American money

Kanter’s banking push gives Wall Street a chill

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Like a puka shell necklace or a Dave Matthews Band mixtape, Assistant Attorney General Jonathan Kanter says the Justice Department’s bank merger playbook is now a relic of the 1990s.

“Market realities have shifted. When we apply the law, we have an obligation to the world as it exists today; not as it may have existed on a blackboard in 1995,” Kanter, who oversees the DOJ’s antitrust division, said during an audience Q&A after a speech at the Brookings Institution on Tuesday.

According to Kanter, DOJ’s future reviews of bank mergers will look beyond traditional metrics — deposit concentration and the physical location of bank branches — to include factors like fees, interest rates and even customer service, our Josh Sisco and Victoria Guida reported. Depending on the transaction, his department might also weigh how a merger would impact nonbanks and fintechs as well.

“All we’re saying is that we’re going to look at all the competitive factors,” he said. “We’re not going to artificially limit ourselves to just one or two dimensions of competition.”

The question now is what that might mean for the Biden administration’s stance on bank mergers.

Kanter’s overall way of dealing with antitrust enforcement has given Wall Street fits, but top banking lobbyists were encouraged in recent weeks by signs that regulators were open to the consolidation of certain midsize lenders after the failures of Silicon Valley Bank, Signature Bank and First Republic sent tremors through the industry this spring.

Kanter’s speech — which Americans for Financial Reform Senior Policy Analyst Alexa Philo praised for reasserting DOJ’s merger authority in banking — threatens to cool that sentiment.

Former acting Comptroller of the Currency Keith Noreika, who now leads U.S. banking efforts at Patomak Global Partners, told MM that Kanter will have to be “very thoughtful” as he incorporates new criteria into his assessment of mergers. Meanwhile, Consumer Bankers Association President and CEO Lindsey Johnson warned that policymakers “should strive to create a regulatory environment where banks are empowered to pursue M&A.”

Gregg Rozansky, a senior vice president and senior associate general counsel at the Bank Policy Institute — which represents several of the largest U.S. banks in Washington — was even more pointed.

“Today’s speech raises more questions than it answers,” he said in a statement to MM. “While unduly strict and arbitrary standards can harmfully restrict healthy M&A, what is even worse is an opaque, subjective and never-ending process that no bank — acquirer or target — would wish to begin.”

Still, Kanter’s efforts, which he framed as a pivot from policies that disproportionately led to enforcement in “transactions involving small local banks” and understated “network concerns relating to large national and multinational banks” — earned plaudits from the Independent Community Bankers of America.

“ICBA believes that the Justice Department should look at a wider range of competitive factors when examining a merger and not just focus on local deposits and branch overlaps,” Christopher Cole, ICBA’s executive vice president and senior regulatory counsel, said. “We agree that the Justice Department should consider, for example, whether a merger will have the effect of further consolidating market share among the large banks.”

IT’S WEDNESDAY — Send tips, gossip and suggestions to Sam at [email protected] and Zach at [email protected].

Senate Banking will vote on an executive compensation bill and consider the nominations of Philip Jefferson, Lisa Cook and Adriana Kugler to the Federal Reserve Board of Governors at 9:30 a.m. … Fed Chair Jerome Powell testifies at House Financial Services at 10 a.m. … The Senate Environment and Public Works Committee has a hearing on the reauthorization of the Economic Development Administration at 10 a.m. … Former House Financial Services Chair Jeb Hensarling (R-Texas) and former FDIC Chair Jelena McWilliams will discuss financial stability at a Cato Institute event at 11:30 a.m. … HUD Inspector General Rae Oliver Davis testifies at House Financial Services at 2 p.m.

Powell’s delicate balancing act — Bloomberg’s Catarina Saraiva, Steven Dennis and Laura Litvan: “Powell will need to reassure Republicans the Fed is not backing down from its campaign to contain price pressures, while pointing Democrats to the resilience of the economy as officials prepare to raise rates further this year.”

