Jan 20 (Reuters) - U.S. bank stocks fell in morning trading on Tuesday in a broader market decline as investors waited to see if the Trump administration's January 20 deadline to implement a 10% cap on credit card interest rates would take effect.
The administration has said the proposed cap will improve affordability for everyday consumers, while banks have warned that it could reduce credit availability because they would be unable to adequately price for the risk associated with the unsecured credit card loans.
Trump had called on companies to comply by January 20, but it is unclear if the move can be implemented unilaterally without legislation.
JPMorgan Chase (JPM.N), shares fell 1.8%, while Citigroup (C.N), lost 2.4%. Wells Fargo (WFC.N), was last down 0.6%.
"For now, it's an overhang, but that overhang could clear quickly if it's more a call for Congress to do something instead of some specific policy action by the executive office," Brian Jacobsen, chief economic strategist at Annex Wealth Management, told Reuters.
Investment banks Morgan Stanley (MS.N), and Goldman Sachs (GS.N), also fell 2.2% and 1.5%, respectively. The S&P 500 Banks index (.SPXBK), was last down 1.2%.
JPMorgan executives including CEO Jamie Dimon warned last week that the move would harm consumers. The largest U.S. lender also signaled that "everything is on the table" when asked if it would pursue legal action.
The move to cap credit card interest rates comes amid growing pushback by the Trump administration against the banking sector, which the president alleged has restricted financial services for some controversial industries. The administration has also launched an investigation into Federal Reserve Chair Jerome Powell.
Dimon confirmed on Saturday that he was not asked to be the next Federal Reserve chair, hours after Trump disputed a report that said he had offered Dimon the role.
Trump has said he plans to sue JPMorgan sometime in the next two weeks for allegedly "debanking" him following the January 6, 2021, attack on the U.S. Capitol by his supporters.
POTENTIAL COMPROMISE
Interest income at banks, a major profit engine, will take a substantial hit if the proposal is implemented in its current form, according to industry experts.
The American Bankers Association, citing new data from credit card issuers, said on Tuesday at least 137 million cardholders and as many as 159 million would no longer be able to use their cards if the rate cap was implemented.
U.S. Bancorp (USB.N), CEO Gunjan Kedia also said the proposed 10% cap would severely impact its clients. "Our estimate is that 90 plus percent of our clients will see a detrimental impact if there was an across-the-board 10% rate cap on credit cards," she said.
"We have observed that just in the last few days, the conversation around the rate cap has shifted more productively."
Analysts said card providers could make conciliatory gestures with innovative offerings, such as lower rates for certain customers, no-frills cards that could charge 10% but have no rewards, or lower credit limits.
"We believe there is a political compromise in the works to ensure the President does not push Congress to enact a 10% cap on credit card interest rates," TD Cowen analysts said in a note.
White House economic adviser Kevin Hassett earlier floated the idea of "Trump cards" that banks would voluntarily offer instead of being forced to by a new law, without providing any details on what the card would offer.
Reporting by Manya Saini and Arasu Kannagi Basil in Bengaluru and Tatiana Bautzer in New York; Editing by Shinjini Ganguli and Pooja Desai
