BREAKINGVIEWS-Misguided regulatory chemotherapy threatens banks

Thu Mar 7, 2013 1:38am IST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Antony Currie

NEW YORK, March 6 (Reuters Breakingviews) - What's one of the biggest threats to the American economy? "Misguided regulatory chemotherapy," is the pull-no-punches answer from Bob Wilmers, the boss of Buffalo, New York-based M&T (MTB.N). That is risqué language coming from the chief at a bank that received money from the U.S. government's financial industry bailout - and only paid them back last year.

But Wilmers' track record makes him one of the few industry veterans whose opinion merits a listen from investors. The bank treated them kindly by never cutting the dividend. And it used the downturn to buy struggling rivals. The strategy paid off as M&T last year earned a return on tangible equity of almost 20 percent.

Colorful metaphors aside, his point on regulation is a simple one – unlike some of the more arcane discussions Wall Street executives have had in Washington. Wilmers is arguing that the welter of new rules is piling on so many extra costs, time and complexity that it risks undermining the basic function of lending. Granted, after the mistakes many banks made extending credit in the last boom, change is needed. Wilmers' call for rules based on "clarity and simplicity," though, is hard to reject.

He applies the same logic to his swipe at the Financial Accounting Standards Board. The result of spending $164 million over five years to come up with 94 new rules, he argues, is confusion, pages of disclosure no one reads and delays in building up loan-loss reserves. In Wilmers' eyes the only beneficiaries are accounting firms.

Both arguments carry merit, as does his broadside on the nation's top six bank bosses being paid 264 times the national average – though at $3 million for his services in 2011, Wilmers is no pauper either.

As with some of his previous letters, this one does at times come across as little more than a list of gripes. But he makes a good, common-man stab at outlining his vision of how banks should function. All in, his 26-page missive remains a must-read. JPMorgan's (JPM.N) Jamie Dimon, another CEO whose shareholder letter functions as bully pulpit, will have to polish his prose to compete.

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CONTEXT NEWS

- M&T Bank, a top 20 U.S. bank by assets with a $14 billion market value, published its annual report on March 6. In his letter to shareholders, Bob Wilmers, its 77-year-old chairman and chief executive, referred to excessive oversight as "misguided regulatory chemotherapy – where the treatment meant to eliminate cancer cells damages healthy ones in the process." The analogy is designed to draw attention to his belief that too much regulation crimps banks' ability to lend and help the economy grow.

- He also attacked the complexity added to reporting financial statements by the Federal Accounting Standards Board, arguing that only accounting firms benefit – especially the big four. And he argued that compensation at larger firms is still far too high, with the average pay of CEOs at the nation's top six banks equating to 234 times the national average for employees.

- M&T annual report: link.reuters.com/rec56t

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(Editing by Rob Cox and Martin Langfield)

((antony.currie@thomsonreuters.com)(Reuters messaging antony.currie.thomsonreuters.com@reuters.net)) Keywords: BREAKINGVIEWS MANDT/WILMERS

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