Transcript: What Trump’s presidency means for banking

This is an audio transcript of the Behind the Money podcast episode: ‘What Trump’s presidency means for banking’

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Michela Tindera
Hey, everyone. We’re doing something a little different for our show this week. Earlier this month, I travelled to London to attend the Financial Times’ Global Banking Summit. While I was there, I moderated a panel with some of my colleagues and we talked about what the banking sector is gonna look like over the next four years under a second Trump administration. And now we’re gonna play that conversation for you right here. So enjoy.

Good afternoon and welcome. My name is Michela Tindera. I’m the host of the FT’s podcast Behind the Money. This afternoon, we’re gonna be talking about what Donald Trump’s election in the US means for, well, you the banking sector. So I will just quickly introduce my panellists here. So we have Michael Klimes from The Banker. We also have Brooke Masters, the FT’s US financial editor, and Ortenca Aliaj, the FT’s banking editor. So thank you guys for being here.

So we have all now had, it’s been almost a month to digest the news of America’s election results and what the Trump administration is actually going to be looking like is starting to come together. We’ve seen that Gary Gensler is going to be leaving the Securities and Exchange Commission. Scott Bessent has been tapped to lead the US Treasury. So, Brooke, I want to start with you — as you are typically based in New York — even just glancing at share prices, you know, we know that US banks welcomed Trump’s election. So why are US banks so happy about this?

Brooke Masters
I think you have to see this as a deregulatory move. Republicans, by definition, are deregulatory. And the Biden administration and the regulators they put in place at the SEC and at the Fed in particular, have been very hands-on, to put it mildly. I think many in the industry would call it heavy-handed. And so the idea that Gensler is going is just incredibly good news from their point of view. The other thing is it was particularly the regional bank index that shot up. It shot up 10 per cent compared to 3 per cent for the S&P 500 overall. And the reason that is, is that the Biden administration has also been very, very sceptical of bank mergers. And so lots of little listed banks that are struggling to meet their costs have had trouble finding partners and agreeing on prices. And so I think everyone thinks it’s like open season on banking.

Michela Tindera
Yeah. And that’s I mean, the US already has so many thousands of banks compared to . . . 

Brooke Masters
2,500.

Michela Tindera
 . . . Other countries. Exactly. So on dealmaking, as you said, there’s generally an expectation that dealmaking is going to increase. But more specifically, what do you see that looking like and what are your sources telling you or is that just going to be domestic deals? Do you see foreign banks coming into the US trying to set up shop? What do you see that looking like?

Ortenca Aliaj
I mean, it will be a very short answer. I would love to see the day when a European bank went to the US and bought another bank, but I don’t think that’s likely any time soon. I think what you might see is maybe a few opportunistic moves by the likes of UBS, who we know really wants to expand its wealth management offering in the US. So there might be those kinds of smaller acquisitions. We know they’re notoriously difficult to integrate, especially in an uncertain regulatory environment. And of course, Trump thrives on uncertainty, on being unpredictable. So it depends on, you know, weighing that against staying in your home market and developing that. But I don’t see a future where a UK or European and they will go and buy a US one.

Brooke Masters
I think the exception might be Santander, which has already committed to the US and has quite a large business that they’re already trying to expand through digital banking. They’re an interesting model in that they take US deposits and they use them to fund subprime car loans. So they have a very clear we want the deposits. We know what to do with them. We can make a lot of money. And in a less regulated environment, they might find it interesting to buy some community banks that have deposits because they have something to do with them.

I think the other thing that’s interesting is TD — the big Canadian bank. Recently, of course, got penalised and beaten up by the Biden administration for allegedly funding all of the fentanyl, basically running up and down the East Coast. And they have an asset cap on now. But with a Trump administration, how long that cap lasts, who knows, They might want to come back and try again because they were very keen to expand their already chunky and they would like to do more. Otherwise within the US, the bigger banks — the sort of US Bank, the PNC, Truist — they won’t be buying stuff unless the Trump administration decides to change the rules. Because if you may remember they loosened the rules for banks of that 100bn size, which of course led us to SVB and all that glory.

