Nine Wall Street firms that make the most money from selling state and city bond issues around the country said yesterday that they would temporarily abstain from making contributions to politicians or candidates who could give them business.
The curb on contributions comes amid increased scrutiny into how the lucrative business of selling bonds is awarded to financial firms.
These firms have long made generous contributions to candidates for state and local office around the country.
Merrill Lynch & Co.; Goldman, Sachs & Co., and Lehman Bros. were among the firms that said yesterday that they would not make such donations for now.
The others were CS First Boston, Smith Barney Shearson Inc., Paine Webber Inc., Prudential Securities, J.P. Morgan Securities, and Kidder, Peabody & Co.
Wall Street executives have long bemoaned the practice, saying that if they wanted to compete for business they had to make such donations because their competitors did. While the contributions are legal, they have sometimes left the perception that firms are buying business.
But efforts to curtail the custom did not gain momentum until this year, when federal investigations began into whether kickbacks were involved in the underwriting of New Jersey Turnpike bonds.
"This is substantive change taking place," said Carl Eisler, a managing director and head of public finance at CS First Boston. "This is major mind-set shift."
Even before the nine firms announced their moratorium, some industry leaders were working on a separate plan to ban political contributions permanently.
"When it gets to the point that people feel it doesn't look right and might undermine the integrity of the business, we should get together to change it," said David Clapp, head of the municipal bond department at Goldman, Sachs and the new chairman of the Municipal Securities Rulemaking Board. The board writes regulations for municipal bond dealers.