Dunleavy's retaliation against financial institutions on Arctic drilling will come at a cost

To listen to Gov. Mike Dunleavy, the state may soon be forced to limit its banking business to the Bailey Bros. Building & Loan in Bedford Falls.

The international banking industry may be turning against investments in Arctic oil and gas exploration, but Dunleavy says he wants the state to “end existing relationships and partnerships with financial institutions that have chosen to stop financing oil and gas exploration and development in the Arctic.”

This could be an expensive act of political symbolism for Alaska, seeing as how the opposition to Arctic drilling is a growing worldwide phenomenon. Nearly 30 major banks worldwide have taken positions that would make them off-limits for doing business with the state government. That includes six major U.S. banks.

Intentionally forbidding competition from a rapidly growing number of institutions would raise costs for all business Alaska conducts, forcing the state to deal with smaller and weaker institutions willing to take on greater risk and charge more to Alaska. Remember what happened with subprime mortgages?

The Dunleavy approach could also make state investments less profitable. The Alaska Permanent Fund, as well as state pension funds, have hundreds of millions invested in companies that oppose Arctic drilling. Limit investment managers this way and there’s no telling where the political lines will be drawn.

Keeping track of where the money goes and what political stands companies take is not a simple matter. The momentum against Arctic drilling has also spread to insurance companies. On Wednesday, Lloyd’s of London said it would cut back on support for new Arctic energy exploration.

The ill-advised effort by the Trump administration, at the behest of the Alaska Congressional delegation, to interfere with the private sector and mandate that private banks give loans to oil companies, will go down as a textbook case of federal overreach. It won’t work.

It’s likely that Dunleavy has given no thought to any of these details or had anyone run the numbers, which is why he only produced a press release with no financial backup.

He has made many proposals during the past two years—on everything from giving away land to a state lottery—and done nothing to bring them to completion. Perhaps this announcement will be another item on that long list of forgotten trial balloons.

The press release, coming a year after he first threatened action, may also be a futile attempt to lend some encouragement to oil companies to bid for leases in the Arctic National Wildlife Refuge in the final days of the Trump regime.

The Jan. 6 lease sale may not happen. It could be stopped by the courts because of numerous Trump administration blunders.

If the sale happens, any company that submits a bid will do so knowing that President-elect Biden will try to reverse the lease, using the legal leverage created by Trump’s Interior Department bunglers.

In taking aim at companies opposed to ANWR investments, Dunleavy talks tough, which is easy to do in a press release or a TV interview on Fox News.

“We do a lot of business with Goldman Sachs. We’re gonna have to re-evaulate that, have a discussion with them,” Dunleavy said in February on Fox. “We are an oil state.” Oil was $60 a barrel then.

Now it is $50 a barrel.

On Dec. 20, 2109, Dunleavy had aide Mike Barnhill tell the company he wanted “the removal of Goldman from business relations with the state.” Early this year, the company was still managing $400 million for the permanent fund.

Now it is not managing any assets for the fund, perhaps because of the Dunleavy edict.

“It makes no sense for Alaska to allow financial institutions to benefit handsomely from Alaska’s financial activities on one hand, while working against our interests on the other,” Dunleavy said this week in his press release.

The suggestion that financial institutions are benefiting “handsomely” may be true, but the notion that Alaska holds all the cards in these relationships is fiction. The state pays for services received and invests in companies hoping to turn a profit.

In February, Dunleavy said the state would have to “reconsider” its dealings with JP Morgan because of its opposition to ANWR investments. Dunleavy’s brother Francis, a major financier of his 2018 campaign, once ran the JP Morgan energy desk in Houston, an entity accused of manipulating the power market years ago.

Last winter, Jason Brune, Dunleavy’s environmental conservation commissioner, posted a photo on Twitter of the pieces of his JP Morgan credit card. “Speaking with my wallet, or rather, no longer with my wallet,” Brune said.

He tweeted again after Dunleavy’s new press release, cheering his boss: “Speak with your wallets!”

In June, Dunleavy’s administration commissioner, Kelly Tshibaka, said she would not give her personal business to Wells Fargo anymore because it was also against Arctic drilling. “Wells Fargo, you don’t support Alaska? Then this Alaskan is proud to no longer support you!”

As of June 30, the Alaska Permanent Fund owned 2 million shares of Wells Fargo, with a market value of $53 million. The fund also had $53 million of JP Morgan stock. And $49 million of Bank of America stock.

Bank of America is the last major U.S. bank to announce opposition to Arctic drilling, following Goldman Sachs, Morgan Stanley, Chase, Wells Fargo and Citibank. Many banks based outside the U.S. have similar positions.

Alaskans need to see an analysis from the state about the financial implications of Dunleavy’s tough talk on retaliation to determine if this is anything more than grandstanding.

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