First in MM: Kugler’s ethics pledge — In a letter to Sen.Elizabeth Warren (D-Mass.), Kugler pledged to recuse herself from participating in any matter involving a former employer or client for four years — beyond what’s required under the Biden administration’s ethics pledge — and to refrain from signing on to a financial services firm within four years of leaving government.

— Reuters’s Howard Schneider and Ann Saphir on today’s Federal Reserve confirmation hearing: The nominees will say their “focus is on bringing down too-high inflation so that the U.S. economy can get back to sustainable growth.”

Clawback scuttlebutt — Ahead of today’s Senate Banking vote on an executive accountability bill, Sen. Kyrsten Sinema is leading a proposed amendment that would require the Fed to provide regular reports on “how they are changing the culture and improving internal operations at the Fed, with respect to their supervisory and regulatory responsibilities,” spokesperson Pablo Sierra-Carmona said. The amendment is supported by Republican Sens. Cynthia Lummis (Wyo.) and Thom Tillis (N.C.).

— Meanwhile, Conference of State Bank Supervisors President and CEO James Cooper has come out against an amendment floated by Sen. J.D. Vance (R-Ohio) that would subject state-chartered banks with more than $100 billion in assets to OCC oversight. “If enacted, the provision would dramatically and immediately increase banking industry concentration within a single federal regulatory agency,” Cooper said in a statement.

Trouble in buyout portfolios? — Bloomberg’s Silas Brown, Abhinav Ramnarayan and Paula Seligson report that most private equity firms didn’t hedge their portfolio companies’ debt positions during the last decade’s leverage buyout boom. That means “rising rates for hundreds, if not thousands, of companies could be crippling, and the fallout widespread. Not only for investors, who face deep losses, or workers, who stand to lose jobs, but also the global economy, which could be upended if corporate defaults pile up.”

— The FT’s Harriet Clarfelt: “Defaults in the $1.4tn US junk loan market have climbed sharply this year as the Federal Reserve’s aggressive campaign of interest rate rises increases the pressure on risky companies with “floating” borrowing costs.”

Christie’s Wall Street push — Former New Jersey Gov. Chris Christie has started to tap Wall Street donors for what he’s pitched as a “$100 million effort to take on former President Donald Trump,” writes CNBC’s Brian Schwartz. But one longtime Christie ally is sitting in the sidelines: Mets owner and hedge fund billionaire Steve Cohen.

Reverse, reverse — From Sam: “Federal Reserve Vice Chair for Supervision Michael Barr said regulators at the central bank are starting to explore putting Wall Street institutions through “reverse” stress tests in a bid to make the lenders more resilient.”

Archegos reform reopened for comments — The SEC is once again taking feedback on a now 18-month-old proposal aimed at expanding the disclosures around equity-based swaps, the same products that set off Archegos’s blow-up in 2021. The reopened comment period, which will last until at least Aug. 21, was paired with a new SEC analysis showing, among other things, how activist investors use the products. — Declan Harty

It’s all downtown — Wall Street is starting to shy away from investments linked to the health of major downtown districts, writes The WSJ’s Heather Gillers: “Investors are paying less for bonds linked to New York subways and buses. Downtown-focused real-estate investment trusts trade at less than half their prepandemic levels. Bondholders are demanding extra interest to hold office-building debt.”

— NYT’s Emma Goldberg: “The next stage of getting workers back at their desks includes incentives like $10 to the charity of their choice— and consequences like poor performance evaluations if they don’t make the trek in.”

Another mixed signal — Bloomberg’s Augusta Saraiva: “US housing starts unexpectedly surged in May by the most since 2016 and applications to build increased, suggesting residential construction is on track to help fuel economic growth.”

Alibaba shakeup — The WSJ’s Raffaele Huang: “Alibaba Group named Brooklyn Nets owner Joe Tsai to be its chairman, putting the close ally of fellow co-founder Jack Ma atop the Chinese e-commerce giant as it seeks a revival from sluggish growth amid fierce competition.”

More moves at Carlyle — John Redett will replace Curt Buser as Carlyle Group’s chief financial officer on Oct. 1. The Washington-based private equity firm also announced that Jim Burr will be promoted to lead its global financial services team.

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