MG --------------------------- Hedging bets on Wall Street By James Harding and David Wighton Financial Times August 27 2004
On Monday evening, amid the plush surroundings of the Rainbow Room on the top floor of that defiant monument to New York opulence, Rockefeller Plaza, the rainmakers will mingle with the lawmakers.
The 2004 salute to the House Financial Services Committee, which oversees the banking business, is one of several Wall Street receptions laid on for delegates at the Republican National Convention next week. The out-of-town visitors will sample the Cipriani family's cuisine. Frank Sinatra Jr will sing. So, too, will Christopher Cross, best known for his ballad “If you get lost between the moon and New York city . . . the best that you can do is fall in love”. Look beyond the warm handshakes and lavish hospitality of the evening, however, and there are signs that Wall Street's support for President George W. Bush may be ebbing.
After the terrorist attacks of September 11 2001 and the Republican victory in the mid-term elections of 2002, many on Wall Street supported Mr Bush's re-election effort, impressed by the president's strong leadership and confident he would win a second term.
But over the past year, several moderate Republicans, not to mention independents, have begun to feel estranged. Interviews with many of Wall Street's leading figures - the heads of the big firms, their advisers, prominent investment bankers and influential brokers - reflect this shift in sentiment.
Some have grown uncomfortable with the president's conservative social agenda. Some are concerned that Mr Bush has relaxed fiscal discipline in Washington, once a Republican orthodoxy. Others worry that he has presided over a sharp drop in America's international standing. And many have become ever more unsettled by the compromised case for war in Iraq.
“All the Republicans I know on Wall Street have gone south on Bush in the past few months. Really south,” admits one Republican in the financial services industry, who spends his time shuttling between lower Manhattan and Washington.
To be sure, there remain figures on Wall Street such as John Mack, the former chief executive of CSFB, and Hank Paulson at Goldman Sachs, who have shown no sign of wavering faith. Both have given the maximum $2,000 to Mr Bush's re-election campaign and have encouraged others to give.
It is true, too, that when the Bush-Cheney campaign last year sounded the call for financial contributions to the president's re-election effort, Wall Street answered. Mr Bush recruited an unprecedented number of financiers, investment bankers and venture capitalists not only to contribute, but to secure donations on his behalf.
Indeed, in 2003, more than half a dozen Wall Street figures had secured $100,000 in contributions. The campaign bestowed upon them the honour of being called the Bush Pioneers. Another 10 - who raised more than $200,000 - were given the title of Rangers.
Wall Street heavyweights - including Hank Greenberg, chairman of AIG and Philip Purcell, chairman and chief executive of Morgan Stanley, who lent their name to the Bush-Cheney campaign and tapped their friends for money, have allowed the Republicans to claim the president has high standing in the financial community.
“Relations [with Wall Street] are very good,” says Charlie Black, a lobbyist advising the Bush-Cheney campaign. “If you look at the contributions, he is out-raising Kerry. He is up from the last election and certainly up from the Clinton years.”
On the evening of June 23 2003, arguably the high-water mark for Mr Bush on Wall Street, Stan O'Neal, chairman and chief executive of Merrill Lynch, and James Cayne, Bear Stearns chief executive, hosted a fundraiser for Bush-Cheney '04. Hundreds of people came. And the campaign raised $4m.
Mr O'Neal, who had played no significant role in Mr Bush's 2000 election effort, was catapulted into the top rank of the Rangers, having corralled $200,000-plus in contributions.
Since then, however, Mr O'Neal has appeared to absent himself from the Republican effort. During the primaries, he made personal donations to Wesley Clark, the retired general who ran for the Democratic presidential nomination. He has also contributed to Barack Obama, the Democratic candidate for an Illinois senate seat. Mr O'Neal was not available for comment. Employees at Merrill Lynch say that his original effort on behalf of the president was corporate, not personal. He leads a firm that has long leaned Republican, they say, and his fund-raising activities were driven by a sense of duty to Merrill rather than his own political instincts. He will not necessarily vote for Mr Bush, says one person who knows him well, adding: “He is best described as an independent.”
Dick Fuld, chairman and chief executive of Lehman Brothers, has an independent streak, too. Last year he donated to Bush-Cheney, but this year he has mainly supported Democrats, notably the presidential campaign of Joseph Lieberman, a senator and former vice-presidential candidate from Mr Fuld's home state of Connecticut.
“Dick Fuld is essentially a Democrat,” says one Republican consultant. Among Mr Fuld's recent donations: a $25,000 contribution to the Democratic Senatorial Campaign Committee and $2,000 to John Kerry for President. Mr Fuld also declined to comment.
A year ago, Mr Bush looked set to be a shoo-in for a second term. In recent months, though, his re-election prospects have begun to look far less certain and Wall Street executives say they are particularly concerned about becoming too closely identified with one party because the race is so tight. “Whatever you do, you are going to upset 50 per cent of your clients,” acknowledges one chief executive.
Donations from the securities and investment industry are pretty evenly split, according to the Center for Responsive Politics, an independent watchdog, even if the big banks tend to tilt Republican. Of the $50m raised in this election cycle the Republicans, with the incumbent's advantage, have taken about 55 per cent.
Banks such as Merrill, which have a large public finance business, like to be seen to be spreading their largesse to both sides. And so do prominent individuals: Jamie Dimon, the number two at JP Morgan Chase who will take the reins in two years, is an active Democrat. Yet he has also given money to many Republican congressmen, mainly those on key financial committees.
Mr Cayne, at Bear Stearns, is a generous supporter of Republican candidates, but he also gave money to Dick Gephardt's primary campaign. In a rare sign of political tension on Wall Street, Mr Cayne last month issued a rebuke to his likely successor, co-president Warren Spector, for his open backing of Mr Kerry. Mr Cayne sent a memo to staff saying that Mr Spector made comments on a press conference call about Mr Kerry “in such a way as to be viewed as being attributed to Bear Stearns as a whole”.
Goldman Sachs employees are the biggest spenders on election campaigns, contributing a total of $3.9m. In the past few election cycles, Goldman staff have tended to give slightly more to the Democrats but this time are evenly split. A similar picture emerges at Citigroup and JP Morgan. Lehman Brothers is the only firm where there is a clear majority giving to the Democrats.
Staff at Merrill Lynch, Morgan Stanley and UBS tend to favour the Republicans, which insiders say partly reflects contributions from executives in their large retail brokerage arms.
Among Republicans in and around the chief executive's suite, though, there have been some second thoughts about Mr Bush. One senior Wall Street figure, who has given money to the Bush campaign, said he was among many Wall Street bosses who were impressed with Mr Bush's handling of the September 11 attacks. “But since then I have lost faith over foreign policy and tax,” he says.
The Clinton administration was famously in awe of Wall Street and the power of financial markets. Wall Street was portrayed as a central part of the economic policymaking process: when setting out to cut the deficit, the Clinton administration sold the proposition that fiscal credibility would deliver lower interest rates, higher growth and, latterly, a roaring stock market. In that sense, the White House deferred to Wall Street, infuriating traditional, welfare-minded Democrats. James Carville, a Clinton adviser, once said he wanted to be reincarnated as “the bond market, because then you can intimidate everybody”. Mr Bush, on the other hand, has been wary of Wall Street. He is the first Republican president since Dwight Eisenhower not to have appointed a Treasury secretary from the New York financial community. His first pick was Paul O'Neill, the former chief executive of Alcoa, the aluminium group. John Snow, the current Treasury secretary, is a former railway executive.
Several senior Wall Street executives complain that this administration does not listen to them, and cite Mr Snow as a key part of the problem. A common criticism is that he presents policy, but does not serve as a conduit back to the president. “In the past, administrations of both sides appeared interested in a dialogue. Now John Snow comes up to New York to tell us what they are doing,” complains one chief executive.
Perhaps in recognition of this mood, Mr Bush last year appointed Stephen Friedman, a former Goldman Sachs chairman widely respected on Wall Street, as his chief economic adviser. Mr Friedman has become the bridge from Wall Street to the White House, according to several New York bankers.
But it is surprising that any remedy was ever needed; the Bush family has a long record on Wall Street. The president's great-grandfather founded an investment bank, now owned by Merrill Lynch. His uncle set up a money management operation since bought by Riggs Bank. Several members of his extended family work in finance.
