Eight Banks' CEOs Grilled by Congress on TARP Funds

by Pythiian1 | February 11, 2009 at 03:42 pm

1372 views | 71 Recommendations | 15 comments

On Feb. 11, the House Financial Services Committee chaired by Representative Barney Frank (D-Mass.) asked eight CEOs who received the Troubled Asset Relief Program (TARP) funds in the fall of 2008, to explain how their share of the $350 billion distributed from the first installment of the program was being used.

Critics of the program complained that there were few requirements imposed on recipients of the TARP funds, therefore failing to boost lending significantly and preventing home foreclosures.

The following CEOs whose biggest banks had accepted the TARP funds in 2008.

NP readers can read each CEO's prepared statement here. The length of Mr. Pandit's text exceeded the sum of the other seven CEOs' statements, as he appeared to be the most contrite.

Mr. Lloyd C. Blankfein, Chief Executive Officer and Chairman, Goldman Sachs & Co.
Mr. James Dimon, Chief Executive Officer, J.P. Morgan Chase & Co.
Mr. Robert P. Kelly, Chairman and Chief Executive Officer, Bank of New York Mellon
Mr. Ken Lewis, Chairman and Chief Executive Officer, Bank of America
Mr. Ronald E. Logue, Chairman and Chief Executive Officer, State Street Corporation
Mr. John J. Mack, Chairman and Chief Executive Officer, Morgan Stanley
Mr. Vikram Pandit, Chief Executive Officer, Citigroup
Mr. John Stumpf, President and Chief Executive Officer, Wells Fargo & Co.

This Committee hearing gave these CEOs the opportunity to defend their institutions and images as these banks had accepted the TARP funds in 2008. It also gave the Committee the opportunity to call the bankers to the carpet for misusing the taxpayers' money.

Frank criticized the bonus culture of banks, however, hitting at the banks' contention that compensation was important to keep talented people. "If I told you you wouldn't get a bonus, what part of your job wouldn't you do?" he asked.

"You created this mess we're in and now you're saying, 'trust us and by the way we don't even want the money,'" said Rep. Michael Capuano (D-Mass). " America doesn't trust you anymore. Get our money back on the street."

At times, some of the CEOs were apologetic and defensive about their receipts of the TARP money. They assured lawmakers that they were aware of public complaints about their use of federal funds, and they have been making efforts to make loans.

On the Congressional side, the legislators were reading a slew of their constituents' furious letters about the banks' abuses of the TARP funds to subsidize bonuses, frivolous company's activities, and the lack of transparency.

Citigroup (C) CEO Vikram Pandit apologized for the furor over its planned purchase of a new corporate jet even though it received $45 billion from the government.

At first, the bank insisted it would go ahead with the purchase, but it then backed down amid a barrage of bad publicity.

"We did not adjust quickly enough to the new world," Pandit said. "I get the new reality, and I will make sure that Citi gets it as well."

Remarkably, Citigroup Inc. Chief Executive Officer Vikram Pandit was the only CEO to offer to take an annual salary of $1 and no bonus until the bank returns to profitability.

The rest of the CEOs were not interested in working for the symbolic $1 as each CEO defended his individual salary as part of personal incentives. In 2008, the combined annual salary of these eight CEOs was approximately, $191 million, without their bonuses.

Although these CEOs from the auto industry did not appear at today's Congressional hearing, Mr. Rick Wagoner of General Motors Corp. and Mr. Alan Mulally of Ford Motor Company had agreed to work for $1 a year when they last attended Congressional hearing in 2008.

"Make no mistake: We are still lending, and we are lending far more because of the TARP (Troubled Asset Relief Program) program," said Bank of America Corp. ( BAC) Chief Executive Kenneth Lewis at the hearing.

Morgan Stanley's Chief Executive John Mack apologized, saying the firm made some bad decisions at times.

"I think that from Morgan Stanley's point of view if you go back and play the clock over again, you'd definitely do it differently," he said, adding that he's "especially sorry" for what's happened to shareholders, and Americans in general.

"We all have responsibility," he continued. "I will take that responsibility for my firm."

The executives also told lawmakers they plan to pay back the billions of dollars they've received in government aid before 2012, and possibly, sooner if financial markets improve.

"It will depend on the credit markets more than anything else," said John Stumpf, the chief executive of Wells Fargo.

These banks were interested in re-paying the government ahead of schedule, fearing additional regulations on the TARP funds that would hamper their activities, and it was certainly not driven by the 'goodness' of their collective conscience.

Those banks that accepted the TARP funds also raised the credit cards' interest rates at a disturbingly higher percentage, after their receipts of the taxpayers' monies.

