US bank chiefs veer from financial to political problems
Growth in profits has been accompanied by rising anger among Democrats
Tom Braithwaite
Citigroup’s Mike Corbat, left, JPMorgan’s Jamie Dimon and five other bank chiefs appear before the House financial services committee on Wednesday © AFP
The leading US bank chief executives were hauled to Washington this week and mauled before Congress, prompting severe déjà vu.
It looked strikingly similar, deliberately so, to a February 2009 hearing before the same House financial services committee during the height of the financial crisis. Then, like now, the top US bankers filed into a gloomy room on Capitol Hill and sat in alphabetical order to answer for their sins during a seven-hour session.
Delve beyond the superficial similarities, though, and the dynamics are radically different.
In 2009 Democrats held both chambers of Congress. Now, Republicans control the Senate. There is, therefore, little chance of any tougher banking regulations being passed into law.
But although the numbers show Congress has shifted to the right, the rhetoric says otherwise.
A decade ago, Democrat Barney Frank was in charge of the hearing. Irascible but witty, sceptical of Wall Street but also wary of wrecking the economy, Mr Frank subsequently helped push through reforms that made the system safer. Now he has retired and the gavel is held by 80-year-old Democratic firebrand Maxine Waters, who excoriated the banks for “chronic lawbreaking” and suggested they should be broken up.
The divided Congress means Ms Waters has no chance of legislating — yet. But the items on congressional Democrats’ agenda should be concerning for the banks.
In Wednesday’s hearing, Citigroup’s chief executive Mike Corbat was told to “lower your salary or raise the salary of others” to correct a 486:1 ratio between his $24m pay and the average employee’s $49,766.
The seven white men were asked “whether your likely successor will be a woman or a person
of colour”, and whether their institutions had historically benefited from slavery. They were accused of “duping the American people into believing that you are helping to address climate change” but continuing to provide financing to oil and gas companies.
Guns, absent from banking hearings 10 years ago, were mentioned 21 times. Republicans are outraged that the likes of Citigroup and Bank of America have responded to a spate of gun violence by limiting their work with weapons businesses. But JPMorgan Chase chief Jamie Dimon was criticised by Democrats for not following suit.
For now, ignoring their own past failings, Democratic lawmakers are happy to slam bankers for not changing the country or saving the planet.
But if they prevail in the 2020 elections, there are a number of Democratic presidential candidates — led by Senator Elizabeth Warren — who might translate the anti-bank rhetoric and transformative social agenda into action.
The considerable consolation for bankers is that the discussion has veered to these topics partly because the banks are obviously healthier. Shortly after the 2009 hearing, Federal Reserve “stress tests” reassured investors that US banks were sound. Since then the S&P 500 is up almost 300 per cent. The returns of all the big banks now exceed their cost of capital, a sharp difference with European banks.
JPMorgan Chase on Friday reported net income of $9.1bn for the first quarter. That is more than the combined annual profits of Deutsche Bank, Barclays and Credit Suisse. The political storm is still brewing. At least the financial one is clearly over.
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