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By Niket Nishant
Jan 12 (Reuters) - U.S. financial stocks and UK-listed lenders fell on Monday and weighed on global indexes as President Donald Trump’s call for a one-year cap on credit card interest rates threatened a key revenue stream for the industry.
The move amplified concerns over the sector with investors already grappling with interest rate uncertainty and will likely dull the potential benefit from a shift toward value stocks.
Trump on Friday called for a 10% cap on the interest rate starting January 20 without providing details on how he planned to make the companies comply.
Shares ofJPMorgan ChaseandBank of America, the top two U.S. lenders, dropped 2.8% and 2.6%, respectively, in premarket trading.Citigroupfell 4.1% whileWells Fargodeclined 2.4%.
"This rate cap would not address the root of the problem and could push consumers towards more expensive debt. It could push more borrowing away from banks into other unsecured loans such as pawn shops and other non-bank consumer lenders," J.P. Morgan analyst Vivek Juneja wrote in a note.
British bankBarclays’ shares touched their lowest in nearly a month and were last down 4.2%. The pan-European STOXX 600 index dipped 0.1%.
U.S. card operations account for around 11% of Barclays’ profits, Hargreaves Lansdown senior equity analyst Matt Britzman said.
RISKS TO CREDIT ACCESS
Credit card lenderAmerican Expresstumbled 4.7%, while payment processorsVisaandMastercardslipped 1.7% each.
Still, some analysts said imposing a limit on rates would require legislation and could exceed presidential authority.
"There is no executive authority to implement this, and we see this as likely dead on arrival to the Congress or Senate," analysts at Jefferies wrote in a note.
Shares of consumer finance firms such asSynchrony Financial,Bread FinancialandCapital Onefell between 9% and 11%.
The planned reduction could also lead lenders to scale back credit for financially vulnerable borrowers.
"When companies can’t price the risk properly, they’ll just reduce credit lines or cut off access to credit entirely. Buy now pay later firms and payday lenders might love this proposal," said Brian Jacobsen, chief economic strategist at Annex Wealth Management.
BNPL lenderAffirm’s shares rose 4.5%.
INVESTORS AWAIT INDUSTRY RESPONSE
Investors will closely scrutinize commentary from bank executives, as the industry kicks off the fourth-quarter earnings season this week.
JPMorganis set to report results on Tuesday, followed byBank of America,Citigroupand Wells Fargo later in the week.
A 10% interest rate is well below the national average credit card rate of 21%, Juneja noted, citing third-quarter data from the Federal Reserve.
Credit cards are typically seen as one of the costliest forms of credit. Lenders often cite their unsecured nature with no collateral as a major reason for high rates, since they face greater risk if borrowers default.
Previous federal attempts to cap credit card rates have failed to gain traction.
