Unapologetic CEOs: What Did the Banks Do With Your Cash?
Bank CEOs tell Congress how they spent $125B taxpayer funds-- or did they?
Feb. 11, 2009— -- The heads of eight major banks that received $125 billion in taxpayer bailout funds were largely unapologetic for their role in helping to create the worst financial crisis since the Great Depression as they testified before Congress this morning.
The CEOs said they are trying to lend out more money and pledged to return to profit, be more transparent and repay taxpayers as soon as possible.
Yet they warned that there was still much work to do and that it would take time for the financial system to right itself.
"We are doing our best to balance the interests of customers, shareholders and taxpayers," said Bank of America CEO Kenneth D. Lewis. "There is simply no ready substitute for government support of this size, and so in its absence, our only choice would be to lend less and thereby shrink our balance sheet."
Citigroup CEO Vikram Pandit echoed those comments, saying: "The American people are right to expect that we use TARP funds responsibly, quickly and transparently to help American families, businesses and communities."
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But for the most part, the CEOs in their prepared testimony shrugged off recent criticism about the high level of pay within their firms, the use of luxury jets and posh trips to Las Vegas or Monte Carlo.
Lewis said that he knows the public will not always agree with his decisions, adding that some questionable expenses are good for the long-term growth of his company.
"There has been no shortage of examples of executives or companies spending money in ways that did not have a direct benefit to the business," Lewis said. "In other instances, I think banks have been criticized for activities that, in fact, have very serious, and very effective, business purposes. Marketing activities, which drive sales and business growth, are just one example."
He then reminded the committee that the investors who will profit from Bank of America's growth now include the American taxpayer.
Bank of America took heat recently for sponsoring a five-day carnival-like affair outside the Super Bowl. The event -- known as the "NFL experience" -- included 850,000 square feet of sports games and interactive entertainment attractions for football fans and was blanketed in Bank of America logos and marketing calls to sign up for football-themed banking products.
Perhaps the most contrite CEO in today's testimony was Morgan Stanley's John J. Mack.
"We didn't do everything right. Far from it," Mack said. "And make no mistake, as the head of this firm, I take responsibility for our performance."
"I believe that both our firm and our industry have far to go to regain the trust of taxpayers, investors and public officials," he said.
Mack recognized that the American public is "outraged" by some compensation practices on Wall Street.
"I can understand why," he said. "At Morgan Stanley, the most senior members of the firm, including myself, didn't receive any year-end bonus in 2008. I didn't receive a bonus in 2007 either."
True, Mack didn't get a bonus in either year. But in 2007 he did get a cash salary of $800,000 and was awarded stock options worth $40.2 million.
Today's hearing was called by House Financial Services Committee chairman Barney Frank, D-Mass.
"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," Frank said.
Goldman Sachs CEO Lloyd C. Blankfien acknowledged the "broad public anger" directed at the financial industry.
"In my 26 years at Goldman Sachs, I have never seen a wider gulf between the financial services industry and the public," Blankfien said. "Many people believe -- and, in many cases, justifiably so -- that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system's stability."
Blankfien said in prepared remarks that the entire industry is suffering right along with Main Street.
"The fact is that all of us are contending with the consequences of a deteriorating economy; lost jobs, lost orders, and lost confidence," he said.
JP Morgan Chase CEO Jamie Dimon praised the government for taking "bold and necessary steps" to keep the crisis from becoming something "none of us would want to imagine."
Dimon also said that a "fragmented and overly complex" government regulation system is partly to blame for the crisis.
"Long-term recovery will elude the financial industry unless we modernize our financial regulatory system and address the regulatory weaknesses that recent events have uncovered," Dimon said.
The CEOs did provide some details about how they used the TARP money, particularly how it was loaned out. JP Morgan, for instance, increased its consumer loan balances by 2.1 percent in the forth quarter. Dimon noted this happened at a time when consumer are spending less.
Last week, Citi published a report detailing how it used the TARP funds to date. It promised to update the report each quarter. Other banks pledged to make similar information publicly available.
Other CEOs present were from Wells Fargo, Bank of New York Mellon and State Street. The eight financial firms received a combined total of $125 billion since October through the Troubled Asset Relief Program, commonly referred to as TARP.
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