Mr Bush, however, chose to put his MBA to work in Texas: rather than banking and broking, Mr Bush got into oil and baseball. On the stump, he has played to popular suspicions of Wall Street chicanery, or “fancy footwork” as he has dubbed the work of investment bankers. White House officials argue that the president has been attentive to Wall Street, holding meetings both in New York and Washington with top bankers. His tax-cutting agenda, particularly the attempt to eliminate the double taxation of dividends, has won wide support in the financial community, they point out.
But economic policy is not, arguably, what has most alarmed the Republicans who work on Wall Street. After all, finance is a global business and the captains of the US firms are internationalists. Robert Rubin, Bill Clinton's former Treasury secretary who is now advising Democratic presidential candidate John Kerry's campaign, says the concern most often voiced to him is about the Bush administration's alienation of allies and the damage to US prestige overseas.
White House officials and Bush-Cheney campaigners dispute the criticisms made by unsettled Republicans - about the deficit, about the loss of US standing in the world and the gripe that the Bush administration does not listen to the Wall Street point of view. When it comes to election politics, however, the Bush-Cheney campaign is phlegmatic about Wall Street.
“At the Hamptons [the fashionable seaside region in New York] this weekend, there are not going to be a lot of people with Bush-Cheney stickers,” acknowledges a senior adviser for the Bush-Cheney '04 campaign. However, the Bush campaign has not seen a drop in donations from Wall Street this year, he says.
Tim Adams, Mr Snow's former chief of staff and now policy director for the Bush-Cheney '04 campaign, says: “We tend to be more focused on Main Street than Wall Street. It is not fashionable to be a pro-Bush supporter in Manhattan or Los Angeles, but I think that is more fashion than substance.”
New York financiers are not a target constituency in the strategy of Mr Bush's political adviser Karl Rove to win Mr Bush a second term. Conservative Christians, military personnel, manufacturing workers and middle-class families in the battleground states are the preoccupation.
Mr Bush has visited New York City just 11 times during his presidency, mostly for events connected to the September 11 attacks and the United Nations General Assembly. On the other hand, he has been to Pennsylvania, a decidedly swing state, 32 times.
While the president has made the “ownership society” - encouraging people to own homes, retirement savings and healthcare plans - one of the central themes of his re-election bid, the White House has not sought the New York Stock Exchange or Nasdaq as a venue for a speech by the president. Mr Bush has had four meetings in New York with the financial community.
Mr Friedman, the president's chief economic adviser, insists there has been no lack of communication between the Bush White House and Wall Street. The administration has listened, even if it has not always agreed. And, he says, Wall Street types have no qualms about letting him - and by extension the president - know their opinions. “They are not shy about talking to us about what bothers them,” he says.
Mr Friedman recalls how, on the morning of January 8, 2003, the day after Mr Bush announced his sweeping tax cuts, he flew directly to New York for breakfast, lunch and afternoon meetings with people on Wall Street to field the financial community's opinion on the “Jobs and Growth” package.
“I knew almost all of those guys on a personal level,” he says. “And we learned they really liked the impact of the programme on the economy.”
The purpose of the meeting was to debate good economic policy with financial experts, not to curry favour, says Mr Friedman. “Operating as a handmaiden to Wall Street is not in my job description,” he says. Besides tax cuts, he adds, the White House also shares with the financial community a mutual interest in reforming social security, tort reform, addressing asbestos liabilities, and in generating growth.
Mr Bush's meeting with more than a dozen leading financial figures in September last year at the Waldorf Astoria on the fringes of the UN general assembly was an example of the healthy and frank relationship between the government and the country's financial capital, Mr Friedman says.
“It got quite granular,” he recalls, as the president called on leaders of the financial services industry one by one around the table to voice their views economic policy. “They were extremely impressed with how familiar he was, not with some of their issues, but with the details of the issues.”
Perhaps most significantly for Wall Street, Mr Friedman says, Mr Bush has overseen a turnaround in confidence in the financial markets. “Those guys are now in an economy where people are talking about public offerings and doing mergers. You are not going to do mergers when people are on their butts in terms of confidence. Confidence has come back.”
On Monday night, the Rainbow Room is bound to heave with such bullish sentiment. Republicans are coming to New York to talk up the president's prospects; Wall Street will be courteous as well as generous. Anyone with any qualms can voice them on November 2.
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