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Assunto [BULK] The BAN Report: US Debt Concerns / Wells Free / US Manufacturing Comeback? / HELOC Securitizations
Data 06 Jun 2025 15:42 (GMT -03:00)
The BAN Report: Inflation Rises Complicating Trump Agenda / Trump Picks OCC, CFPB Heads / Defining Illegal DEI / Hedge Fund Fees / Senior Housing to Rise? / Webinar Recap

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CEO Jon Winick

Welcome to the BAN Report – a weekly newsletter from Clark Street Capital covering topics that are of interest to our community of bankers, lenders, regulators, loan buyers, and real estate professionals.

Clark Street Capital is an advisory firm specializing in loan sales on behalf of lending institutions and private equity firms. If you have interest in selling a loan portfolio, please let us know by filling out this survey

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If you have an interesting opinion or take on a particular topic, please share it with us and we will often run it. The BAN Report typically runs each week on Thursday, except during major Holiday weeks.

Inflation Rises Complicating Trump Agenda

An unexpected jump in consumer prices in January

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diminishes the likelihood of rate cuts from the Fed in 2025.

Consumer prices rose briskly in January, extending a recent pattern of increases at the start of the year that likely derails the prospect for Federal Reserve rate cuts anytime soon.

The Labor Department said Wednesday that prices rose last month 0.5% from December on a seasonally adjusted basis. That was the largest monthly increase since August 2023 and well ahead of economists’ expectations for a milder increase of 0.3%.

The gain pushed 12-month inflation to 3% in January. That marked a pickup from December, when prices rose 2.9%.

Markets reacted swiftly. The Dow Jones Industrial Average and the S&amp;P 500 both fell. Bond yields jumped.

“Inflation has now been around these rates for some time and clearly isn’t coming down decisively anymore,” said Paul Ashworth, chief North America economist at Capital Economics.

Inflation was a significant factor in the November election. Many Americans were fed up with higher prices and thought that putting a new party in power would help. During his campaign, President Trump vowed that he would lower prices.

The bigger-than-expected increase in prices last month largely reflected higher prices for used cars and auto insurance, said Omair Sharif, founder of the research firm Inflation Insights.

Core prices, which strip out volatile food and energy prices, rose 0.4% from December on a seasonally adjusted basis, the largest increase in nearly two years. Core inflation was 3.3% over the year.

Egg prices rose more than 15% from December, the largest increase since June 2015. That accounted for about two-thirds of the total monthly increase in grocery prices. A bird flu outbreak is fueling the price increase.

Wednesday’s report was particularly discouraging because housing and rental costs, which have been moderating and are expected to continue to ease, weren’t the culprit. Instead, the latest report pointed to inflationary pressures across other goods and services that had seen a slowdown in price pressures recently.

“This was a painful report down the line,” said Robert Frick, corporate economist at Navy Federal Credit Union.

Higher for longer and longer is simply the reality. The hot inflation read complicates some of President Trump’s agenda.

Nothing did more to deliver the White House to Donald Trump than inflation, which helped to sour Americans on former President Joe Biden’s economy.

Inflation is turning into a headache for President Trump, too. It is proving stubborn, just as he and fellow Republicans are rolling out their marquee policies of higher tariffs and lower taxes.

The aggregate boost to inflation from tariffs is likely to be small and from tax cuts smaller still (especially if they are offset with spending cuts). The problem is that Trump has inherited inflation above the Federal Reserve’s 2% target, and his agenda risks keeping it there, making it harder to bring down interest rates.

This is in contrast to his first term, when inflation generally ran at or below 2%. So while Trump raised tariffs and cut taxes in his first term, the effect at the time was to help the Fed meet rather than miss its inflation target.

On Feb. 1, Trump announced tariffs of 25% on Canada and Mexico and 10% on China. Morgan Stanley economists estimated those could boost inflation 0.3 to 0.6 percentage point initially. Markets priced in 0.2 point in the immediate aftermath, unsure whether or for how long tariffs would go up. And, indeed, Trump did pause the tariffs on Mexico and Canada for 30 days.

