Obama, the Shareholder Activist?
Should the US use its shareholder muscle in big banks to support reform?
As the Senate's financial reform effort nears the final stretch, there's no mistaking the Obama administration's stance on regulating derivatives, the complex products that derive their value from underlying prices (the cost of wheat, say, or certain stock's value) and are used to both hedge risk and recklessly bet on the economy. Gary Gensler, chairman of the Commodity Futures Trading Commission which oversees derivatives, wants the opaque, $450 trillion over-the-counter derivatives market dragged fully into the open, so price, volume, and the structure of deals is transparent. Ditto Treasury Secretary Neil Wolin, who has said, "We cannot afford to wait to...bring transparency and oversight to derivatives." And Obama himself said last week he'll veto any bill if it lacks tough derivatives regulation. But is Obama and Co. truly doing all it can to back up all that tough talk on derivatives?
That's what one group, the Interfaith Center on Corporate Responsibility, is essentially asking, on the eve of a vote on a major shareholder resolution set to be voted on today by shareholders of Citigroup. ICCR is calling on the US government to flex its shareholder muscle (at 2010's outset, the US government owned 27 percent of Citi) by voting its shares in support of a resolution, filed by ICCR, calling on Citi's board of directors to report on how the bank uses collateral for its derivatives trading and, more importantly, the bank's position on using their customers' money for derivatives trading.
Such a report would shed plenty of light on the bank's derivatives policies, ICCR says, and would align with the calls for greater transparency from the White House, Treasury, and many lawmakers in Congress. "To adopt an inconsistent posture at this critical juncture on derivatives disclosure would be disastrous," says ICCR executive director Laura Berry, "both in terms of how Wall Street reads the signals from Washington and how seriously Congress sees the Obama administration as being in its support of vital financial services reform."
Unlike most bailed-out banks which have bought back their shares, the US government—and by extension the American taxpayer—still owns a significant chunk of Citi. Granted, the US' ownership in Citi has begun to dwindle, as the Treasury announced plans in March to sell off its stake throughout 2010. Still, nowhere near all of those stocks are sold. If the US government voted in favor of the resolution, it could provide some major heft to the broader calls for greater disclosure and regulation of derivatives.
At the moment, the signs suggest that "yes" vote is unlikely. The Treasury, which orchestrated the bailout, has consistently taken a hands-off stance regarding its stock holdings, and a Treasury spokeswoman, Meg Reilly, told Mother Jones yesterday that the department had no comment. Even in the resolution passes without the US government's help, it'd be a major victory for those trying to bring some sunshine to an insanely lucrative and wholly unregulated corner of our financial markets.