Banks Went South For Lower Taxes. They Got Clashes Over Guns and Abortion
(Bloomberg) -- Wall Street’s trip down south to Texas and Florida -- where taxes are lower, regulators friendlier, real estate cheaper and the pace is calmer -- accelerated when the pandemic hit.
It didn’t take long for the trouble to start.
Wall Street’s three biggest municipal-bond underwriters have seen business grind to a halt in Texas after the state blocked governments from working with banks that have curtailed gun-industry ties. In June, as Goldman Sachs Group Inc. was on the hunt for a new campus in Dallas, Republican Governor Greg Abbott took a shot at ESG initiatives by banning state investments in businesses that cut ties with oil and gas companies.
That’s not to mention the brawls over Covid vaccines and mask mandates, deadly Texas blackouts along the country’s most isolated power grid and new state laws that restrict voting and all but ban abortion. It’s all happening just as Wall Street’s shareholders push the industry to fight climate change, racism and the gender gap.
“It’s incredibly sad to me,” said Colleen Foster, who retired this year as a Goldman partner, lived in Texas decades ago and has sat on Planned Parenthood’s national board of directors. “We’re going backwards when I thought things were decided.” She hopes finance firms stay in Texas and Florida and “use their political power” to fight laws that hurt women.
So far, most big banks haven’t taken public positions on the new abortion restrictions. They’re being cautious about requiring Covid-19 vaccinations for employees in places where officials have assailed mandates. But the new Texas gun law is running into both the industry’s efforts to advance social causes and its ability to work with the second-largest state for muni-bond issuance.
JPMorgan Chase & Co. -- which has 25,500 Texas employees, its most in any state outside New York -- has said it can’t bid on most business with public entities in Texas because of ambiguities around the law. The biggest U.S. bank is assessing its potential next steps, said a person with knowledge of the company’s thinking.
Republicans don’t seem to be sweating it. Glenn Hegar, Texas’s comptroller, said it’s unfortunate that JPMorgan “no longer wants to participate in one of the fastest-growing and most dynamic markets in the nation.” He added that the door is open for other companies to gain market share.
Citigroup Inc. has said it believes it can comply with the gun law, which went into effect Sept. 1, but has temporarily pulled back. Banks have to provide written verification that they’re in compliance with the new law.
Tyler Harris, who worked for Wall Street before becoming an executive at Moriah Energy Investments, said big lenders have been lulled into “a false sense of alignment” with Florida and Texas, where he lives and works.
“If you’re a Wall Street bank, and the only Texans you know come from Dallas, Houston and Austin -- which feels accurate -- then you don’t really have any sense for how different the rest of the state is,” he said.
Even if bank executives tend to call themselves socially progressive, some have been reluctant to take political stances because they’re “worried about the bogeyman of who they might alienate,” said Jen Stark, senior director of corporate strategy at the Tara Health Foundation, who works with corporations to advance racial and gender equity.
Stark said she thinks the calculus will change as basic rights come under threat: “You can have a state with a fantastic incentive structure for business. If top talent doesn’t want to be there, then that becomes hard operationally.”
Even as Texas and Florida have been coronavirus hotspots -- more than 121,000 people have died in the two states -- both saw real estate prices surge during the pandemic as people relocated. Florida’s West Palm Beach attracted so many New Yorkers that it’s being positioned as Wall Street South.
|Read more on Wall Street’s southern migration|
The latest Texas legislation has turned the state into the “wild, wild west,” according to Vikki Goodwin, a Democratic state lawmaker who represents the Austin area. Along with the abortion law, companies are worried about legislation allowing people to carry handguns without permits, she said. In Dallas, the gun law could limit competition for debt sales and hurt lending relationships, Elizabeth Reich, the city’s chief financial officer, said earlier this year.
Tensions are spilling over in other parts of the country. Barclays Plc faced criticism when it sought to underwrite bonds for new prisons in Alabama after vowing to cut financing ties with the for-profit industry. A socially responsible business group threw the bank out in protest, and Barclays eventually made the rare move of pulling out of the sale.
“Wall Street banks rightly or wrongly assumed that decisions followed the money the way they do in New York,” said Christine Breck, who founded the peer network Texas Wall Street Women and raises capital for hedge funds. “That’s not necessarily the case in Texas, because you have 254 counties that wield a lot of political power.”
Banks have to understand a place’s history and background before moving in, she added. “And if you expect every state to be the same? It’s not.”
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