Low-Key Lew Becomes Sledgehammer With $160 Billion Deal Halt

U.S. Treasury Changes the Game on Tax Inversions
  • Treasury secretary known as cautious, behind-the-scenes player
  • `He doesn't have much of an ego,' predecessor Paulson says

Jacob J. Lew did something that’s been a rarity in his three-plus years as U.S. Treasury secretary: surprise people.

Just 37 hours after Lew announced unexpectedly tough guidelines aimed at deterring corporate inversions -- deals in which U.S.-based companies use an overseas acquisition to relocate their tax addresses to cut their bills -- Pfizer Inc. and Allergan Plc said they would end their $160 billion merger, terminating the largest-ever pharmaceuticals transaction.

Making a big splash is a departure for the low-key Lew, 60, who is so cautious that he avoids giving public speeches or live interviews during normal U.S. stock-market hours. That practice is a nod to the disastrous debut of his predecessor, Timothy Geithner, who sent equities tumbling in February 2009 when he failed to reassure investors about the government’s plan to repair the banking system.

“Secretary Lew has finally made his mark,” said Phillip Swagel, who was an assistant secretary under Treasury Secretary Henry Paulson and is now a professor at the University of Maryland. “It’s a sledgehammer approach, attacking the symptoms of a non-competitive tax code rather than the root causes.”

The Treasury action fits with President Barack Obama’s efforts to create an economic system that benefits more than just those at the top of the income ladder, an issue that has been at the forefront of a bruising presidential campaign. A loyal soldier in that effort has been Lew, who’s taken up issues such as more inclusion of the poor in the banking system.

Known as Jack, he came to the job with more Washington experience than many of his recent predecessors. He worked as an aide to then-House Speaker Tip O’Neill in the 1980s and rose to become White House budget director under presidents Bill Clinton and Obama, then later Obama’s chief of staff.

Budget Accord

As Treasury secretary, Lew’s biggest accomplishments include helping force Republicans to back down from debt-ceiling brinkmanship and securing congressional support for International Monetary Fund governance reforms that increase its permanent funding and give more voice to countries such as China and India. His tenure has also featured some stumbles such as U.S. isolation from a new Chinese development bank and backlash over plans to feature a woman on the $10 bill, instead of the $20 note.

Last week, a judge struck down the government’s designation of MetLife Inc. as a potential threat to financial stability by a panel led by Lew, a blow to his efforts to regulate the financial industry. The committee didn’t follow its own guidelines in concluding that MetLife was a threat to financial stability, the judge said in a legal opinion unsealed Thursday. Lew issued a statement saying he strongly disagreed with the decision.

The rule that ended the Pfizer-Allergan merger is designed to curb what Lew called “serial inverters” -- foreign companies that have linked up repeatedly with U.S. companies that then shifted their tax addresses overseas. Allergan Chief Executive Officer Brent Saunders said on CNBC that the action specifically targeted his transaction with Pfizer. Treasury officials have said the rules weren’t aimed at any particular deal.

Candidates from both parties have condemned inversions as unfair, unpatriotic maneuvers. Republican front-runner Donald Trump called the Pfizer-Allergan deal “disgusting.”

Lew said on Monday that the move “takes away a significant amount of the tax benefits of these serial inversions.”

“He really looks at problems from the viewpoint of ordinary Americans, and in this particular case, you’d say ordinary Americans would look at this and say, ‘Hey, wait a minute, they seem to be getting away with something that just feels wrong,’” said Mark Mazur, assistant Treasury secretary for tax policy, who was also a key force behind the new rules. “I think that’s what motivated him.”

Tall and thin, with neatly parted black hair and round, dark-rimmed glasses, Lew cuts an unassuming figure. More than a year into his tenure, 64 percent of Americans answered “not sure” when asked their opinion of him, according to an April 2014 poll by Rasmussen. Anonymity even seemed to be encoded into his signature, an illegible string of loops. Lew revised it to make it more recognizable on currency.

Mets Fan

Lew grew up in the New York City borough of Queens and remains a fan of the hometown Mets baseball team. As a law student in the 1980s, he spent his nights studying at Georgetown University and his days working for the cigar-chomping O’Neill, a Democrat who despite political differences worked out deals with President Ronald Reagan on issues such as Social Security.

Current and former Treasury employees say Lew is a good listener who rarely loses his cool and treats employees well. An Orthodox Jew, Lew limits the work he does on Saturdays, such as by avoiding the use of electronics.

“He’s a team player,” Paulson said in an interview last year. “He doesn’t have much of an ego, so he’s really focused on getting things done and doesn’t care who’s got the credit. And when things are getting done, he’s an important part of the mix.”

His policies haven’t always led to applause: In June, he was heckled by some Israel supporters in a speech about Iran sanctions when he said “no administration has done more for Israel’s security than this one.”

Political Wonk

Lew has largely been frustrated in his attempts to push major policy proposals through Congress. In cracking down on inversions through regulations, rather than legislation, Lew has demonstrated both the extent and limit of the Treasury’s power in a polarized political climate.

The inversions bombshell aside, Lew has remained largely a behind-the-scenes operator in a job that has traditionally been occupied by outsized personalities -- titans of finance, former chief executives, career politicians, leading economists. To some observers, he’s carved out a new classification of Treasury chief: political wonk.

In that role, Republican lawmakers say he drives a tough bargain behind closed doors. “He is notorious for being a very difficult negotiator, and for being very loyal to whichever administration he’s serving,” House Speaker Paul Ryan said in an interview last year.

It’s a side of Lew that Pfizer and Allergan are getting to know the hard way.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE