Weinberg & Company

Simply Stated Newsletter – September 2017

By September 20, 2017 No Comments


Checking the Regulatory Reform Scorecard

Soon after the election of President Trump, Simply Stated engaged in a bit of prognostication. In our December 2016 and January 2017 issues we foretold the following:

On regulation reform, we wrote that although the 2010 Dodd-Frank Act was “definitely in the cross-hairs,” we did not see strong support for its full repeal among big banks and corporate CFOs. We thought Dodd-Frank repair was more likely than repeal, saying: “Banks have been working closely with regulators these past six years, honing regulations into a form they could live with. Though they would like to see several specific rules removed, they are not passionate about scrapping the law altogether.

“In our January 2017 issue, we called out Goldman Sachs for actively urging against Dodd-Frank repeal and quoted Goldman Chair Lloyd Blankfein saying repeal was “not in Goldman’s interest,” because the high regulatory costs of Dodd-Frank had helped raise the barriers to entry in his business, allowing Goldman to gain market share.

We predicted that most deregulatory relief would come by way of presidential executive order and by regulation writers rather than through congressional action. “We’ve already seen how much can be done by the stroke of a pen under the Obama administration, and fully expect that much will be undone by the stroke of a pen. We suspect the Trump administration is already stocking up on ink,” we wrote.

Back then we said we would closely watch the appointments to cabinet and regulatory agencies, “what happens in Congress will make the news, but legislation by its nature is often broad-brushed. It is in the government agencies where regulation writers and regulation enforcers are given their marching orders.”

Now, seven months later, we sourced issues of the Wall Street Journal to get a compilation of regulatory changes since the election. Time to check the regulatory score card.

The Journal notes that seven months into the Trump administration, regulators have set the stage for financial deregulation, with a coming wave of eased “rules governing trading desks, bank boardrooms, corporations’ financial disclosures and more.”

Several agencies are reviewing the Volcker rule, a part of the 2010 Dodd-Frank Act that limits banks’ trading. Some regulators also recently dropped a plan to restrict bonuses on Wall Street that had been opposed by banks and brokerage firms. And the Labor Department recently disclosed an 18-month delay in the so-called fiduciary rule, though many banks have already implemented the rule.

As the Trump administration struggles to advance its legislative agenda in Congress, regulatory relief is happening though regulatory agencies — new agency heads directing regulatory writers. The pace of change, however, is being severely stifled by the Senate where a 60-vote requirement (filibuster rule) has bottled up and backlogged the confirmation of a long list of the administration’s appointees.

“So far, the rule book for Wall Street hasn’t been rewritten in major ways, in part because nominees for some key posts haven’t been named or are awaiting Senate confirmation. But officials who are in place are laying the groundwork,” reports the Journal. As an example, “the regulatory agenda of the SEC published last July removed more than a dozen proposals related to Dodd-Frank, including the plan to restrict bonuses.”

Newly appointed SEC chairman Jay Clayton has said he wants to lighten the regulatory burden on public companies. Although he hasn’t taken action to scale back those rules yet, the Journal reported that his predecessor Michael Piwowar, a Republican SEC commissioner tapped by Mr. Trump to serve as acting chairman until Mr. Clayton was confirmed, started work toward changing two rules. One requires disclosure of the pay gap between chief executives and workers, and another requires companies to investigate whether their products include minerals from African countries where mining can benefit armed groups.”

Additionally, the SEC is currently studying how to change rules for who can invest in private companies, concerned that allowing companies to raise money with little regulatory oversight from investors that qualify as wealthy or “sophisticated,” serves to wall off sought-after investments for the rich.

Other regulatory actions cited include:

The SEC and the four other federal agencies that wrote the Volcker rule agreed in recent weeks to give banks leeway on aspects of the regulation while beginning private discussions about how to rewrite it.

In early August, the Senate confirmed three Trump nominees to the U.S. derivatives regulator, the Commodity Futures Trading Commission — strengthening the commission’s ability to revamp post crisis rules governing the swaps market.
Trump’s pick for the vacant job of Federal Reserve vice chairman in charge of bank oversight, financier and former Treasury Department official Randal Quarles, has said he would support reviews of the Volcker rule as well as the central bank’s annual stress tests of large banks.

Staffers at the Fed already are taking a fresh look at a bank capital rule known as the leverage ratio, a move long sought by the largest U.S. banks.

