Make all the jokes you want about Hillary Clinton’s highly paid speeches on Wall Street, but the truth is she’s not exactly a fan of the banking sector — that’s a major problem for financial stocks.
In her strategy outlines and various promises, Clinton has unveiled a set of policies that come down hard on financial stocks, which would crimp the way banks, insurance firms and other mega financial companies operate.
The crux of her campaign against Wall Street includes strengthening the landmark Dodd-Frank bill.
The piece of financial reform — enacted after the recession — will only get stronger if Clinton is elected. She’s already pledged to remove many of the bill’s loopholes, boost regulating powers of the Commodities Futures Trading Commission and Consumer Financial Protection Bureau, as well as adding new fees and taxes to “too big to fail” banks and high-frequency trading firms/hedge funds.
And that’s just the start of Clinton’s assault against the financials.
In the end, Clinton is no friend of Wall Street’s. For investors carrying a hefty dose of financials, a Clinton presidency could prove troubling. Especially for these three financial stocks.
Financial Stocks to Watch: JPMorgan (JPM)
You could pick almost any of the largest financial stocks as big-time losers if Hillary Clinton is elected. Investment-centered bank JPMorgan Chase & Co. (NYSE:JPM), however, is particularly vulnerable from her policies. That’s because JPM has its hands in many different soups.
To start with, JPM is a major derivatives player and that’s a problem for Clinton. Hillary is in favor of “swaps push out” rules for derivatives and limits to commodity investing by non-participants or investors who don’t actually need/use them for their products. That would force JPM to trade derivatives in a separate subsidiary insulated from the main bank — meaning it couldn’t use customer deposits as the capital to fuel the trading. Naturally, JP Morgan isn’t exactly a fan of this as it would kill profits. As will Clinton’s stance on ending proprietary trading transactions.
Secondly, JPM’s massive size makes a huge liability if Clinton is elected. Clinton has targeted those “too big to fail” financial stocks with so-called risk fees and even threats to break them up into smaller chunks. As one of the larger banks in the world, JPM sits right in Clinton’s crosshairs.
As it that wasn’t enough, JPM’s forays into consumer, home and commercial lending make it a target for some of Clinton’s other Wall Street policies.
In the end, JPM stock could suffer more than other financial stocks if Clinton is elected.
Financial Stocks to Watch: Virtu Financial Inc (VIRT)
While not a household name, Virtu Financial Inc (NASDAQ:VIRT) could be one of the worst hit financial stocks, if Hillary Clinton is elected. That’s because VIRT is one of the “Flash Boys.”
VIRT is one of the largest pure-players in high-frequency trading. HFT has come under a major amount of pressure as the rapid-fire buying/selling has caused increased volatility, major big-time swings in both direction and has resulted in events such as 2010’s Flash Crash. And thanks to Michael Lewis’ book– Flash Boys: A Wall Street Revolt — public outrage over HFT is growing. It’s quickly become enemy number one in the financial sector.
In her policy outlines, Clinton has proposed a new ultra-short-term gains tax to reduce the amount HFT trading. Clinton has also proposed regulating the shadow banking system and the use of dark pools by hedge funds and high-frequency traders.
That’s all a big-time bummer for financial stocks like Virtu. Clinton is basically going to take away their bread and butter if she is elected. VIRT actually postponed its initial public offering for a few years when Lewis’ book came out and threat of regulation was brewing.
If Clinton is successful, it could be a serious blow to VIRT’s dividend and ability to make money.
Financial Stocks to Watch: Discover Financial Services (DFS)
When looking at financial stocks, Discover Financial Services (NYSE:DFS) seems like a strange pick to feel Hillary Clinton’s ire. After all, this isn’t Bank of America Corp (NYSE:BAC) we’re talking about. However, DFS could be a big loser thanks to Clinton’s various Wall Street policies directed at protecting consumers.
Discover is an issuer of consumer credit. That includes its brand of credit cards as well as personal, home equity and student loans.
It’s these three business lines that could hurt the firm under Clinton. Hillary has already pledged to tackle the burgeoning student loan issue. That includes providing more free money for college and taking on lenders. Clinton has also pledged to reinforce the Consumer Financial Protection Bureau with more support and a higher operating budget. The CFPB was created in Dodd-Frank as a regulatory agency designed to protect consumers against the financial industry. So far, the CFPB’s main targets have been student loan lenders and consumer credit firms.
While DFS is not some shady payday lender by any means, it does operate in all the areas currently targeted by the CFPB and Clinton. And it’s just big enough to really attract the attention of regulators. Discover has been pretty consistently profitable in recent years, but those profits could drop as Clinton’s/CFPB’s policies take hold.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.