WASHINGTON—Goldman Sachs Group Inc. is lobbying hard to kill a provision in financial industry overhaul legislation requiring big banks to sell off their derivatives-trading businesses, and rival banks are welcoming the help, shrugging off attacks on the firm by lawmakers and securities regulators.
Goldman’s lobbying could put Democrats and the White House, which is lukewarm on the provision, in a difficult position. With congressional elections looming in November, lawmakers don’t want to appear supportive of Goldman or Wall Street.
But Goldman’s leadership is less concerned about politics than the provision itself, known as “section 106.” The nation’s five largest banks together earned $23 billion from derivatives trading in 2009, and are working separately and together to defeat the provision.
“I don’t think political Kabuki theatre is having any impact on the ability to get meetings and be heard” in Congress, says a person familiar with Goldman’s strategy. “The point of the matter from their standpoint is they can be heard…Nobody’s being treated like lepers.”
A non-Goldman banking executive agreed that working together to kill the provision was a “no-brainer.”
“I’m running across hordes of Goldman lobbyists working on this,” said a lobbyist working the bill on Capitol Hill.
Late Wednesday some lawmakers predicted section 106 wouldn’t be included in the final legislation, although the final outcome isn’t certain. The Senate is expected to begin debate on the bill to overhaul regulation of financial derivatives Thursday.
The White House has been lukewarm on the section-106 provision. A source familiar with the White House’s deliberations on the matter said that the president pulled back other administration officials who wanted to work to drop it.
Goldman is focusing its efforts on congressional delegations from New York and New Jersey, whose region could lose significant tax revenue should the derivatives provision pass.
Key to bankers’ effort to defeat the provision, three people involved say, is lobbying by the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Business Roundtable, and Financial Services Forum.
Goldman and other big banks have gotten the ear of New York Democratic Sen. Kirsten Gillibrand, who says she has “concerns” about a central provision in the legislation.
Wednesday, after a weekly luncheon for Senate Democrats, Ms. Gillibrand spoke with Agriculture Committee chair Sen. Blanche Lincoln (D, Ark.) to argue against the provision, which Ms. Lincoln authored.
“The senator reiterated her support for the bill, which she voted for, but also shared these concerns,” said Matt Canter, Mrs. Gillibrand’s spokesman.
“Our office has been hearing from many New York companies and consumer organizations about this legislation,” a spokesman for Ms. Gillibrand said Wednesday. “Senator Gillibrand does share the president’s concerns about whether this one provision could impact lending to small businesses.”
Ms. Gillibrand, also fighting for her seat in November, is attending a fund-raising event on Monday with many longtime Democratic backers who also work on Wall Street. An invitation to the event offers “a political discussion” with Sen. Chris Dodd (D., Conn.) and Ms. Gillibrand at a private Park Avenue residence Monday. Donors are encouraged to contribute and solicit up to $19,800 to achieve “host” status. The person familiar with Goldman’s strategy said the firm wouldn’t rule out sending a representative to the event.
Goldman Sachs has ramped up its presence its Washington lobbying operation in recent years and now ranks among the top corporate spenders on lobbyists. Last year, the company spent at least $2.8 million to influence Congress and the Obama administration.
That’s more than double the $1.2 million that Goldman spent on lobbying just four years ago, according to lobbying-expenditure records compiled by the nonpartisan Center for Responsive Politics.
Goldman’s Washington operations are run by Michael Paese, a former aide to House Financial Services Committee Chairman Barney Frank (D., Mass.). Mr. Paese oversees a team that includes 14 outside lobbying firms encompassing dozens of lobbyists. In the last few years, Goldman has beefed up its ranks of Democratic lobbyists, including former Rep. Richard Gephardt, a Missouri Democrat who once was one of the top Democrats in the U.S. House.
The firm also employs a number of senior Republican lobbyists, including Ken Duberstein, a former White House chief of staff under former President Ronald Reagan.
Goldman is also a big source of campaign donations for both Democrats and Republicans. Since 1989, Goldman’s political action committee and employees have been the No. 1 corporate source of campaign donations to the Democratic Party with a total of $20.3 million, according to the Center for Responsive Politics. President Obama alone received about $1 million from Goldman employees for his 2008 presidential campaign.
The company and employees are also the fourth-largest source of political donations to Republicans with $11 million.
The SEC’s lawsuit has damaged some of the relationships Goldman has nurtured, including with Ms. Lincoln, chief mover behind derivatives provision.
Ms. Lincoln, who is facing a stiff re-election campaign from a Democratic primary challenger, proposed the derivatives legislation on April 9, the same day that the SEC announced its lawsuits against Goldman.
Just a few weeks ago, Mrs. Lincoln was in discussions with Goldman officials about hosting a fund raising in New York with company employees. She has since said she would no longer ask for campaign donations from Goldman or its employees.
Last week, Mrs. Lincoln overcame industry opposition and won enough votes in the Agriculture Committee to approve the new derivatives rules. This week, she became the first Democratic senator to give back the donations she has received from Goldman’s PAC and employees. Mrs. Lincoln said she would donate the $7,500 she accepted from Goldman and give it to the Arkansas Hunger Relief Alliance. In a press release, Mrs. Lincoln called on other senators to follow her lead.