This week, he announced 25% tariffs on all imported steel and aluminum and said reciprocal tariffs on a wider range of products and countries are in the works.

Importers and suppliers are already reacting. Steel companies have already raised prices. Since Trump’s tariff announcement, futures contracts tied to an index of Midwest steel prices have risen about 6%. The price of copper in the U.S. is up relative to the price in Europe.

Republican fiscal plans complicate the inflation and interest-rate outlook. On Wednesday, House Republicans released a budget plan that lowers taxes by $4.5 trillion over the coming decade.

As hundreds of billions of US Treasuries mature and get refinanced, interest expense, already at 13% of the budget, will undoubtedly rise. If tariffs are temporary and lead to quick resolutions, then the impact will be minimal. But, sustained higher tariffs are inflationary. While DOGE is highly disruptive and chaotic, it does offer the best chance to cut government spending in decades. Time will tell how this Administration plays their cards.

Ultimately, the bond vigilantes get their way and that’s largely a good thing. It was the bond market that produced balanced budgets in the 90s. James Carville famously said, “If there was reincarnation…I would want to come back as the bond market. You can intimidate everybody.”

Trump Picks OCC, CFPB Heads

President Trump has nominated new leadership at the OCC and CFPB.

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The OCC, in particular, is the most significant banking Agency hire so far, as it is the primary regulator for the majority of the US banking systems assets.

The White House has nominated former Federal Deposit Insurance Corp. board member Jonathan McKernan to be the director of the Consumer Financial Protection Bureau and attorney Jonathan Gould to lead the Office of the Comptroller of the Currency.

The nominations were among a list of presidential nominations sent by the White House to the Senate on Tuesday evening, a copy of which was reviewed by American Banker.

Both McKernan and Gould — a partner at the law firm Jones Day and former chief counsel of the OCC in the first Trump administration — were on the short list of Trump administration picks to lead the agencies and considered allies of the banking industry.

The next step in the nomination process is for the Senate Banking Committee to hold a hearing on both nominations to lead the CFPB and OCC on a permanent basis. Both agencies are under fire from the Trump administration, which is cutting the federal workforce to pay for an extension of his 2017 tax cuts for corporations.

The CFPB in particular has been demoralized by Elon Musk's Department of Government Efficiency amid efforts by President Trump's two acting directors telling civil service employees to stand down

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and stop working. Federal workers are confused due to the chaos created by the Trump administration's back-to-work requirements and deferred compensation buyout offers.

During the Biden administration, McKernan was one of two Republican appointees on a majority-Democratic FDIC board, when he notably opposed the proposed Basel III endgame capital rules, which would have raised minimum capital requirements and were fiercely opposed by banks. He also served as co–chairman

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of a special FDIC committee reviewing allegations of sexual harassment and professional misconduct at the federal regulator.

A longtime regulator who is both diplomatic and cordial, McKernan has a reputation for getting into the weeds of policy. He is a former senior policy counsel at the Federal Housing Finance Agency, and served a stint as Republican staff counsel on the Senate Banking Committee.

McKernan previously served as counsel to former Senate Banking Committee ranking member Pat Toomey, R-Penn., served on the committee staff and was a senior policy advisor at the Treasury Department. He also worked for Sen. Bob Corker, R-Tenn., as a senior financial policy advisor.

Gould was a top staffer on the Senate Banking Committee — chaired at the time by Sen. Richard Shelby, R-Ala. — when he was tapped in 2018 to be No. 2 at the OCC under former Comptroller Joseph Otting. He served as the OCC's senior deputy comptroller and chief counsel overseeing all the agency's legal functions including regulating banks.

