Steel Steps Down From Treasury Post To Take Over at Struggling Wachovia
Thursday, July 10, 2008
One of the key architects of the Bush administration's response to the mortgage crisis has left to run one of the banks that has been deeply damaged by that crisis.
Robert K. Steel resigned as undersecretary at the Treasury Department yesterday and was named chief executive of Wachovia Corp., the nation's fourth-largest bank. Steel has been the administration's point man on a wide range of issues affecting financial markets and the banking system since joining the Treasury Department in 2006. He led the department's efforts to overhaul the way banks are regulated, and he has been involved in developing legislation to try to use government-backed loans to prevent foreclosures, which some analysts say would be a boon to banks.
Wachovia has seen its stock drop 72 percent in the past year as it has suffered billions of dollars in losses from bad loans made during the housing boom. Its previous chief executive, Kennedy Thompson, was fired in early June. As Wachovia announced the hiring of Steel yesterday, the bank also indicated that it will increase its reserves to cover bad loans by another $4.2 billion.
"Sure, it's challenging, but Wachovia's not the only financial institution dealing with a challenging situation," Steel said in an interview last night. "A lot of people are, and when you look at the core strengths of this organization, the future is quite constructive."
He said that part of the appeal of the job is the challenges the bank faces. "It's fun to figure out a complicated thing," said Steel, a former Goldman Sachs executive. "No one plays checkers once they learn how to play chess."
Steel's move is a dramatic example of a revolving door between business and government. Steel has recused himself from matters involving Wachovia since conversations began about the job in late June, a Treasury Department spokeswoman said, and his actions were cleared with department lawyers. Nonetheless, Steel's move rankles some ethics watchdogs.
"It's not technically a conflict of interest as long as he didn't work on issues that impact only Wachovia," said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington. "But it smells bad. If one day you're regulating banks and the next day you're at the bank, one has to wonder if the decisions you made at Treasury were in view of future employment options."
"You would think he would at least wait a decent interval, six months or a year or something," said Dean Baker, co-director of the Center for Economic and Policy Research. Steel has been deeply involved in a foreclosure bill sponsored by Rep. Barney Frank (D-Mass.) and Sen. Christopher J. Dodd (D-Conn.) that, in Baker's view, "is really written in a way that provides far more benefits to the banks than to homeowners."
"I wasn't looking for a job," Steel said. "The record's pretty clear . . . in terms of ethical practice procedures at Treasury."
Steel's departure leaves a key vacancy on financial market issues in the final six months of the Bush administration. In a statement last night, Treasury Secretary Henry M. Paulson Jr. did not name a replacement for Steel, but he indicated that assistant secretary for financial markets Anthony W. Ryan will take on broader responsibilities.
Steel, 56, had a nearly three decade career at Goldman Sachs that included a time as vice chairman before leaving the investment bank in 2004. When Goldman chief Paulson was named Treasury secretary in 2006, he brought Steel with him to be undersecretary for domestic finance, a job that comes with a broad portfolio of responsibility for financial regulation, the domestic economy, and market stability.
Steel's role has been that of fixer, working behind the scenes and using a thick Rolodex of business contacts and a consensus-building style to grapple with the complicated financial crisis that began last summer.
He engineered the "Hope Now Alliance," a voluntary collaboration between lenders and consumer advocates that is meant to encourage renegotiations of loans that might otherwise enter foreclosure. He and Paulson were on the middle-of-the-night phone calls in which the Federal Reserve decided to rescue Bear Stearns in March, giving the Treasury Department's blessing to the plan. And he oversaw the creation of a blueprint to overhaul the nation's financial regulations.
Along the way, Steel has won praise from many Democrats as an honest negotiator. "Robert Steel is a classy guy, he has helped a lot, and he would be good in the public or private sector," said Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee.
Steel is taking over a bank that is reeling from losses on mortgage and consumer loans. It has slashed its dividend and raised $7 billion in new capital -- and many analysts believe needs to raise more.
"The strengths of the different businesses are well documented," Steel said, "and if you go back a year ago, you can see that things were performing much better and you see how good this company can be."