The CEOs from seven giant U.S. banks look set to get tough questions on Wednesday, as they appear before a Democratic-run House committee.
The banks aren’t likely to face strict new laws while Washington remains mostly in Republican hands, but they could end up in trouble if a chief executive makes a mistake while under a magnifying glass on Capitol Hill, analysts say.
“There’s a small risk of an unexpected slip-up at the hearing. Of the seven executives, several have little experience facing a hostile group of lawmakers,” said Capital Alpha Partners analyst Ian Katz in a note. The CEOs will have been coached ahead of time by their staffs, and they’ve known for months that the hearing was coming, but that “doesn’t mean one of them can’t misspeak, or inadvertently transmit a tone that angers the lawmakers,” Katz added.
The seven CEOs slated to appear before the House Financial Services Committee are J.P. Morgan Chase & Co.’s
Jamie Dimon, Bank of America Corp.’s
Brian Moynihan, Goldman Sachs Group Inc.’s
David Solomon, Morgan Stanley’s
James Gorman, Citigroup Inc.’s
Michael Corbat, State Street Corp.’s
Ronald O’Hanley and Bank of New York Mellon Corp.’s
The hearing — scheduled for 9 a.m. Eastern Time on Wednesday — is titled “Holding Megabanks Accountable: A Review of Global Systemically Important Banks 10 Years After the Financial Crisis.” The House committee has 60 members, including Chairwoman Maxine Waters, the California Democrat, as well as freshmen Democratic Reps. Alexandria Ocasio-Cortez of New York, Katie Porter of California and Rashida Tlaib of Michigan.
Topics: Compliance problems, CEO pay, 1MDB and more
Questions about compliance problems look likely. A Friday memo to committee members notes that even as banks have made record profits in recent years, they have had compliance problems and paid at least $243 billion in fines since the financial crisis.
Committee members also appear set to ask about the bank bosses’ pay, as the memo highlights CEO-to-worker pay ratios. “This topic is never easy for big-bank CEOs, because any defense of their pay implies that they think they’re worth it,” said Capital Alpha’s Katz, who added that it’s “never a good look to suggest that you deserve $20 [million] a year.”
In addition, Goldman’s Solomon likely will get asked about his bank’s role in the 1MDB scandal. Goldman has blamed rogue employees for the scandal, in which the bank underwrote about $6.5 billion in bond offerings for a fund created to boost Malaysia’s economy. Most of the money went missing.
Questions could come up about a possible easing of the Volcker Rule, which limits proprietary trading, as well as the banks’ financing of gun makers or other companies that have support among Republicans but not Democrats.
“The hearing will absolutely be a free-for-all with a robust discussion of capitalism vs. socialism,” said Henrietta Treyz, director of economic policy research at investment adviser Veda Partners. She sees it touching on issues such as the lenders’ support for companies that contribute to global warming and the banks’ roles in contributing to income inequality.
Even so, all of the scrutiny might not make big waves for investors this year, according to Keefe, Bruyette & Woods analysts Brian Gardner and Michael Michaud.
“The main thing for investors to keep in mind is that the hearing is likely to generate negative headlines for the sector, but it is unlikely to result in policy changes,” Gardner and Michaud said in a note, adding that current policy is “likely to remain in place at least through the 2020 elections.”
No Wells Fargo, as panel may have ex-CEO’s ‘head in a trophy case’
Wells Fargo & Co.
isn’t scheduled to take part in Wednesday’s hearing, as the House Financial Services Committee already gave then-CEO Tim Sloan a customized grilling on March 12, blasting him for a series of scandals engulfing the bank.
About two weeks later, Sloan announced his retirement. C. Allen Parker, previously Wells Fargo’s general counsel, is currently serving as interim chief executive.
“If Waters and skilled questioners like Rep. Katie Porter (D-Calif.) feel like they have Sloan’s head in a trophy case, they won’t pull any punches against the CEOs,” Capital Alpha’s Katz said.
The committee’s memo says there “remain concerns regarding whether some of these institutions are adequately being held accountable for repeated consumer violations, and whether these firms may be too big to manage, as was discussed at the committee’s hearing on March 12, 2019, with Wells Fargo’s former CEO.”
The message from the seven bank execs is likely in part to be that “they believe that the improvements that have occurred since the crisis have made the system stronger, and those core reforms should be preserved,” said Kevin Fromer, president and CEO of the Financial Services Forum. The forum is a trade organization made up of the seven CEOs appearing Wednesday, plus Wells Fargo’s chief.
J.P. Morgan’s stock has climbed 8% this year, while Bank of America has gained 18%, Goldman has tacked on 21%, and Morgan Stanley has risen 13%. Citi is higher by 27%, State Street and BNY Mellon are both up 9%, and Wells Fargo is higher by 6%. Meanwhile, the S&P 500 index
has gained 16%.
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