Business

➚ BUY: Old friends. UBS stock is up 4% since bringing back Ermotti, who ran the lender in the wake of the 2008 crisis, to oversee its shotgun marriage to Credit Suisse earlier this month.

➘ SELL: Old foes. Disney CEO Bob Iger ousted a longtime thorn in his side, Ike Perlmutter, the final act in a years-long effort to strip the penny-pinching and less-than-progressive former Marvel chief of responsibilities. The final straw: Perlmutter’s advocating for activist Nelson Peltz to join Disney’s board.

⇌ Hold: Frenemies. Apple launched its buy-now-pay-later product this week, lending its own cash to customers making big purchases. It’s a threat to its credit-card partnership with Goldman Sachs and recalls JPMorgan CEO Jamie Dimon’s comments just two years ago that banks should be “scared shitless” of tech companies’ ambitions in finance.

Annual drop in bonuses paid last year to New York’s finance employees, Comptroller Thomas P. DiNapoli said today, the biggest decline since 2008. Wall Street’s pandemic boom has turned into a bust as dealmaking dries up.

Gary Gensler is pushing away Biden’s Wall Street backers

THE NEWS

Some Wall Street backers of U.S. President Joe Biden are holding back on supporting him in the 2024 race, citing rules proposed by his Securities and Exchange Commission that target the financial services industry, people familiar with the matter said.

While most of these donors are not yet jumping ship for Republican rivals, some say they may sit out this cycle — especially if the GOP candidate is Florida Governor Ron DeSantis, who runs a state many New York-based executives fled to during the pandemic.

Gary Gensler, the former Goldman Sachs partner running the SEC, has taken on everything from climate disclosure regulations to market-structure rewrites. In the first eight months of 2022, the agency proposed 26 rules, more than double what it floated in 2021 and more than in each of the previous five years, according to the agency’s inspector general.

For some in the finance world, that has left a sense of  “buyer’s remorse,” as one person close to big donors told Semafor. One executive, who helped raise more than $1 million for Biden in the 2020 election, said Gensler’s appointment was a big reason why, if the president runs again, he will wait to see who Biden’s opponent is to decide whether he will donate again.

Wall Street overwhelmingly backed Biden despite the Trump administration’s tax cuts and lighter touch on financial regulation. Employees in the securities and investment sector donated about $79 million to support Biden versus around $21 million to back Trump, according to OpenSecrets.

The industry was prepared to deal with possibly higher income taxes pitched by Biden as a candidate, but have been “beyond frustrated” with the policing of their sector, another person close to big financial services donors said. A lobbyist who works for the industry said they’ve responded to more SEC requests for comment on new rules during a single year under Gensler than they did through the entire Trump administration.

The SEC didn’t respond to a request for comment.

BRADLEY’S VIEW

Biden built his career in corporate-welcoming Delaware and has been friendly with CEOs, despite his “Middle Class” Joe nickname. In 2020, Biden raised more money from the finance world than Barack Obama did in his two campaigns combined.

But appointing people who have the strong backing of Wall Street critic Elizabeth Warren, like Gensler and Federal Trade Commission Chair Lina Khan, who has stymied dealmaking, has strained those relations.

While those close to big Wall Street Democrats still expect most of the Hamptons set to eventually support the incumbent in 2024, the donations may be smaller and the complaints louder. “They want to be heard on the regulatory front,” one person connected to different Democratic donors said of their thinking.

And those on the fence may not be inclined to support what they view as a hostile regime. Take Doug Cifu, CEO of market-making firm Virtu Financial, who promised lawsuits from his entire industry if Gensler’s market structure rewrite was finalized.

Cifu gave $50,000 to the Democrats’ Senate political action committee in 2020 and supported both Hillary Clinton and Jeb Bush in the 2016 cycle, but largely sat out the recent midterms. A resident of Florida who co-owns a professional hockey team in DeSantis’s state, he is the type of donor Republicans could target as a potential flip this time around, one GOP strategist explained. (Virtu did not respond to requests for comment on Cifu’s plans for the upcoming election).

ROOM FOR DISAGREEMENT

Biden’s decision to name Jeff Zients as his chief of staff at the beginning of the year helped bridge the gap between big business and his administration. A former consultant, Meta board member, and investment manager, Zients is well-connected in Greenwich and Sand Hill Road circles.

NOTABLE

• Gensler is fighting all sides to get his agenda through, Politico detailed last fall.

U.S. banks shifted hundreds of billions of dollars worth of securities into the equivalent of a sock drawer in 2022, hoping to avoid acknowledging that they were hopelessly underwater in a world where money wasn’t free.

Loans made in 2020 or 2021 got less valuable as the Federal Reserve raised rates to battle inflation. So lenders took advantage of accounting rules to avoid taking billions in losses, regulatory filings show.

When a bank makes a loan, accountants assign it one of two labels. “Held to maturity” loans don’t have to be valued daily, since the bank isn’t planning to sell them. But “available for sale” loans do, and their gains and losses have to be disclosed.

American banks sold or reclassified almost $700 billion worth of securities last year, avoiding billions of dollars of paper losses.

SVB shifted $8.8 billion, or about a third of its available-for-sale portfolio, into held-to-maturity status last year, filings show. PNC Bank reclassified $82.7 billion in mostly Treasury bonds and mortgage bonds, which saved it from having to recognize $5 billion in paper losses.

There are good reasons for the accounting treatment. Slapping daily valuations on assets intended to be held, more or less, forever injects volatility into situations where it doesn’t need to be.

The problem, though, is an SVB-like situation, where a deposit run forces banks to sell those assets. The losses are crystallized, stunning investors and, in SVB’s case, made the firm insolvent.

—Liz

Elon Musk, Apple co-founder Steve Wozniak and former presidential candidate Andrew Yang are among those calling for a six-month pause on AI experiments in an open letter, warning of “profound risks to society and humanity.”

Our colleague, Reed Albergotti, had a story last week that hints at another reason Musk might want to tap the brakes: He was an early backer of OpenAI, the owner of ChatGPT, and wanted to control it himself. OpenAI’s senior leadership rejected the offer, Musk left the company — later reneging on a promised $1 billion in funding — and now “has nothing to do with the hottest thing in tech.”

In 2008, WaMu lost $16.7 billion dollars in deposits in 10 days and became the largest bank failure in U.S. history. SVB lost $42 billion in a few hours, fueled by its hyperconnected tech-bro customers amplifying fears in tweets and WhatsApp chats.

Rep. Ritchie Torres, a New York Democrat, introduced a bill yesterday to require U.S. financial regulators to monitor social media platforms for “indicators of a bank run or financial panic.”

“Now more than ever, startups need a safe place to put their cash,” goes a new ad blitz from Mercury, a fintech company that helps startups manage their cash. So begins the marketing push by companies looking to capitalize on SVB’s collapse.

Mercury isn’t actually a bank but instead opens accounts for customers at two banks, Evolve Bank and Choice Financial, which sweep that money into hundreds of smaller banks around the country to cover up to $5 million of deposits with FDIC insurance.

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— Liz and Bradley