Wall Street firms gambled on Mitt Romney and lost.
Now, faced with the prospect of even tougher regulations in President Barack Obama's second term, they have to build better ties with the new financial regulators he will appoint.
Stock investors fear banks will meet with limited success. Shares of Goldman Sachs Group, JPMorgan Chase & Co and Citigroup dropped 5 percent, Bank of America lost 6 percent and Morgan Stanley fell 7 percent in midday trading on Wednesday.
Obama lost the support of many bankers in the aftermath of the 2008 financial crisis and the passage of the 2010 Dodd-Frank financial reform law, which sought to shore up the financial system but also cost banks billions of dollars in annual profit.
The Democratic president has openly stated his distaste for "fat cat bankers" who "don't get it," and bankers fear more trouble is ahead if they cannot influence how the Dodd-Frank rules are implemented.
"He will continue to increase regulation, demonize and vilify businesses, and spend a lot of money, and tax people, and so forth," said Dick Kovacevich, a former Wells Fargo & Co CEO and supporter of Republican challenger Romney.
Wall Street does have some ways to push back. Banks can sue to try to block provisions of Dodd-Frank that they object to, a tactic that has already met with some success. The financial industry can also press regulators to write rules that soften some reform laws.
And banks can roll up their sleeves and turn on the charm, which can help, industry lobbyists said.
"We're going to have to do a lot of heavy lifting over the next four years. But it's not an impossible task," said Frank Keating, chief executive of the American Bankers Association.
But given that Obama won and that financial reform is popular among Americans, many on Wall Street acknowledge that there's only so much they can do.
"Obama will be less likely to hold back on regulation this term," said Chris Tobe, who advises pension plans as a principal at Stable Value Consultants and is a trustee of the Kentucky state pension fund. The industry's support for Romney does not help, he added.
People working in the U.S. securities and investment industry gave $20 million to Romney's campaign, versus $6 million to Obama, according to the Center for Responsive Politics. Four years ago, Obama received $16 million and Republican nominee John McCain only attracted $9 million.
Wall Street was so confident in Romney's chances that the Financial Services Roundtable, a leading industry group in Washington, recently named as its head Tim Pawlenty, a Romney campaign co-manager who has little financial firm experience and few ties to Washington policymakers.
Representative Barney Frank, a Democrat and the co-author of Dodd-Frank, said picking Pawlenty, a partisan Republican, was a "terrible mistake."
The industry's best hope now may be to work with regulators, since legislative changes are unlikely, Frank said.
Americans blame banks for the 2008 financial crisis, and view financial reform as a way to ensure that bad mortgages and repackaged debt don't trigger another banking collapse.
A 2010 Gallup poll showed that Dodd-Frank was Obama's most popular law, exceeding healthcare reform, for example. Few Washington lobbyists thought that Romney could fully repeal Dodd-Frank, because public support for the law is too high.
"Most voters think that we need to change the status quo on Wall Street, and we need to make sure we do not have a repeat of the abuse of mortgage products," said Lisa Donner, executive director for Americans for Financial Reform, a coalition of about 200 organizations that formed in 2008 as a response to the financial crisis.
The biggest banks will have to think about shrinking in the future, including shedding businesses that have become unprofitable under new rules, said Nancy Bush, a veteran banking analyst.
"The banks are going to have to accept some realities of their new existence," Bush said.
RELATIONS WITH REGULATORS
Banks must now focus on softening regulations to the extent they can. Among the financial industry's top complaints is the Volcker rule, which prevents banks from making big bets in financial markets with their own money. Big banks fear the rule will also limit some of their trading with clients.
"You could rethink some of the details without rejecting the concept of the Volcker rule," said Wayne Abernathy, executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association.
The industry has other areas where it wants to ease rules, including the Durbin Amendment, which limits the fees they can charge merchants for processing debit-card transactions, and capital requirements, which make banks stronger but cut into the returns they can earn on their equity capital.
Wall Street firms are worried about Elizabeth Warren, whose victory in the Massachusetts Senate race may galvanize her to push for more regulations on bank lending to protect consumers. Warren was instrumental in creating the Consumer Financial Protection Bureau, which banks were hoping to weaken. Gaining political support for such a move now seems unlikely, analysts said.
Lawsuits may also work. In September, trade groups won a court battle against the Commodity Futures Trading Commission over a Dodd-Frank rule that would have imposed "position limits" on commodity speculators. Last year, a court rejected a Securities and Exchange Commission rule that would have made it easier for shareholders to nominate directors to corporate boards.
Some banking industry lobbyists say their focus will be on the key regulators Obama is expected to name in his second term.
Major power players under Obama, including Treasury Secretary Timothy Geithner, are expected to step down, offering Wall Street a chance to reset relations.
Chairmen determine agendas at agencies such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), so Obama's choices to fill any open spots could affect how quickly new rules are implemented.
One possible replacement for Geithner, who has said he will not stay for a second Obama term, is White House Chief of Staff Jack Lew, a former Citigroup Inc banker.
"I hope Obama puts someone in who understands fiscal issues and who will have stature to work on the Hill to negotiate some type of package on fiscal reform," said Sheila Bair, former Federal Deposit Insurance Corp chairman.
SEC Chairman Mary Schapiro's term does not expire until June 2014, but speculation about her departure has been swirling for well over a year. Last month, she attempted to shoot down the rumors, saying she had not thought about her post-SEC plans.
CFTC Chairman Gary Gensler's term technically expired in April. He is allowed to stay on as chairman until the end of 2013 and his renomination is an open question.
Gensler has been assailed by Republicans over his implementation of Dodd-Frank and criticized by lawmakers on both sides of the aisle following the collapse of futures brokerages MF Global and Peregrine Financial Group.
Much of Wall Street's regulatory agenda, however, is set to take a backseat in the short term due to the looming fiscal cliff -- a package of tax increases and federal spending cuts that will begin in January unless lawmakers act.
Bankers fear an impasse in solving the issue could spark an economic downturn that would hurt the industry.
"My hope is that the bitter partisanship of recent years will now be put aside and that everyone will work together to solve the fiscal cliff and to get the economy moving again," said billionaire investor Wilbur Ross in an interview with Reuters.
(Reporting By Emily Stephenson and Sarah N. Lynch in Washington, D.C., Rick Rothacker in Charlotte, Lauren LaCapra, Dan Wilchins, Olivia Oran, Beth Gladstone, and Katya Wachtel in New York, and Aaron Pressman and Ross Kerber in Boston; Writing by Greg Roumeliotis and Aaron Pressman; Editing by Paritosh Bansal, Tiffany Wu, Dan Wilchins, Richard Pullin and Maureen Bavdek)