Mike Bloomberg Surprises Wall Street With Left Turn on Policy

(Bloomberg) -- Democratic presidential candidate Michael Bloomberg’s new leftward-leaning financial regulation proposals are surprising analysts, who expected a more Wall Street-friendly campaign from the former New York mayor.

The plans include a 0.1% transactions tax, merging Fannie Mae and Freddie Mac, and regulating Wall Street in ways that ensure the financial system is “strong enough to weather crises without harming the broader economy or requiring taxpayer bailouts.”

Financial stocks underperformed the broader market Tuesday, with the S&P 500 Financials Index slipping as much as 1.4% and the KBW Bank Index falling as much as 2.1%, more than twice as much as the S&P 500. Top bank decliners included Wells Fargo & Co. and Bank of America Corp. Fannie Mae shed as much as 4.4% and Freddie Mac dropped 4.2%, the most since Dec. 17.

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Here’s a sample of the latest commentary:

Compass Point, Isaac Boltansky

“Our sense is that these proposals are primarily intended to blunt progressive attacks, especially with Bloomberg joining the debate stage for the first time on Wednesday evening,” Boltansky wrote in a note.

At the same time, the “overarching tone of the proposals underscores the populist shift in the Democratic party and the heightened potential for significant policy shifts.” While Bloomberg’s proposals aren’t as sweeping as plans previously outlined by the Sanders and Warren campaigns, “they are more politically progressive than originally expected,” he said.

Boltansky flagged: “Relatively tough talk on banks,” including rougher stress tests; calling for “reasonable and proportional” overdraft fees; a plan to merge Fannie Mae and Freddie Mac; a financial transaction tax that may weigh on broker and exchange stocks like Nasdaq Inc., Cboe Global Markets Inc., CME Group Inc., Interactive Brokers Group Inc., Charles Schwab Corp., Virtu Financial Inc., and E*Trade Financial Corp.,

Raymond James, Ed Mills

The plan “indicates a leftward turn for a candidate seen to be rising as a moderate alternative with the adoption of some of the liberal policy views of his rivals – particularly on bank oversight, a financial transactions tax and consumer protections,” Mills wrote.

It also highlights that the “risk to financials is real should a Democrat win in November,” even though many of Bloomberg’s ideas require Congressional action and face a long road to being enacted, he added.

Cowen, Jaret Seiberg

The proposals for big banks and Wall Street don’t go “as far as what Senators Bernie Sanders and Elizabeth Warren are advocating,” but weren’t as “moderate as some in the market might expect from Bloomberg,” Seiberg wrote.

Cowen was particularly “surprised with his financial transaction tax and his call to merge Fannie and Freddie.” Even so, Seiberg cautioned against overreacting, as “Bloomberg understands markets, which makes it less likely that he would push policies that could hurt the economy.”

Capital Alpha, Charles Gabriel and Ian Katz

Bloomberg has preemptively taken a stab at “throwing Wall Street under the bus,” perhaps ahead of being “pilloried for using his billions to outspend his rivals ten-to-one, and amid a flurry of negative news coverage rehashing his alleged sexism, racism and other alleged transgressions as a mayor and CEO,” Capital Alpha wrote.

Though the plan may “annoy a lot of his friends on Wall Street,” many of Bloomberg’s ideas “would either be forgotten or rejected by lawmakers and regulators if Bloomberg were to win the presidency,” they said.

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Scott Schnipper

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