Several chief executives at major banks that received injections of capital from the federal government last fall say they made more loans as a result of the infusions and vowed to pay back the taxpayer money over time.
In prepared testimony to be delivered Wednesday before the House Financial Services Committee, executives also sought to reassure lawmakers that they and their employees took significant reductions in compensation last year and that no government money was used to pay bonuses or dividends.
The executives represent eight of the nine banks that the Treasury Department selected last fall to participate in a $125 billion taxpayer-financed stock purchase plan designed to pump capital into the banks and, thus, ease credit for consumers, businesses and even other banks. The money was part of the $700 billion Troubled Asset Relief Program that Congress approved last fall.
The Wednesday morning hearing comes a day after Treasury Secretary Timothy Geithner unveiled a new approach for the unspent $350 billion left in the fund. It is the first time the bankers have appeared before Congress to explain their use of the money.
The institutions are Bank of America bac, Citigroup c, JP Morgan Chase jpm, and Wells Fargo wfc, each of which received $25 billion; Goldman Sachs gs and Morgan Stanley ms, each of which got $10 billion, and State Street stt, and the Bank of New York Mellon bk, which received smaller amounts. The ninth institution, Merril Lynch, merged with Bank of America.
Citigroup and Bank of America subsequently received additional targeted funds after their financial condition became less stable.
Committee Chairman Barney Frank, D-Mass., has said he wanted to hold the hearings to determine whether the widely criticized bailout program has helped accomplish its initial goal of loosening credit in the midst of the economic crisis. Overall, the government since October has provided more than 300 financial institutions with nearly $200 billion in capital by purchasing their preferred stock. The chief executives at major banks that received the injections of capital said they made more loans in the fourth quarter because of the infusions.
Vikram Pandit, Citigroup's chief executive officer, said in his prepared remarks that with the help of the government bailout funds the bank has expanded mortgages, personal loans and lines of credit for individuals, families and businesses. he said Citigroup plans to pay the government $3.4 billion in annual dividends for the $45 billion it has received.
"Our goal, my goal, is to make this a profitable investment for the American people, as soon as possible," he says.
Jamie Dimon chairman and CEO of JP Morgan Chase, said his bank delayed the start of foreclosure proceedings on more than $22 billion in mortgages owed by more than 80,000 homeowners. He said the bank is reviewing the mortgages for possible modification.
He said he took no bonus last year and that, company wide, average incentive compensation went down 38%.
"Despite recessionary headwinds, we are lending," added Kenneth D. Lewis, chairman and CEO of Bank of America. "In the fourth quarter alone, we extended more than $115 billion in new credit to consumers and businesses"
He credited the government funds for the bank's ability to continue lending and said the bank will pay its first dividend to the Treasury —_more than $400 million — next week. Overall, the bank will pay $2.8 billion in dividends this year, he said.