There’s a joke going around Washington about the best strategy for the Wall Street chief executives when they face off with lawmakers this week: Stay calm and let Jamie Dimon take over.
Unlike the rest of the bank leaders slated to testify before the House Financial Services Committee, the JPMorgan Chase & Co. boss has been in the congressional hot seat many times before. And rival executives point out, he has a tendency to dominate the conversation anyway.
Wednesday’s hearing has consumed big banks’ lobbying and public relations operations for weeks. The banks have compiled thick briefing binders on issues such as small-business lending and minority hiring, readied responses to pointed questions about pay and inequality, and conducted “murder boards” — practice sessions in which CEOs are cross-examined by a team pretending to be hostile members of Congress.
Snubbed by Ocasio-Cortez
Despite the extensive preparations, few predict that the executives will come out unscathed. An anti-Wall Street sentiment runs through the Democrats now in control of the financial services panel, particularly among a group of newly elected progressives who are pulling the party to the left.
A case in point is Rep. Alexandria Ocasio-Cortez (D-N.Y.). She and her staff have refused to meet with the bank CEOs’ main trade group ahead of the hearing, according to people familiar with the matter.
“Bulletproof vests covered with fire-retardant suits may not protect the banks,” Jonice Gray Tucker, a partner at the Buckley law firm in Washington, warned a group of bankers at a conference last week. “It’s just a question, unfortunately, of how much scrutiny and how bad it is.”
More important than who gets scorched, however, is whether Wednesday’s hearing turns out to be a preview of the intense political heat that Wall Street could face throughout the 2020 presidential campaign. With critics such as Sens. Elizabeth Warren and Bernie Sanders seeking the Democratic nomination, the industry fears months of bad publicity and calls for big banks to be broken up.
Banks have been eager for Washington to turn the page on the 2008 financial crisis and instead focus on more recent business scandals, including those involving Facebook Inc. and other technology giants. They’d like to set a fresh narrative that highlights their post-crisis guardrails and the trillions of dollars they pump into the economy.
Along with Dimon, the other CEOs scheduled to appear are David Solomon of Goldman Sachs Group Inc., James Gorman of Morgan Stanley, Michael Corbat of Citigroup Inc., Brian Moynihan of Bank of America Corp., Charles Scharf of Bank of New York Mellon Corp. and Ronald O’Hanley of State Street Corp.
In remarks prepared for this week’s hearing, the bank leaders touted their efforts to hire women and minorities, highlighted lending in low-income communities and credited regulations for making their firms safer. Gorman even praised the Volcker Rule, which prohibits institutions from trading for their own profit and limits ownership of risky investments; Gorman said it is preventing Morgan Stanley from taking “extraordinary risks.”
But banks may not get much more of a chance to tell the story they want Wednesday. The committee plans to have them appear as a group — a configuration that means the executives will probably have little time to give in-depth answers to questions from as many as 60 lawmakers (34 Democrats and 26 Republicans).
The setup isn’t conducive to serious policy discussions, a point Republicans have been quick to make.
“Other than to pull before the committee the CEOs of the seven big banks, what’s the purpose of it?” said North Carolina Rep. Patrick McHenry, the top Republican on the panel. “It’s an attempt for media attention.”
Moderate Democrats on the panel are wary, too.
“From a politics perspective, it’s so cheap and easy to beat up on the financial services sector. That isn’t what we should be doing here,” said Rep. Josh Gottheimer (D-N.J.), who said he has “constructive” questions on housing, small-business lending and financial technology that he wants to pose.
Panel Chairwoman Maxine Waters (D-Los Angeles) has tried to downplay the potential for theatrics. She is billing the hearing as important oversight.
“It has been 10 years since the CEOs of the largest banks testified as a group before Congress,” Waters said at an American Bankers Assn. conference last week. “In that time, the banking industry has changed dramatically.”
Change is exactly what the bank CEOs would like to discuss. The Financial Services Forum, the trade association that represents all the CEOs who are testifying, has led the lobbying campaign. Ahead of the hearing, the group has organized meetings with the offices of nearly every committee member, Ocasio-Cortez being a notable exception.
“This week’s hearing will reinforce both the criticality of these well-capitalized, customer-driven firms, and the fundamental strength of our financial system,” Kevin Fromer, the forum’s president, said in a statement. The largest banks are “integral to the success of our economy,” he added.
No private jets
One of the forum’s main talking points is that banks are better off because of the 2010 Dodd-Frank Act — a somewhat ironic argument because few in the industry backed the law when it passed. Still, it enables the firms to turn the tables on potentially unfriendly Democrats by, in effect, asking: Don’t you think the reforms that you supported worked?
Each individual bank has been preparing its CEO for his testimony. The WilmerHale law firm has been hired by four banks — Citigroup, Bank of America, Bank of New York Mellon and State Street — to advise their leaders, according to people familiar with the matter. Davis Polk & Wardwell has worked with Goldman Sachs and Morgan Stanley.
There’s even a video making the rounds that shows clips from Sloan’s March appearance before the committee — it’s being used as a primer for what not to do. And the CEOs have all been told to ground the private jets and plan on taking Amtrak.
The banks are on alert for uncomfortable questions, said people familiar with the preparations who asked not to be named because they weren’t authorized to speak publicly. Inequality is expected to be a hot-button issue, with queries over issues such as why CEOs make so much money and the salary gap between men and women. The fact that all the bank leaders testifying are white men could attract scrutiny.
Prisons and guns
Other topics that have come up in practice sessions include the amount of taxes the executives pay and stock buybacks. Some banks are also concerned that Democrats may home in on issues such as the financing they provide for private prisons and oil and gas pipelines.
A few firms have their own specific landmines that may be raised by lawmakers. Goldman Sachs is caught up in a massive corruption scandal in Malaysia. Citigroup and Bank of America, according to people familiar with the matter, expect they may be hit by Republicans over their decisions to stop doing business with some firearms manufacturers.
The two executives expected to get the most attention are Dimon and Solomon.
Dimon is the longest-serving CEO of the group. His tenure dates back to before the crisis. He’s a frequent visitor to Washington and has defended JPMorgan at high-profile hearings, including in 2012 when he won plaudits for his congressional testimony about the London Whale trading debacle.
Solomon, who took over Goldman Sachs in October, isn’t well known on Capitol Hill, and this will be his first testimony before Congress. But the prominence of his firm almost guarantees he will be a focus.