Federal Reserve Governors Michelle Bowman and Christopher Waller pose for a photo, during a break at a conference on monetary policy at Stanford University’s Hoover Institution, in Palo Alto, California, U.S. May 6, 2022. Picture taken May 6, 2022.
Ann Saphir | Reuters
The early departure of the Federal Reserve’s top financial regulator allows for a more industry-friendly official to take his place, the latest boon for U.S. banks riding a wave of post-election optimism.
Federal Reserve Vice Chair for Supervision Michael Barr said Monday that he plans to step down from his role by next month to avoid a protracted legal battle with the Trump administration, which had weighed seeking his removal.
The announcement, a reversal from Barr’s previous comments on the matter, ends his supervisory role roughly 18 months earlier than planned. It also removes a possible impediment to Trump’s deregulatory agenda.
Banks and other financial stocks were among the big winners after the election of Donald Trump in November on speculation that softer regulation and increased deal activity, including mergers, were on the way. Weeks after his victory, Trump selected hedge fund manager Scott Bessent as his nominee for Treasury Secretary.
Trump has yet to name nominees for the three major bank regulatory agencies — the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency and the Consumer Financial Protection Bureau.
Now, with Barr’s resignation, a more precise image of incoming bank regulation is forming.
Trump is limited to picking one of two Republican Fed governors for vice chair of supervision: Michelle Bowman or Christopher Waller.
Waller declined to comment, while Bowman didn’t immediately respond to request for comment.
Bowman, whose name had already appeared on short lists for possible Trump administration roles and is considered the frontrunner, has been a critic of Barr’s attempt to force American banks to hold more capital — a proposal known as Basel III Endgame.
“The regulatory approach we took failed to consider or deliver a reasonable proposal, one aligned with the original Basel agreement yet suited to the particulars of the U.S. banking system,” Bowman said in a November speech.
Bowman, a former community banker and Kansas bank commissioner, could take on “industry-friendly reforms” around a number of sore spots for banks, according to Alexandra Steinberg Barrage, a former FDIC executive and partner at Troutman Pepper Locke.
That includes what bank executives have called an opaque Fed stress test process, long turnaround times for merger approvals and what bankers have said are sometimes unfair confidential bank exams, Barrage said.
Easier ‘Endgame’?
When it comes to the Basel Endgame, first announced in July 2023 before a toned-down proposal was released last year, it’s now more likely that its ultimate form will be far gentler for the industry, versus versions that would’ve forced large banks to withhold tens of billions of dollars in capital.
Barr led the interagency effort to draft the sweeping Basel Endgame, whose initial version would’ve boosted capital requirements for the world’s largest banks by roughly 19%. Now, Barrage and others see a final version that is far less onerous.
“Barr’s replacement could still work with the other agencies to propose a new B3 Endgame rule, but we think such a proposal would be capital-neutral industry-wide,” Stifel analyst Brian Gardner said Monday in a note. “Bowman voted against the 2023 proposal, and we expect she would lead any B3 re-write in a different direction.”
If lenders ultimately beat back efforts to force them to hold more capital, that would enable them to boost share buybacks, among other possible uses for the money.
Bank stocks traded higher Monday after Barr’s announcement, with the KBW Bank Index rising as much as 2.4% during the session. Citigroup and Morgan Stanley, which have both garnered headlines for regulatory matters last year, were among the day’s biggest gainers, each rising more than 2%.
Notably, Barr is not resigning from his role as one of seven Fed governors, which preserves the current 4-3 advantage of Democrat appointees on the Fed board, according to Klaros Group co-founder Brian Graham.
“Barr’s resignation of the vice chair role, while remaining a governor, is actually very clever,” Graham said. “It preserves the balance of power for board votes for a year or so, and it constrains the choices for his replacement to those currently serving on the board.”
