Page last updated at 22:51 GMT, Wednesday, 11 February 2009

US banks defend bail-out spending

Chairman Barney Frank: "There is a substantial public anger"

Bosses of eight US banks have attempted to reassure a Congressional hearing that the US government's banking bail-out has been well spent.

The chief executives of firms including Citigroup and Bank of America told the House Committee they had increased lending and prevented foreclosures.

The eight firms have so far received $166bn (£114bn) of public funds.

Members of the House committee expressed concern at what they see as a lack of accountability.

As the meeting started, the committee's chairman, Massachusetts Democrat Representative Barney Frank, warned the bank bosses that "there's a great deal of anger in the country, much of it justified".

"I want to know where the money has gone," said Democrat Paul Kanjorski.

Republican Gresham Barrett said: "My folks simply haven't seen the evidence that the money you were given is working or making their lives better."

Transparency call

The eight chief executives attending were Vikram Pandit of Citigroup, Jamie Dimon of JP Morgan Chase, Kenneth Lewis of Bank of America, Lloyd Blankfein of Goldman Sachs, John Mack of Morgan Stanley, Robert Kelly of Bank of New York Mellon Corp, Ronald Logue of State Street and John Stumpf of Wells Fargo.

Bank of America - $45bn
Citigroup - $45bn
JP Morgan Chase - $25bn
Wells Fargo - $25bn
Goldman Sachs - $10bn
Morgan Stanley - $10bn
State Street - $3bn
Bank of New York Mellon - $3bn

Mr Frank also asked the executives to justify the payment of bonuses despite the financial crisis.

Citigroup boss Vikram Pandit said he had asked to take a salary of $1 a year with no bonus until Citigroup returned to profitability.

Lawmakers were also concerned about allegations from New York Attorney General Andrew Cuomo that investment bank Merrill Lynch brought forward the payment of $3.6bn worth of bonuses to its bosses, despite needing to be rescued by Bank of America.

Kenneth Lewis said that his bank, which acquired Merrill last autumn, had urged Merrill executives to reduce the bonuses.

"[But] we had no authority to tell them what to do, just urge them what to do," he said.

"Nobody on our [BoA] management team received any incentives, no-one has a golden parachute or severance. Major changes will be made but we cannot make them until we own the company."


Jamie Dimon
Jamie Dimon, JP Morgan Chase - $28m
Kenneth Lewis, Bank of America - $25m
Lloyd Blankfein, Goldman Sachs - $70m
John Mack, Morgan Stanley - $2m
Robert Kelly, Bank of New York Mellon - $20m
Ronald Logue, State Street - $28m
John Stumpf, Wells Fargo - $13m
Vikram Pandit, Citigroup - $574,000

The executives were keen to explain how they had spent their funds so far, and the extent to which this had enabled them to raise lending levels.

In his opening statement, Citigroup's Mr Pandit emphasised the number of customers his bank had helped to avoid losing their homes.

"We have helped 440,000 homeowners avoid foreclosure," he told the committee.

He said Citi would pay $3.4bn in annual dividends to the US government in return for its investment in his company. "My goal is to make this a profitable investment," he said.

"We will continue to make changes and to put the company back into profitability… The old models no longer work, we need to do a good job of embracing the new realities," said Mr Pandit.

Mr Dimon of JP Morgan Chase said the $25bn received by his bank had allowed it to delay the start of repossession proceedings on more than $22bn of mortgages held by about 80,000 homeowners.

Looking back at the cause of the credit crunch, he told the meeting that "today's economic crisis is a result of a lot of mistakes by a lot of people".

"The measure of strength of a country or company is not whether they have problems, but how they deal with them."

Mr Lewis of Bank of America said it was right that "taxpayers want us to manage our expenses carefully, and provide transparency about how we are putting their money to work to restart the economy".

"Despite recessionary headwinds, we are lending," he added, saying that the banks had to show more "humility".

"The American people are right to expect that we use [the bail-out] funds responsibly, quickly and transparently," said Citigroup's Mr Pandit in prepared remarks.

Mr Stumpf of Wells Fargo said: "We lend money the old-fashioned way, responsibly. As a result, we earned profitability last year of $3bn."

"Our mortgage lending is built on responsible servicing. Because of that, 93% of our customers are current on their mortgage payments," he said.


The eight banks secured their bail-outs under the $700bn Troubled Asset Relief Program first unveiled by President George W Bush in October.

Bank of America and Citigroup have both received $45bn, while JP Morgan Chase and Wells Fargo got $25bn.

Goldman Sachs and Morgan Stanley both got $10bn. State Street and Bank of New York Mellon were each given $3bn.

When asked about how much of their personal new money the executives had invested in their business in the last six months, Mr Dimon said he had invested $12m, Mr Pandit said $8.4m, while Mr Lewis said he had bought 400,000 shares. The rest did not invest anything.

On Tuesday, new Treasury Secretary Timothy Geithner announced a new banking bail-out package totalling $1.5 trillion.

This includes the creation of a new fund into which banks can dump any remaining toxic debt.

Print Sponsor

The BBC is not responsible for the content of external internet sites

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Sign in

BBC navigation

Copyright © 2017 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific