Reuters Summit-UPDATE 3-Brokerage bosses brace for gridlock

Tue Nov 2, 2010 5:10pm EDT

(For other news from the Reuters Wealth Management Summit, click here)

* TD Ameritrade CEO says government must prune spending

* Evercore Wealth chief warns against gridlock

* Stifel CEO sees Obama policies "pummeled" in elections

* Glenmede: stocks usually rise after midterm elections (Adds Glenmede CEO, and historical background on stock market performance after midterm elections)

By John McCrank and Joseph A. Giannone

NEW YORK, Nov 2 (Reuters) - Brokerage bosses were hoping for a more business-friendly government as Americans voted in midterm elections on Tuesday, but they raised concerns that partisan wrangling in Congress could impede economic recovery.

Tuesday's elections could help financial markets and the U.S. economy by reining in government spending, Stifel Financial Corp (SF.N) Chief Executive Ronald Kruszewski said at the Reuters Wealth Management Summit

The brokerage and investment banking chief said he is confident that Stifel is well positioned to continue its decade-long ascent, but that mounting U.S. government debt and an unsteady economy keep him up at night.

"The problem is policies that continue to build government. Government that is too large can, in and of itself, smother an economy," he said.

In the elections, amid high unemployment and economic uncertainty, the Democrats were expected to lose their control of one or both houses of the U.S. Congress, a setback for President Barack Obama.

TD Ameritrade Chief Executive Fred Tomczyk, also appearing at the Summit on Tuesday, said while change in the government may inspire some confidence among investors, it will not last if the different branches of government do not work together better to focus on jobs and the economy.

"While the market has come back 9 or 10 percent since Labor Day, people are still quite cautious. They see high unemployment, they don't know where we're going," he said.

In contrast to Kruszewski, Tomczyk said more stimulus may be required on top of tax cuts, as well as spending reductions.

"Running the country is not a whole lot different than running a company. You have to prune some expenses. There's always room for some pruning, but you have to provide investment in things that stimulate the economy," he said.

GRIDLOCK

Jeffrey Maurer, head of boutique firm Evercore Wealth Management, where the average client has about $8 million in investments, echoed Tomczyk's concerns about gridlock.

"I think this country faces very real and dangerous threats, both economically and in foreign affairs, and that requires our best thinking," he said.

If there is a stalemate in government, "the Bush tax cuts will disappear and there won't be anything constructive to take their place to stimulate growth and to help the small businessman who carries a disproportionate burden of creating jobs in this country," he said.

Another area that Tomczyk said was a concern to TD Ameritrade, which runs the largest U.S. discount trading platform, was the likelihood of an extended period of low interest rates.

He said that in 2007 and 2008, half of the firm's revenue were interest rate-sensitive. The net interest margin of those assets has been cut by more than half.

At Stifel, a middle-market investment bank that underwrites stock offerings, arranges deals, trades securities and helps manage money for individuals, economic growth is critical. The St. Louis-based company has seen its stock drop 18 percent this year as these businesses have suffered.

MARKETS COULD ACTUALLY PROSPER

Kruszewski took the view that a Congress where neither party has control might be good for financial markets.

"There's a lot of policy decisions that have to be made, starting with that today," he said. "Obama's going to get pummeled today."

Financial industry firms bitterly fought legislation championed by Obama and passed by Congress in July that provided the broadest overhaul of U.S. financial rules since the Great Depression of the 1930s.

The law tightened regulations across the financial industry in an effort to avoid a repeat of the 2007-2009 financial crisis. It established new consumer protections, gave regulators greater power to dismantle troubled firms, and limited risky trading activities.

"The best outcome for the election for us is an outcome which instills a sense of some urgency in Washington across political lines," said Kruszewski.

Gordon Fowler, chief executive of money manager Glenmede, said at the summit that over the past 50 years, the impact of midterm elections on stock markets has normally been positive.

He said that since 1950, the S&P 500, on average, has risen 16.9 percent in the year following U.S. midterm elections, and after two years, it's been up an average of 27.3 percent.

"Historically in third years of presidential terms, people in Washington usually get together and make sure the economy's humming by the end of the four year term," he said. "It's also an opportunity for people unhappy with the current state of affairs to see events change." (For more on the Reuters Wealth Management Summit, see [ID:nN01148980]) (Reporting by John McCrank and Joseph A. Giannone. Editing by John Wallace and Robert MacMillan)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article