Wall Street executives who lost a bet that Republican MittRomney would defeat President Barack Obama are bracing for tougherregulation and hoping a deal can be struck with Congress to cut thedeficit.

Obama's choice to succeed Treasury Secretary Timothy F. Geithnerwill be watched closely for signs about the administration'sapproach to business and the deficit, industry executives said.Erskine Bowles, who served as chief of staff under former PresidentBill Clinton, would be a sign that Obama is willing to endorse abipartisan debt-reduction plan supported by many business leaders,they said.

“With the appointment of the Treasury secretary, Obama will besending an important message to the public and to the foreigngovernments who own a lot of Treasuries,” Curtis Arledge, chiefexecutive officer of Bank of New York Mellon Corp.'sinvestment-management arm, which oversees $1.4 trillion, toldjournalists in New York. “If he goes with somebody like ErskineBowles, then the message will be that he cares about the deficitand is serious about cutting it.”

Shares of Wall Street firms fell in New York yesterday on whatanalysts said were dashed hopes that a Romney administration wouldroll back or temper the 2010 Dodd-Frank Act that overhauledfinancial regulation. Morgan Stanley, Goldman Sachs Group Inc.,Bank of America Corp. and Citigroup Inc. each tumbled more than 6percent, putting them among the 10 biggest decliners in theStandard & Poor's 500 Index.

Employees of Goldman Sachs, Bank of America, Morgan Stanley,JPMorgan Chase & Co. and Credit Suisse Group AG made theirfirms the five biggest sources of campaign contributions to Romney,according to data compiled by the Center for Responsive Politics, aWashington-based research group that tracks politicaldonations.

Still, executives at the firms downplayed the significance ofthe election, focusing instead on the need to achieve politicalagreement on debt reduction and avert the so-called fiscal cliff oftax increases and spending cuts scheduled to take effect at thebeginning of next year.

“The outcome of the election almost takes a backseat to theformulation of a plan to address the federal deficit,” JamesMahoney, Bank of America's head of corporate communications andpublic policy, said in a phone interview. “That is clearly the No.1 focus at this point. It's an essential ingredient for stabilityof the financial markets and for a strong economy.”

Simpson-Bowles Plan

Wall Street leaders started throwing their support behindBowles's debt-reduction efforts even before the election. JPMorganCEO Jamie Dimon, 56, said last month that the economy “would bebooming” if Congress had passed the so-called Simpson-Bowles planco-authored with former Republican Senator Alan Simpson lastyear.

Obama named the two in February 2010 to lead an 18-memberbipartisan commission. Its $3.8 trillion budget-cutting plan wouldhave lowered individual and corporate income-tax rates, eliminateddeductions such as the one for mortgage interest, raised thegasoline tax and reduced Social Security, Medicare anddiscretionary spending.

The plan was rejected by seven commission members, includingRomney's vice presidential running mate Paul Ryan, and failed toreach the 14 votes required to send it to Congress. It never wastaken up for a vote by the Senate and was defeated 382-38 in aHouse vote this year.

Goldman Sachs CEO Lloyd C. Blankfein, 58, was interviewed withBowles and Simpson on CNBC on Oct. 11 to promote reviving abipartisan plan to reduce the $16 trillion U.S. governmentdebt.

If there were “some compromise laid out, what kind of stimulusdo you think that would provide?” Blankfein asked at the time. “I'dbe a buyer of the market.”

Blankfein, who wouldn't reveal which candidate he voted for,said now that it's over, “we can all focus on playing a part towardour shared goal of making our country and economy moresuccessful.”

Joe Evangelisti, a spokesman for JPMorgan, declined to commentwhen asked which candidate Dimon supported.

“To succeed in business you have to be able to compromise, whyshould that be different in politics?” John Mack, the formerchairman of Morgan Stanley and a Romney backer, said yesterday inan interview with Bloomberg Television's Betty Liu. “Erskine hasplenty of experience not only in government but in business. He ranhis own business. He grew up in business.”

Bowles has served as a board member of Morgan Stanley sinceDecember 2005, when Mack was CEO and chairman. He is also adirector of Facebook Inc. and Norfolk Southern Corp. His wife,Crandall Bowles, is on JPMorgan's board.

Fink, Lew

Mack said he doesn't think the administration worked closelyenough with the business community, adding that he would becomforted by seeing Obama choose a CEO to run Treasury such asBlackRock Inc.'s Larry Fink, General Electric Co.'s Jeff Immelt,American Express Co.'s Kenneth I. Chenault or HoneywellInternational Inc.'s David Cote.

“Not only are they first-class executives but they're global,and the next Treasury secretary has to have experience in theglobal economy,” he said.

Others on Wall Street said that experience in Washington mightbe more important for the next Treasury secretary than a businessbackground. Jacob Lew, 57, Obama's chief of staff, has years ofexperience as both a congressional aide and as director of the U.S.Office of Management and Budget.

Lew “knows his way around Washington” and also has “strongbacking” from Obama, Evercore Partners Inc. CEO Ralph Schlosstein,an Obama supporter, told Bloomberg Television's Erik Schatzker andStephanie Ruhle yesterday. Bowles, while also knowledgeable aboutWashington, “doesn't bring the same closeness to the president,” hesaid.

Harry Wilson, founder and CEO of corporate-restructuring firmMaeva Group LLC and a former adviser to Obama's Auto Task Force,attributed a decline in stock markets after the election to concernthat Obama won't be able to negotiate successfully with HouseRepublicans to achieve agreement on debt reduction.

“This president's been the primary obstacle to it and some ofhis political staff,” Wilson, a Romney supporter, told Schatzkerand Ruhle yesterday. “This is a massive negotiation, and it's beingled by a guy who hasn't negotiated a deal really in his life.”

'The Taxman'

The solution worked out by the Obama administration willprobably include more tax increases and fewer spending cuts thaninvestors thought before the election, which is weighing on themarket, Pacific Investment Management Co.'s Bill Gross toldBloomberg Television's Trish Regan.

“We played the old Beatles song 'The Taxman,' on our tradingfloor this morning,” said Gross, who manages the $281 billion TotalReturn Fund.

Winning the confidence of investors, bankers and foreigngovernments will depend in large part on who Obama chooses to leadTreasury.

“We hope they do in fact make good progress in terms of thequality of the individual that goes into this role,” Kevin Kabat,CEO of Cincinnati-based Fifth Third Bancorp, said in a phoneinterview. “It will be really the determining legacy of the nextfour years.”

Bloomberg News

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