Check out the companies making headlines before the bell. SolarEdge Technologies — The solar stock dropped 6%. Citi downgraded SolarEdge to sell from neutral, saying the company faces “stubbornly high” operating expenses despite its restructuring announcement. Shares moved 6.6% and 8% higher on Monday and Tuesday, respectively, after SolarEdge said in a filing Monday it would cut 400 jobs. Novo Nordisk — The pharmaceutical giant rose more than 3% following an upgrade to buy from neutral at UBS. “Novo remains the most exciting growth story in European pharma and is well placed to continue to benefit from the high demand for GLP-1 medications near-term,” the bank wrote. Novo Nordisk shares have retreated more than 40% over the past six months. Advanced Micro Devices — Shares slid about 3% after HSBC downgraded the technology manufacturer to a reduce rating from buy. The ban said that the company’s AI GPU roadmap is less competitive than previously estimated. Carvana — The car seller rose 2% on the back of an upgrade to buy from neutral at Citi. Analyst Ronald Josey said that Carvana was efficiently ramping inventory to meet growing consumer demand. Maplebear — Shares of the parent of grocery delivery company Instacart popped nearly 5%. Maplebear is set to replace Enovis in the S & P MidCap 400 index, effective before trading commences on Tuesday, Jan. 14. Shell — The energy giant slid 3% after trimming its liquified natural gas production outlook for its fourth quarter. Shell also expects its oil and gas trading results to come in lower than in previous months. Cal-Maine Foods — The egg producer rose nearly 5% on the back of its fiscal second-quarter results . Cal-Maine Foods reported earnings of $4.47 per share while its revenue of $954.7 million marked an 82% increase from this time last year. AAR Corp — The aviation services provider added almost 4% following a fiscal second-quarter earnings beat. AAR reported adjusted earnings of 90 cents per share, higher than the 85 cents analysts polled by FactSet were expecting. The company’s $686.1 million revenue also beat the expected $654.2 million. Getty Images — The image database tumbled 10% after surging over 24% during Tuesday’s regular session after Getty announced a $3.7 billion merger with Shutterstock . Shares of Shutterstock slipped more than 5% in Wednesday’s early trading hours after adding 14.8% on Tuesday. Quantum computing stocks — Quantum stocks tumbled on Wednesday after Nvidia CEO Jensen Huang said the computers are between 15 to 30 years away. The Defiance Quantum & AI ETF shed 3%, while Rigetti Computing plunged 25%. D-Wave Quantum and Quantum Computing sank around 24% each, followed by IonQ , down 15%. Flutter Entertainment — Shares slid 2.5% after the sports betting and gambling company lowered its 2024 U.S. revenue guidance, citing unfavorable sports results. Flutter now expects revenue to come in at around $5.78 billion, lower than its previous estimate of between $6.05 billion to $6.25 billion. — CNBC’s Michelle Fox, Sarah Min and Jesse Pound contributed reporting.
Check out the companies making headlines in after-hours trading. Cal-Maine Foods – Shares gained 4% after the egg production company posted its latest quarterly results . For its second quarter of fiscal 2025, Cal-Maine Foods earned $4.47 per share on revenue of $954.7 million, with the latter figure marking an 82% increase compared to the year-ago quarter. The results were not comparable to the Street’s estimates due to thin coverage. AAR Corp – Shares of the aviation services provider advanced around 4% after the company’s fiscal second-quarter results beat Wall Street’s expectations. AAR Corp posted adjusted earnings of 90 cents per share on revenue of $686.1 million, more than the 85 cents per share and $654.2 million that analysts were expecting, according to FactSet. AZZ – The stock moved about 1% higher following the metal-coatings company’s better-than-expected third-quarter results. AZZ posted adjusted earnings of $1.39 per share on revenue of $403.7 million. That’s above the $1.26 per share and $394.3 million in revenue that analysts polled by FactSet had penciled in. Getty Images – Shares of the image database slid 4%. In Tuesday’s regular session, Getty soared more than 24% and Shutterstock popped nearly 15% after the companies announced a $3.7 billion merger . Shutterstock was little changed in after-hours trading.
Howard Marks, one of the most respected value investors who famously foresaw the dotcom bubble, is pointing out a handful of red flags in the market like valuation that could mean poor returns over the long term or a sizable decline nearer term. In his latest memo to clients, the co-founder and co-chairman of Oaktree Capital Management laid out five cautionary signs he’s seeing in the stock market after the S & P 500 ‘s best two-year run since 1998. Marks made clear that he’s not necessarily calling a bubble in stocks since his specialty lies in credit these days, but the memo focuses on signs of froth in equities. “It shouldn’t come as a surprise that the return on an investment is significantly a function of the price paid for it. For that reason, investors clearly shouldn’t be indifferent to today’s market valuation,” Marks wrote. Marks’ memo pegs the S & P 500’s current price-to-earnings ratio at 22. Using data from JPMorgan Asset Management, Marks explained that higher PE ratios have historically led to lower returns in the long run. Today’s multiple of 22 is near the top of the range, and this level would translate into 10-year returns between plus 2% and minus 2%, the data showed. Rather than poor performance in the long term, it’s also possible that the correction on the multiple is compressed into a short period of time, resulting in sharp, sudden sell-offs much like when the internet bubble burst in the early 2000s, Marks noted. .SPX 1Y mountain S & P 500 Apart from valuation, Marks specifically took issue with the “enthusiasm that is being applied to the new thing of AI.” Artificial intelligence emerged as the biggest investing theme over the past two years, pushing key beneficiaries like Nvidia to jaw-dropping prices. This AI enthusiasm might also have been extended to other high-tech areas, Marks added. Meanwhile, the “implicit presumption” that the biggest seven companies will be too big to fail also concerned him, he said. The so-called Magnificent 7 stocks — a group that includes high fliers such as Nvidia , Microsoft , Apple and Meta Platforms — was responsible for more than half of the S & P 500’s 2024 gain , according to Bespoke Investment Group. Many are still seeing more gains ahead for these juggernauts. Marks, whose firm managed $205 billion in assets under management as of September, also raised the question whether some of the S & P 500’s advance came from automated buying from passive investors, who don’t take value factors into consideration. The 78-year-old investor started writing investment memos in 1990 and they have become required reading on Wall Street. Even Warren Buffett has said he reads them regularly and always learns something from them. Marks said he has been thinking a lot lately of a quote often attributed to Buffett: “When investors forget that corporate profits grow about 7% per year, they tend to get into trouble.” But Marks said he asked his friend Buffett about that phrase and the legendary investor said he never said that. “But I think it’s great, so I keep using it,” wrote Marks.
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