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Obama Administration Pushes Back at Bank Lobbying on Regulation

 

Julianna Goldman Julianna Goldman – Fri Oct 16, 4:46 pm ET

Oct. 16 (Bloomberg) -- White House officials say they are growing frustrated that the banking industry is fighting President Barack Obama's plan to overhaul financial regulations after taxpayer bailouts helped firms restore profits and near- record compensation for executives.

Their anger is directed even at firms such as New York's JPMorgan Chase & Co. and Goldman Sachs Group Inc. that have paid back their government assistance and reported a surge in third- quarter earnings this week. The issue, according to administration officials, is the industry is generally on sound footing because of government help and lobbying against Obama's regulatory plans goes against the nation's long-term interest.

"We are disappointed by the lobbying of anyone in the financial industry against regulatory reform, considering the obvious need for change on that front," Valerie Jarrett, a senior adviser to Obama, said.

Wall Street regulation is scheduled to be among the topics when Jarrett, Obama adviser David Axelrod and White House Chief of Staff Rahm Emanuel appear on Sunday news talk shows Oct. 18.

The administration is mounting a counteroffensive by pointing to a disconnect between Wall Street and the rest of the country: while some big banks report compensation plans and profits at pre-crisis levels, the unemployment rate rose to 9.8 percent last month and home foreclosures jumped 29.2 percent from a year earlier.

Messengers

The tougher message is being repeated from the president on down.

Now is the time for "firm rules of the road so that banks can't game the system and the financial crisis on Wall Street doesn't end up hurting folks on Main Street," Obama said last night at a Democratic Party fundraiser in San Francisco.

Lawrence Summers, director of Obama's National Economic Council, was giving voice to it today in New York.

"There is no financial institution that exists today that is not the direct or indirect beneficiary of massive taxpayer support for the financial system," Summers said in remarks to a conference sponsored by the Economist newspaper.

Obama is renewing his push to redo financial industry regulations by the end of the year, and many of his proposals, including a Consumer Financial Protection Agency, are facing stiff industry opposition.

Groups led by the Financial Services Roundtable and American Bankers Association, both based in Washington, urged Congress in July to scrap the consumer agency, saying creation of 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 of potential for backlash then of course I would not have liked it," Blankfein said today at a Fortune magazine breakfast in New York.

"We are firm believers in effective regulation and believe that it is systemically important to have a regulatory framework which ensures stability of the financial system," Goldman Sachs spokesman Lucas van Praag said.

Joseph Evangelisti, spokesman for JPMorgan, referred to comments Chief Executive Officer Jamie Dimon made in his letter to shareholders in which he said that the extent of the problems made it clear that "rules and regulations must be completely overhauled." 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 us well."

Citigroup didn't immediately respond for comment.

Financial Rebound

The mounting frustration about pushback from the industry comes the same week that the Dow Jones Industrial Average climbed above 10,000 for the first time in a year and firms including JPMorgan and New York-based Citigroup Inc. reported third-quarter earnings that beat analyst estimates.

Administration officials say they recognize a healthy banking sector is critical to the economic recovery and that they're limited in their ability to penalize the firms, particularly those that no longer owe the government money.

The most politically volatile issue is executive compensation. Obama has said he believes some of the resistance to his agenda stems from resentment about expanding government involvement in the private sector, including bank bailouts. Reports about rising profits, executive salaries and bonuses following on the government rescue, may add to voter dissatisfaction.

Earlier this week, Citigroup reported a $101 million third-quarter profit as it slowed the pace of building reserves for future loan defaults. On a per-share basis, the bank had a loss of 27 cents because of a charge related to the exchange of preferred shares into common stock.

Capital Requirements

Citigroup, JPMorgan Chase and San Francisco-based Wells Fargo & Co. also asked regulators for a reprieve from meeting higher capital requirements taking effect next year, arguing that lending and the economic recovery would be harmed.

Goldman Sachs, which repaid $10 billion it received from the U.S. Treasury last year, also reported a surge in third- quarter profit. The company has set aside $16.7 billion to pay employees so far this year, enough to pay each worker $527,192 for the period.

JPMorgan, which repaid $25 billion of U.S. rescue funds in June, said this week that its profit surged sevenfold in the quarter, to $3.59 billion, on higher investment-banking revenue. The company, 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.

Feinberg's Role

Administration officials have pointed to the appointment of Kenneth Feinberg to oversee compensation plans at the top firms that haven't repaid assistance funds. They also cite Obama's support for giving shareholders a non-binding say on compensation.

Feinberg's compensation reviews for companies including Charlotte, North Carolina-based Bank of America Corp. and Citigroup, each of which got $45 billion in government aid, are expected as early as next week.

He's already advised Bank of America Chief Executive Officer Kenneth Lewis to forego his 2009 salary and bonus. Bank of America, the biggest U.S. lender, posted a $1 billion third- quarter loss.

Citigroup announced last week that it would sell its Phibro LLC energy-trading unit, a decision made to avoid a potential showdown with Feinberg over the unit's CEO, Andrew Hall's $100 million pay package.

To contact the reporter on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net

 

 

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