Obama: Banking on whose support?

"I'm befuddled at the level of animosity on Wall Street against Obama," says Jim Chanos, founder of the $6bn (pounds 3.7billion) hedge fund Kynikos Associates. "No one has been prosecuted, tax rates have stayed low and stock markets are close to record highs. How bad has this administration been for Wall Street?"

Chanos, one of President Barack Obama's biggest supporters on Wall Street, can certainly go armed with statistics to back his claims when he hosts an event in New York next month to drum up support for the president. Since Obama took office in January 2009, the Dow Jones Industrial Average has soared 69pc. The S&P 500 has bettered that with a 78pc increase.

Far from being dismantled, America's five biggest banks - JP Morgan Chase, Bank of America, Wells Fargo, Citigroup and Goldman - have got larger. In 2007, their assets were the equivalent of 43pc of the US economy. At the end of last year, that ratio had risen to 56%, according to the Federal Reserve.

Chanos is working hard to sell his message, but the campaign cash Wall Street has so far handed over suggests few bankers are buying. The securities industry has ploughed $11.6m into Republican challenger Mitt Romney's coffers compared with just $4.1m for Obama, according to the Center for Responsive Politics. In 2008, Obama hoovered up $16.2m from Wall Street and his then opponent, John McCain, trailed with $9.7m.

Although Wall Street is not at the epicentre of this election as it was in 2008, executives and regulators believe that should not disguise its importance. For those who argue that the wave of regulation since the crisis has gone too far and is hampering America's recovery, a Romney victory offers hope of rolling back the tide. Obama's supporters say a second term will help ensure that excessive risk-taking on Wall Street will not imperil the wider economy again.

"This election is consequential," says Michael Barr, who worked for US Treasury Secretary Tim Geithner on the new financial regulation and is a supporter of Obama. "Romney will be going back to where we were. A good victory [for Obama] would give him the authority to finish the job."

Wherever you sit on the politics, the election's impact on Wall Street matters for the US and the UK. The biggest American banks together employ more than 40,000 people in the City of London and Barclays and HSBC, in particular, have substantial businesses in the US. Barclays, which expanded aggressively across the Atlantic with the acquisition of the US arm of Lehman Brothers in 2008, generated about a quarter of its first-half profits in America. The region accounted for a similar share of HSBC's pounds 12.7bn of first-half pre-tax profits. "British banks have a lot of issues to deal with," says Al Alevizakos, an analyst at Mediobanca. "But the US is still important."

The outcome will also determine the line regulators tread between ensuring the financial system is safe and avoiding future bail-outs, while encouraging banks to lend and help drive the economic recovery.

Despite the puzzlement of Chanos, it is not altogether surprising that the spell Obama cast at the last election should break first in the financial services industry. Analysts point to two of Romney's key policy pledges. The former governor of Massachusetts is promising to repeal Dodd-Frank, the financial reform act passed in the summer of 2010 and the biggest overhaul of the financial services industry since the 1930s. Romney's tax plan also means Wall Street bankers will be able to keep more of their pay. Under his proposal, marginal tax rates will be cut by 20pc for all Americans, while the tax rate on capital gains and dividends will not rise.

There is little doubt that Wall Street banks would welcome the repeal of parts of Dodd-Frank, which was designed to prevent a repeat of the financial crisis and the recession that followed. Standard & Poor's estimated last month that the legislation's banning of certain businesses and the extra compliance needed is costing America's eight biggest banks up to $34bn a year in annual pre-tax profits. It has already forced Wall Street to undertake some restructuring, with Goldman Sachs and Citigroup both closing businesses that gambled with the bank's own money.

Analysts at Goldman Sachs now believe that Dodd-Frank, alongside the extra levels of capital banks are required to hold under Basel 3 regulations, is now the biggest headache facing the industry. "Dodd-Frank and Basel 3 taken together are very comprehensive," says Douglas Elliott, a former executive at JP Morgan Chase and now at the Brookings Institution, a think tank in Washington. "Dodd-Frank has changed so many things."

