By David Morgan and Maria Aspan

WASHINGTON/NEW YORK (Reuters) - Major Wall Street
firms have cut back sharply on political contributions for
November's mid-term elections and are pledging to avoid
direct sponsorship of political advertising campaigns.

Donations by leading Wall Street political action
committees to candidates for the House and
Senate and to political parties are down as much as 40 percent
in this election cycle compared with 2006 and 2008, according
to the latest campaign finance reports on file with the Federal
Election Commission.

PACs are private groups that donate to political candidates
and campaigns. Corporate PACs are largely employee-funded.

The decline in Wall Street PAC spending is a testament to
the travails that have swept the Street since the 2008
financial meltdown, from the mass layoffs that thinned its
pinstriped ranks to the bonus scandals and fraud allegations
that blackened its image among U.S. voters.

"If Wall Street's not quite Public Enemy No. 1, it's
certainly on the list," said Larry Sabato, director of the
University of Virginia Center for Politics.

"Its money is poisonous," said a financial lobbyist
involved in political contributions.

FEC reports show five top Wall Street institutions --
Goldman Sachs, Morgan Stanley, Citigroup,
Bank of America and Wells Fargo -- spending a
total of $2.1 million from the start of the 2010 election cycle
on Jan. 1, 2009, through June 30, 2010.

That is down 25 percent from the $2.8 million they spent in
the same period during the 2006 cycle and down 40 percent from
the $3.5 million they spent in the 2008 cycle, when donations
surged with the White House battle between Democrat Barack
Obama and Republican John McCain.

Spending by a sixth firm, JPMorgan Chase, fell 61
percent from 2008 to 2010. The JPMorgan PAC was inactive in
2006.

LOST JOBS, LOST FUNDS

Financial executives and analysts say the decline is rooted
in layoffs that have eliminated about 40,000 New York financial
service industry jobs since the beginning of 2008.

The bulk of PAC funding comes from employee contributions,
which have fallen along with payrolls at some firms. At Morgan
Stanley, which has shed 8,600 jobs, PAC receipts in the 2010
cycle are down 30 percent from 2006, while PAC donations have
dropped a steeper 54 percent.

Wall Street firms also avoided making PAC donations -- and
lawmakers avoided accepting them -- during the federal bailout
of the financial industry in 2008-2009. Bruising rhetoric in
the financial reform debate intensified that chill in
donations.

The banking industry is also having trouble finding
recipients for its largess, particularly in competitive races
where voter anger has turned bank contributions into fuel for
negative ads.

Democrats and Republicans from the House and Senate failed
to cash $16,500 in Goldman Sachs donations after the Securities
and Exchange Commission charged the firm with civil fraud in
April.

"There just aren't a lot of politicians who want to hand
their opponent a '2 X 4' to beat them over the head with,"
Sabato said.

A financial lobbyist involved in campaign donations this
year estimated that about a dozen members of the Senate and
House continue to avoid financial ties with Wall Street.

All 435 seats in the House of Representatives and 37 of the
Senate's 100 seats are up for grabs in November.

AVOIDING OPPORTUNITIES

Democrats also fear the effects of a January Supreme Court
ruling that lifted long-standing campaign finance limits.
President Barack Obama and other Democrats have warned that the
ruling will unleash a flood of campaign advertising money from
the traditionally pro-Republican business community.

But major Wall Street firms, which shifted PAC
contributions to Republicans during the financial reform debate
in Congress, are pledging not to take advantage of the ruling.

This week, Goldman Sachs, Bank of America, Citigroup and
Wells Fargo all said they would not spend corporate money
directly on political ad campaigns. JPMorgan Chase and Morgan
Stanley declined to comment for this article.

Critics say PAC data do not show the full picture of the
Wall Street influence in Washington. PAC contributions are a
tiny fraction of what Wall Street spent lobbying against
financial reform.

The securities and investment industry alone has given more
than $150 million to 833 lobbyists since Obama took office in
2009, according to the Center for Responsive Politics. The
broader financial sector, which includes banks, insurance,
mortgage brokers, credit companies and credit unions, has spent
upward of $620 million on lobbying.

The Washington climate for Wall Street contributions could
warm as the election nears. Some experts say a resurgence in
Wall Street spending has already begun among hedge funds and
private equity firms.

"At this point, with financial reform passed, it strikes me
that the politicians need the money more than the financial
folks need the politicians," said Greenwood Capital Associates
portfolio manager Walter Todd.
(Reporting by David Morgan in Washington and Maria Aspan in
New York; Additional reporting by Steve Eder in New York;
editing by John Wallace)