By Sarah N. Lynch, Emily Stephenson and Rick Rothacker
Nov 7 (Reuters) - Wall Street firms gambled on Mitt Romney
Now, faced with the prospect of even tougher regulations in
President Barack Obama's second term, they have to build better
ties with the new financial regulators he will appoint.
Stock investors fear banks will meet with limited success.
Shares of Goldman Sachs Group, JPMorgan Chase & Co and Citigroup
dropped 5 percent, Bank of America lost 6 percent and Morgan
Stanley fell 7 percent in midday trading on Wednesday.
Obama lost the support of many bankers in the aftermath of
the 2008 financial crisis and the passage of the 2010 Dodd-Frank
financial reform law, which sought to shore up the financial
system but also cost banks billions of dollars in annual profit.
The Democratic president has openly stated his distaste for
"fat cat bankers" who "don't get it," and bankers fear more
trouble is ahead if they cannot influence how the Dodd-Frank
rules are implemented.
"He will continue to increase regulation, demonize and
vilify businesses, and spend a lot of money, and tax people, and
so forth," said Dick Kovacevich, a former Wells Fargo & Co CEO
and supporter of Republican challenger Romney.
Wall Street does have some ways to push back. Banks can sue
to try to block provisions of Dodd-Frank that they object to, a
tactic that has already met with some success. The financial
industry can also press regulators to write rules that soften
some reform laws.
And banks can roll up their sleeves and turn on the charm,
which can help, industry lobbyists said.
"We're going to have to do a lot of heavy lifting over the
next four years. But it's not an impossible task," said Frank
Keating, chief executive of the American Bankers Association.
But given that Obama won and that financial reform is
popular among Americans, many on Wall Street acknowledge that
there's only so much they can do.
"Obama will be less likely to hold back on regulation this
term," said Chris Tobe, who advises pension plans as a principal
at Stable Value Consultants and is a trustee of the Kentucky
state pension fund. The industry's support for Romney does not
help, he added.
People working in the U.S. securities and investment
industry gave $20 million to Romney's campaign, versus $6
million to Obama, according to the Center for Responsive
Politics. Four years ago, Obama received $16 million and
Republican nominee John McCain only attracted $9 million.
Wall Street was so confident in Romney's chances that the
Financial Services Roundtable, a leading industry group in
Washington, recently named as its head Tim Pawlenty, a Romney
campaign co-manager who has little financial firm experience and
few ties to Washington policymakers.
Representative Barney Frank, a Democrat and the co-author of
Dodd-Frank, said picking Pawlenty, a partisan Republican, was a
The industry's best hope now may be to work with regulators,
since legislative changes are unlikely, Frank said.
Americans blame banks for the 2008 financial crisis, and
view financial reform as a way to ensure that bad mortgages and
repackaged debt don't trigger another banking collapse.
A 2010 Gallup poll showed that Dodd-Frank was Obama's most
popular law, exceeding healthcare reform, for example. Few
Washington lobbyists thought that Romney could fully repeal
Dodd-Frank, because public support for the law is too high.
"Most voters think that we need to change the status quo on
Wall Street, and we need to make sure we do not have a repeat of
the abuse of mortgage products," said Lisa Donner, executive
director for Americans for Financial Reform, a coalition of
about 200 organizations that formed in 2008 as a response to the
The biggest banks will have to think about shrinking in the
future, including shedding businesses that have become
unprofitable under new rules, said Nancy Bush, a veteran banking
"The banks are going to have to accept some realities of
their new existence," Bush said.
RELATIONS WITH REGULATORS
Banks must now focus on softening regulations to the extent
they can. Among the financial industry's top complaints is the
Volcker rule, which prevents banks from making big bets in
financial markets with their own money. Big banks fear the rule
will also limit some of their trading with clients.
"You could rethink some of the details without rejecting the
concept of the Volcker rule," said Wayne Abernathy, executive
vice president for financial institutions policy and regulatory
affairs at the American Bankers Association.
The industry has other areas where it wants to ease rules,
including the Durbin Amendment, which limits the fees they can
charge merchants for processing debit-card transactions, and
capital requirements, which make banks stronger but cut into the
returns they can earn on their equity capital.
Wall Street firms are worried about Elizabeth Warren, whose
victory in the Massachusetts Senate race may galvanize her to
push for more regulations on bank lending to protect consumers.
Warren was instrumental in creating the Consumer Financial
Protection Bureau, which banks were hoping to weaken. Gaining
political support for such a move now seems unlikely, analysts
Lawsuits may also work. In September, trade groups won a
court battle against the Commodity Futures Trading Commission
over a Dodd-Frank rule that would have imposed "position limits"
on commodity speculators. Last year, a court rejected a
Securities and Exchange Commission rule that would have have
made it easier for shareholders to nominate directors to
Some banking industry lobbyists say their focus will be on
the key regulators Obama is expected to name in his second term.
Major power players under Obama, including Treasury
Secretary Timothy Geithner, are expected to step down, offering
Wall Street a chance to reset relations.
Chairmen determine agendas at agencies such as the
Securities and Exchange Commission (SEC) and Commodity Futures
Trading Commission (CFTC), so Obama's choices to fill any open
spots could affect how quickly new rules are implemented.
One possible replacement for Geithner, who has said he will
not stay for a second Obama term, is White House Chief of Staff
Jack Lew, a former Citigroup Inc banker.
"I hope Obama puts someone in who understands fiscal issues
and who will have stature to work on the Hill to negotiate some
type of package on fiscal reform," said Sheila Bair, former
Federal Deposit Insurance Corp chairman.
SEC Chairman Mary Schapiro's term does not expire until June
2014, but speculation about her departure has been swirling for
well over a year. Last month, she attempted to shoot down the
rumors, saying she had not thought about her post-SEC plans.
CFTC Chairman Gary Gensler's term technically expired in
April. He is allowed to stay on as chairman until the end of
2013 and his renomination is an open question.
Gensler has been assailed by Republicans over his
implementation of Dodd-Frank and criticized by lawmakers on both
sides of the aisle following the collapse of futures brokerages
MF Global and Peregrine Financial Group.
Much of Wall Street's regulatory agenda, however, is set to
take a backseat in the short term due to the looming fiscal
cliff -- a package of tax increases and federal spending cuts
that will begin in January unless lawmakers act.
Bankers fear an impasse in solving the issue could spark an
economic downturn that would hurt the industry.
"My hope is that the bitter partisanship of recent years
will now be put aside and that everyone will work together to
solve the fiscal cliff and to get the economy moving again,"
said billionaire investor Wilbur Ross in an interview with
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