Care Act," Mr. King said. "If you're in construction or heavy equipment, it's uncertainty about whether we're going to have an infrastructure bill."

Donald Trump's election in November sent bank stocks soaring, with analysts expecting the new administration to pare back Obama-era regulations and boost the economy with infrastructure spending. Still, banks have been wondering if the Trump administration's deregulation promises will materialize. It also isn't clear if election-fueled optimism about the economy will translate into higher loan demand.

Mr. Dolan on Wednesday noted the report the Treasury Department released last month with proposals on remaking the regulatory landscape as one of the reasons for his bank's optimism.

"If you go back a quarter or so, the Treasury was asking a lot of questions and writing things down, but we didn't have a sense of whether they were really listening and hearing us out," Mr. Dolan said in an interview. He declined to say who Mr. Cecere had met with in his trip to Washington last week.

Mr. Dolan also said that last month's stress-test results, the first time where all the participating firms got passing grades, signaled the Federal Reserve "is taking a different perspective on capital levels in the industry."

Mr. Gorman, the Morgan Stanley CEO, expressed hope for a new tax plan in particular. "U.S. corporate taxes are too high," he said on the call with analysts.

Write to Christina Rexrode at christina.rexrode@wsj.com

(END) Dow Jones Newswires

July 20, 2017 02:47 ET (06:47 GMT)