Bank Execs: "We are Lending..."

From the desk of:

Rich Storey
Mortgage Advisor
615.260.8028


Bank Executives Tell House Panel They Are Lending

WASHINGTON – Eight bank executives told the House Financial Services Committee Wednesday they are lending even in the face of the economic downturn and that government aid has made that possible.

"Make no mistake: We are still lending, and we are lending far more because of the TARP program," said Bank of America Corp. Chief Executive Kenneth Lewis at the hearing. Mr. Lewis said Bank of America next week will make its first dividend payment to the Treasury Department of more than $400 million. 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.

Bank CEOs testify before the House Financial Services Committee on Wednesday. From left: Goldman Sachs's Lloyd Blankfein, JPMorgan Chase's James Dimon, Bank of New York's Robert Kelly, Bank of America's Ken Lewis, State Street's Ronald Logue, Morgan Stanley's John Mack.

Committee Chairman Barney Frank (D., Mass.), in his opening statement, urged the executives to work closely with Congress to address growing public concerns that banks receiving government aid aren't lending enough to consumers and businesses. "I urge you strongly to cooperate with us," Rep. Frank said. "There is substantial public anger" and relieving that anger "is essential."

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.

Goldman's Mr. 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.

The CEOs were met with deep skepticism from lawmakers who told tales of furious constituents and aggressively quizzed them on how they have used more than $160 billion in taxpayers' money.

Even so, the banking leaders brought a message of accommodation and gratitude. They applauded the program for making more loans available and promised to pay their share of the money back to the Treasury over time. Anticipating confrontations over their own compensation, several asserted that none of the government's money went to bonuses or dividends.

"We are frugal," said Wells Fargo & Co.'s John Stumpf. "We're Americans first. We're bankers second."

They also generally agreed with lawmakers' calls for better cooperation and better public relations. They were contrite and conceded they face a bitter public. They had little choice but to acknowledge as much, given intense anger by both lawmakers and the public as the troubled financial system continues to spiral downward.

Associated Press
Jamie Dimon, chief executive of J.P. Morgan Chase, speaks at a Crain's New York Business forum Feb. 3. He supports the creation of a new bank regulatory system.

Yet, for all the words of contrition, the CEOs also sought to show they were being prudent.
"We lent more even as customers cut back on their spending" during the last quarter of 2008, Mr. Dimon said. Still, he added: "We stand ready to do our part going forward."

Robert P. Kelly of Bank of New York Mellon Corp. promised "a very good return on the investment for taxpayers" and acknowledged "we still have a long way to go" to jump start the U.S. credit market.

Hearings on the bailout were taking place across the Capitol, with the CEOs appearing in the House while Neil Barofsky, the watchdog of the government's Wall Street rescue package, testified before the Senate Judiciary Committee.

FBI Deputy Director John Pistole told that Senate panel that there are 530 active corporate fraud investigations, and 38 of them involve corporate fraud and financial institution matters directly related to the economic crisis.

Mr. Lewis of Bank of America told the committee he thought the economy was fine until the summer of 2007 and that he credits former Treasury Secretary Henry Paulson with starting up a line of communication with the bank before then.

"To Secretary Paulson's credit, he called in August 2007, when things really started to melt down," Mr. Lewis said in response to a question about when he knew the economy was facing challenges. "Late-July to mid-August was the kind of timeframe when we saw real challenges in the economy," Mr. Lewis said.

He added that going into the third quarter of 2007, Bank of America officials "thought the economy was in relatively good shape" and that the company "became very concerned" when the capital markets started melting down in August 2007.

The hearing had a smooth start but, given the potential for protestors and interruptions, Rep. Frank had to lay down some ground rules. "This is not an audience-participation event," he said. "There are police officers here. People are totally free to go outside and other places. I will enforce that."

The Service Employees International Union had planned to hold a protest outside of the hearing, but at the top of the hearing all was calm and the hearing got under way in an orderly fashion. Still, the SEIU released a statement. "It's time to stop the banks from blocking reforms that would help the people who are bailing them out," union President Andy Stern said in the statement.

Credited to: www.WallStreetJournal.com