The Trump administration is shifting its focus from the military-industrial and real estate sectors to a broader economic landscape, leading to a sudden increase in regulatory pressure on major U.S. banks. Following the president's continuous pressure on defense contractors and homebuilders to limit stock buybacks, concerns are growing in the market over potential disruptions to capital return plans by Wall Street giants, forcing investors to reassess the policy risks associated with bank stocks.
According to a report by The Wall Street Journal on January 19, after Trump targeted share repurchases in the defense and real estate industries through executive orders and public statements, large banks may become the next target. As a core pillar of his second-year economic agenda emphasizing "affordability," the president is using unconventional methods to force various industries to comply with his will. Although the White House claims that recent actions were not coordinated with other sectors, this approach of restricting buybacks to push companies to lower prices or increase output has already unsettled banking shareholders.
This risk is not unfounded, as the government possesses more direct intervention tools for the banking sector than for other industries. Banks' dividend payments and stock repurchase capabilities have long been constrained by regulatory restrictions and capital adequacy requirements, which can be adjusted according to government objectives. Once repurchases are restricted, it will directly impact investor return expectations. Repurchases not only return capital to shareholders but also boost earnings per share and support stock prices, making them a key reason why many investors favor bank stocks.
Market observers note that while a complete suspension of stock buybacks is typically implemented only under extreme circumstances (such as during the 2020 pandemic) by the Federal Reserve, Trump’s unpredictable policy style makes "interfering with major banks’ capital plans" a foreseeable option. If the president’s public pressure proves ineffective, his ability to exert influence through regulatory agencies should not be underestimated, especially considering his longstanding disregard for the independence of the Federal Reserve.
Massive scale of buybacks makes them a potential target
Over the past decade, Wall Street giants have accumulated staggering buyback volumes, making them highly susceptible to becoming targets of populist policies. According to data from S&P Dow Jones Indices, during the ten years ending September 30, $JPMorgan (JPM.US)$、$Bank of America (BAC.US)$、$Citigroup (C.US)$and$Wells Fargo & Co (WFC.US)$the total amount of stock repurchases exceeded $500 billion. While this large-scale capital return has been welcomed by investors, it has also drawn political pressure.
Notably, on the issue of restricting buybacks, Trump has formed a "strange alliance" with some of his fiercest political opponents. Just last September, Senators Elizabeth Warren and Bernie Sanders sent letters to the six largest banks, criticizing them for prioritizing increased buybacks and dividends over expanding lending or reducing customer costs after passing the Federal Reserve’s 2025 stress tests and receiving relaxed capital requirements. Now, Trump’s condemnation of buybacks echoes this stance, signaling a cross-party trend toward tighter regulation.
Existing precedents and direct interventions
Recent actions by the Trump administration demonstrate its willingness and ability to intervene in corporate capital allocation. On January 7, Trump signed an executive order explicitly prohibiting defense contractors from paying dividends or repurchasing shares “until they can deliver quality products on time and within budget.” Regardless of its legal authority, this move has already had a deterrent effect.
Similar pressures have extended to the real estate sector. Bill Pulte, the Federal Housing Finance Agency (FHFA) director nominated by Trump, stated last week that the agency is reviewing share repurchase activities by large homebuilders. Pulte accused builders of deliberately maintaining high housing prices while conducting unprecedented stock buybacks, all while enjoying record profits. He emphasized that federal support for Fannie Mae and Freddie Mac should not be used to fund buybacks at the expense of Americans in need of housing.
Moreover, Trump posted on social media on January 9, calling for a one-year cap of 10% on credit card interest rates starting from January 20, further demonstrating his determination to intervene in financial markets through unconventional means.
The Role and Regulatory Uncertainty of the Federal Reserve
If Trump intends to disrupt the share repurchase plans of major lending institutions, he holds a key card: the regulatory authority of the Federal Reserve. As 'too big to fail' institutions, large banks are directly supervised by the Federal Reserve, and during the 2008 financial crisis, these banks were regarded as national tools. Whether banks can pay dividends and repurchase shares depends directly on the capital rules set by regulators.
Trump's disregard for the independence of the Federal Reserve is well-documented. As he appoints a successor after the end of Jerome Powell’s term as Fed Chair, his influence over the central bank’s regulatory policies is expected to grow further. Although key senators like Thom Tillis have threatened to block nominations until the Department of Justice investigation into Powell is resolved, potentially delaying the transition of power, this has not eliminated the uncertainty surrounding long-term regulatory direction.
For banks like $Goldman Sachs (GS.US)$and$Morgan Stanley (MS.US)$, share repurchases are not only a means of returning capital but also a high-return investment strategy. According to Zion Research Group, these two banks achieved an annualized return of 22% on their stock buybacks over the past decade, surpassing even the returns of traditional lending businesses. However, facing the potential 'big hammer' in the hands of the President, these previous profit models are encountering unprecedented policy challenges. For investors, regulatory risks that were once unimaginable can no longer be ignored.
Editor/Melody
