U.S. banks’ profits soar as CEOs endorse Trump’s looser regulatory approach

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Wall Street’s biggest banks are backing Donald Trump’s agenda to loosen regulatory requirements that lenders see as barriers, positioning the U.S. arms of Canadian institutions for a boon even as potential tariffs loom.

The six biggest U.S. banks reported explosive full-year earnings this week, with JPMorgan Chase & Co. JPM-N clinching the title of the first bank in the country’s history to top US$50-billion in annual profit. But chief executive officers are predicting an even more profitable banking environment ahead, as the president-elect is expected to repeal certain rules and reject a campaign for banks to hold more capital as a buffer against economic downturns.

Some of Canada’s biggest banks have major operations in the United States, including Royal Bank of Canada RY-T, Toronto-Dominion Bank TD-T and Bank of Montreal BMO-T. While Mr. Trump’s growth agenda could provide a boost to Canadian bank profits, CEOs have also warned that tariff threats could damage the economies of both countries.

JPMorgan CEO Jamie Dimon said that “a more pro-growth agenda” and better collaboration from government are encouraging to businesses, boosting optimism about the economy.

“We have consistently said that regulation should be designed to effectively balance promoting economic growth and maintaining a safe and sound banking system,” Mr. Dimon said in a statement Wednesday. “This is not about weakening regulation … but rather about setting rules that are transparent, fair, holistic in their approach and based on rigorous data analysis, so that banks can play their critical role in the economy and markets.”

U.S. banks have railed against regulatory changes proposed under President Joe Biden. Regulators suggested raising capital levels, a proposition that stems from an international accord struck after the 2008 financial crisis to help prevent bank failures.

The lenders launched an opposition campaign, saying that the change would harm the economy and make the banking sector less competitive compared with global peers.

Last year, regulators introduced new guidelines for bank mergers to scrutinize a deal’s effects on financial stability, competition, communities and customers.

The banks have also opposed longer-standing measures to protect the banking system from risks. Last month, the American Bankers Association, which lobbies for the country’s lenders, and other banking trade groups filed a lawsuit seeking to force the U.S. Federal Reserve to overhaul the design of the annual stress tests that were instated in 2009 as part of the government’s response to the financial crisis.

Earlier this month, Fed vice-chair for supervision Michael Barr said he is stepping down as the top banking regulator at the U.S. central bank, signalling that a dispute with the incoming administration over his position would be a “distraction” from the organization’s mission to protect the financial system.

Since the election, there has been a “a sentiment shift” among CEOs broadly, and proposals from the new administration have “people excited,” according to Goldman Sachs CEO David Solomon. The lender’s fourth-quarter profits more than doubled on better-than-expected investment banking revenue.

“We have long been concerned that the lack of transparency and the Fed’s current stress testing creates uncertainty and, at times, produces results we cannot understand,” Mr. Solomon said during a conference call Wednesday.

In recent years, Canada’s banking regulator has also ramped up scrutiny of the sector, imposing higher capital requirements and stricter guidelines to defend against mounting risks, including digital evolution, cybersecurity, foreign interference, real estate fluctuations and artificial intelligence. Some of the country’s bank CEOs have questioned how those higher requirements affect the sector’s competitiveness globally.

The heads of U.S. banks also cautioned that mounting geopolitical concerns could upend the excitement around business growth. Bank of America CEO Brian Moynihan pointed to looming threats of wars, trade clashes, and increased unemployment rates and household debt.

“We worry about all those things,” Mr. Moynihan said during a conference call Thursday. “The way we manage the company is to run it so that given those events, we can continue to operate.”

How the incoming administration ultimately deals with these issues, as well as the regulatory environment, could be a defining feature in how the banks perform over the next year.

For many of Canada’s largest banks, their capital-markets businesses are integral to the performance of their U.S. operations. Deal activity is expected to continue accelerating, providing the banks with another source of earnings growth.

“You see pipelines in the [mergers and acquisitions] product that are the highest in seven years. So that is really encouraging,” Morgan Stanley CEO Ted Pick said Thursday. The bank’s fourth-quarter profit more than doubled on higher trading revenue from a boost in activity from volatility linked to the U.S. elections.

“Now some of this will be dependent on how things roll out in the first couple of months of the incoming administration and how things feel on a cross-border basis. But the pent-up activity that we’re seeing is starting to release.”