Trump's new target? After the military-industrial and real estate tycoons, Wall Street giants may face a buyback ban.

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The Trump administration is shifting its focus from the military and real estate industries to broader economic sectors, and the regulatory pressure facing major U.S. banks is suddenly rising. After the president continuously pressured defense contractors and homebuilders to restrict stock buybacks, the market's concerns about obstacles to Wall Street giants’ capital return plans are intensifying, forcing investors to reassess the policy risks of bank stocks.

According to a January 19 report by the Wall Street Journal, after Trump used executive orders and public statements to crack down on buybacks in the defense and real estate industries, large banks may become the next target. As a core pillar of the second-year Trump economic agenda emphasizing “affordability,” the president is using unconventional means to force industries to bend to his will. Although the White House claims that recent actions have not been coordinated with respect to other sectors, this pattern—of constraining buybacks to push companies to cut prices or increase output—has already made bank shareholders uneasy.

This risk is not unfounded because the government has more direct intervention tools for the banking sector compared to others. Banks’ abilities to pay dividends and repurchase shares have long been restricted by regulations and capital adequacy requirements, and these rules can be adjusted based on government objectives. Once buybacks are restricted, investors' return expectations are directly impacted. Buybacks not only return capital to shareholders but also boost earnings per share and support share prices, which is a key reason many investors favor bank stocks.

Market observers point out that while the Federal Reserve usually only completely suspends stock buybacks in extreme circumstances (such as during the 2020 pandemic), Trump’s unpredictable policy style makes “interfering with major banks’ capital plans” a foreseeable option. If the president’s public pressure proves ineffective, his ability to influence through regulatory agencies should not be underestimated, especially given his longstanding disregard for Fed independence.

Buybacks are Massive, Becoming a Potential Target

Wall Street giants have accumulated astonishing buyback amounts over the past decade, making them easy targets for populist policies. According to S&P Dow Jones Indices data, in the decade ending September 30, JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo collectively spent over $500 billion on stock buybacks. While this large-scale capital return is welcomed by investors, it has also attracted political pressure.

Notably, on the issue of restricting buybacks, Trump has formed a kind of “strange alliance” with his fiercest political opponents. Just last September, Senators Elizabeth Warren and Bernie Sanders wrote to the six largest banks, criticizing them for prioritizing buybacks and dividends after passing the 2025 Fed stress test and getting capital requirement relief, rather than expanding lending or reducing client costs. Now, Trump echoes this position by denouncing buybacks, demonstrating a cross-party trend of regulatory tightening.

Existing Precedents and Direct Intervention

Recent Trump administration actions demonstrate its willingness and ability to intervene in corporate capital allocation. On January 7, Trump signed an executive order unequivocally prohibiting defense contractors from paying dividends or repurchasing stock “until they can deliver quality products on time and on budget.” Regardless of its legal authority, this move has already had a chilling effect.

Similar pressure has been transmitted to the real estate industry. Last week, Bill Pulte, the Trump-nominated director of the Federal Housing Finance Agency (FHFA), stated that the agency is reviewing major homebuilders’ buyback practices. Pulte accused builders of deliberately keeping housing prices high and conducting unprecedented stock buybacks while enjoying record profits. He emphasized that federal support for Fannie Mae and Freddie Mac should not be used to finance buybacks at the expense of Americans needing homes.

In addition, on January 9, Trump posted on social media calling for a one-year cap of 10% on credit card interest rates starting January 20, further demonstrating his determination to intervene in financial markets through unconventional means.

The Federal Reserve’s Role and Regulatory Uncertainty

If Trump intends to disrupt major lenders’ buyback plans, he holds a key card: the Fed’s regulatory authority. As “too big to fail” institutions, large banks are directly supervised by the Fed, and during the 2008 financial crisis, these banks were treated as national tools. Whether banks can pay dividends and repurchase stock depends directly on capital rules set by regulators.

Trump’s disregard for Fed independence is well-documented, and as he appoints a successor after Fed Chair Jerome Powell’s term ends, his influence over central bank regulatory policy is expected to increase further. Although key senators such as Thom Tillis have threatened to block nominations until the Justice Department’s investigation into Powell is resolved—potentially stalling the power transition—this does not remove the long-term uncertainty over regulatory direction.

For banks like Goldman Sachs and Morgan Stanley, buybacks are not only a means of capital return but also a high-yield investment strategy. According to Zion Research Group, these two banks’ annualized returns on stock buybacks over the past decade were as high as 22%, even surpassing the returns from traditional lending businesses. However, faced with the president’s potential “big hammer,” these past return models are now facing unprecedented policy challenges. For investors, previously unimaginable regulatory risks can no longer be ignored.

Risk Warning and DisclaimerThere are risks in the market and investment needs to be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial condition, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their particular circumstances. Investment is at your own risk.

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