During his tenure, the OCC eased regulations of small banks with the Economic Growth, Regulatory Relief, and Consumer Protection Act and sought reforms to the Volcker rule, including streamlined exemptions for underwriting, market-making and hedging activities. The OCC chartered the first fintech and crypto banks under his watch and recognized crypto-related activities as permissible — a topic of great interest to the second Trump administration.

Trump also said this week that he wants to eliminate the CFPB. Staffing at the CFPB and a few other bodies have been slashed

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, or told to stop working.

A combination of firings, stop-work orders and litigation pauses has hobbled regulators like the Consumer Financial Protection Bureau, the Equal Employment Opportunity Commission, the National Labor Relations Board, and the Securities and Exchange Commission.

The moves have led the S.E.C. to pull back on its attempt to police the cryptocurrency boom and upended efforts at other agencies to protect worker rights.

The speed and scale of the deregulatory moves by President Trump reflect his ambitious agenda to downsize government.

But the upshot of all this upheaval is simple: Regulatory agencies that are intended to protect ordinary Americans, workers and homeowners are being gutted, consumer advocates say.

“Under the Trump administration, federal consumer protections are being rapidly stripped away in a lawless process,” said Adam Levitin, a professor at Georgetown Law who specializes in financial regulation. “This is deregulation by firings.”

It’s not uncommon for a new administration to pause some rules and regulations enacted under an earlier administration to ensure they reflect a new president’s priorities.

But Mr. Trump’s plan to shrink the federal work force through buyouts and mass firings could complicate the ability of regulators to do their jobs and is neutering those agencies. On Tuesday evening dozens of employees at the consumer bureau and the Small Business Administration were fired.

During the banking crisis of 2023, the Congressional Republicans were just as angry at the Agencies for failing to properly regulate SVB and Signature. Smart and effective regulation is bipartisan, and it remains to be seen if some of these job cuts produce a crisis that ultimately results in tougher regulation. The consensus on our webinar this week was that the regulatory environment will not materially change for most commercial-oriented banks.

Defining Illegal DEI

As the new Administration pushes back against the DEI bureaucracy, many large companies are scrambling to figure out what defines “Illegal DEI.”

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Companies that just one year ago celebrated Black History Month and stocked Pride products on their shelves are in a new phase — what some lawyers refer to as “rainbow-hushing,” meaning dropping or quietly rebranding their diversity, equity, and inclusion programs.

They are retreating, or clamming up, as they brace for lawsuits encouraged by President Trump’s war against D.E.I. Employers are walking a narrow path: They are trying to keep enough of their diversity efforts in place to remain protected from future discrimination lawsuits, while also avoiding Mr. Trump’s ire, federal investigations and lawsuits from anti-D.E.I. conservatives.

Some corporate initiatives that fall under the D.E.I. label — like mandatory training on avoiding bias and discrimination — were created to break down discriminatory barriers as the work force became more diverse.

“D.E.I. programming grew popular because it was responding to real challenges organizations were facing,” said Musa al-Gharbi, a sociologist and an assistant professor at Stony Brook University who has written extensively on diversity programs. “Basically they’re being told to do nothing about these problems. That seems nonviable from a legal standpoint.”

Many types of D.E.I. programs could draw lawsuits now that Mr. Trump has signed an executive order threatening federal investigations for “illegal D.E.I.,” a term that has caused widespread confusion and has lawyers scrambling to interpret what it might mean.

“We’re in a brave new world,” said Jon Solorzano, a partner at Vinson &amp; Elkins, who is counseling dozens of companies on their approaches to D.E.I. “People are freaked out.”

For private companies (at least those that are not federal contractors) the letter of the law on D.E.I. has not fundamentally changed. But the spirit of how it is interpreted and is expected to be enforced has undergone a major shift.

The primary law on anti-discrimination in private-sector employment is Title VII of the Civil Rights Act of 1964, legislation that came out of the civil rights movement, which says employers cannot make employment decisions on the basis of race, sex or other protected classes.