Under the current terms of TARP 2008, banks can only buy out the government's stake as long as the money comes from an equity offering of a similar amount that meets government approval.

"That is a legal impediment at this point," said JP Morgan Chase's Dimon.

When Treasury first announced its capital injection plan in October, 2008, both JP Morgan Chase and Wells Fargo reportedly scoffed at the idea that they should take government funds.

But they were given little choice as former Treasury Secretary Henry Paulson hoped that providing capital to all of the nation's top banks would keep credit flowing and prevent the economy from deteriorating any further.

Several legislators commented that they were not opposed to these banks returning the funds and they would attempt to find the a way that would allow banks to repay the money earlier than scheduled, which might require a new piece of legislation.

The most telling comment came from Rep. Paul Kanjorski (D-Penn) after hearing the two banks, JP Morgan and Wells Fargo scoffing at the idea of accepting government funds.

"For anyone who contends that you do not need the money and that you did not ask for it, please find a way to return that money to the Treasury Department before you leave town," said Paul Kanjorski, D-Penn.

There was no mention of these banks overvalued their stocks, which led to the Bush Administration to overpay $78 Billion to these banks in 2008, which was reported by this writer on Feb.6, 2009.

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Amy Judd

at 17:04 on February 11th, 2009

I can't see them feeling very sorry or uncomfotable about it, although they should be.

Pythiian1

at 20:07 on February 11th, 2009

Thanks so much, Amy for your recommendation and comment.

It was disconcerting for me to watch the CEOs from Wells Fargo, JP Morgan, Morgan Stanley, Bank of America as they all said that they had plenty of liquidity, but when asked by the legislators if they could reduce the interest rates for borrowers, they said that their banks don't deal with that aspect.

158

at 19:24 on February 11th, 2009

Thanks for this. We need more coverage of these people.,

Pythiian1

at 20:05 on February 11th, 2009

Thank you 158 for your comment and recommendation.

René

at 21:05 on February 11th, 2009

they may have been 'grilled' by Congress, but Congress did not barbecue them as they deserved.

Babel-Fish

at 21:57 on February 11th, 2009

Its very interesting that some big Banks still had liquidity?

I smell a rat, I really wonder what the actual loss was and has it been passed on overseas?

Gordon Brown mentioned American Securities in European Banks is the causes of financial melt down in Europe and Britain.

What I am now wondering if the hype factor has got really out of hand that all lending and securities became questionable even if the securities where backed with good liquidity of funds.

I think when the actual statistics for this years first quarter are released we will see an actual picture that is 5 times less as bad as the hype has produced.

For a start in UK one of UK largest mortgage companies the Halifax has released its had good profits in this first quarter. That also the gap of imports to exports is decreased considerably.

It seems likely that political squirming to prove governments are not at fault and political opposition has made the problem of a big mole hill change to a Hugh mountain.

This laying blame on banks even though they are mainly at fault is causing damage, but thankfully in the short term, but its slows down recovery and has made that recovery less of a pinnacle, because its caused a down spiral on global manufacture of which there will be a collateral damage that will take a long time to replace. Jobs being the main victim worldwide.

Each and every time these politicians have squirmed recovering currencies have dipped and shows the indication that they need to step back get on with business and let the global markets recover as the facts are presented to the world. Hype has been the main factor of a problem 5 times better of with out it.

Pythiian1

at 06:55 on February 12th, 2009

Thanks Babel-Fish for your comments and recommendation.

Re. your comment on the big banks still have liquidity, which is why Congressman Kanjorski spoke those words as quoted in my piece, and actually all 8 have liquidity.

With due respect, it's also a nationalistic trait for leaders from other nations to point to the US for a plethora of their internal problems, e.g. China, Russia, now UK, and whoever else will continue to blame the US for their own financial woes.

Understandably, the global financial market links nations, but each country still needs to solve its own economic and unemployment problems. It might be helpful for some countries' internal consumption to blame an external source to rally their population, but casting blames won't create jobs, or inject money into their economy.

Babel-Fish

at 09:35 on February 12th, 2009

Unfortunately its the US securities in the overseas banks that have lost value and caused a domino effect if the problem started elsewhere with and it was of another nations securities the finger would be pointed in the direction where the first domino fell. The woes would not have happened if US securities held their value.

This liquidity in eight large banks is not bad news because that factor tells the true story that only a fraction of the banks had the problem and the hype has done most of the damage it also points that recovery is actual closer at hand than the hype suggested. Common sense says the original fall on the US stock exchange was the true amount of the problem in the US at a guess the total figure globally is on par between 6 - 12% loss on original stock values much due to over priced shares.

