As the fiscal cliff negotiations grind on in Washington, President Obama is reaching out to a group that may not be entirely receptive to taking his proffered hand: the Business Roundtable, the members of which are the CEOs of the biggest corporations – including big banks.
Obama and bankers not the best of friends
It was just about three years ago that Obama made the now-famous "fat cat," reference, shortly before a meeting with Wall Street bankers regarding lending practices. Those selfsame financial titans never forgot, as evidenced by the direction of their campaign contributions leading up to the recent presidential election.
Now, Obama will request assistance in resolving the debt ceiling crisis, addressing some of the very firms he once disparaged, such as Bank of America (NYSE:BAC), Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), and JPMorgan Chase (NYSE:JPM). Jamie Dimon, the charismatic CEO of JPMorgan, is also a Member At Large on the Roundtable's Executive Committee.
It's no secret that these banking chiefs, along with other top executives involved in the Financial Services Forum, sent a letter to Washington urging action on the fiscal cliff. Jamie Dimon, in particular, was heard to lament the lack of resolution on the debt ceiling issue, which he claims cost his bank tens of millions of dollars this year. Does that mean that they will show up when he calls on them to pitch in, helping him to prod Republicans into action?
2 reasons banks may want to play nice
Bank CEOs may want to hear what Obama has to say at the Roundtable's quarterly meeting. There are a couple of tax issues situated on the fiscal cliff's edge, both of which affect banks directly, and might be resolved to the sector's satisfaction if they agree to play ball.
One is the mortgage tax deduction, which, despite its popularity, is once again on the chopping block if nothing gets done. One of the few tax breaks that has been seen as benefiting the middle class, it has now become viewed as more of a loophole for wealthy individuals. Doing away with the deduction would surely hurt housing, as well as banks – which have just begun to get their groove back in the mortgage origination department.
The other is a tax goodie that helps certain big companies, like banks, defer tax payments on interest earned on loans made overseas. Scheduled to expire at the end of last year, it was revived and now faces another look-see. Big banks would like to see this particular nugget become permanent, despite its two-year hit to the U.S. Treasury of over $11 billion.
One Fool's take
President Obama and the big banks may not be friends, but they might become temporary bedfellows. This just may become an opportunity for Obama to get these heavy-hitters on his side, and for banks to do a little extra lobbying on their own behalf. Now, that's what I call compromise.