The Equal Employment Opportunity Commission, an independent agency, enforces this law, and changes in staffing there portend a shift in its approach. Mr. Trump quickly ousted two of the Democrats on the five-person commission. He named as acting chair a commissioner, Andrea Lucas, who said

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her priorities included “rooting out unlawful D.E.I.-motivated race and sex discrimination.”

“Instead of focusing on discrimination against Black workers and women, they’re going to focus on discrimination against majority groups in the form of D.E.I.,” said David Glasgow, executive director of the Meltzer Center for Diversity, Inclusion and Belonging at New York University’s law school.

Mr. Trump also issued an executive order charging each federal agency to identify nine entities to investigate for “illegal D.E.I.”

A memo from the Department of Justice last week indicated that the department would be involved in enforcing the executive order and could introduce criminal investigations, a prospect that has left organizations “quite alarmed,” Mr. Glasgow said.

This week, Goldman ended its IPO diversity requirement. The Supreme Court ruling in 2023 that ended affirmative action at colleges is a good clue as to the direction of this Administration and the courts. Diversity and outreach are permitted, but strict quotas will be challenged.

Hedge Fund Fees

While the standard 2 and 20 compensation structure of hedge fund has been eroded, many hedge funds are being more aggressive in passing along fees

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to cover expenses that used to be assumed by the manager.

In 2023, the main hedge fund at billionaire Dmitry Balyasny’s eponymous firm notched a gross return of 15.2%.

Investors walked away with a gain of just 2.8%.

The rest they paid in fees — more than $768 million — mainly for compensation but also a wide variety of other costs down to mobile-phone service.

That parceling out of costs is one of the most coveted perks of running a multistrategy hedge fund. Investors are so eager to pony up money that they effectively write a blank check, agreeing to cover just about any expense managers deem reasonable, in good times and bad.

The term for that: Passthrough fees.

For some, the fees appear outrageously high. “Passthroughs are wild. You are paying for everything including the copier paper,” said Joe Reilly, chief executive officer of family office network Circulus Group.

Yet others view it as an acceptable trade-off for more reliable performance. They’re willing to shake off weak years, like Balyasny’s performance in 2023 — which the firm calls “an anomaly in our 24-year history.”

Multistrats — known for their trading “pods” that chase profits in all kinds of markets — say they need that freedom to compete for talent, invest in cutting-edge technologies and stay nimble as markets evolve. Prominent firms with the fee structure include Millennium Management, Citadel, Point72 Asset Management, Balyasny Asset Management and ExodusPoint Capital Management. Those five alone manage more than $200 billion.

A Bloomberg analysis of the group’s regulatory filings shows their publicly disclosed lists of expenses eligible to pass through have exploded in recent years. A decade or so ago, they typically called out run-of-the-mill categories like compensation, rent and computers. Now, some firms specify that fees may include artificial intelligence, compliance costs, internal referral payments, the expense of terminating staff and catch-all items — like “extraordinary or non-recurring expenses.”

In some cases, the management fee has been eliminated, but the passthrough fees are well in excess of the management fee. It’s remarkable that Balyasny was able to keep 12.1% of the 15.2% gain in aggregate.

Joe Stock, Managing Partner of Lake Street, told us: “Hedge fund investors often have no real grasp of what they’re actually paying, especially with the growing use of passthrough fees. While the industry fixates on the decline of the traditional 2 and 20 structure, the reality is that costs once absorbed by managers are now being offloaded onto investors—everything from compensation to copier paper. The result? A fund can report strong gross returns, yet investors see only a fraction of the gains.”

Senior Housing to Rise?

After a very tough stretch during COVID, the WSJ argues that a glut of senior housing may be moving to a shortage as the oldest baby boomers turn 80 this year.

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Senior housing has been one of the biggest disappointments for commercial real-estate investors. Now thanks to millions of aging baby boomers, that may be about to change.

The oldest boomers turn 80 in less than a year. And by 2030, the U.S. population
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