Oct. 16 (Bloomberg) -- White House officials say they are
growing frustrated that the banking industry is fighting
President Barack Obama’s plan to overhaul financial regulations
after taxpayer bailouts helped firms restore profits and near-
record compensation for executives.

Their anger is directed even at firms such as New York’s
JPMorgan Chase & Co. and Goldman Sachs Group Inc. that have
paid back their government assistance and reported a surge in
third- quarter earnings this week. The issue, according to
administration officials, is the industry is generally on sound
footing because of government help and lobbying against Obama’s
regulatory plans goes against the nation’s long-term interest.

“We are disappointed by the lobbying of anyone in the
financial industry against regulatory reform, considering the
obvious need for change on that front,” Valerie Jarrett, a
senior adviser to Obama, said.

Wall Street regulation is scheduled to be among the topics
when Jarrett, Obama adviser David Axelrod and White House Chief
of Staff Rahm Emanuel appear on Sunday news talk shows Oct. 18.

The administration is mounting a counteroffensive by
pointing to a disconnect between Wall Street and the rest of
the country: while some big banks report compensation plans and
profits at pre-crisis levels, the unemployment rate rose to 9.8
percent last month and home foreclosures jumped 29.2 percent
from a year earlier.

Messengers

The tougher message is being repeated from the president
on down.

Now is the time for “firm rules of the road so that banks
can’t game the system and the financial crisis on Wall Street
doesn’t end up hurting folks on Main Street,” Obama said last
night at a Democratic Party fundraiser in San Francisco.

Lawrence Summers, director of Obama’s National Economic
Council, was giving voice to it today in New York.

“There is no financial institution that exists today that
is not the direct or indirect beneficiary of massive taxpayer
support for the financial system,” Summers said in remarks to
a conference sponsored by the Economist newspaper.

Obama is renewing his push to redo financial industry
regulations by the end of the year, and many of his proposals,
including a Consumer Financial Protection Agency, are facing
stiff industry opposition.

Groups led by the Financial Services Roundtable and
American Bankers Association, both based in Washington, urged
Congress in July to scrap the consumer agency, saying creation
of a new regulator would cut consumer access to credit.

‘Backlash’

Goldman Sachs CEO Lloyd Blankfein said he didn’t expect a
“backlash” when he accepted the government funds.

“Had I know it was as pregnant with this kind of
potential for backlash then of course I would not have liked
it,” Blankfein said today at a Fortune magazine breakfast in
New York.

“We are firm believers in effective regulation and
believe that it is systemically important to have a regulatory
framework which ensures stability of the financial system,”
Goldman Sachs spokesman Lucas van Praag said.

Joseph Evangelisti, spokesman for JPMorgan, referred to
comments Chief Executive Officer Jamie Dimon made in his letter
to shareholders in which he said that the extent of the
problems made it clear that “rules and regulations must be
completely overhauled.” Dimon also said that new policies
should be “grounded in a thorough analysis of what happened”
and that “political agendas or simplistic views will not serve
us well.”

Citigroup didn’t immediately respond for comment.

Financial Rebound

The mounting frustration about pushback from the industry
comes the same week that the Dow Jones Industrial Average
climbed above 10,000 for the first time in a year and firms
including JPMorgan and New York-based Citigroup Inc. reported
third-quarter earnings that beat analyst estimates.

Administration officials say they recognize a healthy
banking sector is critical to the economic recovery and that
they’re limited in their ability to penalize the firms,
particularly those that no longer owe the government money.

The most politically volatile issue is executive
compensation. Obama has said he believes some of the resistance
to his agenda stems from resentment about expanding government
involvement in the private sector, including bank bailouts.
Reports about rising profits, executive salaries and bonuses
following on the government rescue, may add to voter
dissatisfaction.

Earlier this week, Citigroup reported a $101 million
third-quarter profit as it slowed the pace of building reserves
for future loan defaults. On a per-share basis, the bank had a
loss of 27 cents because of a charge related to the exchange of
preferred shares into common stock.

Capital Requirements

Citigroup, JPMorgan Chase and San Francisco-based Wells
Fargo & Co. also asked regulators for a reprieve from meeting
higher capital requirements taking effect next year, arguing
that lending and the economic recovery would be harmed.

Goldman Sachs, which repaid $10 billion it received from
the U.S. Treasury last year, also reported a surge in third-
quarter profit. The company has set aside $16.7 billion to pay
employees so far this year, enough to pay each worker $527,192
for the period.

JPMorgan, which repaid $25 billion of U.S. rescue funds in
June, said this week that its profit surged sevenfold in the
quarter, to $3.59 billion, on higher investment-banking
revenue. The company, which is the second biggest bank by
assets, set aside $8.79 billion for compensation and benefits
for its investment-bank employees in the first nine months of
2009, enough to pay $353,834 to each.

Feinberg’s Role

Administration officials have pointed to the appointment
of Kenneth Feinberg to oversee compensation plans at the top
firms that haven’t repaid assistance funds. They also cite
Obama’s support for giving shareholders a non-binding say on
compensation.

Feinberg’s compensation reviews for companies including
Charlotte, North Carolina-based Bank of America Corp. and
Citigroup, each of which got $45 billion in government aid, are
expected as early as next week.

He’s already advised Bank of America Chief Executive
Officer Kenneth Lewis to forego his 2009 salary and bonus. Bank
of America, the biggest U.S. lender, posted a $1 billion third-
quarter loss.

Citigroup announced last week that it would sell its
Phibro LLC energy-trading unit, a decision made to avoid a
potential showdown with Feinberg over the unit’s CEO, Andrew
Hall’s $100 million pay package.

To contact the reporter on this story:
Julianna Goldman in Washington at
jgoldman6@bloomberg.net