On Main Street, Wall Street's big profits seem like bad manners

By:  Tomoeh Murakami Tse
The Washington Post

NEW YORK -- Any other year, blockbuster earnings would be something to brag about.

But this is a precarious moment for Wall Street, as Congress buckles down on its efforts to pass a financial regulatory bill that could erase billions from the bottom lines of big banks.

"It's got to be mixed emotions -- like your teenage daughter coming home at 3 a.m. with the Gideon Bible," said A. Gary Shilling, former chief economist at Merrill Lynch and president of an investment management and economic consulting firm.

On Wednesday, J.P. Morgan Chase kicked off the earnings season for big banks, reporting a stronger-than-expected $3.3 billion in first-quarter net income and raising expectations for its rivals, including Bank of America and Citigroup, which report earnings Friday and Monday, respectively.

Even as they express optimism about improving business outlook, senior banking executives acknowledge that times have changed. Gone are the days when big profits and big pay were the subject of public admiration and aspiration. They say they are attuned to ongoing debate in Washington and withering public criticism over strong profits and hefty bonuses generated with the help of federal bailout programs.

Industry officials say banks may seek to blunt those attacks against the entire sector by highlighting differences between individual financial institutions. Those efforts may include using shareholder meetings and earnings calls to emphasize their respective specialties, services and compensation structures.

Banks have also held discussions in recent weeks about pooling resources for a coordinated public relations campaign later in the year, according to people familiar with the talks who spoke on the condition of anonymity because the plans have not been finalized.

"Are we worried about having a profit? No. We owe that to our shareholders," said one senior banking official, noting that his bank has a pay-for-performance culture. At the same time, he added, "we're very aware that it's something you've got to keep talking about and making sure it's something people understand."

The negative image banks are fighting has grown over the past year. Wall Street firms such as Goldman Sachs quickly rebounded from the financial crisis to report strong profits by trading in markets thawed by federal aid -- even as the broader U.S. economy remained sluggish and unemployment rate high.

On Wednesday, J.P. Morgan's results did little to shake that image.

The New York bank said the results were boosted by trading profits in its investment bank, which more than offset setbacks in its consumer business, where the bank set aside additional funds to cover future losses on credit cards and other loans.

In the end, this schism, constantly noted by constituents, will force Republican legislators to vote for a financial regulation bill with strong consumer provisions for fear of being seen as favoring Wall Street over Main Street, said Sen. Sherrod Brown (D-Ohio). Brown has proposed legislation that would put a 50 percent tax on bonuses at firms that received federal assistance and use the revenue to support small-business loans.

"People don't understand why CEOs of banks and Wall Street firms that helped get us into this mess continue to make huge dollars, and they're laid off," he said. "People start off with, 'You save the big banks of Wall Street. What are you doing for people on Main Street?' "

The public backlash has reached such a fervor that Goldman Sachs -- harshly criticized for its role in the financial crisis -- took the unusual step last month of citing negative publicity as a risk factor for its business, along with new regulations and costs of dealing with more lawsuits.

"Adverse publicity, governmental scrutiny and legal and enforcement proceedings can also have a negative impact on our reputation and on the morale and performance of our employees, which could adversely affect our businesses and results of operations," Goldman said in a filing with the Securities and Exchange Commission.

J.P. Morgan has not escaped criticism but has emerged from the financial crisis with its reputation intact, reporting no large losses and having played the role of savior in the government-backed sale of Bear Stearns in March 2008.

Envied on Wall Street early on for his seemingly close relationship with the Obama administration, the New York bank's chief executive, Jamie Dimon, in recent months has emerged as a strong industry voice in opposing some regulatory proposals being considered in Washington.

In a recent letter to shareholders, Dimon wrote at length about what he suggested were misguided perceptions of the crisis, public anger and "policy recommendations that are meant to punish banks."

In an earnings conference call with analysts Wednesday, Dimon continued to speak out, warning that proposed restrictions on derivatives trading could hurt the bank's revenue by "$700 million to a couple billion dollars," depending on their final design.

Asked by analysts about the possible impact of a new fee on big banks proposed by the Obama administration in January, Dimon took the opportunity to renew his criticism of it.

"Let's not call it a bank fee," he said. "Let's call it what it is, which is a punitive bank tax."