And it is likely that if the White House is occupied by Romney, a former private equity executive, Wall Street's drive to reverse the parts of Dodd-Frank it dislikes would get a powerful helping hand. High on that list is the Volcker Rule, which bans banks from gambling with their own money. Wall Street has also been lobbying hard to scale back plans for regulating the $648 trillion derivatives market, which remains one of the most lucrative for banks. The Consumer Financial Protection Bureau, a watchdog established under Dodd-Frank, has prompted criticism both from banks and Republicans. So too has the Durbin Amendment, which limits what banks can charge when customers use debit cards.

The Financial Services Roundtable and the Securities Industry and Financial Markets Association, Wall Street's two largest lobbying groups, insist they will work with either Obama or Romney. Life under the latter, though, would be easier. "If Romney wins, Wall Street will do very well on the prospect of easier regulations," says Paul Miller, a banking analyst at FBR Capital Markets. "If he wins, you'll get friendly regulators in the top spots and a more business-friendly approach."

If a Romney government would prove an ally in repealing parts of Dodd-Frank, Obama would be less accommodating during a second term in the White House. Opinion polls suggest that a majority of Americans support the financial reforms passed two years ago, giving the incumbent no incentive to change any of it. "Given that Wall Street has turned its back on Obama during election year, there won't be much love lost," if he is re-elected, says Chanos. Indeed, Obama continues to come under fire from some of his own supporters for not breaking up the banks or imposing tougher terms on them when US taxpayers injected billions of dollars of capital in early 2009.

That criticism was reignited in the last few days when Sheila Bair, the former head of the Federal Deposit Insurance Corporation, one of America's biggest financial regulators, used her memoir to assail Tim Geithner for caring more about the banks than taxpayers, when Citigroup and Bank of America were bailed out. It is a view shared by some of his Republican opponents. "Obama has always played a bit of a game," argues Mark Calabria, director of financial regulation studies at the Cato Institute think tank. "Publicly he says 'I'll be tough on the banks', but privately is less so."

While Romney and Obama's pledges on financial regulation appear to offer a clear choice, some within the financial services industry believe the situation is more nuanced. Douglas Elliott says he "knows of no one" on Wall Street who wants to see all the regulation that has been put in place since the crisis removed. That is in part because banks support some of it, but it is also a view shaped by how long it has taken to turn the 2,300 pages of legislative ambition in Dodd-Frank into actual rules that companies can follow and regulators can police.

"What Dodd-Frank has caused is a lot of confusion," says Paul Miller. "A lot of banks are just saying 'give me the rules'?." This is not a view shared by everyone. Banks have been vociferous in lobbying against the parts of the new financial regulation they object to. The Volcker Rule received 18,000 official written comments, while rules intended to limit speculative positions banks can hold in certain commodities received 13,000.

Although there is considerable focus on what polling day means for financial regulation, the outcome of the election will shape Wall Street's fortunes in other ways over the next four years. Besides a tougher set of regulations, banks have cited the tepid recovery in the US as a reason for the declining revenues that many have seen so far this year. Jamie Dimon, the chief executive of JP Morgan Chase, and Lloyd Blankfein, the head of Goldman, have both argued that if the White House and Congress could strike a deal to tackle the US government's almost $16 trillion of debt that would lift the confidence of corporate America and, in turn, help their banks.

There is evidence that the prospect of the economy being hurt by a fiscal cliff - the shorthand for a mix of tax rises and spending cuts that is due to fall in January - is now weighing heavily on the decisions of businesses. Robert Wolf, a former executive at UBS who was Obama's ears and eyes on Wall Street during the last election, actually expects relations to improve between Wall Street and the president if he is re-elected. "Everyone will be focused on helping a fiscal deal get resolved," he says.

Even if the next occupant of the White House and Congress surprise by reaching an early deal on debt, there are some headaches Wall Street has that the election will neither make worse or better. Obama has proved powerless in helping to find a solution to Europe's crisis, and there is little reason to believe Romney will prove more effective. The likely continuation of the debt crisis on this side of the Atlantic is one reason many expect Wall Street banks to accelerate cost cutting measures whoever American voters elect. Banks have already eliminated more than 26,000 jobs this year, almost double what they did in 2011, according to a survey by Challenger. Glenn Schorr, a banking analyst at Nomura, expects the cut to get much deeper. If it happens, London is unlikely to be spared.

Even if Romney begins to narrow Obama's lead over the next month, it may not be enough to lift the mood on Wall Street - or the City of London.