RPT-BREAKINGVIEWS-White House whims create bank capital dilemma

By Stephen Gandel

NEW YORK, Jan 12 (Reuters Breakingviews) - For Wall Street, the Trump presidency is a matter of give and take. Shares of the biggest U.S. lenders have surged in anticipation of regulatory relief that would leave them with over $140 billion of excess capital, judging by the average of estimates from Bank of America BAC.N and Morgan Stanley MS.N. On Friday, though, the president dealt an unexpected blow, calling to cap interest rates on their lucrative credit cards. Even if it doesn't happen, the question now is whether policy will remain positive. As bankers prepare to report earnings, what they say about their bulging kitties will indicate whether the Trump bump is dependable enough to use.

It's a rare source of frisson in what should have been a relatively uneventful quarter. Investment banking might seem a bright spot after a late-2025 M&A surge. Yet recent announcements won't turn into fees until combinations are complete. Trading should be strong, but it was a year ago as well, due to market volatility following the U.S. presidential election. In all, the nation's six largest banks, including JPMorgan JPM.N, Bank of America, Wells Fargo WFC.N, Citigroup C.N, Goldman Sachs GS.N and Morgan Stanley, are expected to have collectively earned $36.5 billion in the quarter, roughly flat from the same period a year ago, according to Visible Alpha data.

Regulatory relief is the wildcard. Ever since the 2008 financial crisis, watchdogs have forced big lenders to maintain hefty capital buffers to protect against losses. Various moves under the Trump administration may free up some of that capacity, which could support fresh business, boosting earnings.

A credit-card rate cap or other restrictions would complicate the picture. Just look at JPMorgan. Regulatory changes could yield $38.6 billion in excess capital for the bank, Morgan Stanley analysts reckon. Just last week, the financial titan agreed to take over Apple's credit card business from Goldman. In theory, the excess capital could allow it to increase lending by about $260 billion, assuming it needs to keep a 15% buffer. At its current level of net interest income on plastic, that would boost annual profit by a third.

Trump’s proposed policy would significantly cut into those gains. Alternative uses for capital, like corporate lending or trading, are less profitable than consumer credit.

In a recent note, Bank of America analysts envisioned a return to the halcyon days prior to the financial crisis, when big banks’ returns on equity regularly topped 20%, rather than today’s mid-teens levels. It’s a nice dream. It’s just one that might be hard to trust as the White House grows ever-less predictable.

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CONTEXT NEWS

JPMorgan will kick off Wall Street banks’ earnings season when it reports results for the fourth quarter on January 13, with the next five biggest banks reporting over the next two days. Recent analysts' estimates project that the Trump's administration's loosening of financial regulation could push the amount of excess capital at the nation's largest banks to roughly $140 billion.

In a post on Truth Social on January 9, President Trump called for a one-year 10% cap on credit card interest rates.