Wall Street Votes with their Wallets

The deep pockets of donors in the financial sector have always been appealing to presidential candidates in both the Democratic and Republican parties, who make it a priority to cultivate support on Wall Street. Now that Wall Street darling and former Massachusetts governor Mitt Romney is out of the presidential race, who do Wall Streeters favor in the upcoming election? Senator Obama emerges as a favorite over Senators Clinton and McCain, but, as with most financial decision-making, it’s complicated.

Many on Wall Street prioritize fiscally conservative economic policy and a laissez-faire approach to business regulation, and thus tend to vote Republican. However, John McCain has historically been seen as something of an anti-establishment maverick and has not been much of a favorite on Wall Street, due to his positions on campaign finance and tax reform.

Recent signs indicate that Wall Street might be scaling back contributions to presidential contenders in the home stretch of the primaries, however. This might be because many finance professionals got on board a campaign early on and maxed out their primary contributions at $2300. If this is the case, look for a resurgence among Wall Street donors in the general election if candidates continue to raise money in addition to accepting federal matching funds.

Ron Paul and Mike Huckabee increased their contributions from Wall Street from the first to the fourth quarter, an attribute that Senator McCain cannot claim. Maybe Wall Street loves a long shot, or perhaps some prefer a more conservative voice than McCain’s. But with rising oil prices and a falling dollar among the economic consequences of America’s unilateralist foreign policy posture, many investors are hungry for change, and favor Democratic candidates, who want to end the war in Iraq and develop comprehensive health care and economic reforms.

The main money on the Street has gone to Democrats this year. Obama was off to an early start with financial professionals, raising $4 million by October 2007, more than any other candidate. According to a February 8, 2008 New York Times blog, Senator Clinton had raked in $5.8 million from the financial industry and Senator Obama was close on her heels with $5.3 million. Over all, Wall Street gave $29 million last year, 56% of which went to Democrats. Obama smashed fund-raising goals overall in the month of January, raising $36 million, some of which came from financial sector donors.

At the end of the day, pragmatism may trump political ideology on the Street. The desire among financial sector donors to hedge their bets has led to an interesting phenomenon known as the “double max.” An article in the New York Times called “Hedging Their (Political) Bets” profiled a senior Merrill Lynch executive who supported Obama and sat on his Finance Committee, yet had also maxed out his allotted $2,300 primary contribution to McCain. Why? To stay in the good graces of Republican friends and business associates who asked him to write a check.

Double max givers include some prominent names among hedge fund managers and top investment bankers, such as Paul Tudor Jones II, billionaire hedge fund manager, who holds fund-raisers for Obama, but also donated the max to former Republican candidates Rudy Giuliani and Mitt Romney, and Bear Stearns president Alan Schwartz, who donated the max to Obama, Giuliani and Connecticut Senator Chris Dodd. Some, like Robert A. Kindler, a vice chairman at Morgan Stanley, have even given the max to 4 or more candidates, including Obama and Clinton on the Democratic side and Giuliani and McCain on the Republican side. Overall, Obama has benefited the most from double givers, as reported in the NYT article cited above.

But there are limits to even Wall Street largesse. With the recent bad news on the Street, finance professionals might be feeling the pain in their pocketbooks, and cutting back on donations to all candidates in the wake of the major subprime mortgage losses that many of their institutions suffered and that surely cut into bonuses this year.

According to the February 8 NYT blog posting, the Center for Responsive Politics reported a major drop in campaign contributions from Wall Street in the fourth quarter, around the time that the markets took a big hit and banks were licking their wounds. In the first quarter of 2007, Wall Street donors gave a total of $10 million to all presidential candidates. In the fourth quarter, contributions from finance types were down to $4.5 million.

But, if there is one thing we know for sure, Wall Street loves to pick a winner. As Barack Obama wins nine primaries in a row, including a big win over Hillary Clinton in Wisconsin last night, more and more people who work in finance are getting on the Obama train, either because they are persuaded by his message of change, or more cynically, because they want to hedge their bets and support the presumptive nominee, whomever he or she may be.