Nazareth Said to Be Leading Candidate for Deputy Treasury Chief

By Rebecca Christie and Robert Schmidt

Feb. 20 (Bloomberg) -- Former Securities and Exchange Commission member Annette Nazareth is the leading candidate to become deputy U.S. Treasury secretary, according to people familiar with the matter.

If nominated and approved by the Senate, Nazareth would be second-in-command to Treasury Secretary Timothy Geithner, the only Treasury official confirmed in the Obama administration’s first month. Now a partner in the Washington office of law firm Davis Polk & Wardwell, Nazareth would likely work on Treasury’s campaign to toughen financial-market supervision.

Nazareth has “a wealth of knowledge both in the private sector and government, so she’s certainly well qualified for the position,” said John Olson, a partner at the Gibson, Dunn & Crutcher law firm in Washington.

Nazareth, a Democrat, left the SEC in January 2008. As a commissioner, she focused on systemic risks that securities firms and traders such as hedge funds pose to financial markets. Nazareth, 53, participated in 2007 in an SEC review of whether Wall Street investment banks set strict enough limits on the loans they make to hedge funds.

Senator Charles Schumer, a New York Democrat and member of the Banking and Finance committees, helped secure Nazareth’s SEC seat and has been pressing the Obama administration to give her a role at Treasury, said one of the people.

Davis Polk spokesman Kevin Cavanaugh, speaking on behalf of Nazareth, declined to comment. Treasury spokesman Andrew Williams said the department won’t comment on “pending personnel issues.”

Regulatory Role

She was also a driving force in urging a merger of the NASD, an industry-funded regulator of U.S. brokerages, with most of the New York Stock Exchange’s regulatory arm. The SEC approved consolidation, which formed the Financial Industry Regulatory Authority, in July 2007.

Before becoming a commissioner in 2005, Nazareth ran the SEC division of market regulation, which oversees brokerage firms, market surveillance and stock exchanges. She led the unit in 2004 when it designed a program to monitor whether Wall Street’s five biggest securities firms had adequate capital and liquidity.

SEC Inspector General David Kotz faulted the program in a September report, saying the SEC failed to respond to “numerous, potential red flags” at Bear Stearns Cos., such as the firm’s excessive borrowing and over-concentration in mortgage securities.

Then SEC Chairman Christopher Cox scrapped the so-called consolidated supervised entities program the same day Kotz issued his report. It followed the collapse of Bear Stearns and Lehman Brothers Holdings Inc.

Legal Work

Nazareth has done legal work for the Securities Industry and Financial Markets Association, Wall Street’s biggest lobbying group. She is married to Roger Ferguson, former Federal Reserve vice chairman and now president and chief executive of retirement-plan manager TIAA-CREF.

The job of deputy Treasury secretary, originally called “undersecretary of the Treasury,” has been a launching pad for cabinet and corporate positions.

Dean Acheson went on to become Harry Truman’s secretary of State; Henry Morgenthau moved up to head the Treasury under Franklin Roosevelt. As deputy, Lawrence Summers became the Treasury’s point man in dealing with the Asian financial crisis and ascended to the secretary’s position in 1999 when Robert Rubin resigned.

Samuel Bodman, who served under John Snow, became George W. Bush’s energy secretary in 2005. President Bill Clinton’s first deputy secretary, Roger Altman, is now head of the investment bank Evercore Partners Inc. Frank Newman, who followed him, went on to become chairman and chief executive of Bankers Trust Corp. He’s now chairman of Shenzhen Development Bank Ltd.

To contact the reporters on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net; Robert Schmidt in Washington at rschmidt5@bloomberg.net