More on Cruz and Wall Street

MORE ON CRUZ AND WALL STREET — Veteran bank analyst Chris Whalen emails: “I can't support Cruz because he advocated default by the United States as a political strategy. His willingness to destroy the financial position of the US Treasury reveals a stunning lack of sophistication. This kind of wacky nonsense may play well in Texas, but not in New York or anywhere serious people are found.”

“COST BENEFIT” PUSH-BACK — From a pro-regulatory source: “Cost benefit analysis has become talking point 1, 2 and 3 for Wall Street’s fight against much-needed, common-sense regulation, indicating just how devoid of policy substance and original thinking one side of the debate has become. Even worse, Wall Street’s cost-benefit attack on regulators reinforces the public’s view of Wall Street as self-interested, unprincipled, and entirely driven by greed?”


LIVING WILL FAILS — Public Citizen’s Bart Naylor: “Regulators failed to deem the living wills ‘credible.’ That’s a welcome acknowledgement of the barren reality that these behemoths remain threats to financial stability. Now the regulators must take the brave step and order major divestitures, ideally a wholesale break-up.” (Much more on this below.)

THE BIG IDEA: SUNSHINE DAYDREAM FOR STOCKS? — Wells Capital’s Jim Paulsen: “Perhaps it is the arrival of Spring here in Minnesota which is impacting our stock market outlook. But as the sun shows brightly and the temperature rises, we think a rally to new record highs for the stock market may usher in another season of golf!!! … [W]e suspect the stock market may soon break to new record highs near the upper end of our forecasted trading range.

“Several forces could help improve near-term momentum in the stock market. First, the deflationary undertone dominating investor mindsets in the last couple years seems finally to be easing as commodity prices show signs of recovery. Second, some factors now suggest earnings performance may begin to improve during the balance of this year. Third, economic surprise indexes recently show that global economic momentum may be headed for a synchronized bounce.”

DECODING BERNIE ON BANKS — FT’s Barney Jopson and Courtney Weaver in Washington and Ben McLannahan in New York: “Mr Sanders’ main strategy for breaking up the banks would be to expand the authority of [FSOC] … While the Dodd-Frank Act already gives the Treasury the authority to determine which financial institutions pose systemic risks to the economy, the Treasury has not actually broken up any financial institutions.

“In an interview with MSNBC on Friday, Mr Sanders said he could take two routes to break up the banks. One would be to use Section 121 of the Dodd-Frank Act while a second would be to get his 2015 ‘Too Big To Fail, Too Big to Exist’ act to be passed by Congress. That act would bar any financial institution deemed too big to fail from receiving financial assistance from the Federal Reserve and force the Treasury to break up the banks — rather than just deeming them systemically risky, as the current legislation does. … Barney Frank, who helped devise the post-crisis Dodd-Frank reforms, has opposed Mr Sanders’ plans, arguing that breaking up the banks would cause huge disruption and leave US businesses at a disadvantage in the global economy” http://on.ft.com/1YurE4v

GOOD THURSDAY MORNING — Email me on [email protected] and follow me on Twitter @morningmoneyben.

THIS MORNING ON POLITICO PRO FINANCIAL SERVICES — Patrick Temple-West on new SEC swaps rules — and to get Morning Money every day before 6 a.m. — please contact Pro Services at (703) 341-4600 [email protected]

DRIVING THE DAY — House Speaker Paul Ryan holds a press briefing at 11:30 a.m. and is likely to be STILL not running for president … Treasury Secretary Jack Lew will meet with G-20 Finance Ministers and Central Bank Governors to discuss measures to promote global growth … Bank of America reports earnings .. Senate Banking on at 10:00 a.m. has a hearing on the bond market featuring Treasury Counselor Antonio Weiss … Jobless claims at 8:30 a.m. expected to rise to 270K from 267K … Consumer prices at 8:30 a.m. expected to be up 0.2 percent headline and core …

HAPPENING MONDAY: FSOC MEETING — Per release: “On Monday, April 18, U.S. Secretary of the Treasury Jacob J. Lew will preside over a meeting of the Financial Stability Oversight Council (Council) at the Treasury Department. The agenda will include both an open and an executive session. The preliminary agenda for the open session includes an update regarding the Council’s ongoing work on asset management.”

