(Bloomberg News) Wall Street executives who lost a bet that Republican Mitt Romney would defeat President Barack Obama are bracing for tougher regulation and hoping a deal can be struck with Congress to cut the deficit.
Obama's choice to succeed Treasury Secretary Timothy F. Geithner will be watched closely for signs about the administration's approach to business and the deficit, industry executives said. Erskine Bowles, who served as chief of staff under former President Bill Clinton, would be a sign that Obama is willing to endorse a bipartisan debt-reduction plan supported by many business leaders, they said.
"With the appointment of the Treasury secretary, Obama will be sending an important message to the public and to the foreign governments who own a lot of Treasuries," Curtis Arledge, chief executive officer of Bank of New York Mellon Corp.'s investment-management arm, which oversees $1.4 trillion, told journalists in New York yesterday. "If he goes with somebody like Erskine Bowles, then the message will be that he cares about the deficit and is serious about cutting it."
Shares of Wall Street firms fell in New York yesterday on what analysts said were dashed hopes that a Romney administration would roll back or temper the 2010 Dodd-Frank Act that overhauled financial regulation. Morgan Stanley, Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. each tumbled more than 6 percent, putting them among the 10 biggest decliners in the Standard & Poor's 500 Index.
Employees of Goldman Sachs, Bank of America, Morgan Stanley, JPMorgan Chase & Co. and Credit Suisse Group AG made their firms the five biggest sources of campaign contributions to Romney, according to data compiled by the Center for Responsive Politics, a Washington-based research group that tracks political donations.
Still, executives at the firms downplayed the significance of the election, focusing instead on the need to achieve political agreement on debt reduction and avert the so-called fiscal cliff of tax increases and spending cuts scheduled to take effect at the beginning of next year.
"The outcome of the election almost takes a backseat to the formulation of a plan to address the federal deficit," James Mahoney, Bank of America's head of corporate communications and public policy, said in a phone interview. "That is clearly the No. 1 focus at this point. It's an essential ingredient for stability of the financial markets and for a strong economy."
Wall Street leaders started throwing their support behind Bowles's debt-reduction efforts even before the election. JPMorgan CEO Jamie Dimon, 56, said last month that the economy "would be booming" if Congress had passed the so-called Simpson-Bowles plan co-authored with former Republican Senator Alan Simpson last year.
Obama named the two in February 2010 to lead an 18-member bipartisan commission. Its $3.8 trillion budget-cutting plan would have lowered individual and corporate income-tax rates, eliminated deductions such as the one for mortgage interest, raised the gasoline tax and reduced Social Security, Medicare and discretionary spending.
The plan was rejected by seven commission members, including Romney's vice presidential running mate Paul Ryan, and failed to reach the 14 votes required to send it to Congress. It never was taken up for a vote by the Senate and was defeated 382-38 in a House vote this year.