GOP Takes Control of the Senate, Adds in House

As expected, the midterm elections proved to be a big boon for the GOP with Republicans now controlling a majority in the Senate and picking up seats in the House. The win is seen as a rebuking of President Obama's handling of the economy, Obamacare and weak foreign policy.

In the Senate, Republicans beat incumbents and picked up seats in Arkansas, Colorado and North Carolina. GOP victories were also seen in Iowa, Montana, South Dakota and West Virginia. In total, Republicans picked up seven seats so far. The final count for Republican in the Senate is seen between 52 and 54 seats.

Senate Minority Leader Mitch McConnell, who fended off a Democratic challenge in Kentucky, is now poised to be the next Senate Majority Leader.

In the House, Republicans expanded control gaining at least 12 seats to 242, a convincing majority over the Democrat's 174.

FBR Capital's Benjamin Salisbury expects the early sentiment coming out of the elections to be very favorable for the potential for comprehensive tax reform, immigration reform, and the ability to break the deadlock in D.C. "While we are now seeing more constructive comments on the potential for these initiatives, we are skeptical about a dramatic shift by either side that would be necessary for these large initiatives," he said.

On implications for the energy sector, he said GOP wins in CO, IA, SD, and WV push vocal supporters of the pipeline to 61 votes, more that the 60-vote filibuster threshold. (Contested races in LA and AK would not change the count.) Another four Democratic Senators ("soft supporters") bring the count just two short of the two-thirds majority needed to override a veto. "The momentum could lead the President (who has not said he opposes the project) to move toward approval. GOP gains will also raise the profile of issues like LNG exports, potentially including a free trade agreement fast track, and increase the coalition for pushing back on EPA environmental regulations for coal and coal-fired power plants," he said.

Salisbury views the the winners from the elections to be community banks, which are more likely to see support for changes to the Dodd-Frank Act that will reduce their regulatory burden. He does not see much softening of the Act for the large-cap banks, as “too big to fail” remains a concern among Republicans. Also the potential for tax reform could cause some concern with changes to the tax status of REITs, but they believe that would be overblown.

On inversion, the analyst said, "the margin of victory for Republicans makes it increasingly unlikely that there will be changes to inversion tax law, and unlikely that any changes will be added to the tax extenders bill in the lame duck session."

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