Michela Tindera
Yes. Now, beyond talking about dealmaking and thinking more about regulation and deregulation, broadly, what are the main areas that you’re looking at to see changes in the regulation space under the Trump administration?

Brooke Masters
Climate, obviously. You know, the SEC’s climate rule was already on hold and I think it’s gone now. Tougher rules on cryptocurrency and on custody and on outsourcing. All of those rules were moving their way through the Gary Gensler process and I think now they disappear. So what that means is the things that banks have been complaining about in terms of additional burden will go away. And of course, Basel III: Endgame, which was in the US the way they had proposed it, was going to significantly increase capital for the very biggest banks. So this is the giants. And they had already backed down to a certain extent. But there is a proposal on the table. I think that proposal is dead. And it is not clear to me whether there will be a new proposal or the US will just bail.

Michael Klimes
I think the Inflation Reduction Act is a really interesting one to look at because I was speaking to the head of Emea investment banking at Mizuho, Slava Slavinsky, and he said that there is a big question about whether a lot of projects or clients which may have funding through Inflation Reduction Act if that will still go ahead or not. And if that funding isn’t gonna come through the IRA, they’re gonna have to find funding from elsewhere potentially. So that’s a conversation that you might have to have with clients or whatever, and it’s one to look out for, for sure.

Michela Tindera
Yeah. Which of these would you say would have the biggest global impact on banks outside the US as far as deregulation goes?

Ortenca Aliaj
I mean, I think Basel III was probably gonna have the biggest. But it’ll be interesting to see what they do because banks hate zombie regulations. And I think that’s going to be the debate that they have because, you know, you change the administration in another four years and then that administration maybe might be a Democrat and they will bring it back. And then it creates the sort of like regulatory arbitrage-ish situation between the European banks and the US banks. And then there’s a crucial decision to make here: do we perhaps, you know, follow the US example or do we cover our own path? And that’s gonna be part of the broader theme that we will have to look at is does the US and Trump make Europe more aligned and the UK more aligned to Europe? I think that’ll be interesting to see.

Michela Tindera
Yeah. Related to that, I mean, obviously one of the big topics of late has been tariffs and their impact. How do you see a potential trade war impacting banking?

Brooke Masters
Banking’s a cyclical industry. If the trade war leads to inflation and then some kind of economic problems, I mean, the last time we had a massive trade war, we ended up with the Great Depression. That is clearly going to affect banks and, you know, all kinds of loans to companies that expected to be able to sell across borders and now can’t, will be problematic. I mean, it’s hard to imagine a trade war being good for banking.

Ortenca Aliaj
I think he’s oversold on that one. And I don’t think it’s gonna happen the way that he thinks it is because he’s got two inflationary issues coming up. The obvious one is that he wants to do, you know, mass deportations, which reduces the workforce, etc, etc . . . The second part is that it’s not like trade is gonna stop. We all think of trade wars as if like, you know, China and US can’t trade, then everything holds. There will be new routes carved out. And of course that will be more costly, but there will be in fact I think, opportunities for banks and you will just have 1) you’ll have those countries make more home-grown goods because that’s the sort of easiest way to solve that. But 2) you’ll have them find different trade routes and so maybe you’ll see more trading between China and Europe. And, you know, I think that the sort of negative connotations around it will be more towards the US. I think as soon as it starts to create inflationary pressure on Trump — knowing that is the likelihood of why he got elected — then I think he’ll step down on that front.

Michael Klimes
The only thing I’d say on tariffs is recently I was speaking to the CEO of Citizens, Bruce van Saun and when I asked him what do you like about Trump’s agenda, he like pretty much everything. But the only thing that was giving him a bit of pause was the tariffs. And we still don’t know what that exactly means. So that was the only question mark I think that he had.

