In Wall Street lingo, this kind of investment might be called a dog – or worse.
After pouring tens of millions of dollars into Mitt Romney’s bid for the presidency, the financial industry is confronting a cold reality: It has nothing to show for its political spending.
Instead, its wrong-way bet is likely to carry additional costs in the form of higher taxes, more regulation and reduced influence.
Wall Street embraced President Barack Obama back in 2008, but later switched allegiances in dramatic fashion. Mr. Romney’s top five sources of corporate support, grouped by employee contributions, were all big banks, according to the Center for Responsive Politics. Hedge-fund titans and private-equity moguls funnelled cash to outside groups backing Mr. Romney, sometimes in million-dollar increments.
Some unpleasantness for the industry likely lies ahead. “People can easily attribute it to payback, but the fact of the matter is that the administration has been very clear on what their policies are,” said Stephen Myrow, a former Treasury Department official and managing director of ACG Analytics, an investment research firm in Washington. “Elections have consequences.”
Wall Street not only opened its deep pockets for the Romney campaign, but also hurled criticism at Mr. Obama for months.
Which leads to an unusual quandary: How do you make nice with a recently re-elected President whom you accused of engaging in class warfare (Leon Cooperman of Omega Advisors) and moving the U.S. toward communist-style government (Kenneth Griffin of Citadel)? Or whose tax proposal you publicly compared to Hitler invading Poland (Stephen Schwarzman of Blackstone Group)? (Mr. Schwarzman later apologized for using an “inappropriate analogy.”)
The answer is gingerly, very gingerly.
Daniel Loeb, a Romney donor who heads the hedge-fund firm Third Point, struck a conciliatory tone earlier this week. “You win some, you lose some,” he told The New York Times. “Sure, I am not getting invited to the White House any time soon, but as citizens of the country, we are all friendly.”
While Wall Street may lean Republican, the preference isn’t a pronounced one. Many financiers are pro-business but socially liberal and as likely to support Democrats as Republicans. Mr. Loeb, like many in the financial industry, backed Mr. Obama in 2008 before switching his support to Mr. Romney. (He declined a request for further comment.)
Bankers complained that Mr. Obama vilified them. “The President said a few things that were frosty,” admitted a senior Democratic official in New York, who spoke on the condition of anonymity. Yet under Mr. Obama’s watch, corporate profits rebounded and the stock market doubled from its nadir. “How upset should Wall Street be about that?” he asked.
One large hedge-fund manager who stuck with Mr. Obama recalled numerous conversations with friends and colleagues in which he urged them to name one concrete action the President had taken to damage the industry.
Instead, they fixated on the rhetoric, he said. It was as though they “needed constant attention and being told every day, ‘I love you,’ ” said the hedge-fund manager, who declined to be identified while discussing political matters. “They were making emotional decisions.”
Many on Wall Street also admired Mr. Romney, whom they considered one of their own. Prior to his presidential bid, Mr. Romney turned down an offer from Julian Robertson, a hedge-fund legend, to run Mr. Robertson’s firm. Mr. Robertson became a major Romney donor.
According to the Center for Responsive Politics, the financial, real estate and insurance industries had contributed $52-million to Mr. Romney’s campaign through the end of October, more than double the $19-million they had given to Mr. Obama. Wall Street’s embrace of outside groups was even larger: It gave $92-million, the most of any industry, to so-called “super PACs,” the Center for Public Integrity said. Of those contributions, 80 per cent benefited conservative groups, the center’s analysis showed.
Mr. Obama said Friday that he expects the wealthy to pay more in taxes. One target in that battle could be the special tax concession for profits from hedge funds and private-equity vehicles. Such proceeds are currently taxed at a lower rate than ordinary income. Eliminating such benefits, which accrue primarily to the wealthy, would be “good political scalps” for Mr. Obama, Mr. Myrow said.
Wall Street also suffered a lousy return-on-investment in a much-watched U.S. Senate race in Massachusetts, where Democrat Elizabeth Warren managed to triumph despite the industry pumping money into the campaign of the Republican incumbent, Scott Brown.
Ms. Warren, a Harvard law professor, is an outspoken critic of large banks who is now expected to seek a seat on the Senate banking committee, where she would have a hand in shaping future legislation. She also wants to find ways to ensure banks aren’t too big to fail – including breaking them up. Once a topic of academic debate, the idea is now “a serious regulatory question,” said H. Rodgin Cohen, a partner at Sullivan & Cromwell, who counts many major banks as his clients.
Mr. Obama occupies a unique position in the legislative machinery because he no longer needs to worry about funding a re-election campaign. And insiders predict he will be far too busy to worry about settling scores.
“I think his view is, [the industry] was too sensitive, but that’s life on both sides,” said the hedge-fund manager who supported Mr. Obama. “He’s going to do what he has to, which is to govern the country.”