By Linda Shen and Bradley Keoun
Feb. 12 (Bloomberg) -- Bank of America Corp., JPMorgan Chase & Co. and Morgan Stanley may decide after enduring yesterday’s congressional hearing that the old Troubled Asset Relief Program is more trouble than it’s worth.
Eight chief executive officers of the biggest U.S. banks heard lawmakers in Washington criticize their bonuses, underwriting fees and perks. Representative Emanuel Cleaver, a Missouri Democrat, read questions from angry constituents asking what banks did with money they’d taken from the $700 billion TARP fund, and Representative Michael Capuano, a Massachusetts Democrat, said he “cannot believe no one has prosecuted you.”
With more scrutiny ahead, bankers including JPMorgan’s Jamie Dimon, Morgan Stanley’s John Mack and Goldman Sachs Group Inc.’s Lloyd Blankfein have said they’d like to repay government loans as soon as possible. BB&T Corp. CEOKelly King told an investor conference yesterday that his Winston-Salem, North Carolina-based bank wants to be first to get out of TARP and escape U.S. restrictions, which can be added retroactively.
“We’d like nothing better than to pay it back early,” said Bank of America CEO Ken Lewis, whose Charlotte, North Carolina-based company has received $45 billion of TARP plus $118 billion in guarantees. Asked why some banks spurned the funding, Lewis said, “They don’t want the government involved in their business, it’s as simple as that.”
Board Meeting
The House Financial Services Committee, led by Massachusetts Democrat Barney Frank, gave Wall Street’s top executives a daylong grilling on how they were using funds from TARP, which is being succeeded by Treasury’s Financial Stability Plan. The committee resembled a 71-member board of directors, with Lewis, Blankfein, Mack and Dimon appearing along with Citigroup’s CEO Vikram Pandit, Wells Fargo & Co.’s John Stumpf, New York-based Bank of New York Mellon Corp.’s Robert Kelly and Boston-based State Street Corp.’s Ronald Logue.
Representative Paul Kanjorski, a Pennsylvania Democrat, told the bank leaders that they “once lived behind a one-way mirror, unaccountable to the public.” When they took taxpayer money, he said, “you moved into a fishbowl.”
The CEOs sat as politicians ordered them to raise their hands when asked yes or no questions, including whether they were lending more and giving themselves bonuses, and they had to wait when the committee recessed so that lawmakers could attend to other business. At one point, Lewis said he felt more like a “corporal” than a “captain of the universe” at the hearing.
Giving Back
“This is going to be a good ‘Saturday Night Live’ skit,” said Alabama RepresentativeSpencer Bachus, the committee’s top Republican.
“It clearly underscores who the banks are being run for,” said Doug Sandler, the chief equity officer for Riverfront Investment Group LLC in Richmond, Virginia, which has about $450 million in assets under management. “It doesn’t make me feel like I want to own a bunch of bank stocks when they’re kow- towing to Washington.”
Frank told the bankers if they don’t like the restrictions on the government aid, they should return the funds.
“We will take it,” Frank said. “If there are any obstacles to you giving it back, we will undo those obstacles.”
The CEOs said they intended to pay back the government’s money. When pressed for specifics, Mack of New York-based Morgan Stanley said he wanted to repay “some portion of it by 2012.” Stumpf said, “It would depend upon credit markets more than anything else.”
Higher Rate
Lenders may find they can’t back out of the federal program because private investors won’t commit new capital at favorable terms under current market conditions, said RBC Capital Markets analyst Gerard Cassidy in an interview today. They’d probably demand more than the 5 percent initial interest rate charged by TARP, Cassidy said, and as Lewis was testifying, Bank of America’s own chief investment strategist, Richard Bernstein, issued a report urging traders to shun financial stocks until the government increases deposit insurance, shuts large banks and seizes troubled assets.
“The banks that are solvent will do whatever they can, after the experience they had today, to detach themselves from federal aid,” Representative Alan Grayson, a Democrat of Florida, said in an interview after the hearing. “Those that are insolvent will not admit that, and continue to hold out their hands.”
New government scrutiny of bank spending on advertising and employee programs has led San Francisco-based Wells Fargo, which received $25 billion in TARP money, to cancel at least two events to recognize top achievers.
Cancellations
U.S. Bancorp, which got $6.6 billion in TARP funding to support the Minneapolis-based lender, canceled an incentive trip to the Ritz-Carlton in Naples, Florida. New York-based Citigroup in February scrapped a trip to the Bahamas for an insurance unit’s top customers, canceled plans to buy a $50 million corporate jet and has been pressured to end a naming rights deal for the New York Mets’ new baseball stadium.
Citigroup’s Pandit pledged during the hearing to cut his salary to $1 from $1 million and take no bonus until Citigroup returns to profitability.
“I get the new reality and I will make sure Citi gets it as well,” Pandit said.
To contact the reporters on this story: Linda Shen in New York atlshen21@bloomberg.net; Bradley Keoun in New York atbkeoun@bloomberg.net.
Last Updated: February 12, 2009 12:28 EST
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