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Insight: Krawcheck, possible SEC head, raises Washington image

Sallie Krawcheck, former head of Bank of America's wealth and asset management division, speaks during an interview in New York, June 11, 20
Sallie Krawcheck, former head of Bank of America's wealth and asset management division, speaks during an interview in New York, June 11, 20

By Jessica Toonkel

NEW YORK (Reuters) - Sallie Krawcheck has been quietly raising her profile in Washington. For six months the former executive at Bank of America and Citigroup has been meeting with lawmakers on both sides of the aisle, offering her insights on a variety of issues including "too big to fail banks" and money market fund reform.

Krawcheck, 48, who was ousted from senior jobs by both banks in recent years, had already sought to distance herself from Wall Street "fat cats" through op-eds, social media posts and TV appearances that have positioned her as an investor advocate.

It all helps to explain why there has been speculation in the media in recent days that Krawcheck has become a contender to be chairman of the U.S. Securities and Exchange Commission, after last week's announcement that current head Mary Schapiro will soon be stepping down. President Barack Obama named SEC Commissioner Elisse Walter to take over the regulator as chairman designate but he will need to either renominate her next year or find someone else as a permanent replacement.

To some, talk of Krawcheck as a candidate came as a surprise given her background as a former executive at banks that needed to be rescued by the government and her lack of Washington experience.

And one person familiar with her thinking said that Krawcheck's efforts over the past few months were not necessarily intended to position her for a shot at the top SEC job. Rather, after getting fired from Bank of America, Krawcheck decided that whatever she does next she wants to get a job that addresses investor advocacy issues.

But others say the SEC job would fit with her views and approach.

"She has always been willing to take controversial views and she gets the industry," said Gary Black, global co-chief investment officer at Calamos Asset Management, who worked with Krawcheck when she was at research house Sanford C.Bernstein, and keeps in touch with her. "She brings a practical view on how to regulate the industry."

New York Senator Charles Schumer, a senior Democrat on the Senate banking and finance committees, has been a prime target for Krawcheck's overtures, sources say. He could be a key ally if Krawcheck is seriously considered for the SEC job or another in Washington.

"ISN'T AN ACT"

People who know or have worked with Krawcheck say the investor's friend persona isn't an act.

"She has been an advocate for clients as long as I've known her," said Lyle LaMothe, a wealth management consultant who retired as head of Bank of America's Merrill Lynch brokerage in 2011 after 24 years with the firm. "When we would be in executive session, once we got through the business of the day the final question (she asked) was, ‘Is this in the best interest of the client?'"

Early on in her career as a commercial banking analyst at Bernstein, Krawcheck was known for being candid about her views, even if they were not popular.

In 2002, Krawcheck, who by then was chairman and CEO of Bernstein, was featured on the cover of Fortune magazine for a story about the search for the "last honest analyst."

"She is not a 'yes' person," said Eric Stoclet, an executive director in London at Forum Partners Investment Management who was an executive for Citi's private bank in London from 2004-2006. "She did quite a good job at Citi with some very tough people."

Her candidness has put her at odds with superiors. In 2008, Krawcheck, as head of Citi's wealth unit, clashed with then CEO Vikram Pandit over how to reimburse clients who bought hedge funds that turned out to be toxic and who owned auction rate securities they were unable to liquidate. Krawcheck argued for paying investors back and suggested making zero percent loans to those clients, a person familiar with the situation said. Within months, she was out.

As head of Bank of America's wealth management unit, Krawcheck praised a controversial plan that would hold commission-based brokers to the same higher ethical standards as fee-based financial advisers - an idea that could drastically affect Merrill's bottom line. She bristled at Wall Street's efforts to derail the idea.

"Regulators are upset with us, the public is irate with us...and some number is bewildered by us...Rather than focus on each other, we should shift our focus to our clients," she told attendees of a Securities Industry and Financial Markets Association's private client conference in April 2010.

She was ousted at Bank of America by CEO Brian Moynihan as part of a reorganization in September 2011.

RADIO SILENCE

The SEC is not seen as the only option. Some have suggested that Krawcheck might want to cut her teeth in Washington in a mid-level position at the U.S. Treasury Department or in a senior role at the new Consumer Financial Protection Bureau, according to the person familiar with Krawcheck's discussions with legislators.

It is unclear whether Krawcheck is a serious contender for the SEC post. Other possible contenders include Richard Ketchum, head of the Financial Industry Regulatory Authority, and Walter, who can remain in the post through December 2013 without needing Senate confirmation.

Krawcheck, often named among the most powerful women in banking, has kept a lower profile since her name was mentioned as a candidate to run the SEC. Her last tweet - on the wisdom of a money market reform proposal from the head of retail brokerage Charles Schwab - came at 10:30 a.m. ET last Monday, just minutes after the SEC officially announced Schapiro's departure.

Krawcheck may be a hard sell for the Obama administration, given that two of her former employers were big contributors to the U.S. financial crisis. She was also chief financial officer at Citigroup at a time when it increased its leverage significantly, and she has been a beneficiary of Wall Street's multi-million dollar signing bonuses and departure packages for top executives.

What's more, a lack of regulatory experience may hurt her chances of getting the SEC post - though former SEC head Arthur Levitt didn't have any when he took the helm.

"ALWAYS HAS A PLAN"

Still, many who have worked with her say Krawcheck was a smart, analytical and competent executive who not only knew the business, but was good at building consensus among different units of companies. She helped restore brokerage Smith Barney's reputation at Citigroup and was popular with many of the financial advisers at Merrill Lynch.

Schumer and other lawmakers contacted by Reuters did not return calls or requests for comment about meetings with Krawcheck or their thoughts about her.

In the end, of course, Krawcheck may not land in Washington at all, two people who know her said.

She has had discussions about a variety of roles with several companies, one source said.

"She has lots of balls in the air," said the source, who asked not to be named because the conversations were private. "Sallie always has a plan."

(Additional reporting by Jed Horowitz and Suzanne Barlyn in New York, Rick Rockather in Charlotte, and Sarah Lynch in Washington; Editing by Jennifer Merritt, Karey Wutkowski and Martin Howell)

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