Obama Administration Pushes Back at Bank Lobbying on Regulation
Oct. 16 (Bloomberg) -- White House officials say they aregrowing frustrated that the banking industry is fightingPresident Barack Obama’s plan to overhaul financial regulationsafter taxpayer bailouts helped firms restore profits and near-record compensation for executives.
Their anger is directed even at firms such as New York’sJPMorgan Chase & Co. and Goldman Sachs Group Inc. that havepaid back their government assistance and reported a surge inthird- quarter earnings this week. The issue, according toadministration officials, is the industry is generally on soundfooting because of government help and lobbying against Obama’sregulatory plans goes against the nation’s long-term interest.
“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.
Wall Street regulation is scheduled to be among the topicswhen Jarrett, Obama adviser David Axelrod and White House Chiefof Staff Rahm Emanuel appear on Sunday news talk shows Oct. 18.
The administration is mounting a counteroffensive bypointing to a disconnect between Wall Street and the rest ofthe country: while some big banks report compensation plans andprofits at pre-crisis levels, the unemployment rate rose to 9.8percent last month and home foreclosures jumped 29.2 percentfrom a year earlier.
Messengers
The tougher message is being repeated from the presidenton down.
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 lastnight at a Democratic Party fundraiser in San Francisco.
Lawrence Summers, director of Obama’s National EconomicCouncil, was giving voice to it today 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 toa conference sponsored by the Economist newspaper.
Obama is renewing his push to redo financial industryregulations by the end of the year, and many of his proposals,including a Consumer Financial Protection Agency, are facingstiff 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 CEO Lloyd Blankfein said he didn’t expect a“backlash” when he accepted the government funds.
“Had I know it was as pregnant with this kind ofpotential for backlash then of course I would not have likedit,” Blankfein said today at a Fortune magazine breakfast inNew York.
“We are firm believers in effective regulation andbelieve that it is systemically important to have a regulatoryframework which ensures stability of the financial system,”Goldman Sachs spokesman Lucas van Praag said.
Joseph Evangelisti, spokesman for JPMorgan, referred tocomments Chief Executive Officer Jamie Dimon made in his letterto shareholders in which he said that the extent of theproblems made it clear that “rules and regulations must becompletely overhauled.” Dimon also said that new policiesshould be “grounded in a thorough analysis of what happened”and that “political agendas or simplistic views will not serveus well.”
Citigroup didn’t immediately respond for comment.
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.
Earlier this week, Citigroup reported a $101 millionthird-quarter profit as it slowed the pace of building reservesfor future loan defaults. On a per-share basis, the bank had aloss of 27 cents because of a charge related to the exchange ofpreferred shares into common stock.
Capital Requirements
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-bankingrevenue. The company, which is the second biggest bank byassets, set aside $8.79 billion for compensation and benefitsfor its investment-bank employees in the first nine months of2009, enough to pay $353,834 to each.
Feinberg’s Role
Administration officials have pointed to the appointmentof Kenneth Feinberg to oversee compensation plans at the topfirms that haven’t repaid assistance funds. They also citeObama’s support 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 itsPhibro LLC energy-trading unit, a decision made to avoid apotential showdown with Feinberg over the unit’s CEO, AndrewHall’s $100 million pay package.
To contact the reporter on this story:Julianna Goldman in Washington at jgoldman6@bloomberg.net
Last Updated: October 16, 2009 16:46 EDTSource: Bloomberg
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