Fewer regulations could help Bank of America
Donald Trump’s expressed policies regarding fewer banking regulations could drive Bank of America (BAC) to new highs. Trump has been critical of the banking regulations and safeguards put in place after the financial crisis of 2009 as well as of the Fed’s role in keeping interest rates low.
Specifically, banking regulations like the Dodd-Frank Act and stress tests meant to safeguard the broader economy have limited Bank of America’s capital return plans. If Trump is able to relax such regulations, Bank of America would be able to hike its dividends to 4% and repurchase 5%–7% of its shares with its earnings.
Notably, Bank of America has nearly half of its revenues tied to interest rates and would be the biggest beneficiary of a rate hike among major banking peers (XLF). A 100-basis-point increase in interest rates would lead to a rise of $7.5 billion in Bank of America’s earnings, which many believe would lead to economic growth across industries.
Bank of America is also currently trading at the steepest discount among peers Wells Fargo (WFC), J.P. Morgan (JPM), and Citigroup. If Bank of America continues to improve its fundamentals while hiking dividends and buying back stock, its multiples will rise, thereby leading to sharp gains in its stock price.