Banks Flex Muscle With $23 Billion Gain as Congress Scolds CEOs
(Bloomberg) -- Wall Street CEOs spent two days being grilled by lawmakers. Their companies gained more than $23 billion in market value.
The heads of the six biggest U.S. banks absorbed Democrats’ jabs over their firms’ treatment of consumers, climate change and for not doing enough to promote racial justice. Republicans chimed in, too, bashing lenders for shunning politically unpopular businesses in the U.S., while financing Chinese companies.
As the hits kept coming, bank stocks kept rising -- indicating the executives mostly accomplished what they set out to do ahead of this week’s congressional hearings: Avoid embarrassing moments or clashes that could cast lasting shadows over their industry.
While the breadth of questions served as a reminder of the expansive reach of megabanks, the absence of fireworks underscored how well the firms fared during the economic turmoil that the pandemic unleashed. It was a far cry from what happened after the 2008 financial crisis when Wall Street was the villain and Washington aggressively tightened its leash.
“The goal for the CEOs with these hearings was to get through without anything that would result in more onerous regulation, and without anything that would cause them problems with shareholders,” said Ian Katz, an analyst at Capital Alpha Partners in Washington. “They largely succeeded.”
The proceedings started Wednesday with JPMorgan Chase & Co.’s Jamie Dimon, Goldman Sachs Group Inc.’s David Solomon, Morgan Stanley’s James Gorman, Bank of America Corp.’s Brian Moynihan, Citigroup Inc.’s Jane Fraser and Wells Fargo & Co.’s Charlie Scharf appearing before the Senate Banking Committee. Round 2 came Thursday before the House Financial Services Committee.
Some bank lobbyists privately said they were pleased, commenting that there were no public relations missteps.
Diversity and racial inclusion were recurring themes for Democrats, who asked whether
banks should be independently audited to determine whether their actions adversely impact minority communities.
“It is something we’re looking at again,” Fraser said of Citigroup, which defeated a shareholder proposal calling for such a review at its recent annual meeting.
Dimon, however, dismissed the audits as “bureaucracy and B.S.,” while adding that the bank is “completely devoted” to aiding people of color.
The JPMorgan CEO was the most outspoken of the executives. He also drew attention when he theorized that some Americans don’t immediately want to return to the workforce in the wake of the Covid-19 crisis.
Republicans spent a lot of their time telling the CEOs that banks should stay out of politics and warning that corporate “activism” in areas like climate change would harm their businesses.
“I’m very concerned about the pressure that you all are receiving as CEOs,” said Representative Bill Huizenga, a Michigan Republican. “ All of your firms have pledged fidelity to this whole notion of bowing to the wokeness that’s going on.”
Lawmakers of both parties at times sought the executives’ advice on a range of tricky policy issues, including the need for oversight of cryptocurrencies and the appropriate government response to the rise of blank-check companies and the bubble in so-called meme stocks like GameStop Corp.
Dimon and Solomon said that they personally remained dubious about crypto-investing and called it a “buyer beware” product. And they said Washington should be working on setting rules for the largely unregulated digital tokens.
Still, Dimon and Solomon noted that their firms were thinking about how to make coins available in a safe way to clients, especially as demand for them has surged.
“This goes back to how you have to run a business,” the JPMorgan chief said, noting that his personal views were largely irrelevant. “I don’t smoke marijuana but if you make it nationally legal, I’m not going to stop our people from banking it.”
Asked about whether additional disclosure may be needed for special purpose acquisition companies, or SPACs, Solomon said that would be a good idea.
The Goldman CEO also weighed in on the collapse of Bill Hwang’s Archegos Capital Management, saying that while there are a number of institutional investors who buy “total return swaps,” what made Hwang an outlier was his extremely concentrated positions. Solomon said he supported regulators considering a “more modern disclosure structure” for the derivatives, which Hwang used to shield his massive stakes.
“Some focus there is probably a good thing,” Solomon said.
Scharf, whose bank has been involved in several scandals and remains under orders from the Federal Reserve that cap its growth, said convincing regulators that Wells Fargo is fixed is his No. 1 priority.
“We believe we are making progress, but we’re also very, very clear that this is a multiyear journey, just given the amount of work that has to get done,” he said.
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