Animal Spirits
A Few Days in New York
“There just seems to be a honeymoon period right now. And kind of an animal spirit has been unlocked around finance that feels pretty good as we sit here today.” — Jeff Sprecher, Founder, Chairman and CEO of Intercontinental Exchange, Inc
“It’s hard to define animal spirit, but it’s out there.” — Ken Moelis, Founder, Chairman and CEO of Moelis & Company
“I think our clients are feeling optimistic. Like, you can tell that the animal spirits have returned a little bit here.” — Tim Spence, Chairman, CEO and President of Fifth Third Bancorp
This week, the Nasdaq hit 20,000 for the first time ever, a spate of corporate deals were announced, and Donald Trump rang the opening bell of the New York Stock Exchange. With only 10 trading days left in the year, the broad S&P 500 index is up 27% and within that, financial stocks have done especially well. To see what may lie ahead, I spent a few days at an investor conference in New York. All the big names in finance were there including CEOs of many of the companies we’ve discussed here: Apollo, Capital One, Wells Fargo, Brookfield, Intercontinental Exchange, American Express and many more. In total, management from over 100 financial companies attended.
No surprise, many were excited about the prospect of a more benign regulatory backdrop once the new administration enters Washington. Trump has lifted an unprecedented number of advisors from the finance sector. We profiled Howard Lutnick here a few weeks ago; since then, he’s recruited Scott Bessent, Kelly Loeffler, Jared Isaacman, Frank Bisignano, David Sacks, Warren Stephens and John Phelan. While they haven’t all been handed finance jobs (Phelan is tasked with running the Navy and Isaacman with leading NASA) they collectively bring domain knowledge to the administration that may previously have been underrepresented. Combined with the more industry-friendly faces that are expected to take charge at the Securities and Exchange Commission and other regulatory agencies, finance executives are optimistic about the future.
For banks, that means clarity around capital standards may be on the way. Regulators have been working on new capital rules – the so-called “Basel 3 endgame” – for over ten years. The Federal Reserve’s first proposal was greeted with dismay by banks. Jamie Dimon estimated it would increase JPMorgan’s capital requirement by 25%, equivalent to a 30% surcharge compared with similar standards in Europe. “That means for every loan and asset financed in the United States by a major American bank, that bank would have to hold 30% more capital than any international competitor,” he explained in his shareholder letter. The Fed subsequently watered down its proposal, exempting banks with less than $250 billion of assets, but there is speculation it could go further, rendering it completely capital-neutral at the industry level.
Other areas are ripe for relaxation, too. The current capital stress-test framework has deficiencies, the amount of capital that bigger, globally systemic banks have to carry is onerous, and supervisory expectations are stringent. In his letter, Jamie Dimon laments the breakdown of relations between regulated and regulator: “There is little real collaboration between practitioners – the banks – and regulators, who generally have not been practitioners in business. While we acknowledge the dedication of regulators who work with banks on a daily basis, management teams across the industry are putting in a disproportionate amount of time addressing requests for extra details, documentation and processes that extend far beyond the actual rules – and distract both regulators and management from more critical work.”
A reset looks possible.
But regulation isn’t the only reason executives were upbeat. To see what other themes they outlined for the year ahead, read on.