The Washington-Wall Street ‘woke’ war has only just begun

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If you thought a tepid performance in the midterms might give Republicans pause before taking on Wall Street over “woke” investment strategies, think again.

Senate Banking Republicans on Tuesday released a 20–page blueprint for lawmakers eager to wage war against BlackRock, Vanguard and State Street over how financial behemoths have cajoled corporate America into adopting policies that reduce greenhouse gas emissions, identify gender and race-based pay disparities and encourage board diversity and racial equity.

“Regardless of whether these changes are ultimately good or bad, these campaigns are inconsistent with a passive investment strategy,” Republican staff wrote in their report, which recommends investigations, new financial reporting standards and changes to shareholder voting practices to bring the multitrillion-dollar investment firms to heel, per our Declan Harty.

Of course, now that the GOP squandered its chance at a majority in the upper house, Senate Republicans won’t have much opportunity to follow through on any of this.

Any pain inflicted on BlackRock, Vanguard or State Street will have to come from House Financial Services, where likely Chair Patrick McHenry (R-N.C.) faces pressure from populist Republicans to grill financiers who’ve prioritized environmental, social and governance issues.

But while Wall Street’s bound to catch flak from congressional Republicans over any hint at progressivism, there’s also very real pressure outside the Beltway to make companies cleaner, more inclusive and sustainable.

“The market is clearly speaking,” Ceres managing director Steven Rothstein, whose sustainability nonprofit counts JPMorgan Chase and Bank of America as members, told MM over coffee on Tuesday morning. (Not for nothing, most voters want the GOP to lay off the harangues against ESG).

Natural disasters have caused at least $115 billion in insured damages this year, he said. Global supply chains are increasingly snarled by storms and fires. Premature deaths in Europe attributed to poor air quality are counted in the tens of thousands.

There are obvious financial consequences to all of that. So while state leaders and lawmakers can fire off resolutions and send letters attacking sustainability policies, corporate America is already on its way toward reducing emissions and pivoting to renewable energy, he said.

A key caveat to all this is that the path forward for those companies could also contain very real market challenges as well. The investment research firm MSCI published a report warning that geopolitical instability and persistent inflation might “limit near-term pressure to reduce global greenhouse-gas emissions … as governments prioritize energy security and affordability.”

JPMorgan CEO Jamie Dimon made a similar point on CNBC.

“If the lesson was learned from Ukraine, we need cheap, reliable, safe, secure energy, of which 80% comes from oil and gas. And that number’s going to be very high for 10 or 20 years,” Dimon said. While leaders should focus on renewables as well, the ready availability of natural gas and oil “has the virtue of reducing CO2, because … poorer nations and richer nations are turning back on their coal plants.”

IT’S WEDNESDAY — And your music recommendations were greatly appreciated. Please send tips to [email protected] and [email protected].

Q3 productivity and labor cost data released at 8:30 a.m. … The CFTC agricultural advisory committee meets at 9 a.m. … House Financial Services holds a hearing on financial institutions’ role in slavery at 10 a.m. … The House Select Committee on Economic Disparity and Fairness in Growth holds a markup to approve its final report at 1 p.m. … Consumer credit data released at 3 p.m.

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BUSTED — Our Erin Durkin: “The Trump Organization was convicted on all charges in a criminal tax fraud scheme on Tuesday. A New York Supreme Court jury reached the verdict in the case — which could cost the Trump Org. up to $1.6 million in fines — after two days of deliberation following a monthlong trial that included convicted former Trump Org. chief finance officer Allen Weisselberg as a star witness.”

LAWMAKERS FILE NDAA — Our Connor O’Brien: “Lawmakers filed a compromise version of their annual defense policy bill on Tuesday that proposes a Pentagon budget that’s $45 billion more than what President Joe Biden requested. The House will vote on the fiscal 2023 National Defense Authorization Act this week, with the Senate to follow.”

SAFE BANKING OUT — Our Natalie Fertig: “The SAFE Banking Act will not be included as part of the National Defense Authorization Act, marking yet another setback for the legislation, which enjoys widespread bipartisan support but has repeatedly stalled out on Capitol Hill.”

MORE ON NDAA — As Connor reported earlier Tuesday, Senate Minority Leader Mitch McConnellcame out swinging against a push by Democrats to attach energy and cannabis banking measures to major defense policy legislation, marking another twist as negotiations come down to the wire.”

— Natalie on why McConnell is essential to SAFE Banking: Even if there are enough votes to pass this bill on the floor of the Senate, the rules of procedure don’t give the Senate time to put a smaller bill on the floor and still get must-pass funding legislation done this year. Senate Majority Leader Chuck Schumer plans to attach it to a must-pass bill, but that’s where McConnell comes in: because these bills are essentially negotiated behind the scenes, all four House and Senate leaders have to agree on the final package before it heads to either chamber for a vote. If McConnell doesn’t want cannabis banking in the omnibus, it isn’t going to be considered in lame duck.

