US investment banks divided over levy

Divisions are emerging among large investment banks over the Obama administration’s banking levy, with one industry lobby exploring legal action even as some companies urge caution in the face of growing political backlash.

The Securities Industry and Financial Markets Association confirmed that it had hired Carter Phillips, a managing partner at the law firm Sidley Austin, who has argued 57 cases before the Supreme Court, to study how to respond to what it called a “very targeted and punitive tax”.

EDITOR’S CHOICE
Global Insight: Forget the levy – Jan-18.Lex: US banks – Jan-18.In depth: Bank bonuses – Jan-18.Opinion: Bank fee will not stop the doom loop – Jan-18.In depth: Investment banking – Sep-08..But in a sign that all its member banks may not support the kind of legal challenge a renowned Supreme Court litigator such as Mr Phillips could mount, Sifma on Monday said it was “premature” to discuss what action it might take. One person close to Sifma said it would seek to make changes to the proposal in Congress before seeking legal redress.

President Barack Obama last week warned banks not to challenge the new tax with a “phalanx of lobbyists … or an army of lawyers”.

“I suggest you might want to consider simply meeting your responsibilities,” he said.

Some bankers might be taking Mr Obama at his word.

“The industry is in some disarray and I suspect Sifma got out ahead of its key members,” said one attorney familiar with the matter.

Chief executives at US banks were cautious, asking whether a legal victory that found the tax to be unconstitutional would be worth the possible public backlash that would result, the attorney said.

“Some people are being very thoughtful about this. I know JPMorgan is urging caution before running into this,” the attorney said.

“The industry should be giving some thought to the benefits for being ‘for’ instead of ‘against’.”

JPMorgan declined to comment. Asked about the Sifma move, Bank of America said it was discussing job creation and economic growth with the administration. “That’s the conversation we are focused on right now”.