ALSO TODAY — The IIF today will host a private, senior-level roundtable in Washington with industry heads, blockchain experts and leading public sector officials to explore emerging use cases for blockchain technology in financial services and its potential systemic

TREASURY: DON’T CALL IT A BAILOUT — NYT’s Mary Williams Walsh: “Skeptical lawmakers at the House Natural Resources Committee heard testimony Wednesday on a plan to rescue Puerto Rico, as witnesses warned that only quick action by Congress could keep a bad situation from becoming a lost decade. … Antonio Weiss, the counselor to the Treasury secretary, told lawmakers ‘everybody loses’ if Congress fails to intervene in time and Puerto Rico defaults on big debt payments in the coming weeks …

“This legislation is not a bailout,” Mr. Weiss added, “but if things go bad it could turn into one.” … Mr. Weiss said there were still parts of the bill that he did not support, but he urged the committee to repair them quickly so that Congress could put a legal framework in place in time for the coming debt payment deadlines. Otherwise, he and other witnesses said, a default could plunge Puerto Rico into an abyss.” http://nyti.ms/1VqOSep

RYAN PULLS IN THE BIG MONEY — POLITICO’s Jake “Sugar Magnolia” Sherman: “Paul Ryan's massive $17-million fundraising haul this quarter was fueled by some of the nation's richest people and large corporate political action committees, which cut five- and six-figure checks to the speaker's burgeoning political operation … More than $9 million of Ryan's take in the first quarter of 2016 was from donors and PACs who cut checks larger than $50,000, according to a POLITICO analysis of the Team Ryan Federal Election Commission filing. For example, billionaire industrialist Charles Koch, the chairman and CEO of Koch Industries, and his wife Elizabeth gave Ryan a total of $488,400 in March alone. Koch Industries PAC chipped in $71,000.

“The Kochs weren't the only couple whose donation to Ryan neared a half-million dollars. Former Bain Capital managing director Paul Edgerly and his wife Sandra; billionaire Charles B. Johnson and his wife; Houston Texans owner Robert McNair and his wife Janice all gave $488,400 to Ryan. Texas developer Harlan Crow, private equity executive Thomas McInerney, home-building tycoon Dwight Schar and New York Stock Exchange Chairman Jeffery Sprecher gave Ryan $244,200 each.” http://politi.co/1qqv4u0

LIVING WILLS FLY AROUND —

EPIC FAILS — POLITICO’s Zachary Warmbrodt: “Regulators Wednesday morning flunked five of the country's biggest banks on a key test of whether they are ‘too big to fail’ by rejecting the firms' plans for winding themselves down during bankruptcy. The vote of no confidence raises questions about whether safeguards put in place by the 2010 Dodd-Frank law are going to prevent another bank bailout. It will require banks to reorganize so that their failure would be less likely to force taxpayers to foot the bill.

“The regulators said JPMorgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street failed to show that they could be safely unwound during bankruptcy - and deemed their plans ‘not credible,’ a key trigger that ratchets up regulatory pressure on the banks. … The plans regulators rejected Wednesday were banks' latest tries after the Fed and FDIC said previous drafts were insufficient in 2014.

… The agencies found problems with the living wills of Goldman Sachs and Morgan Stanley, but stopped short of jointly flunking them. Instead, the FDIC alone said Goldman's living will was formally ‘not credible’ and the Fed gave the same designation to Morgan's.” http://politico.pro/1S8r5cY

HRC REACT — Hillary Clinton statement: “It’s high time for the banks to live up to their obligations under the law. I have made clear that a critical part of Dodd-Frank’s blueprint to rein in risk in the financial system is the living wills process, and it must be strongly enforced. “For the banks that didn’t pass muster and are unable to resubmit credible plans, regulators need to protect the American public and follow Dodd-Frank by taking actions like imposing higher capital requirements and restricting their activities. And if these banks don’t fix their problems over time, then regulators need to break them apart.”