And the Fed in August proposed scaling back requirements it places on banks’ boards of directors, after determining it was overloading boards with too many specific requirements.

The Consumer Financial Protection Bureau, still led by an Obama appointee, in early July restricted mandatory arbitration in financial contracts, making it easier for consumers to sue financial companies. That rule won’t last if enough Republicans in the Senate vote to repeal it in the coming weeks.

U.S. Chamber of Commerce objects to Auditor Disclosure Rule

A proposed new standard by the Public Accounting Standards Board (PCAOB) requiring auditors to include a discussion of a company’s “critical audit matters” (CAMs) in the auditor’s report has come under fire from one organization – the United States Chamber of Commerce.

“Under the proposed rule, the auditor’s report on a company’s financials would have to identify the CAM, describe the main considerations that led the auditor to deem that the matter is a CAM, and describe how the audit addressed the CAM in the audit,” reports CFO magazine.

In a strongly worded letter to the Securities and Exchange Commission (which oversees the PCAOB), the Chamber of Commerce said the rule would require the disclosure of a great deal of immaterial information, and in complying with the rule, “auditors may disclose original (confidential) information that would not otherwise be made public by the company.”

For their part, the responsibility of auditors is to render an opinion on whether the reporting by management is in conformity with GAAP. By requiring auditors to report what under state laws only management is required to report, the PCAOB’s rule would place “both auditors and management in an untenable position that may lead to conflict of legal obligations and increased liability,” according to the Chamber’s letter.

Further, the standard would put “the PCAOB in the position of being a de facto regulator of financial reporting and disclosures, which exceeds the PCAOB’s authority and represents a fatal flaw with the proposed standard,” the Chamber wrote.

The Chamber has been the only organization to date that has written to the commission recommending that it reject the PCAOB’s rule proposal, which was widely expected to pass muster with the SEC, according to CFO Magazine.

In contrast, while audit firm BDO has concerns that auditor reporting of “critical audit matters” (CAMs) under the rule might spawn lawsuits against auditors, BDO implicitly accepted the rule in an August 15 letter to the SEC.

Not sure if BDO had the results of its own survey when they sent that letter to the SEC. Their just released 2017 BDO Board Survey, conducted in August, found roughly half of public company board members surveyed said that including CAMs in audit reports would not make reports more transparent or useful to investors, and a similar number expect the exercise to make their jobs more difficult.

Although the PCAOB says it does not expect the proposed new standard to be burdensome, 82% of board members surveyed said they are already actively working with management on other epic accounting changes in financial statements including revenue recognition and lease accounting.


Exxon Mobil Corp.’s attempt to use “accountant-client privilege” to avoid handing over audit documents in a politically charged climate-change probe was dealt a final blow by New York’s top court. The finding on Tuesday affirms a 2016 ruling that Exxon must comply with a subpoena by New York Attorney General Eric Schneiderman, who is investigating whether investors were misled about the possible impact of climate change on the energy company’s business.


Nearly 33% of investors surveyed by the American Association of Individual Investors said they expected stock prices to fall over the next six months, the highest level since May. About 34% of investors had a bullish outlook, according to the most recent survey.

The Census Bureau just reported that median household income went up last year to $59,039 (an inflation-adjusted 3.2%) compared to a year earlier. And that’s in addition to a 5.2% gain in 2015. The Census Bureau report said incomes rose for all racial and age categories and poverty rates fell for most groups.

U.S. household debt reached a record last quarter, driven by rising mortgage debt, auto loan originations and larger credit card balances, which reached their highest level since 2009.

Home equity line originations rose 8% to nearly $46 billion in the second quarter, their highest level since 2008, according to credit-reporting firm Equifax.

Borrowing via cash-out mortgage refinances hit $15 billion, up 6% from a year earlier, according to recent data from Freddie Mac.

The national median sale price of an existing home rose to $263,800 in June, the highest on record, up 40% from $187,900 at the start of 2014, according to the National Association of Realtors.

Net interest margin, a measure of how much banks pocket from borrowing on a short-term basis and lending for a longer period, climbed to 3.22% in the April-to-June period, the highest for any quarter since the end of 2013, according to a report this month by the Federal Deposit Insurance Corp.


The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.
Thomas Sowell

The world is weary of statesmen whom democracy has degraded into politicians.
Benjamin Disraeli

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