Cantor Speaks

From Washington to Wall Street

Cantor-BertBostelmannHB
Eric Cantor, former Republican Majority Leader. Source: Bert Bostelmann for Handelsblatt
  • Why it matters

    Why it matters

    Now an investment banker, Eric Cantor’s views still carry great weight in Washington, where the former congressman remains involved in fund-raising for the Republican Party.

  • Facts

    Facts

    • The boutique investment bank Moelis was founded by Wall Street veteran Ken Moelis in mid-2007 and focuses on mergers and acquisitions.
    • Moelis went public in April of last year, and by the end of 2014 reported record profits of $519 million.
    • In Germany, M&A specialist Jan Caspar Hoffmann and McKinsey’s former German head Herbert Henzler have been tasked with expanding the operations of this New York bank.
  • Audio

    Audio

  • Pdf

Eric Cantor’s own days in Congress may be in the past, but the former U.S. Republican House Majority Leader never really left the Washington scene.

Now a vice chairman of U.S. investment bank Moelis, Mr. Cantor serves as a lobbyist for Wall Street and remains an advocate for the conservative Republican Party’s views on financial reform. He is also helping the Republicans with fund-raising activities ahead of the 2016 presidential elections.

Mr. Cantor stopped by Germany’s financial capital recently for an annual luncheon of the Frankfurt Union International Club. In an interview with Handelsblatt, he had plenty to say not just about U.S. politics, but the state of the global financial sector.

Handelsblatt: Mr Cantor, is the general public in the U.S. still as angry with the banks as when the financial crisis began?

Eric Cantor: After the start of the financial crisis, the Occupy Wall Street protest movement significantly influenced the president, the Democratic Party and its policies. The Republican majority in the Senate and in Congress concentrates on offering the American people better opportunities in life. Everyone must have the chance to get right to the top. This should also be the message from the presidential candidate in next year’s election.

Does that mean investment bankers are no longer criticized as strongly as they were shortly after the outbreak of the crisis in 2008?

At the moment a lot of people in business who are successful are facing criticism. Sure, there are large wealth gaps among the population. That’s something we need to address. But the best way to go about that is if every individual has a good chance of attaining prosperity.

Will social mobility be the top issue in the U.S. elections next year?

It will be important, but there are other issues. The election will have a much stronger focus on foreign policy than the last two campaign periods. It will be about problems such as the violent conflicts in Syria, problems that the Obama administration is not attempting to solve.

Could you imagine being part of the government after the election – as Secretary of the Treasury, for example?

At the age of 51, I’m currently focusing on my work as Vice Chairman at Moelis, at the interface between politics and finance, on issues such as the regulation of banks.

Here in Germany, when we think of Wall Street, we think of JP Morgan, Bank of America or Citi. Is there a particular reason why you opted for the boutique investment bank Moelis?

Moelis has a strong foundation here in the U.S., but it is also present in all major countries worldwide, with 17 offices, and offers uniquely integrated services across national borders. We regard this as one of our greatest strengths. What’s more, as an independent investment bank we don’t run the risk of conflicts of interest, since we don’t make our balance sheet available to companies, for example by providing credit.

That means you are dependent on the booming market for mergers and acquisitions, or M&A. How long is it going to last?

If you look at Germany, the first quarter didn’t go particularly well, yet we’re still certainly expecting it to be a strong year.

…just in Germany?

Business is better in the U.S. for the time being. But the boom should last for a few more years anyway. Buyouts are not driven by exchange rates or tax benefits, however. The crucial aspect is always the company strategy. In recent years the U.S. was involved in most cross-border transactions. We expect this trend to continue or even accelerate.

In which top industries are the sought-after companies to be found?

In particular, we can expect to see major deals worldwide in the health-care and industrials sectors– with German companies very likely to be involved. In most cases there’s no shortage of financing.

Are we already on the way to the next bubble? The next crisis?

There’s no doubt that bubbles are currently forming due to the high valuations of securities. This is also related to the extremely low interest rates and the resulting hunt for returns. The regulators are therefore making sure the banks maintain high capital buffers, which is slowing down economic growth.

Is this a serious problem?

We could use some growth in Europe, in America and even in China. In the U.S. the parties are not managing to get the urgently needed tax reforms in motion before the elections, but the same could be said of pension system reform.

Is the long-anticipated rise in interest rates getting in the way as well?

Currently the market anticipates an interest rate increase by the U.S. Federal Reserve in November. But this decision will be taken on the basis of stable growth of the economy and in wages.

Are excessive regulations in the financial sector also slowing down growth?

Unfortunately the current political landscape doesn’t make it possible to move forward positively with Wall Street reforms through the Dodd-Frank Act. Senator Elizabeth Warren, as the figurehead of the left, makes sure that no day goes by without fresh allegations being flung at the banks. Yet essentially it is a matter of improving the reforms, for example with regard to retail investors and derivatives.

Could a free trade zone in Europe and the U.S. be a growth driver?

TTIP would be a growth driver on both sides of the Atlantic. In light of the Republican majority in the U.S. Senate and in Congress, I believe TTIP will ultimately be approved. But it still won’t be easy though. The bulk of Democrats oppose a free-trade agreement because of trade union concerns, and in Europe there are fears that need to be dispelled.

In Germany, the U.S. intelligence agency NSA’s surveillance in cooperation with the German intelligence agency BND is regarded very critically. Is America showing too little regard for its trusted allies?

Of course sensitivity is high everywhere, particularly in Germany due to its Stasi past. But we in America also have constitutionally protected rights to privacy. The Edward Snowden situation in the U.S. increased concerns many Americans have regarding a government growing too intrusive into private affairs. However, the collection of information has made the world a safer place after the 9/11 attacks. We are friendly countries, allies. We belong together and we have to work together.

That sounds politically correct. Are you sure we won’t see you as part of the government in Washington after the 2016 elections?

You can visit me at the Washington office of Moelis. Seriously. I have an exciting job here at a fast-growing investment bank. I want it to stay that way.

Mr. Cantor, thank you for the interview.


Video: Eric Cantor’s final remarks as majority leader.

The interview was conducted by Robert Landgraf, the deputy head of Handelsblatt’s finance section, and Peter Köhler, who leads coverage of asset management and M&A deals from Frankfurt. To contact the authors: landgraf@handelsblatt.com and koehler@handelsblatt.com

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