In the midst of public rage, top U.S. bank executives Wednesday
told skeptical lawmakers they are indeed using government funds to
boost lending and agreed to work with federal officials to help
stem foreclosures and restore public trust.
Two executives, in particular, even agreed to stop foreclosures
until President Barack Obama's administration unveils its new plans
for easing ongoing pain in the housing markets.
"If we could put a timeframe on it, we would do it," said Bank
of America Corp. (BAC) Chief Executive Kenneth Lewis, who appeared
with seven other top bankers at a House Financial Services hearing
aimed at examining how banks are using government funds provided
through the $700 billion Troubled Asset Relief Program, or
TARP.
Citigroup Inc. (C) Chief Executive Vikram Pandit also said he
was willing to commit to helping more homeowners stay in their
homes.
Earlier Wednesday, the federal regulator for U.S. thrifts called
for a moratorium on foreclosure proceedings until the Obama
administration rolls out its plan to help struggling
homeowners.
The Office of Thrift Supervision urged the institutions it
oversees to suspend foreclosures over the next few weeks as the
White House and Treasury Department finalize their $50 billion plan
to address the turmoil in the housing market.
"OTS-regulated institutions would be supporting the national
imperative to combat the economic crisis by suspending foreclosures
until the new plan takes hold," OTS Director John Reich said.
House Financial Services Committee Chairman Barney Frank,
D-Mass., later told reporters he expects most banks will oblige and
temporarily halt foreclosures.
"I believe you will get well over 95% of the banks to hold off.
Foreclosures - they [the banks] know they're not in their
interest."
At the same time, executives tried to convince skeptical
lawmakers that their credit card policies are fair, that their
firms are extending more loans to consumers and businesses than
they would had the government not provided them billions in capital
and that they are adhering to responsible compensation
policies.
"Make no mistake: We are still lending, and we are lending far
more because of the TARP program," said Bank of America's
Lewis.
Citigroup's Pandit said that he will take a salary of just $1
and forgo his bonus until the bank returns to profitability.
Morgan Stanley (MS) 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," Mack continued. "I will take that
responsibility for my firm."
During a hearing that went on for more than six hours, the
executives also told lawmakers they plan to pay back the billions
of dollars they have received in government aid before 2012 - maybe
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.
Still, lawmakers demanded an explanation for persistently tight
credit conditions.
"You created this mess we're in and now you're saying, 'Sorry -
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."
Lawmakers urged the bankers to cooperate with Congress as they
look for ways to solve the current financial crisis and improve the
U.S. financial regulatory structure.
"I urge you strongly to cooperate with us," Frank said in
opening remarks. "There is substantial public anger" and relieving
that anger "is essential."
Similarly, Rep. Spencer Bachus, R-Ala., the top Republican on
the committee, told the executives that working "as partners" is
the best way to address growing public anger.
In describing the current economic picture, the bankers said
financial markets continue to face challenges and they are already
bracing for credit card losses if the unemployment rate continues
to rise. Still, they said TARP has helped boost confidence in the
markets. New efforts the Obama administration unveiled Tuesday to
dramatically expand a Federal Reserve consumer-lending program
known as the Term Asset-Backed Securities Loan Facility, or TALF,
should help the markets even more, they added.
"I think the TALF plan will work," said J.P. Morgan Chase &
Co.'s (JPM) Chief Executive Jamie Dimon.
Dimon also urged lawmakers to work on streamlining the financial
regulatory structure, adding that establishing one major "systemic
risk regulator" to assess risks that individual firms pose to the
market would be beneficial.
"I think it would be of great benefit to have one regulator
looking at anything that can cause systemic risk," he said.
On the issue of foreclosures, executives said they might be able
to help more troubled borrowers if they could persuade those
homeowners to contact their banks.
"The challenge is when times get tough ... people put their
heads in the sand," said Citigroup's Pandit. "Half of the
foreclosures we enter into are for people we never talk to."
Meanwhile, Treasury Secretary Timothy Geithner testified on the
other side of Capitol Hill and said he was "deeply offended" by the
decisions made by Wall Street firms and their boards of directors.
Pressed by Senate lawmakers, he said the Treasury would consider
replacing management in some circumstances at firms that receive
government aid in the future. Still, when directly questioned by
Sen. Bernie Sanders, I-Vt., about whether Goldman Sachs Group Inc.
(GS) Chairman and Chief Executive Lloyd C. Blankfein should be
fired, he balked.
"That's a decision for his board of directors to make," Geithner
said.
The eight bank executives who testified before the House panel
include Goldman's Blankfein, J.P. Morgan's Dimon, Wells Fargo's
Stumpf, Citigroup's Pandit, Bank of America's Lewis and Morgan
Stanley's Mack as well as Bank of New York Mellon Corp. (BK) Chief
Executive Robert Kelly and State Street Corp. (STT) Chief Executive
Ronald Logue.
They all assert that they are lending even in the face of the
economic downturn and that government aid has made that possible.
Some executives said that while they didn't initially believe it
was necessary for the federal government to inject capital into
their firms, the capital infusions have helped the markets.
Lewis said Bank of America next week will make its first
dividend payment to the Treasury Department of more than $400
million. And over the year, Bank of America will pay the Treasury
about $2.8 billion in dividends alone, he added.
"The bottom line is that we are lending significantly more with
that preferred stock investment than we would be without it," he
said.
Despite the testimony, the bank executives faced tough grilling
on Capitol Hill as the public and lawmakers grow increasingly angry
about the tight credit markets. Recent reports show that banks are
continuing to tighten their credit standards, despite the
government having injected almost $200 billion in hundreds of banks
across the country as part of the $700 billion TARP.
Under the rescue plan, the government has purchased preferred
stock in banking companies. But critics have slammed the Treasury
Department for failing to require capital recipients to boost
lending, something experts say is needed to help the ailing economy
get back on track.
Additionally, the public has grown frustrated over reports of
bank executives receiving big bonuses and large compensation
packages, as everyday Americans grapple with layoffs and home
foreclosures.
Blankfein said the financial services industry must restore
public trust.
"We have to regain the public's trust and do everything we can
to help mend our financial system to restore stability and
vitality. Goldman Sachs is committed to doing so," he said.
-By Maya Randall, Dow Jones Newswires; 202-862-9255;
maya.jackson-randall@dowjones.com
(Michael Crittenden contributed to this report.)