ABA — “Today’s results show that both banks and regulators continue to learn from the living wills process. Banks have made tremendous strides in adding hundreds of billions of dollars in additional capital, improving liquidity and better managing risk since the financial crisis. These efforts ensure the industry is well equipped to handle any economic circumstance that could arise.

Sen. Elizabeth Warren: “This announcement is a very big deal. It's scary. And it means that, unless these banks promptly address the concerns identified by the regulators, the government must push these banks to get smaller and less complex. The announcement also dramatically demonstrates the danger of taking our focus off the big banks as we think about how to prevent the next major crisis. There's been a lot of revisionist history floating around lately that the Too Big to Fail banks weren't really responsible for the financial crisis. That talk isn't new. Wall Street lobbyists have tried to deflect blame for years. But the claim is absolutely untrue.”

JAMIE DIMON to Yahoo: “They [government] gave us the road map, and we’re going to follow the road. We have thousands of people working on this. So I sent a note out to this morning to them, saying while we are disappointed, I want you all to know that you did an unbelievable job. We put in 150,000 pages of rules and plans and documents. I told them not to feel bad — let’s just pull ourselves up and get back on the horse and go finish the job.” http://yhoo.it/1oXVYbJ

BAD BOY ROLES REVERSED — WSJ’s Christina Rexrode, Ryan Tracy and Emily Glazer: “The roles reversed Wednesday for the banking industry’s star pupil and a problem child. Citigroup Inc. was tapped as the surprise winner in the preliminary verdicts on ‘living wills’ … Citigroup, which has endured a number of regulatory stumbles in recent years, was the only bank whose plan wasn’t rejected by either the Federal Reserve or the Federal Deposit Insurance Corp.

“Meanwhile, Wells Fargo & Co. was the only bank flagged for ‘material errors’ in its submission, leading regulators to say the San Francisco firm needs to significantly revise its plan. The rebuke was a surprise, in part because the last time regulators tackled this issue, they said Wells Fargo was the only bank to lay out a viable bankruptcy path.” http://on.wsj.com/1oZ6AXI

HuffPo’s Shahien Nasiripour: “Obama’s 2010 reform of financial regulations, known as Dodd-Frank, wasn’t enough to satisfy everyone, including Sen. Sherrod Brown (D-Ohio) and Sen. David Vitter (R-La.). They said Obama’s changes didn’t go far enough to end the perception that giant banks such as JPMorgan Chase were too big to be allowed to fail. The senators in 2013 pushed what they saw as a solution to the too-big-to-fail problem, but lost to Obama and the banks. …

“ On Wednesday, the idea behind the senators’ failed bill got a big boost from the Federal Deposit Insurance Corp. and the Federal Reserve, which announced that seven of the nation’s eight giant banks had failed to convince at least one of the regulators that the companies could enter bankruptcy without endangering the U.S. financial system. The regulators were basically saying banks such as Wells Fargo and Bank of America remain too big to fail.” http://huff.to/1XwIAak

NO INT’L BAILOUTS — Breaking Views’ Gina Chon: “When the next financial crisis hits, big American banks will not be able to rely on their internal lifeboats. … Part of the problem is that the banks relied on getting liquidity from other pockets of their far-flung empires. JPMorgan and Morgan Stanley, whose living will was found not credible by only the Fed, are among the banks that count on help from foreign units. It’s a problem because overseas governments could ring-fence the banks in their jurisdictions in a pinch. The banks were ordered to ensure they had enough liquidity without relying on that assistance.” http://nyti.ms/1SgGTzE

ALSO IN THE NEWS —

GOP HIT WITH ATTACK ADS ON PUERTO RICO — POLITICO’s Colin Wilhelm and Isaac Arnsdorf: “Republican lawmakers trying to hammer out a deal to avert Puerto Rico's looming debt crisis are bristling about attack ads being aired in their home districts by a conservative group that doesn’t disclose its donors. The Center for Individual Freedom has spent close to $2 million trying to scare off the authors of a plan to restructure the island territory's debt ahead of a bill-writing session Wednesday and Thursday.

