Obama, Advisers Fault Rescued Banks for Opposing Rules Revamp
Oct. 19 (Bloomberg) -- Obama administration advisers saidU.S. banks bailed out with taxpayer funds have responsibility tosupport the president’s effort to overhaul the rules for WallStreet and avoid future financial crises.
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 New York-based JPMorgan Chase & Co. and Goldman Sachs Group Inc. thathave paid back their government assistance and last weekreported a surge in third-quarter earnings.
“The American people have a right to be frustratedand angry,” Chief of Staff Rahm Emanuel said on CNN’s “Stateof the Union” yesterday. Banks receiving aid are “literallygoing and fighting the very type of regulations and reforms thatare necessary to prevent, again, a crisis like this happening.”
The issue, administration officials said, is the bankingindustry 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 Oct. 16 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.
On the Sunday talk shows, advisers sought to show thebankers had an obligation after receiving taxpayer assistancewhen the credit markets seized up.
“They have responsibilities,” senior adviser DavidAxelrod said on ABC’s “This Week” yesterday. “They ought toexpress them by increasing lending, which is what we need rightnow, and by standing down.”
Obama Renews Push
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.
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 Oct. 16 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.
‘Political Agendas’
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.”
The mounting frustration about pushback from the industrycame the same week that the Dow Jones Industrial Average climbedabove 10,000 for the first time in a year and firms includingJPMorgan and New York-based Citigroup Inc. reported third-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.
Executive Compensation
The most politically volatile issue is executivecompensation. Obama has said some resistance to his agenda stemsfrom resentment about expanding government involvement in theprivate sector, including bank bailouts. Reports about risingprofits, executive salaries and bonuses following on thegovernment rescue, may add to voter dissatisfaction.
“Bonuses are offensive,” Axelrod said on ABC. “You’veseen a lot of firms go to stock rather than cash, so at leastpeople have a stake in the success of their company.”
Citigroup last week reported a $101 million third-quarterprofit as it slowed the pace of building reserves for futureloan defaults. On a per-share basis, the bank had a loss of 27cents because of a charge related to the exchange of preferredshares 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, JPMorgan
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 that its profit surged sevenfold in the quarter, to$3.59 billion, on higher investment-banking revenue. Thecompany, which is the second biggest bank by assets, set aside$8.79 billion for compensation and benefits for its investment-bank employees in the first nine months of 2009, enough to pay$353,834 to each.
Administration officials have noted the appointment ofKenneth Feinberg to oversee compensation plans at the top firmsthat haven’t repaid the U.S. They also cite Obama’s support forgiving shareholders a non-binding say on compensation.
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 this 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 last week.
Citigroup announced on Oct. 9 the sale of its Phibro LLCenergy-trading unit, a decision made to avoid a potentialshowdown with Feinberg over a $100 million pay package for theunit’s CEO, Andrew Hall.
To contact the reporter on this story:Julianna Goldman in Washington at jgoldman6@bloomberg.net
Last Updated: October 19, 2009 00:00 EDTSource: Bloomberg
