For Immediate Release
Chicago, IL - October 12, 2015 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the JPMorgan Chase & Co. ( JPM ), Citigroup Inc. ( C ), American International Group Inc. ( AIG ), Goldman Sachs Group, Inc. ( GS ) and Wells Fargo & Company ( WFC ).
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Here are highlights from Friday's Analyst Blog:
Hillary to Break Up Big Banks? 5 Stocks to Watch
Democratic Party presidential hopeful and frontrunner Hillary Clinton recently unveiled her proposals for major Wall Street financial firms. In an op-ed published in Bloomberg View, Clinton wrote, "To prevent irresponsible behavior on Wall Street from ever again devastating Main Street, we need more accountability, tougher rules and stronger enforcement."
In her 4-point plan, Clinton aims to advance the progress "made under President Obama." First and foremost, she thinks, accountability on Wall Street should increase by making individuals responsible for "egregious misconduct." Also, the statute of limitations for financial misconduct should be extended, while at the same time more resources are to be allocated to the law enforcement agencies.
Secondly, Clinton proposes to levy "risk fee" on large financial institutions that pose a risk to the overall financial system. The new fee, aimed at curbing risky behavior of banks, will be based on the level of risky debts and/or short-term funding. Further, she advocates strengthening and enforcement of the Volcker Rule. Also, more power is to be given to the regulators to break up, reorganize or downsize "too-big-to-fail" financial institutions.
Apart from focusing on banks, Clinton made it a point to mention the larger financial sector, specifically, stringent regulation of "shadow banking" sector. This includes activities of hedge funds, investment banks and other non-bank finance firms. Also, her proposal includes imposition of tax on high-frequency trading ("HFT") and further reform of rules that govern stock markets. These would ensure equal access to market information for all participants and reduce conflict of interests.
5 Big Financial Stocks to Watch
Though her proposals are not vastly different from what have been implemented since the 2008 financial crisis under the Dodd-Frank Wall Street Reform and the Consumer Protection Act, we believe the following financial institutions will remain in focus owing to the aforementioned plans:
JPMorgan Chase & Co. ( JPM ) is the largest U.S. bank in terms of total assets and tops the list of "too-big-to-fail" financial institutions. It's an ideal candidate for forced break-up, owing to its complex business nature. Further, the company continues to steal the regulatory limelight for past business malpractices. Also, the "risk fee," which Clinton proposes to impose, would hit the bank hard as it relies significantly on short-term funding to offer mortgages.
Citigroup Inc. ( C ), the third-largest U.S. bank, is still embroiled in probes and lawsuits for its alleged involvement in several business misconducts. The company, like JPMorgan, would be hurt by Clinton's "risk fee." Though the bank is downsizing its non-core operations and planning to exit several unprofitable markets, it remains one of the most important and complex financial institutions in the country.
American International Group Inc. ( AIG ), one of the largest insurance firms in the U.S., was also one of the major non-bank financial institutions that received bailout money following the 2008 crisis. The company continues to face a number of issues related to the downfall in the subprime market that include litigations and judicial probes.
The Goldman Sachs Group, Inc. ( GS ) is a leading global financial holding company providing investment banking, securities and investment management services. Like all the above-mentioned banks, the company is entangled in several probes and litigations. Further, the firm's complex business structure makes it ideal for forced break-up in the event of a major crisis.
Wells Fargo & Company ( WFC ) is one of the largest financial services company in the U.S. Though deemed a "too-big-to-fail" financial institution, the bank's profile is less complex compared with other major Wall Street banks. The company is primarily engaged in consumer and business lending, which is largely funded by bank deposits rather than risky and volatile short-term funding sources. So Clinton's proposal, if implemented, might not impact Wells Fargo as much.
Do the Banks Need to Worry?
Many of Clinton's ideas will require congressional approval. In the past, banks have been successful in lobbying against similar proposals by publicizing concerns about such plans.
Also, Clinton's proposals stop short of the full-fledged break-up of "too-big-to-fail" banks as favored by Clinton's main opponent in the Democratic primaries, Bernie Sanders, who proposed to bring back the Glass-Steagall Act (repealed in 1990s). The Act prohibited banks from conducting both commercial and investment banking activities.
However, since the 2008 crisis, banks (both large and small) have adapted to the ever-changing regulatory landscape. In case the above-mentioned proposals do get implemented, banks are expected to take them in stride.
To sum up her proposals, Clinton wrote, "The bottom line is that we can never allow what happened in 2008 to happen again. Just as important, we have to encourage Wall Street to live up to its proper role in our economy -- helping Main Street
grow and prosper."
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