Stunned big banks brace for Obama's onslaught

The administration's renewed push against the industry has caused a fissure in what has often been a unified industry front.

By ROBERT SCHMIDT
January 28, 2010 01:24
4 minute read.
Stunned big banks brace for Obama's onslaught

obama 88. (photo credit: )

WASHINGTON - When US Treasury Secretary Timothy Geithner and White House adviser Valerie Jarrett hosted a private dinner with the leaders of six banks to discuss financial regulation on January 20, the bankers soon changed the subject. The president needed to stop demonizing Wall Street, they told Jarrett, according to three people familiar with the meeting.

What the executives, including Brian Moynihan, the chief executive officer of Bank of America, and Robert Kelly, the chief executive of Bank of New York Mellon, didn't know was that President Barack Obama, who had proposed a new tax on the biggest banks six days earlier, was about to strike again.

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After leaving the meeting around 9 p.m., the executives learned that Obama would ask Congress the next day to ban commercial banks from running proprietary trading operations, owning hedge funds, and rapidly increasing market share. In his remarks, Obama indicated his willingness to go to the mat with the industry: "So if these folks want a fight, it's a fight I'm ready to have."

Industry officials said they were stunned. "We did not know it was coming, that's for sure," said Scott Talbott, a lobbyist for the Financial Services Roundtable, which represents large banks and insurance companies and whose chairman, Richard Davis, the CEO of US Bancorp, also attended the dinner.

Now the firms and their chiefs, confronting a wave of public anger against the bonuses they awarded in the wake of the financial industry bailout, are trying to devise a strategy to fight both the proposed new limits on banks' size and activities as well as the bank tax. While they are still plotting tactics, one thing has become clear: The banks don't want to go to war with the commander-in-chief.

"We don't want to fight the administration," said Rob Nichols, whose trade group, the Financial Services Forum, represents the chief executive officers of the largest financial companies. "We just want to sit at the table and have a productive conversation about the kinds of reforms needed to address the real causes of the recent crisis."

That the president's top advisers failed to give the financial executives a heads-up, even while reporters were being briefed on the plan, underscores how strained the banks' relationship with the administration has become.

Some Wall Street executives are seething over what they see as a political attack by the president after the Democratic Party lost the late Senator Edward Kennedy's Senate seat in Massachusetts, according to interviews with a half-dozen people who work for or consult with the largest financial firms and who declined to be named in order to speak freely.

They are equally concerned that they will remain targets for the rest of the year, the people said, and are willing to take steps to try to prevent that from happening. Some of the executives dining with Geithner and Jarrett indicated that Obama's bank tax would be a small price to pay if it made the taint of the Troubled Asset Relief Program go away, according to one attendee.

As a goodwill gesture, some executives whose firms are members of the Financial Services Forum agreed, at the Treasury's request late last week, to contact senators and urge them to confirm Federal Reserve Chairman Ben Bernanke, the people said. Nichols declined to comment.

The banks are not hanging up their lobbying spurs, and instead are counting on allies in Congress to slow the momentum. Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat, has scheduled hearings for February 2 on the president's plan to limit the size and scope of commercial banks. Former Fed chairman Paul Volcker has agreed to testify. While the lobbyists predict the tax, which Obama would levy on financial companies with more than $50 billion in assets to raise up to $117 billion over 12 years, will easily pass the House, they say it will be toned down in the Senate.

The administration's renewed push against the industry has caused a fissure in what has often been a unified industry front. Many smaller banks, for instance, aren't opposed to the trading and size limits in Obama's plan.

Wall Street firms "are ramping up their lobbying machines like there is no tomorrow," said Camden Fine, president of the Independent Community Bankers of America. "I'm sure they feel threatened, but when you get down to it, they brought this on themselves."

Obama hasn't shied away from criticizing bankers in recent weeks. Volcker, who had trouble getting the president to accept tougher restrictions on the financial services industry than his administration first proposed, stood behind him for the January 21 announcement.

Earlier this month, when Obama called for a tax on large banks, he said his aim was to recover "every single dime" of the $700 billion financial rescue, even if it meant taxing large banks that had repaid their TARP money with interest. At the same press conference, Obama challenged bank CEOs to stop "sending a phalanx of lobbyists to fight this proposal, or employing an army of lawyers and accountants to help evade the fee."

The increasingly strident comments are "unfortunate," said Fine, of the community bankers. "If the populist rhetoric intensifies, then there is a danger that the entire banking industry, including community banks, could be vilified."

The Obama administration plans to keep its distance from Wall Street. As the Treasury begins to draft the legislation they will send to the Senate on bank size and trading restrictions, the agency doesn't plan to consult the industry, said Deputy Secretary Neal Wolin.

He argued that the administration has been tough and direct with financial firms since it began pushing for changes to oversight in the wake of the subprime crisis. "We've not been shy in expressing our views," he said. "We've not minced words with them." (Bloomberg)


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