Wall Street firms gambled on Mitt Romney and lost.
Now, faced with the prospect of even tougher regulations in President Barack Obama's second term, their stocks paid the price. Shares of Goldman Sachs Group, JPMorgan Chase & Co and Citigroup dropped 5 percent, Bank of America lost 6 percent and Morgan Stanley fell 7 percent in midday trading on Wednesday.
"This is the triumph of the regulators," said Terry Haines, senior analyst at Potomac Research Group in Washington and a former staff director of the U.S. House of Representative's Financial Services Committee.
Obama's win is bad news for financial firms, particularly big bank holding companies, which face regulations still being written to implement the 2010 Dodd-Frank reform law, Haines said. "The Administration's regulatory approach has triumphed and is going to continue for some years," said Haines.
After backing Romney nearly across the board, the financial services industry must quickly reverse course and seek to mend ties, Haines and other public policy experts said.
But there were mixed signs of accommodation in the wake of Obama's re-election, with some bankers maintaining their critique of the Democratic President's regulatory policies.
"He will continue to increase regulation, demonize and vilify businesses, and spend a lot of money, and tax people, and so forth," said Dick Kovacevich, former CEO of Wells Fargo & Co and supporter of Republican challenger Romney.
On the other side, Scott Sperling, co-president of private equity firm Thomas H Lee Partners, reached out towards Obama, who he abandoned for Romney in 2012. "It is incumbent on us to work with the administration in a productive way to deal with these issues," he said.
Wall Street firms are also worried about Elizabeth Warren, whose victory in the Massachusetts Senate race may galvanize her to push for more regulations on bank lending to protect consumers. Warren was instrumental in creating the Consumer Financial Protection Bureau, which critics say could weigh down the economy with new regulations.
"I think the Obama win, along with Elizabeth Warren, will lead to more accountability and tighter regulation on Wall Street," said Chris Tobe, who advises pension plans as a principal at Stable Value Consultants and is a trustee of the Kentucky state pension fund. "Especially after a big shift to Romney from Wall Street, Obama I believe will be less likely to hold back on regulation this term."
Republican former regulators sought to downplay Warren's impact. "Wall Street has a decided enemy on its hands," said Harvey Pitt, who ran the Securities and Exchange Commission under President George W. Bush. Still, Warren's election by itself "isn't going to have a very dramatic impact on anything," he said. "She's just one of 100 senators."