Obama, Advisers Push Back on Bank Lobbying Against Regulation
Oct. 17 (Bloomberg) -- The Obama administration is mountinga counteroffensive against banking industry efforts to weakenthe president’s plan to revamp financial regulations.
White House officials say they are frustrated that majorfinancial firms are fighting President Barack Obama on theregulatory overhaul after taxpayer bailouts helped firms restoreprofits and near-record compensation for executives.
Their anger is directed even at companies such as NewYork’s JPMorgan Chase & Co. and Goldman Sachs Group Inc. thathave paid back their government assistance and reported a surgein third-quarter earnings this week.
“We are disappointed by the lobbying of anyone in thefinancial industry against regulatory reform, considering theobvious need for change on that front,” Valerie Jarrett, asenior adviser to Obama, said yesterday.
The issue, according to administration officials, is theindustry is generally on sound footing because of governmenthelp, and lobbying against Obama’s regulatory plans goes againstthe nation’s long-term interest.
In interviews, speeches and statements, they arehighlighting what they say is a disconnect between Wall Streetand the rest of the country: while some big banks reportcompensation plans and profits at pre-crisis levels, theunemployment rate rose to 9.8 percent last month and homeforeclosures jumped 29.2 percent from a year earlier.
The tougher message is being repeated from the president ondown.
‘Firm Rules’
Now is the time for “firm rules of the road so that bankscan’t game the system and the financial crisis on Wall Streetdoesn’t end up hurting folks on Main Street,” Obama said Oct.15 at a Democratic Party fundraiser in San Francisco.
Lawrence Summers, director of Obama’s National EconomicCouncil, reinforced the theme yesterday in New York.
“There is no financial institution that exists today thatis not the direct or indirect beneficiary of massive taxpayersupport for the financial system,” Summers said in remarks to aconference sponsored by the Economist magazine.
Wall Street regulation is scheduled to be among the topicswhen Jarrett, Obama adviser David Axelrod and White House Chiefof Staff Rahm Emanuel appear tomorrow on Sunday news talk shows.
Obama is renewing his push to redo financial industryregulations by the end of the year. Many of his proposals,particularly creation of a Consumer Financial Protection Agency,are facing stiff industry opposition.
Groups led by the Financial Services Roundtable andAmerican Bankers Association, both based in Washington, urgedCongress in July to scrap the consumer agency, saying creationof a new regulator would cut consumer access to credit.
‘Backlash’
Goldman Sachs Chairman and Chief Executive Officer LloydBlankfein said he didn’t expect a “backlash” when he acceptedthe government funds.
“Had I know it was as pregnant with this kind of potentialfor backlash then of course I would not have liked it,”Blankfein said yesterday at a Fortune magazine breakfast in NewYork.
“We are firm believers in effective regulation and believethat it is systemically important to have a regulatory frameworkwhich ensures stability of the financial system,” Goldman Sachsspokesman Lucas van Praag said.
Joseph Evangelisti, spokesman for JPMorgan, referred tocomments Chairman and CEO Jamie Dimon made in his letter toshareholders, in which he said that the extent of the problemsmade it clear that “rules and regulations must be completelyoverhauled.” Dimon also said that new policies should be“grounded in a thorough analysis of what happened” and that“political agendas or simplistic views will not serve uswell.”
Financial Rebound
The mounting frustration about pushback from the industrycomes the same week that the Dow Jones Industrial Averageclimbed above 10,000 for the first time in a year and firmsincluding JPMorgan and New York-based Citigroup Inc. reportedthird-quarter earnings that beat analyst estimates.
Administration officials say they recognize a healthybanking sector is critical to the economic recovery and thatthey’re limited in their ability to penalize the firms,particularly those that no longer owe the government money.
The most politically volatile issue is executivecompensation. Obama has said he believes some of the resistanceto his agenda stems from resentment about expanding governmentinvolvement in the private sector, including bank bailouts.Reports about rising profits, executive salaries and bonusesfollowing on the government rescue, may add to voterdissatisfaction.
Building Reserves
Earlier this week, Citigroup reported a $101 million third-quarter profit as it slowed the pace of building reserves forfuture loan defaults. On a per-share basis, the bank had a lossof 27 cents because of a charge related to the exchange ofpreferred shares into common stock.
Citigroup, JPMorgan Chase and San Francisco-based WellsFargo & Co. also asked regulators for a reprieve from meetinghigher capital requirements taking effect next year, arguingthat lending and the economic recovery would be harmed.
Goldman Sachs, which repaid $10 billion it received fromthe U.S. Treasury last year, also reported a surge in third-quarter profit. The company has set aside $16.7 billion to payemployees so far this year, enough to pay each worker $527,192for the period.
JPMorgan, which repaid $25 billion of U.S. rescue funds inJune, said this week that its profit surged sevenfold in thequarter, to $3.59 billion, on higher investment-banking revenue.The company, which is the second biggest bank by assets, setaside $8.79 billion for compensation and benefits for itsinvestment-bank employees in the first nine months of 2009,enough to pay $353,834 to each.
Feinberg’s Role
Administration officials have pointed to the appointment ofKenneth Feinberg to oversee compensation plans at the top firmsthat haven’t repaid assistance funds. They also cite Obama’ssupport for giving shareholders a non-binding say oncompensation.
Feinberg’s compensation reviews for companies includingCharlotte, North Carolina-based Bank of America Corp. andCitigroup, each of which got $45 billion in government aid, areexpected as early as next week.
He’s already advised Bank of America Chief ExecutiveOfficer Kenneth Lewis to forego his 2009 salary and bonus. Bankof America, the biggest U.S. lender, posted a $1 billion third-quarter loss.
Citigroup announced last week that it would sell its PhibroLLC energy-trading unit, a decision made to avoid a potentialshowdown with Feinberg over the unit’s CEO, Andrew Hall’s $100million pay package.
To contact the reporter on this story:Julianna Goldman in Washington at jgoldman6@bloomberg.net
Last Updated: October 17, 2009 00:00 EDTSource: Bloomberg
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