Senate Banking Committee Chairman Chris Dodd (D-Conn.) invited top executives in the equity and fixed-income trading divisions of the nation’s largest banks to have lunch with him in Manhattan on Tuesday in the hope of recruiting bundlers for his presidential campaign.

Although the lunch was canceled at the last minute — campaign spokeswoman Colleen Flanagan said there was a scheduling conflict —  officials at government watchdog groups said the invitation was an unusually systematic way of recruiting fundraisers from a narrow industry sector over which Dodd has power as Banking chairman.

Banks, and particularly equity and fixed-income traders, have a big stake in the legislation because they deal heavily in mortgage-backed securities and bonds. Of central importance is whether Congress will hold banks and their investors liable for holding securities backed by loans deemed abusive or predatory. This could cost banks hundreds of millions of dollars.

Vince Frillici, Chris Dodd for President’s national finance director, e-mailed bank officials last week asking if the most senior executives in their equity and fixed trading divisions would join Dodd for lunch in midtown Manhattan Tuesday.

Frillici informed them that while executives would not have to make any commitment or contribution to the campaign to attend, the purpose of the meeting was to recruit fundraisers willing to bundle thousands of dollars worth of contributions, according to a copy of his correspondence obtained by The Hill.

“We are doing this luncheon in an attempt to recruit ‘Table Sponsors’ for our last major NYC event of 2002, taking place on Tuesday, November 13,” wrote Frillici, adding: “Individuals can sponsor a table by raising either $10,000 or $23,000 for Chris Dodd for President.”

Dodd has raised nearly $14 million for his presidential campaign. Many top donors have been banks with an interest in the sub-prime mortgage market, which has emerged as a hot political issue.  

Meredith McGehee, policy director of the Campaign Legal Center, a non-partisan advocate for ethics and campaign finance reform, said it would be difficult for executives to turn down Dodd’s invitation.

“If you’re a banker and don’t pay attention to the guy who chairs the Banking Committee, you’re not carrying out your fiduciary responsibility to your institution,” said McGehee.

“You feel if you don’t respond there’s always the question lurking of ‘Am I going to be punished?’ ” she said.

But McGehee said Dodd does not deserve special opprobrium because he is a “participant like everyone else” in a presidential fundraising environment that needs more regulation.

Dodd’s situation is different from other Democratic presidential candidates’ because he chairs a committee with jurisdiction over banking and mortgage lending and is expecting to introduce legislation soon that will affect those sectors.

Nearly 2 million Americans face foreclosure on their homes. Many took out high-interest loans in the sub-prime market because their poor credit prevented them from obtaining better terms.

A lobbyist at a major international bank said that equity and fixed-income trading involves a variety of mortgage-backed investments ranging from bonds to securities. Sub-prime lending “undoubtedly” would have been discussed at the Dodd lunch.

“He’s the chairman of the Banking Committee and he’s been really involved in the sub-prime market conversation,” said the lobbyist.

Executives in the trading divisions of big banks would have been curious to know Dodd’s intentions for legislation he is expected to offer next month on abusive lending, which may make banks liable for profiting from bad loans.

Thomas Tarter, a California-based expert on loan underwriting who has served on the board of directors of several banks and a mortgage company, said securitized mortgage loans are a “very profitable element of major investment banking.”

Investment banks buy loans or pools of loans and turn them into securities for sale to investors. Investment banks have encouraged sub-prime lending because they carry high interest rates and promise investors higher profits. But the loans mean bigger interest payments for consumers at higher risk of defaulting amid a housing slump that has pushed some real estate values below loan values.

“Investment banks that were gobbling up the loans … wanted riskier and riskier loans to be made,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “[They were] looking to make as much money as possible. The highest interest rates create the highest-yield bonds. Mortgage lenders were not making loans that consumers wanted but loans that Wall Street wanted.”

Craig Holman, an advocate for Public Citizen, another nonpartisan group seeking ethics and campaign finance reform, said the message from Dodd’s finance director was an unusual effort to recruit bundlers, who also raise thousands of dollars in political contributions from friends and business associates.

“Usually bundlers are pulled together through personal connections and phone calls,” said Holman. “I’ve never heard of a campaign setting up a pre-bundling luncheon, which is what this is.

“Dodd has a policy he has to offer this narrow business segment and he hopes they will bring in dollars for him.”
Holman said the fundraising tactic was legal but added that linking discussion about the business concerns of a narrowly defined group of bankers with fundraising raised his eyebrows.

“I’ve never heard of it being done this way,” he said.