Good News for Goldman Sachs: Trump Likely to Alter Dodd-Frank

 | Jan 26, 2017 | 3:00 PM EST
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The new Trump administration is signaling that several trends of the previous eight years of the Obama administration are about to fall. He's already signed executive orders that put pressure on Obamacare and help to move forwards the Keystone and Dakota Access pipelines, both temporarily stopped by the previous president.

One place where Trump has yet to put his mark is on Dodd-Frank legislation, but today a letter went out from the Futures Industry Association (FIA) that may give him the opportunity to push back on that 2010 bill -- and that would undoubtedly mean a better environment for investment banks.

Walt Lukken, the CEO of the FIA today sent a letter to the White House and to Congressional leaders, calling for a wholesale review of all financial regulation. "While some elements of Dodd-Frank may warrant repeal, others simply require reform," Lukken wrote today. In essence, the leading organization lobbying for the benefit of futures and derivatives traders is asking the White House to eviscerate Dodd-Frank.

It's not an idle request from an impotent group. Lukken was the lawyer that stood beside Sen. Richard Lugar, R-Ind., during his many years as head of the Agricultural Committee, the body responsible for oversight of futures and other derivatives. He also served as the chairman of the Commodity Futures Trading Commission (CFTC) from 2007 to 2009, which is the agency that enforces governmental regulations for derivative trading. It was from the CFTC post that Lukken joined the FIA as its CEO.

So Lukken already has strong ties with government and especially this particular one dominated by Republicans, which is now loaded with members from the investment bank Goldman Sachs, including Treasury Secretary Steve Mnuchin and advisers Gary Cohn and Steve Bannon.

It's been no secret that Goldman Sachs has been slow and unhappy in complying with Dodd-Frank directives, particularly on proprietary trading and position limits, as well as increasing liquidity restrictions.

But with this letter from the FIA, it's a likely spot for the new president to look to roll back some of these bank regulations, and I'm convinced he will order such a review in the next few weeks.

We could argue the risk of again allowing the investment banks to again expand in proprietary trading opportunities, but the bottom line is that investment bank stocks are likely to increase the run they've already been experiencing since the November election.

Increasing interest rates, another likely trend during the next few years, will also benefit the banks, so reducing leverage ratios or again opening up stronger commodity and bond trading operations will only benefit them more. It seems a perfect storm of good news is on the horizon for names like Goldman Sachs (GS) , and Action Alerts PLUS holding Citibank (C) and Morgan Stanley (MS) .

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