Capitol Report: Big banks are election losers as Democrat Maxine Waters set to lead key committee, analysts say

Big banks look like losers now that the midterm elections are over, according to some analysts.

Democrats took over control of the House of Representatives in Tuesday’s vote, making it likely that Rep. Maxine Waters, a California Democrat, will become chairwoman of the House Financial Services Committee.

“We expect the House Financial Services Committee will create an elevated level of headline risk for banks (JPM, GS, MS, COF, and USB) for the next two years,” said Height Capital Markets analysts in a note Wednesday, referring to J.P. Morgan Chase Co.

JPM, +0.64%

 , Goldman Sachs Group Inc.

GS, +0.04%

 , Morgan Stanley

MS, +0.50%

 , Capital One Financial Corp.

COF, -0.09%

and U.S. Bancorp

USB, -1.16%

 .

Waters is likely to hold many hearings targeting big banks as well as focus on ramping up regulations, though her efforts will be in vain because House-passed legislation won’t make it through the Republican-controlled Senate, the analysts added. Even so, she will be “creating negative perceptions and market worries for parts of the financial industry.”

A fund tracking bank stocks — the SPDR SP Bank ETF

KBE, -0.46%

— recently traded 0.8% lower, while the SP 500

SPX, +1.53%

jumped 1.3%.

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Waters is likely to call hearings that target Wells Fargo Co.

WFC, -0.81%

and Deutsche Bank AG

DB, +1.48%

, as she aims, for example, to dig into the German lender’s past dealings with President Donald Trump, said Capital Alpha Partners analyst Ian Katz in a note Wednesday. “That will create temporary headline risk and unpleasantness for those companies,” wrote Katz, who also sees the California Democrat convening a hearing on Equifax Inc.

EFX, -0.22%

 , the credit-reporting company that suffered a big data breach last year.

Meanwhile, the Senate Banking Committee looks set to have fewer moderate Democrats, given that North Dakota Sen. Heidi Heitkamp and Indiana Sen. Joe Donnelly lost in their re-election campaigns, Katz added.

On the plus side for banks, Republicans who have worked with Waters on the House Financial Services Committee recently told Politico that she’s a rare deal-maker who even helped deliver legislation to ease some financial regulations.

Victor Reklaitis is MarketWatch’s Money Politics reporter and is based in Washington, D.C. Follow him on Twitter @VicRek.

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