Financial Regulatory Forum

Wall Street hits back at Obama’s bank plan

By Reuters Staff
January 28, 2010

By Martin Howell and Tamora Vidaillet

DAVOS, Switzerland, Jan 28 (Reuters) – Wall Street executives welcomed U.S. President Barack Obama’s plan to create jobs and a softening of his attack on banks, but questioned on Thursday whether proposals in his State of the Union address would become law.

Obama pushed job creation to the top of his agenda in his annual speech to Congress and vowed not to abandon his struggling healthcare overhaul after the loss of a key Senate seat in Massachusetts raised doubts about his leadership.

He renewed criticism of bankers’ “bad behavior” and of the recklessness that triggered the deepest crisis since the 1930s, but appeared to ease his assault on big banks.

“The market is probably relieved that he didn’t come out with some other nuclear attack on Wall Street,” John Studzinski, global head of the advisory group at Blackstone said.

Studzinski, a former investment banking boss, told Reuters on the sidelines of the World Economic Forum that he welcomed the plan to boost lending to small businesses, but said execution would be critical: “The devil is in the detail”.

Tom Donahue, President of the U.S. Chamber of Commerce, said he welcomed the job moves and the fact Obama had adopted some of the initiatives promoted by his organisation, including doubling exports in five years with the help of a push for improved trade agreements and changes in export control rules.

“I think it is a recognition that everybody is getting down to the reality (that) what keeps people happy or not happy, what is going to get us out of the recession or not, what is going to address the deficit or not is jobs, jobs and jobs,” Donahue told Reuters.

Howard Lutnick, head of private investment bank Cantor Fitzgerald, criticised Obama’s “populist battle against the banks” and warned that local banks could find too many strings attached to government aid.

“These community banks are so fearful of the classic words ‘Hi, I am the government I am here to help’ — those are dangerous words indeed,” he said in an interview at the WEF in the Swiss resort of Davos.

“It is tremendously risky for any institution… to in any way be caught in the government safety net, because you get caught in the political rhetoric.”

Global business leaders in Davos appealed to governments, including the Obama administration, to make good on their commitment to conclude stalled trade liberalisation talks this year and boost a world economic recovery.

But trade negotiators were sceptical, citing the impact of unemployment in developed countries, and political obstacles such as the U.S. mid-term Congressional elections in November and Brazil’s presidential election.

Business leaders at the annual Davos meeting have warned Western governments that an uncoordinated, heavy-handed crackdown on the financial industry could crimp a fragile recovery from recession. [ID:nLDE60Q06S]

In his State of the Union message, Obama pledged to slap tough new regulations on Wall Street but said he was “not interested in punishing banks”.

A key U.S. lawmaker brushed aside bankers’ concerns that Obama’s proposals to to force commercial banks to cut ties with hedge funds and private equity funds and to stop proprietary trading were out of step with regulatory moves in Europe.

“There is an international consensus that we need tough regulation and we can’t afford to have a situation where they can play us off against each other,” Barney Frank, the powerful chairman of the U.S. House Financial Services Committee, said.

In a special address to the Davos forum on Wednesday, Korean President Lee Myung-bak, chair of the G20 group of nations, said international cooperation would be critical to efforts to pull the world economy into recovery.

He said a summit in Seoul later this year — a key test for the effectiveness of the forum — would focus on a global financial safety net to address the impact of reversals of international capital flows and reforming financial regulation.

His comments follow calls against unilateral action from French President Nicolas Sarkozy, who said in in keynote speech to the forum on Wednesday that the first glimmers of recovery should not be a signal to let up on regulatory reforms.

Lee vowed to put a global trade deal at the top of the agenda of a G20 summit he will host in Seoul in November.

“In particular, concluding the Doha Development Agenda before the end of the year should be given the highest priority,” he said of World Trade Organisation negotiations launched in 2001 in the Qatari capital.

Obama told Congress he would push for a world trade agreement that opened up global markets, but he did not mention the 2010 target date set by the G20.

WTO Director-General Pascal Lamy told reporters that Obama’s comments went in the right direction and indicated he was giving trade greater priority in his economic thinking.

But Egyptian Trade Minister Rachid Mohamed Rachid said he did not expect a deal this year because the economic crisis had raised Western fears about the impact of trade liberalisation.

“It’s obvious that with unemployment in the United States and Europe, it is going to be tougher to have discussions on free trade,” he said.

(Additional reporting by Krista Hughes, Natsuko Waki and Ben Hirschler, writing by Clara Ferreira Marques and Paul Taylor, editing by Mike Peacock and Hans Peters) ((paul.taylor@thomsonreuters.com; +336 46487047; Reuters Messaging: paul.taylor.reuters.com@reuters.net))

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