THE FTX NEWS CYCLE ENDS WHEN WE SAY SO — From our Zachary Warmbrodt: “The Senate Banking Committee will hold a hearing on the FTX crypto meltdown on Dec. 14, Chair Sherrod Brown said in an interview Tuesday. Brown said the committee was still working out witnesses and would likely invite FTX founder Sam Bankman-Fried.”

SBF HIRES GHISLAINE MAXWELL’S ATTORNEY — Reuters’s Chris Prentice: Bankman-Fried “has hired former prosecutor Mark S. Cohen to represent him, as U.S. authorities probe the crypto exchange’s collapse … Cohen, a former assistant United States attorney for the Eastern District of New York, recently defended Ghislaine Maxwell in her sex trafficking trial.”

WALLS ARE GOING UP — Our Barbara Moens and Hans von der Burchard: “The last big defender of rules-based open trade — the European Union — is about to fall. It is happening in slow-motion and the impact will be painful. If the world’s largest trading bloc gives up on the concept of free trade, the entire global economy will be hurt. But such an outcome seems increasingly likely, as the European Commission and its powerful trade department come under intense pressure to join China and the United States in a game of economic self-interest and protectionism.”

WE WARNED YOU THE VIBES WERE GETTING WORSEBloomberg’s Sridhar Natarajan and Sonali Basak: “Goldman Sachs Group Inc. Chief Executive Officer David Solomon struck a downbeat note about the economic outlook and said smaller bonuses and even potential job cuts should come as no surprise. ‘You have to assume that we have some bumpy times ahead,’ Solomon said.”

— While consumers still have roughly $1.5 trillion from pandemic-era savings — including stimulus — “inflation is eroding everything … and that trillion and a half dollars will run out sometime mid-year next year,” JPM’s Dimon said on CNBC. “When you’re looking out forward, those things may very well derail the economy and cause a mild or hard recession that people worry about.”

Bloomberg’s Katherine Doherty and Sonali Basak: “Bank of America Corp. is slowing hiring as fewer employees leave in an attempt to manage the company’s headcount ahead of a possible US recession, Chief Executive Officer Brian Moynihan said.”

— Bloomberg’s Sridhar Natarajan: “Morgan Stanley will reduce its global workforce by about 2% as Wall Street seeks to tame costs ahead of a potential US recession. The cuts amount to roughly 1,600 of the workforce, according to a person familiar with the matter who asked not to be identified discussing private information.”

— WSJ’s Will Horner and Jack Pitcher: “U.S. stock indexes extended declines Tuesday as investors weighed fears about the outlook for interest rates against optimism surrounding China’s reopening.”

SILVERGATE ON THE HOT SEAT — Sen. Elizabeth Warren (D-Mass.) — along with Republican Sens. Roger Marshall (R-Kan.), and John Kennedy (R-La.) — blasted San Diego-based crypto bank Silvergate on Monday for its role in potentially transferring funds between Sam Bankman-Fried’s global crypto exchange FTX and his hedge fund Alameda Research. FTX is alleged to have misused customer funds to plug holes in Alameda’s balance sheet during this year’s crypto market crash.

“Your bank’s involvement in the transfer of FTX customer funds to Alameda reveals what appears to be an egregious failure of your bank’s responsibility to monitor for and report suspicious financial activity carried out by its clients,” the lawmakers wrote.

SHADE AT GRAYSCALE — Grayscale Investments is suing the SEC for blocking its application to convert its $10.7 billion Bitcoin trust into an exchange-traded fund. Now, “Fir Tree Capital Management is suing Grayscale Investments for information to investigate potential mismanagement and conflicts of interest … The hedge fund said there’s no legal reason that stops the trust from allowing investors to exit, as long as it complies with securities laws. Grayscale has said in regulatory filings it can’t offer an ‘ongoing redemption program.’”

TREASURY’S CRYPTO WALLET RULES ARE STILL OUTSTANDING — POLITICO’s Bjarke Smith-Meyer: “EU governments are pushing to prevent crypto companies and banks from offering any digital assets or online wallets that hide the identity of their clients.”

— Meanwhile, in the U.K., officials are “finalizing plans for regulation of the crypto sector, moving ahead with plans to make Britain a hub for the industry as it grapples with the fallout from FTX’s collapse,” write Bloomberg’s Joe Mayes and Emily Nicolle.

OP-ED — Uniswap Labs CEO Hayden Adams for The Economist: “The past 12 months have tested DeFi protocols—and they have proven resilient … In fact, the FTX-associated hedge fund at the centre of this mess — Alameda Research — paid back its loans to DeFi money markets before its centralised counterparties because you cannot negotiate margin calls with smart contract code.”


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