President Donald Trump’s promise, and subsequent executive order, to ease Obama-era regulations on Wall Street banks has been a major driver behind the rally in bank stocks since the election.
A team of Goldman Sachs analysts led by Richard Ramsden, managing director at the firm, have come out with a research note exploring the potential benefits for banks from deregulation.
While “the bulk of the regulatory framework will not change,” the team noted, “we estimate money centres could see 28% EPS upside vs. our 2018 estimates, while SIFI banks could see mid-teens EPS growth.” In particular, “we see C (Citigroup), BAC (Bank of America) and JPM (JPMorgan) best positioned,” they said.
Citigroup has been the weakest performer among Goldman’s 3 picks, up 20% since the election. That’s compared to gains of 31% and 49% posted by JPMorgan and Bank of America respectively. The broader S&P 500 financial sector stocks are up 24% over the same period.
“Regulatory changes will be primarily focused on: 1) changes to liquidity and capital standards to support loan growth,” they wrote before explaining in detail the likely features of Trump’s deregulation drive, “and 2) simplification or rationalization of regulations to reduce the burden on smaller banks.”
Here’s an infographic from the research note explaining the potential benefits for banks.
And a table on how much individual banks could benefit from deregulation.