Michela Tindera
Yeah. Yeah. I mean, that kind of brings me to my next question, which is talking a bit more about Scott Bessent as Trump’s Treasury pick. You know, he’s been a big Trump donor, has background in hedge funds, but he has not been quite as enthusiastic as Trump about tariffs. I think he told the FT actually, recently that they were, quote, maximalist positions that would probably be watered down in talks with trading partners. So where do you see him in his role in the Trump administration having the most impact on the banking sector?

Brooke Masters
I think it’s sometimes hard to predict because the . . . I mean, the Treasury secretary not only obviously has a big impact on tariffs, and it is true if they had chosen Lighthizer or somebody like that, which is who like Elon Musk was lobbying for, that would have clearly been a signal that tariffs were on the way. Bessent does suggest that Trump has at least some second thoughts. But the Treasury secretary also does things like chair, the Financial Stability Oversight Council, which could have a big impact on how the systemically risky activities such as, you know, private credit are regulated. So I think what’s interesting about it is he’s a market participant who clearly understands the market and has been in it. And for the Trump administration, that’s unusual at this point to have a private practitioner actually running a department that does that. So I think that’s probably a good thing.

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Michela Tindera
So let’s talk a bit more about risk. In a Trump administration, what would you say are the biggest risks to the banking sector? You know, people are excited about dealmaking, that sort of thing. But what’s the other side of that coin that should be thinking about?

Michael Klimes
Well, I think everyone’s very enthusiastic at the minute. I mean, I haven’t spoken to anyone who has any bearish feelings. I guess simply the greatest risk is that simply, we don’t know what he will do. He’s predictably unpredictable. And I think that the tariff . . . That seems to be the thing that is most away from economic orthodoxy. Everyone says that the free flow of goods is good. And, you know, trade is not a zero-sum game.

But this administration . . . was the economic thinking on that theme seems to have changed somewhat. And I think maybe what would be interesting is, is just, again, this tension between you have Scott Bessent, who’s maybe a more kind of orthodox economic safe pair of hands, sort of Wall Street insider, shall we say, you know, versus the more kind of unorthodox thinking, which is coming from some other quarters of the administration?

Michela Tindera
Yeah.

Ortenca Aliaj
I think probably the biggest risk is that we have a resurfacing of inflation. And, you know, that obviously affects banks and the broader economy. But look, banks have had a really good few years, right? Interest rates have been high. Even now that they’re going down, the banks, at least in Europe, use something wonderful called structural hedging, where they lock in the benefit of those interest rates for the next two, three years.

And so barring any catastrophic event, they should see a sort of steady profit stream over the next few years. So I don’t think that there are that many headwinds, so to speak, now. But if you look back to 2016 to 2020, there were various things that we couldn’t have predicted. And, you know, arguably, for example, the SVB crisis was born in those years and then, you know, happens slightly later. So it’s difficult to see where those pockets of difficulty will be.

Brooke Masters
I’ve got a couple for you also.

Michela Tindera
Yeah, I was gonna say, I think there’s a couple of things here.

Brooke Masters
Well, first of all, remember that Trump on . . . Hard to know if it was just a throwaway line, but he said he wanted to cap interest rates on credit cards, which would basically undermine the business model of like half of the US banks. That would be kind of a problem. It probably won’t do it, but he’s Trump. Second thing is, it’s worth remembering that what ended the wonderful string of everything were Covid and then the Ukraine war, neither of which are things have anything to do with banking, but they really screwed up everybody’s economies.

And so it’s worth saying that having a completely impossible-to-predict president means that the tail risk of something that you just can’t even imagine showing up is incredibly high. And you talk about everybody is very enthusiastic about something before the election when they weren’t dealing with the reality of it and therefore also sucking up, let’s be honest. Lots of people would say like Trump on the surface, like 75 per cent is much better for my pocketbook, much better for my business. 25 per cent unbelievably awful tail risk, I’m giving money to Biden.

