|"As an industry clearly we made mistakes. . . . I'm especially sorry for what has happened to shareholders." - JOHN MACK, Morgan Stanley chairman and chief executive|
In grilling, bank executives offer assurances
They pledge to repay aid from taxpayers
WASHINGTON - The top executives of eight banks that have received a significant chunk of the federal rescue money, including
The executives, seated at the same table before the House Financial Services Committee, were pilloried time and again for making poor decisions that led to the economic meltdown, for paying large bonuses, and for not lending more to businesses and consumers.
In one of the sharpest exchanges of the hearing, Representative Michael Capuano, a Somerville Democrat, compared some of the executives to bank robbers in his district who seek freedom from jail by promising to be good in the future.
"All or most of you engaged in all or some of the activities that created this crisis. You come here today on your bicycles after buying Girl Scout cookies and helping out Mother Teresa. You're saying, 'We're sorry. We didn't mean it. We won't do it again. Trust us. . . . ' America doesn't trust you any more," said Capuano, who added that he would not deposit "one single penny in one of your banks." (His office said later that his personal and campaign accounts are at local institutions and the congressional credit union.)
None of the executives responded directly to Capuano's remarks, but they said during the hearing that they are loaning some of the money provided by taxpayers, and they pledged to repay the federal government, with interest. They promised to try to work with borrowers to prevent home foreclosures and to try to free up more capital.
President Obama, his economic advisers, and many in the financial world have been very critical of the handling and lack of effectiveness of the first $350 billion from the $700 billion rescue plan passed last fall. The administration on Tuesday announced a modified plan for the distribution of more money to banks, and members of Congress want to put more restrictions on the next round of funding.
"I urge you going forward to be ungrudgingly cooperative," Barney Frank, a Newton Democrat and chairman of the panel, told the executives. "There has to be a sense of the American people that you understand their anger . . . and that you're willing to make some sacrifices to get this working."
Despite the harsh tone of some of the exchanges, much of the hearing was dominated by statements from the executives that they have reformed their practices and are lending more money than would have been possible without the federal help.
Representative Spencer Bachus, an Alabama Republican, said he was heartened that many banks were lending money and he stressed that the banks represented at the hearing were not all desperate for federal help. "Some wanted the money; some didn't want the money," he said.
The executives represented a wide range of banks, from those in poor shape to those that remain profitable. Vikram Pandit, the chief executive of
The CEOs of
State Street chairman and CEO Ronald E. Logue, whose firm received $2 billion in federal assistance - the smallest amount among the banks represented at the hearing - sought to differentiate his company by noting that his institution is akin to a giant "back office" operation for various investment operations and has a lower risk profile. As a result, Logue told the committee, State Street had a 28 percent increase in revenue and a 25 percent gain in earnings in 2008 compared to the prior year. He said the bank has used the $2 billion to strengthen its capital base and increase lending capacity.
State Street spokeswoman Marie McGehee, asked whether the bank wanted to respond directly to Capuano's assertion that he wouldn't deposit any money in the eight banks, declined to comment.
The executives were all asked to say whether they were receiving bonuses for 2008, and all eight said they were not. They said their salaries last year ranged from $600,000 for Lloyd Blankfein of Goldman Sachs, $1 million for Logue, to $1.5 million for Kenneth Lewis of Bank of America.
Still, committee members cited reports that many other bank officials have been given large bonuses. Attorney General Andrew Cuomo of New York told the committee in a letter this week that
Representative Brad Sherman, a California Democrat, expressed outrage at prior statements by some bank officials that bonuses had not been paid with taxpayer money, referring to the idea that even if that were technically true, the federal aid could have freed up cash that was used for bonuses. "Money is fungible," Sherman said. "Don't insult our intelligence."
Frank posed a question to the executives: "If in good times you were told you weren't going to be getting a bonus, what part of your job would you not do? Would you, like, leave early on Wednesdays? Would you take longer lunches?"
Mack replied: "We love what we do. If you gave us no bonus, we'd still be here."