President Obama shifted his attention from the fiscal cliff talks this week long enough to consider the right choice for replacing exiting Timothy Geithner.
It now looks as though long time American Express CEO Kenneth Chenault could be that choice. It’s a move that could go a long way in improving the love-hate relationship between the Obama Administration and the banking sector. Dodd-Frank regulations ring a bell? Maybe the Durbin Amendment? Few bankers have forgotten those new restrictions courtesy of President Obama.
Nothing’s been definitively decided, but Fox News is reporting White House officials have already spoken to Chenault about filling Geithner’s role as well as a “variety of jobs in the second term”. Those in the banking world already see the role of Treasury secretary as “prized”.
Chenault, though, would have to abandon many of his projects, long with his role at credit card giant American Express. He currently sits on both the IBM and Proctor & Gamble boards. He’s a member of the Executive Committee of the Business Council and was already rumored to be the first choice for President Obama. This means JPMorgan Chase Jamie Dimon might not have been such an obvious choice as once believed by many analysts. On the other hand, Jack Lew, the White House chief of staff, is still seen by many as the man to beat for the Treasury role.
Ah, but Chenault might not be the shoe-in some think he is. There’s that pesky financial crisis of 2008 that’s sure to be scrutinized closely. Then of course, there’s his compensation he currently enjoys. In three years between 2009 and 2011, he earned a total of $57 million.
American Express accepted $3.4 billion from the Troubled Assets Relief Program, or TARP, in January 2009, though it repaid the money in its entirety just six months later. It also took part in other bailouts. What’s interesting is that the role of AMEX was considerably smaller than other financial entities. In fact, American Express made a quick hit from one of the government programs at just slightly less than $6 billion. Meanwhile, General Electric’s financial sister company accepted more than $50 billion – and it was in the program far longer than AMEX.
In another government bailout program, after the Fed set up funds reserved for short term corporate debt, it then bought more than $4 billion of American Express debt; still, that was significantly less than General Electric’s $16 billion. The credit card company also accepted loans to buy bonds.
Many are saying these bits of truth are irrelevant. Others are saying, “not so fast”. At the same time American Express took the money from TARP, the Fed also placed the company in a bank holding status or more specifically, a shadow banking system, which is given to those financial entities that aren’t traditional banks nor are they regulated like banks. This means the credit card company was able to participate completely in various government banking bailouts.
The question is, will it be enough to to give pause? It’s doubtful; then again, questions are already being raised about the Fed’s declaration that “exigent and unusual circumstances” were part of its justification in approving American Express’s transition.
Amex Achilles Heal
Analysts say American Express’s Achilles heal as the financial crisis kicked in was its dependence on short term market loans as its primary method of funding its business transactions. By transitioning into a bank holding company, it presented the ideal opportunity for change.
We will continue to build a larger deposit base to broaden our funding sources,
Chenault said at the time.
Turns out, the risk paid off handsomely. At the time of his comments, American Express touted $12 billion in customer deposits. Four years later, it has $37 billion.
So what happens if Chenault is not offered the position that nearly everyone says he’d accept? There have been rumors of talk about his potentially becoming the secretary of the Commerce Department. If the president reorganizes the Commerce Department, he could be chosen to head that up. Recent talk is that the president will overhaul this department.
While it appears Dimon is out of the running, there still exists the possibility of other well known names stepping up to the plate, including Blackrock CEO Larry Fink and even Google Chariman Eric Schmidt.
For now, though, Geithner has said on several occasions he won’t be making his departure until after the fiscal cliff situation is resolved and based on what’s coming out of Capital Hill, it may be awhile before Obama has to decide on any kind of replacement.
What are your thoughts? Is turning to the public sector the best choice or should Obama choose from within the Administration? Be sure to like our Facebook page so that you get all the breaking news coming out of the financial sector.