Bank Shares Tank On Election Outcome; Strict Regulation To Stay

by Trefis Team
Morgan Stanley
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Bank shares lost a substantial chunk of their value over trading this Wednesday as hopes of relaxed financial sector norms promised by Governor Romney melted away when the 2012 election results swung President Obama’s way. In fact, investors fear that the reins on the financial sector may be pulled in tighter in the near future with Elizabeth Warren being elected to the Senate from Massachusetts. Warren has been a vocal proponent of stricter regulations for banks and other financial institutions, having played key roles in the financial sector reforms undertaken by the Obama government over recent years. No doubt, the daunting task of scaling the ‘fiscal cliff’ that stares at the incumbent government also added to the investor woes.

Shares of Morgan Stanley (NYSE:MS) lost nearly 9% of their value over the day, followed by a 7% slide witnessed in the shares of Bank of America (NYSE:BAC). Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) also saw their share value decline by around 6% each. The KBW Bank Index shed 4.6% on Wednesday.

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The disappointment among investors in the banks due to President Obama’s re-election comes as no surprise given his support for stricter regulations for the sector – best demonstrated by his signing the Dodd-Frank Act into law during his first term. On the other hand, Romney is known for his softer attitude toward banks. So much so that banks were quite forthcoming in their support to him, as evidenced by the table below which shows that 8 of the 10 largest contributors towards Mitt Romney for this election were banks.

Contributor Contribution
Goldman Sachs $       638,580
JPMorgan Chase & Co $       503,074
Morgan Stanley $       479,250
Bank of America $       468,850
Credit Suisse Group $       421,310
Citigroup Inc $       347,515
Barclays $       322,400
Kirkland & Ellis $       295,042
Wells Fargo $       277,450
PricewaterhouseCoopers $       251,700

Source: InfulenceExplorer on Mitt Romney over 2011-2012

While Romney wasn’t expected to completely do away with the changes President Obama championed over recent years, it was believed that his election would help take some of the bite off the more contentious issues that exist in the Dodd-Frank law as it stands today – including a strict ban on proprietary trading as proposed in the Volcker Rule. President Obama’s re-election and the elevation of Elizabeth Warren to the Senate is seen as an indicator of the regulations being implemented rather strictly over the months to come.

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  • commented 5 years ago
  • tags: C BAC JPM MS GS
  • Framly, I think the bank stocks should have up because they will not be allowed to take risks as in the past. This election result might prevent another bank meltdown.