By Jesse Hamilton and Robert Schmidt
(Bloomberg) --President Donald Trump’s latest nominees to regulate Wall Street have deep ties to the financial industry that they’ve pledged to untangle -- with one exception, according to recently released financial disclosures.
Randal Quarles, Trump’s pick to be the Federal Reserve’s powerful bank watchdog, plans to keep a stake in one of the biggest asset management firms in the U.S., even as he sheds other investments that could pose conflicts of interest, according to an ethics agreement. Joseph Otting, the president’s choice to lead the top federal regulator of national banks, will sell CIT Group Inc. shares worth millions, his own agreement indicates.
Financial disclosure forms for Otting and Quarles, released along with the ethics letters by the U.S. Office of Government Ethics, show both men have generated substantial wealth from the industry they will now be tasked with regulating, should the Senate confirm them. While their forms don’t provide net worth figures and only require holdings to be listed in broad ranges, a tally of their assets at the minimum levels shows Quarles and Otting have fortunes in the tens of millions of dollars.
The Senate Banking Committee will consider their appointments at a July 27 hearing.
TCW Stake
Quarles is a former Treasury Department official who is preparing to leave Cynosure Group, a Salt Lake City-based private equity firm he co-founded, to become the Fed’s first-ever vice chairman of supervision. Before he takes the job, he said in a letter dated July 12 he intends to sell off investments he obtained running Cynosure and a number of other holdings tied to his previous job at Carlyle Group LP.
He wants to retain a stake in TCW Group Inc., an asset manager that Carlyle owns about 60 percent of. It’s not clear from Quarles’ disclosures how much of TCW he personally owns. He said he wants to keep his investment “if the retention of this interest can be completed in a manner that complies” with federal ethics laws.
Among the Carlyle holdings he intends to divest are stakes in Sandler O’Neill & Partners, Capital Bank Financial Corp., Xenith Bancshares Inc. and Bank of N.T. Butterfield & Son Ltd. A Cynosure asset he plans to sell is his interest in Brand Group Holdings Inc., which owns a community bank in Georgia.
Quarles also has a number of ties to embattled lender Wells Fargo & Co., according to his filings. They include at least $1.3 million in stock that he pledged to sell and an “exercised line of credit” of more than $1 million. San Francisco-based Wells Fargo also holds a $1 million to $5 million mortgage on Quarles’ personal residence and a mortgage of between $100,000 and $250,000 on an investment property.
Theranos Investment
The Fed nominee disclosed in his ethics agreement that he’ll also divest shares of U.S. Bancorp and JPMorgan Chase & Co., and he’ll quit as a board member at the U.S. Chamber of Commerce and the Financial Industry Regulatory Authority -- an industry-funded watchdog that regulates brokerages. Finra paid Quarles $147,400 in director’s fees in the past 18 months, according to the form.
Quarles also reported that his various family trusts own at least $1.4 million of stock in Theranos Inc., the Palo Alto, California-based startup facing allegations that it misled investors and the public over its flawed blood-testing business. His family has wide real-estate holdings, including a hotel and restaurant in the Deer Valley Ski Resort in Utah and a ranch near Sun Valley, Idaho. Each were valued at more than $1 million.
The extent of his wealth is particularly difficult to measure, because private partnerships are often opaque. For instance, his disclosure describes one private-equity fund’s holdings only as “unsecured credit investments” and notes that “it is against the fund manager’s policy to provide position transparency to its investors.”
Quarles is married to Hope Eccles, a member of one of the wealthiest families in Utah. Her relative, Marriner Eccles, was Fed chairman from 1934 to 1948, and the central bank named one of the buildings that make up its Washington headquarters after him.
Mnuchin Deputy
Otting’s long history as a banker -- including running OneWest Bank as its chief executive officer while Treasury Secretary Steven Mnuchin was the lender’s chairman -- left him with investments in several firms that ethics rules require him to sell. OneWest was acquired by CIT, where Otting was briefly co-president. He also held executive posts at U.S. Bancorp and MUFG Union Bank, a U.S. unit of Mitsubishi UFJ Financial Group Inc.
Otting reported owning $1 million to $5 million in CIT shares and $5 million to $25 million in restricted stock.
CIT, Otting said in his June 23 letter, will speed up the vesting of all his unrestricted stock once he’s confirmed. Otting, who left CIT in 2015, received $10.5 million from a payout of his employment contract, his disclosure form shows.
He pledged to sell all his CIT shares within 90 days of taking over the Office of the Comptroller of the Currency. The agency is now run by Keith Noreika, a banking lawyer installed by the Trump administration on a temporary basis.
Nevada Homes
Along with his CIT holdings, Otting has agreed to shed stock in a number of other financial firms to avoid conflicts, including U.S. Bancorp, JPMorgan Chase & Co., PNC Financial Services Group Inc., United Bankshares Inc., BB&T Corp. and BlackRock Inc.
Otting also said he would recuse himself from particular matters involving two banks that the agency regulates, U.S. Bancorp and Union Bank, because of pensions he and his wife are set to receive from those lenders. Otting will be paid almost $60,000 a year from U.S. Bancorp after he turns 65. His disclosure doesn’t set a value on his wife’s pension from Union Bank.
He reported deposits at U.S. Bancorp of between $1 million and $5 million, though he may need to open some additional accounts. As part of his government ethics agreement, Otting pledged to bring each cash account’s balance below the $250,000 maximum that is eligible for Federal Deposit Insurance Corp. protection.
Among Otting’s non-financial holdings are a number of properties in Las Vegas. He put a stake in Southern Highlands Golf Club as being worth $5 million to $25 million, and he valued an investment in the Spa at Southern Highlands the same. He also listed eight residential rental properties in the city.
A White House spokeswoman didn’t respond to a request for comment on the disclosures.
To contact the reporters on this story: Jesse Hamilton in Washington at [email protected] ;Robert Schmidt in Washington at [email protected] To contact the editors responsible for this story: Jesse Westbrook at [email protected] Alexis Leondis