And so I think that’s the thing, it’s not any specific policy so much. It’s just that you have no idea. And also, the deportations and immigration risk is extremely important for the health of the US economy. And given that the US economy has basically been driving the health of the world since China has flagged a bit, I think that’s the other thing is if they really are serious about shrinking the labour force in the US, that’s gonna be painful. Again, we don’t know that they’re serious, but they might be.

Michela Tindera
Yeah. Do you think there are any lessons that can be learned from the 2016 to 2020 era Trump that were either beneficial or not beneficial to banks that they’re using now to prepare for the next four years?

Ortenca Aliaj
I mean, America has re-elected someone who is known for all of these challenges that he presents to the economy to I mean, the immigration issue, I think has been immensely underplayed, by the way, because if you have mass deportations, the costs of goods is going to be absolutely ridiculous. And that’s something that people . . . 

Brooke Masters
And services.

Ortenca Aliaj
Absolutely. And so it’s not something that people seem to forget is that, well, you know, your low-income workers tend to be immigrants. But I think he’s malleable. And I think, you know, it’s been shown that if he is surrounded by people like Scott who understand the environment that they operate in well, he will come back. And that’s the kind of interesting thing about him, is that he’ll go, you know, full speed ahead with the policy. It will stop him in the face and he’ll be like sort of a U-turn on it.

Brooke Masters
I mean, I think if you think also about what did he do in 2016 and 2020? He passed the giant tax cuts, which actually turned out to work out pretty well. And they are all up for renewal. So presumably they will pass again and possibly there will be more tax cuts or slightly different tax cuts that could have quite positive effect. For some businesses and certainly for banks. You know, they did the deregulation that led to SVB and Signature.

The thing about that deregulation, to be fair to the Trump people, was, you know, of all the banks, they deregulated, they deregulated hundreds of them or maybe even thousands because there’s a middle group, you know, three of them went bad. Yeah. So it’s you know, if they had done better supervision of those three, I don’t know that the deregulation per se caused it. You know, even Michael Barr, who wanted to blame it all on Trump, had to say it was like a change in attitude, in supervision. Because they did they sent them little notes like, you’re breaking the rules. Please do something. I mean, like, you know, like, see me after class. Excuse me, guys who can’t buy any more or whatever. I mean . . . Anyway, so it is not clear to me again, I mean, it was a lovely economic time for the US most of the time there. There was a bit of a blip in 2018, I think. But otherwise, I mean, it was a very lovely economic time for the US.

Michela Tindera
Yeah. Yeah. I want to open the floor up to questions. Does anyone have a question on the floor?

Brooke Masters
There’s one.

Michela Tindera
Over here. Table five.

Audience Q&A
Thank you. You talked about immigration possibly having a negative effect and we do know food prices would go up considerably If you do deport all of those people that he’s talking about. What about the social and political implications of the divided country? Do you see that having an impact on the economy ultimately or not at all?

Ortenca Aliaj
I think history has told us no, to be honest. I mean, I lived in New York. I remember speaking to the CEO of a bank there before I moved back to London. And their view was my bank’s gonna do well no matter what. So I don’t think those issues are as big of a concern to people as I think they once used to be. Although I do . . . One thing I do think is I mean, this is not an economic point, but obviously I think there will at some point have to be a coming together of like the American psyche and what America represents. And we’ll see where America stands in four years. Whether it’s a stronger country because it’s been under Trump and it’s got these new policies or whether it’s a weaker country.

Brooke Masters
I think that that’s definitely true. And I mean, the other thing is it’s not at all clear to me exactly how Trump will govern this time and how different it will be from last time and therefore how divisive it will be. He’s bringing in some of the Project 2025 people who will be doing very significant . . . If they push through what they want, they will be doing significant changes to the way the US government is run, which will lead to further division. Because the blue states . . . In a federal system and this is patterned every time you get a deregulatory president, the blue states regulate some more. And so that will exacerbate divides and making it harder to do business across state lines.

