By Joe Light

There's a flip side to executives' race to helm President-elect Donald Trump's economic team: major firms on Wall Street look set to lose their leaders, with uncertain repercussions for their stocks.

That might be one of the drivers of shares of Apollo Global Management, which on Wednesday fell 4% to $161.54. Apollo co-founder and CEO Marc Rowan is said to be one of the contenders for the role of Treasury Secretary. If he left for Treasury, Rowan could divest his stake in the private-equity firm to avoid conflicts of interest. Rowan owns about 6% of Apollo's shares outstanding, according to Bloomberg, and selling them could easily put pressure on the stock.

Apollo didn't respond to Barron's request for comment. Trump transition spokeswoman Karoline Leavitt in a statement said decisions on the president-elect's appointments "will continue to be announced by him when they are made."

The law wouldn't preclude Rowan from holding on to his shares, but would require him to recuse himself from decisions directly impacting his Apollo investment or any other holdings he held on to, said Jeff Hauser, executive director of the Revolving Door Project, a progressive watchdog group. Trump himself might issue an executive order governing how his appointees are expected to manage conflicts, and officials will also establish agreements with the Office of Government Ethics around what they divest and how they'll otherwise deal with conflicts.

In the last Trump administration, some officials put some -- but not all -- of their assets in blind trusts. In cases where Trump officials butted up against ethics officials, the ethics officials "often backed down," Hauser said.

Rowan isn't the only potential appointee in charge of a public company. Shares of BGC Group, helmed by Trump Commerce Department pick Howard Lutnick, on Wednesday fell 3.9% to $9.96. Lutnick, who is also CEO of investment bank Cantor Fitzgerald, owns 5.3% of BGC's shares outstanding.

In practice, administration appointees often divest stock for a completely different reason: preferential tax treatment.

A 1989 law gives a tax break to presidential appointees who divest stock for ethics reasons. As long as the proceeds are put in government bonds or broad investment funds, capital-gains taxes on stock sold to meet ethics requirements can be deferred, granted that the appointee gets a "certificate of divestiture" from government ethics officials. That can allow someone whose wealth is highly concentrated in one company -- such as Rowan and Apollo -- to diversify his or her assets without the usual capital-gains pain of doing so.

That is not a bad benefit for the billionaires likely to enter the Trump administration. Such can't be said for their firms' remaining shareholders.

Write to Joe Light at joe.light@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

November 20, 2024 11:38 ET (16:38 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.