Wall Street’s Close Ally in Senate Is in Crosshairs of Democrats

(Bloomberg) -- Wall Street banks have found few politicians who will stand up for them in Washington since the 2008 financial crisis turned the industry into a villain. Senator Thom Tillis is an exception.

The North Carolina Republican has been an aggressive advocate of de-regulatory policies that would save giant lenders billions of dollars. He once defended Goldman Sachs Group Inc. -- famed for its swashbuckling dealmakers and traders -- as a firm that probably employs “a lot of little guys.”

Tillis, 59, is up for re-election in November 2020, meaning he will soon find out whether throwing in his lot with Wall Street will cost him with voters in a state that’s become the biggest banking center in the U.S. outside of New York. That’s making his race, widely expected to be one of the most fiercely contested next year, something of a litmus test on how much of a political punching bag big banks remain a decade after the crisis.

Sensing vulnerability, Democrats have targeted Tillis as one of the Republicans they believe they have the best chance of knocking off in their quest to pick up the four seats they need to take control of the Senate. Early polling hints at tough races both in Tillis’s own GOP primary and in the general election. Democrats vying to run against him include a state senator and a former state senator. Already, they are labeling him a pawn of the financial industry.

“It’d be hard for the Democrats to get a Senate majority without North Carolina,” said Eric Heberlig, a political science professor at the University of North Carolina, Charlotte. “It’s going to be expensive.”

Goldman Cash

Indeed, campaign cash is expected to flood into the state -- and that’s where Tillis’s Wall Street advocacy could pay off. Though it’s early, Goldman employees are the top donors to his 2020 campaign and several prominent hedge fund executives have also written checks.

Tillis’s aides say his pro-bank views are all about helping North Carolina, which is home to Bank of America Corp. and Wells Fargo & Co.’s east coast operations.

“Senator Tillis promised North Carolinians that he would go to Washington and end the regulatory nightmare created by the Obama administration, and that’s exactly what he” and President Donald Trump have accomplished, his spokesman, Andrew Romeo, said in a statement.

Banking has attracted thousands of people to the state, including Tillis. The former management consultant, whose clients included financial firms, relocated to a Charlotte suburb in 1998. He was first elected to the Senate in 2014, winning by a slim margin of 1.5 percentage points.

“It’s a major constituency of Thom’s when he was in the state house and now in the Senate,” former North Carolina governor Pat McCrory, a Republican, said in an interview. “A lot of his neighbors out in north Charlotte work for the banks.”

Esoteric Rules

Still, some of the regulatory rollbacks Tillis has pushed for are so esoteric that even his constituents who work at banks might not be familiar with them. Also of note: the rule changes would exclusively help megabanks, not small and regional lenders.

Issues he’s taken up include the so-called capital surcharge for systemically important financial institutions. The rule supersizes the amount of capital that Goldman, Bank of America, JPMorgan Chase & Co. and other giant lenders have to maintain to protect against losses. In an op-ed published in the American Banker in January, Tillis blamed the surcharge for triggering a stock market rout late last year.

He’s also been a vocal critic of a post-crisis regulation that requires Wall Street banks to set aside billions to backstop swaps trades that they make with their own affiliates. While the rule’s defenders say it prevents risk from spreading within banks with federal deposit insurance, Tillis argues it hurts growth by keeping almost $50 billion from being lent out to the economy. Trump-appointed regulators proposed eliminating the margin requirement last month.

Read More: Trump Regulators Hand Wall Street Banks a Win on Swaps Rule

The policy positions have won Tillis fans at 200 West Street in Manhattan -- Goldman’s international headquarters. The bank has already held a fundraiser for him in New York, and its employees have contributed $45,900 to his campaign, according to data from the Center for Responsive Politics.

The total, which exceeds contributions from the National Republican Senatorial Committee, includes money from individual donors and Goldman’s political action committee. Among those who’ve contributed are John F.W. Rogers, the firm’s chief of staff, top money-manager Jim Donovan and merchant banking head Richard Friedman, according to federal election data. Goldman spokesman Andrew Williams declined to comment.

Wall Street’s Close Ally in Senate Is in Crosshairs of Democrats

Tillis’s next biggest donors among megabanks are Wells Fargo, whose workers and PAC have contributed $17,000, and JPMorgan at $16,000. Other contributors include Elliott Management’s Paul Singer, billionaire investor Sam Zell, Blackstone Group Inc.‘s Stephen Schwarzman, Third Point‘s Dan Loeb, Citadel‘s Ken Griffin and AQR Capital Management’s Cliff Asness.

“Contributions never have and never will impact how Senator Tillis votes or what legislation he supports,” said Romeo, his spokesman. “He makes those decisions based on his deeply held conservative principles and his mission to preserve the American Dream for future generations.”

Wall Street didn’t warm to Tillis by accident.

In 2018, Congress passed legislation that eased a lot of Dodd-Frank Act burdens on small and regional banks. Big banks got scant relief in the bill, and decided they needed stauncher allies on Capitol Hill who could push their agenda, especially with regulators such as the Federal Reserve, said a person familiar with the matter.

The industry zeroed in on Tillis, a business-friendly conservative on the Senate Banking Committee who had a reputation for supporting financial firms, said the person who asked not to be named in discussing internal lobbying strategy. It didn’t hurt that Tillis was expected to need a sizable campaign war chest for his re-election campaign.

Bank Owned

Potential Democratic opponents in North Carolina have seized on Tillis’s views.

Tillis is “bought and paid for, owned and operated by Wall Street and special interests,” Erica Smith, a state senator running in the Democratic primary, said in an interview. Still, Smith is hesitant to be too hard on banks, considering their outsized role in North Carolina.

A Meredith College poll released this week showed Tillis in a statistical dead-heat in general election match-ups with Smith and another Democrat who’s running, former state senator Cal Cunningham. Earlier polling has shown the race to be just as tight, with Tillis’s Democratic challengers ahead of him in some surveys. And on Thursday, a Morning Consult poll indicated Tillis has the lowest approval rating of all U.S. Senators among their constituents.

Tillis has also drawn a GOP primary challenger to his right in Garland Tucker III, who co-founded specialty lender Triangle Capital Corp. One of Tucker’s chief criticisms is that Tillis hasn’t been a strong enough supporter of Trump’s, even though the president has endorsed Tillis.

Tucker has deep ties to North Carolina banking. His father was a longtime board member of Winston-Salem-based BB&T Corp., serving as chairman for more than a decade.

Political Misstep

Tillis’ banking ties may not be what most impacts his chances at re-election. He made a political misstep earlier this year that had nothing to do with the industry when he said he would vote against Trump’s emergency declaration to fund a wall on the Mexican border. Hard line Republicans were enraged, and Tillis ended up backing the president.

But the damage was done. At a September Trump rally in Fayetteville, the announcement of Tillis’s name was met with some boos.

©2019 Bloomberg L.P.

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