“The ads, which slam the deal as a bailout, support the position of hedge funds that stand to lose billions if Congress allows Puerto Rico to restructure its general obligation debt. Those hedge funds declined to comment or didn’t respond to requests. The Center for Individual Freedom also did not respond.” http://politi.co/1Q7RzZS

WHITE KNIGHT STILL POSSIBLE? — NYT’s Alexander Burns: “Speaker Paul D. Ryan’s categorical disavowal of interest in the presidential race on Tuesday appeared to extinguish a longstanding fantasy of Republican leaders … But if the House speaker seems determined not to play the role of savior in 2016, the path envisioned for him might still be open to another surprise candidate, if neither Donald J. Trump nor Ted Cruz can secure the nomination after several rounds of balloting …

“In a party with few prominent national leaders, Mitt Romney stands out for his stature and experience in presidential politic … This year, Republican speculation has focused on two retired Marine generals, James N. Mattis and John F. Kelly, with Mr. Mattis especially a figure of interest … And while [Condoleezza] Rice has not expressed any interest in the race, she has only burnished her political credentials over time, giving a well-received prime-time address at the 2012 Republican convention, and staying out of the ugliest frays of 2016” http://nyti.ms/1WsDb60

MEET THE PLAYBOOK FOR COUNTRY MUSIC — Via Forbes, Kurt Bardella now has a morning tipsheet for country music fans. http://onforb.es/22vpRgM

HEARING PREP — Chief Executive Officer of the Equity Dealers of America, Chris Iacovella, ahead of the House Financial Services Committee, Subcommittee on Capital Markets and GSEs Hearing “JOBS Act at Four: Examining Its Impact and Proposals to Further Enhance Capital Formation.”: “We strongly believe that the committee can further enhance the equity capital formation process by focusing on ways to increase the amount of equity research coverage for small and mid-cap companies.”

NRF RUNS NEWSPAPER ADS — Per National Retail Federation: “With credit card companies on the Hill Thursday to brief the House Small Business Caucus on implementation of EMV credit cards, the National Retail Federation is running newspaper ads arguing that the new chip-based cards do little to stop fraud unless the chip is coupled with a Personal Identification Number or PIN”

PRIVATE EQUITY NOTCHES STRONG RETURNS — Via the PEGCC from its latest report: “Over a 10-year horizon, the median private equity benchmark achieved an 11.8 percent annualized return, almost doubling the S&P 500 returns of 6.8 percent.”

JPM SALVAGES QUARTER — FT’s Ben McLannahan in New York: “JPMorgan Chase salvaged a grim quarter for its investment banking unit by pushing up revenues in its consumer business, leading Jamie Dimon, its chairman and chief executive, to celebrate the bank’s ability to weather adverse markets. Analysts had braced for a 13 percent fall in net income at the biggest US bank, mainly caused by simultaneous falls in stocks, high-yield bonds and oil during the first quarter.

“But profits were significantly better than expected, coming in at $1.35 a share, down 7 percent at $5.52bn, on revenue of $24.1bn. Analysts had been expecting earnings per share of $1.26, down from $1.45 a year ago, on revenues of $23.4bn. While JPMorgan’s corporate and investment banking unit was hit by the market turmoil, with profits dropping by more than a fifth, the consumer banking division posted a 4 percent rise in net revenues and a 12 percent rise in profits, boosted by a one-off gain from the sale of shares in Square, the payment technology company” http://on.ft.com/1WsDzBf

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