The problem is the hype as had a doubling effect due to investors losing complete confidence in the market place. Its that 12% that shows where the recovery will peak at the end of march. The hype as had a knock on effect to currency of which normally is judged by the balance of imports and exports.

Perhaps when the global markets have recovered the hype will be analyzed and the next time the media will be requested not to make assumptions or involve so called experts that just no what the colors dollars are when printed at the mint. Or have a portfolio of shares and have a wall street broker. lol

Hype is the big problem to much and the world could go bust. lol

I been watching the value of the pound and of course it dipped a bit when the Banks where grilled in London I hate this hype it lost me money that I was going to use for a good purpose, however its not long to go before the facts and figures will see the pound at its sensible level.

I think there will be shocks how fast recovery will take place and why. Of course there will be a recession and it will be tighten the buckle time but the belt will not be that tight and I expect that long.

Well that's my opinion given with a smile, I am not an economics expert I just read in between the lines and make analysis. I however believe in Gordon Brown's plan as its a logic one and believe in his opinion of the problem, reluctantly as he and his personality makes me annoyed. But the guys got brains and my bets are on him.

Pythiian1

at 18:40 on February 12th, 2009

It is quite appalling that some of these banks have liquidity, yet haven't lent to business and public, but instead horded the money and/or used the money to buy up other smaller banks - which does not help to stimulate the economy. In other words, they've been doing little toward injecting the TARP funds into the economy as the former Treasury Secretary Paulson had "hoped". That is the principle reason for these CEOs to be so defensive about how much they have been lending or trying to lend money to business and to provide credit lines for smaller banks...

The former Treasury Secretary Paulson was either naive about the banks or that he deliberately misled the public, Congress, and his boss, President George W. Bush in 2008.

Sanjay Jha

at 23:30 on February 11th, 2009

I think Vikram Pandit has set an exemplary example for others to follow in this greedy and much maligned business. Citigroup's Indian American CEO, Vikram Pandit has vowed to take a token salary of $1 and no bonus until the ailing banking giant returns to profitability. This is very couragoeus step. Thanks for your post.

Pythiian1

at 08:41 on February 12th, 2009

Thanks so much for your observations and recommendation. It was remarkable that the other 7 CEOs said that they "really need" to work with incentives.... of course, who doesn't, but they're supposed to be the banking industry leaders....and last year, their combined annual income was $191 million.

Babel-Fish

at 09:40 on February 12th, 2009

wow and I make do on 1 million peso's a year, lol

Just divide by 68 and you can see I am not a millionaire, well I am here in the Philippines, lol

AidanB

at 21:54 on April 6th, 2009

Normal 0 Criticizing the bonus culture of banks, however, hitting at the banks' contention that compensation was important to keep talented people. "If I told you, you wouldn't get a bonus, what part of your job wouldn't you do?, This question just emphasized that having a job is a total responsibility not just one is working partially for high bonus. Explaining how their share of the $350 billion distributed from the first installment of the program was being used is important in auditing how the billion bucks were shared to the CEOs. I think, Government should not decide the compensation for America’s corporate executives. But the salaries and bonuses of CEOs should be based on their success at improving their companies and bringing value to their shareholders. We need to pay attention to the executive compensation packages that are approved. We need to show the world that American businesses are a model of transparency and good corporate governance. Occasionally, members of Congress reward aides with bonuses, even if unconsciously, for their special dedication to the campaign. Since federal law prohibits the use of tax dollars to subsidize campaigns, such a use of bonuses would be improper. LegiStorm is a website that supplies details of congressional staff salaries. Transparency in government is not something many staffers are for, despite a Constitutional mandate for it. If too many people find out it, they'll need payday loans, as they will be out of work thanks to LegiStorm.

Alexia_G

at 01:22 on April 23rd, 2009

The profit of JP Morgan Chase bank has lowered for the first quarter of 2009 than it did for the first quarter of 2008. However, JPM, along with other large banks, takes it as a good sign because they are making a profit. They announced that with their return to profitability, they will begin paying back all the TARP funds that they received from the government, and treat it as a short term loan. This is a good move for them. Other large banks are following suit. This may mean fewer banks needing debt relief, and returning to health like JPM.

Joe De Jesus (not verified)

at 11:20 on May 30th, 2009

All of these banks are a group of nothing short of thieves. I had many years ago an IRA Money Market Savings account with Citibank. It grew to 17k with my deposits and remained there due to the fact it paid less than 1% for years. I couldn't wait to reach 59½ years of age to get it out. If Citibank were to crash, I'd drink chanpagne until I was drunk in celebration. Big banks will never be missed. They're big because they bilked Main Street.

Joe/Orlando