Donald Trump

Global banks brace for Trump-related risks

Bank disclosures will try to factor in gyrations from Trump

PUBLISHED : Wednesday, 15 February, 2017, 12:40am
UPDATED : Wednesday, 15 February, 2017, 12:40am

The world’s biggest banks are poised to warn investors that President Donald Trump has the potential to roil global markets and impact their firms by redrawing regulations and limiting the free movement of employees, according to people familiar with the matter.

US and UK banks are considering adding to their risk disclosures or beefing up particular sections in their annual reports due later this month, according to people familiar with the drafting of the documents. They’d likely cite the incoming new administration as a potential source of heightened uncertainty, but stop short of mentioning Trump by name, they said.

Although banks stand to benefit from higher interest rates and Trump’s pledge to relax rules, heightened volatility could affect trading and a slowdown in global commerce may curtail deal making as the president turns his attention to trade policies with China and Mexico.

Bank stocks have been on a bull run in recent weeks but some money managers say investors have ignored emerging political risks.

Warnings that the new US administration may be disruptive “would most likely have to be included, given the potential ramifications,” said Rob Smith, a partner in risk consulting at KPMG in London.

“I would be very surprised if a particular institution called out Trump. Rather, they will explain the impacts in broader terms about US regulatory reassessments. He presents a risk, but there are also opportunities.”

The new disclosures could go further than banks’ warnings when Barack Obama took office. Back then, with Obama vowing to “crack down on the culture of greed and scheming” that caused the financial crisis, firms worried about stiffer financial rules.

JPMorgan Chase & Co., for example, told shareholders in 2009 that the administration had signalled a “comprehensive plan for regulatory reform.” Bank of America said it faced “legislative and regulatory initiatives, both enacted and proposed, that may significantly impact” its business. It mentioned a new law overhauling credit-card rules.

Senior executives at multiple major UK lenders have held internal discussions about highlighting potential disruption in annual reports, which are released next week, said the people, who asked not to be identified because the details are private.

Warnings about measures to restrict travel and curb global trade, as well as the capacity for market volatility, will probably be included as part of risk disclosures, the people added.

While banks flag potential risks ranging from health pandemics to terrorist attacks in financial results, they have included more specific concerns in recent years arising from political events. UK lenders have previously cautioned about fallout from Britain’s exit from the European Union and the 2014 vote on Scottish independence.

The decision on how to phrase the disclosures “is going to be very politically charged,” said Chris Wheeler, an analyst at Atlantic Equities in London. “They may have some comments on interest rates, inflation and taxation, but they’re not going to point the finger at Trump directly.”

Companies across all industries have been grappling with what Trump’s policies and behaviour will mean for their prospects. Trump has promised tax cuts and stimulative infrastructure spending, while also attacking individual companies on Twitter for anything from their outsourcing practises to not carrying his daughter’s fashion label.

“Trump just keeps on being volatile,” said Sandy Chen, an analyst at Cenkos Securities Plc in London. “It’s hard to get a clear view on whether he’ll be positive or negative for banks, but it’s highly uncertain what banks can say right now, which I don’t think Mr. Market finds all that reassuring.”

Some of Trump’s policies could prove a boon for the financial industry. The president is moving to unravel the 2010 Dodd-Frank Act put in place to prevent another financial crisis that includes a ban on proprietary trading, while expectations for rising interest rates have also bolstered major lenders.

Global banking regulations may also diverge as the US seeks to halt negotiations to develop international rules for bank capital standards known as Basel III.

More broadly, many measures of corporate and investor sentiment are up. Executives used the word “optimistic” on a record 51 per cent of earnings calls this quarter. The S&P 500 is heading for its fourth straight monthly gain since the election.

Yet, the president may erect trade barriers that would slow global trade and hurt international lenders. HSBC Holdings Plc Chief Executive Officer Stuart Gulliver has warned a trade war between the US and China “would clearly be negative for us.”