And so I think that is one place where we really might see it. For example, you know, if the Supreme Court does somehow empower states to decide what abortion medicines are available, if you’re a pharma company, it maybe get that much harder to decide how to run a business. And you could indeed have different standards in different places that asset managers who are having to deal with anti-ESG and pro-ESG rules are already living in this world. I think banks may find that happening to them as well.

Michela Tindera
Yeah, that actually I had a follow-up question on that related to ESG. Yeah. That’s become an increasingly politicised area of finance. A lot of that has happened under the Biden administration, though. Do you see that kind of going further under Trump or was that kind of something that was more of a reactionary thing, something to kind of rail against while the Democrats are in power?

Ortenca Aliaj
I think, Brooke, as the expert on this, I’m gonna let Brooke answer, but I really do think that ESG has kind of gone the way of woke at the moment, which is that if I’m being perfectly honest, I think a lot of companies are paying lip service to it. I don’t know how much it was ever going to be a permanent part of their operations.

Brooke Masters
I think the other thing to remember is that ESG actually really got going in the Trump administration the first time. Because it became this issue like we, the-better-than-you-are CEOs who are woke, but they weren’t probably using woke yet but we know better than you. Do you remember stewardship and you know good corporate citizenship and stakeholder capitalism? That was the Trump administration. It’s only when the Biden administration started turning into rules that everyone was like, wait, we actually have to do this stuff. So I have to say, I tend to be fairly cynical.

I do think that the question of addressing climate change will remain complicated, and there is good money to be made in reliable power sources that don’t destroy the world climate. And so I think people will continue to invest in that. They probably won’t be doing as much disclosing and they probably will be calling it something. They’ll be calling it moneymaking as opposed to saving the world.

Michela Tindera
All right. Well, I have one more question for you guys. That is, every year the FT asks its journalists for a prediction for the following year. So I want to do something kind of like that here. So where do you think the banking sector will be four years from now if we’re sitting on this couch and taking stock four years from now?

Ortenca Aliaj
I think you will have a much bigger divide between the sort of the haves and have nots. I think that’s going to become more apparent, like the banks, like UBS, which is getting bigger, UniCredit, perhaps BNP Paribas. I think these banks have kind of emerged as some of the strongest contenders in the European economy and have done really well. And maybe we’ll see much more of a sort of disparity between certain banks.

Michael Klimes
I think that we forget how sort of exceptional the US is, both in terms of size of its capital market. It really, you know, it’s the extraordinary beast. And I think the US investment banks, you know, the top six, JPMorgan, Wells Fargo, Morgan Stanley, Citi . . . Those entities will be still very, very strong and very dominant.

Brooke Masters
I think the biggest US banks will get bigger. And don’t forget Bank of America, which is actually bigger by assets. And I think we will see consolidation in the smaller part of the US banking sector. And I think we might see the emergence of another big American bank. I mean, the sort of next level down the Truist, PNC. They have ambitions and if the US economy continues to power that far and that fast, it’s such a great base to come off of. I could see one of them getting dreams.

Michela Tindera
OK, so bottom line, bigger banks four years from now.

Brooke Masters
Yeah. And fewer smaller banks.

Ortenca Aliaj
Or maybe private credit has started just doing everything.

Michela Tindera
That’s a whole other discussion for us. OK, well, I want to give a big thanks to you guys. Ortenca Aliaj FT’s banking editor. Brooke Masters, FT’s US financial editor and Michael Kilmes, The Bankers, investment banking and capital markets editor. It was a great discussion and thank you guys so much.

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Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Sound design and mixing by Joseph Salcedo and Breen Turner. Topher Forhecz is our executive producer. Cheryl Brumley is the global head of audio. Original music is by Hannis Brown. Thanks for listening. See you next week.

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