RUTHFULLY YOURS

OBAMA TO WALL ST. BANKERS: “HEY FAT CATS…HELP ME GET THIS DEAL DONE” HOW IRONIC

Posted By Ruth King on August 4th, 2011

By AARON LUCCHETTI, DAN FITZPATRICK and LIZ RAPPAPORT

http://online.wsj.com/article/SB10001424053111903885604576486613348006704.html?mod=WSJ_hp_LEFTTopStories

This week’s vote to avert a debt-ceiling crisis brought together a variety of uneasy political alliances. But few were as fraught with tension as the one between Wall Street and the Obama administration.

Often at odds since the financial crisis, banks and the White House found themselves on the same side in recent weeks as they worked to back a compromise that would fend off a default by the U.S. government. White House Chief of Staff Bill Daley even tried to enlist the help of his former employer, J.P. Morgan Chase & Co., as part of a final push to get a deal done in Congress, said people familiar with the situation.

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Photo illustration: Agence France-Presse/Getty Images, left; Bloomberg NewsTreasury Secretary Timothy Geithner, left, and J.P. Morgan CEO James Dimon talked twice in the past week about the debt-ceiling deliberations, according to people familiar with the conversations

White House officials including Mr. Daley and senior adviser Valerie Jarrett placed calls to banks, according to people familiar with the matter. Mr. Daley called a former colleague at J.P. Morgan, head of government relations Peter Scher, and tried to reach Bank of New York Mellon Corp. CEO Robert Kelly, people familiar with the matter said.

The message from administration officials: contact key senators and congressman in both parties to tell them that an agreement was crucial for business confidence and the economy. Last Thursday, banks sent an open letter to President Barack Obama and Congress, urging compromise.

It isn’t clear how big an impact the unlikely alliance made on the budget debate, or if it will pave the way for a stronger relationship in the future.

Getty ImagesWhite House Chief of Staff Bill Daley called dozens of executives in the effort to get business support for a deal to avoid a U.S. default.

Both sides have much to gain from a thaw: President Obama is courting contributors as he prepares for a re-election run next year, while the banks are seeking leverage with regulators implementing last year’s Dodd-Frank financial-overhaul law.

Some of the biggest banks—J.P. Morgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Ally Financial Inc.—are negotiating with state and federal officials over what is expected to be a multibillion-dollar tab for their mortgage-foreclosure missteps.

For now, the administration and the banks managed to avoid the worst-case scenario. After weeks of stalemate, the House on Monday approved a deal to raise the debt ceiling and cut spending. The Senate followed suit and President Obama signed the bill into law Tuesday, allowing the Treasury to issue more debt and pay current bills.

Given accumulated bad feelings, just working on the same side was an achievement.

“Wall Street and the administration working together, in the context of the last two years, is a little unusual,” said Eugene Ludwig, chief executive of financial consulting firm Promontory Financial Group. “It is refreshing and in the great American tradition of pulling together in times of crisis.”

In the week before the final votes, officials with the Securities Industry and Financial Markets Association trade group said they talked to about two dozen Republican House members who were on the fence.

Separately, Treasury Secretary Timothy Geithner and J.P. Morgan CEO James Dimon talked twice in the last week about the debt-ceiling deliberations, said people familiar with the conversations. Mr. Dimon called Mr. Geithner last week and the two discussed how the markets were reacting and whether a government default would upend U.S. payment systems. On Monday Mr. Geithner called Mr. Dimon to brief him on the final deal, one of these people said.

Mr. Geithner also met Monday with several financial trade associations and asked them to make one final lobbying push, said people familiar with the meeting.

After the meeting, the securities-industry group asked executives at several brokerage firms to call congressmen leaning against a debt deal.

“They’d grown somewhat concerned that it would be a tight vote,” said Jim Allen, CEO of Hilliard Lyons, a Louisville, Ky., brokerage firm. About 45 minutes before the House voted Monday evening, Mr. Allen said he pulled his car over in a drugstore parking lot to call a Kentucky congressman. “We’re playing with fire,” he said he told one of the congressman’s staffers.

Getty ImagesSenior adviser Valerie Jarrett spoke with top executives at Macy’s, American Express and Honeywell.

Mr. Daley’s call to J.P. Morgan could raise ethics questions because he joined the administration from the bank just seven months ago. Critics have accused the administration of being too close to the banks, but White House spokeswoman Jennifer Psaki said the recent discussions were routine. She said the administration has heard from or briefed “hundreds of business leaders” worried about a possible default.

Mr. Daley called “dozens” of executives including Fred Smith of FedEx Corp., according to a person familiar with the conversations. Ms. Jarrett spoke with Terry Lundgren of Macy’s Inc., Ken Chenault of American Express Corp. and Dave Cote of Honeywell Inc., according to people familiar with the calls.

Mr. Daley has had “periodic contacts” with J.P. Morgan executives since becoming chief of staff, according to a White House official, but the conversations haven’t involved “specific matters” and “are fully compliant with the administration’s ethics pledge.”

His calls with J.P. Morgan Chase would be unlikely to trip ethics rules because the topic, the federal budget, is so broad and general, said Richard Painter, a law professor at the University of Minnesota and former chief White House ethics lawyer under President George W. Bush. According to the White House, Mr. Daley sold all his J.P. Morgan stock.

How much Wall Street helped win approval for the debt-ceiling increase is an open question. While calls from bank execs made it clear to Congress that investors would likely react poorly to a failure to raise the debt ceiling, legislators may have gotten the message on their own.

Some think all fences won’t be mended. Two years ago Mr. Obama famously called Wall Street bankers “fat cats.” One banking industry official said that while Wall Street was “in heated agreement in wanting to avert disaster, it doesn’t mean it is warm and fuzzy” with the White House.

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