US financial sector casts cold eye on Obama win

President Barack Obama's re-election and the Senate victory of Elizabeth Warren, who is a fierce Democratic opponent of big banks and Wall Street, has sent shudders through the financial sector. "An Obama win was definitely not positive for banks," which would have preferred a win by Republican challenger Mitt Romney, said Jim Sinegal, a Morningstar banking analyst. Hugh Johnson, head of investment manager Hugh Johnson Advisors, said the Obama administration would likely view the election as a mandate to further step up financial regulations. "An administration which has already been tough on businesses and tough on banks will continue to be tough, if not tougher," Johnson said. He predicted a strong version of the Dodd-Frank financial reform legislation would emerge within the next year or two. The implementation of the Wall Street overhaul has been dragging along for two years in the face of opposition from Republican lawmakers and a deep-pocketed lobbying effort by the financial sector. Romney and his fellow Republicans argue that the tougher US regulations are killing competitiveness in the industry. Adopted in July 2010 in response to the 2008 financial crisis, the Dodd-Frank overhaul included the creation of the Consumer Financial Protection Bureau, set up by Warren. The Harvard law professor and consumer advocate won a US Senate seat representing Massachusetts Tuesday, but Johnson downplayed the firebrand's potential to spearhead reforms. "I don't think she's going to take the lead on the issue, he said, adding, "she was only elected." But for Sinegal, Senator-elect Warren poses a bigger challenge than Obama's re-election to a second four-year term. The banks already have had four years under Obama, Sinegal said, while Warren "has been one of the biggest proponents of regulations and one of the biggest enemies of the banks." The Morningstar analyst predicted Warren would propose new regulations linked to the interest rates banks can charge, in a bid to resolve persistent problems with mortgages in the depressed, but improving, housing market. Another worry for the financial sector hits executives' pocketbooks -- four more years of Obama could mean higher federal taxes on their high-flying salaries. In general, banks and investors prefer that government stay out of the way of making profit, and the Obama and Warren victories make that less likely. As a result of these fears, Wall Street stocks tanked Wednesday in a massive sell-off that left indexes down more than two percent, with financial stocks among the worst performers. About half an hour before the markets closed, Bank of America was down 5.9 percent and JPMorgan Chase skidded 4.9 percent. Goldman Sachs shed 5.7 percent, Citigroup fell 5.5 percent and Morgan Stanley dove 7.5 percent. The banks and the American Bankers Association, contacted by AFP seeking comment on the election, did not respond.