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February 11, 2009 – Comments (3) | RELATED TICKERS: GS , MS , FAS

ahead of Bank hearings today:

Bankers Pledge to Lend, Stem Foreclosures

By MAYA JACKSON RANDALLhttp://online.wsj.com/article/SB123435812693672823.html?mod=yahoo_hs&ru=yahoo

WASHINGTON -- Top bank executives Wednesday said they are indeed using government funds to boost lending and agreed to work with federal officials to help stem foreclosures and restore public trust. Two executives even agreed to stop foreclosures until President Barack Obama's administration unveils its new plans for easing pain in the housing markets.

"If we could put a timeframe on it, we would do it," said Bank of America Corp. Chief Executive Kenneth Lewis, who appeared with seven other top bankers at a House Financial Services Committee hearing aimed at examining how banks are using government funds provided through the $700 billion Troubled Asset Relief Program.

Citigroup Inc. Chief Executive Vikram Pandit also said he was willing to commit to helping more homeowners stay in their homes.

Bank Chieftains TestifyDuring the all-day hearing, the executives also tried to convince skeptical lawmakers that their firms are extending more loans to consumers and businesses than they would had the government not provided them billions in capital and that they are adhering to responsible compensation policies.

"Make no mistake: We are still lending, and we are lending far more because of the TARP," Bank of America's Mr. Lewis said.

Additionally, Citigroup's Mr. Pandit told the lawmakers that he will take a salary of just $1 and forgo his bonus until the bank returns to profitability.

And Morgan Stanley's chief executive, John Mack, apologized, saying the firm made some bad decisions at times. "I think that from Morgan Stanley's point of view if you go back and play the clock over again, you'd definitely do it differently," he said, adding that he is "especially sorry" for what has happened to shareholders, and Americans in general.

"We all have responsibility," he continued. "I will take that responsibility for my firm."

During a hearing that went on for more than five hours, the executives also told lawmakers they plan to pay back the billions of dollars they have received in government aid before 2012 -- maybe sooner if financial markets improve. "It will depend on the credit markets more than anything else," said John Stumpf, the chief executive of Wells Fargo & Co.

Still, lawmakers demanded an explanation for persistently tight credit conditions.

"You created this mess we're in and now you're saying, "sorry -- trust us and by the way we don't even want the money,'" said Rep. Michael Capuano (D., Mass.) "America doesn't trust you anymore. Get our money back on the street."

Lawmakers urged the bankers to cooperate with Congress as they look for ways to solve the current financial crisis and improve the financial regulatory scheme.

"I urge you strongly to cooperate with us," Committee Chairman Barney Frank (D., Mass.) said in opening remarks. "There is substantial public anger," and relieving that anger "is essential."

Mr. Frank said that despite the public backlash against the financial-services industry he would like to work with bank executives to find ways to get credit flowing again and also to formulate new financial regulations that will prevent a repeat of the current crisis.

Similarly, 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.

In describing the current economic picture, the bankers said financial markets continue to face challenges and they are already bracing for credit-card losses if the unemployment rate continues to rise. Still, they said TARP has helped boost confidence in the markets. New efforts the Obama administration announced Tuesday to dramatically expand a Federal Reserve consumer lending program known as the Term Asset-Backed Securities Lending Facility, or TALF, should help the markets even more, they added.

"I think the TALF plan will work," said J.P. Morgan Chase & Co.'s chief executive, Jamie Dimon.

Mr. Dimon also urged lawmakers to work on streamlining the financial regulatory scheme, adding that establishing one major "systemic risk regulator" to asses risks individual firms pose to the market would be beneficial.

"I think it would be of great benefit to have one regulator looking at anything that can cause systemic risk," he said.

On the issue of foreclosures, executives said they might be able to help more troubled borrowers if they could persuade those homeowners to contact their banks.

"The challenge is when times get tough . people put their heads in the sand," said Citigroup's Mr. Pandit. "Half of the foreclosures we enter into are for people we never talk to."

Meanwhile, Treasury Secretary Timothy Geithner testified on the other side of Capitol Hill and said he was "deeply offended" by the decisions made by Wall Street firms and their boards of directors. Pressed by Senate lawmakers, he said the Treasury would consider replacing management in some circumstances at firms that receive government aid in the future. Still, when directly questioned by Sen. Bernie Sanders (I., Vt.) about whether Goldman Sachs Group Inc. Chairman and Chief Executive Lloyd Blankfein should be fired, he balked. "That's a decision for his board of directors to make," Mr. Geithner said.

The eight bank executives testifying before the House panel include Goldman's Mr. Blankfein, J.P. Morgan's Mr. Dimon, Bank of New York Mellon Corp. Chief Executive Robert Kelly, Bank of America's Mr. Lewis, State Street Corp. Chief Executive Ronald Logue, Morgan Stanley's Mr. Mack, Citigroup's Mr. Pandit, and Wells Fargo's Mr. Stumpf.

They all asserted that they are lending even in the face of the economic downturn and that government aid has made that possible. Some executives said that while they didn't initially believe it was necessary for the federal government to inject capital into their firms, the capital infusions have helped the markets. Mr. Lewis said Bank of America next week will make its first dividend payment to the Treasury Department of more than $400 million. And 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.

Despite the testimony, the bank executives faced tough grilling on Capitol Hill as the public and lawmakers grow increasingly angry about the tight credit markets. Recent reports show that banks are continuing to tighten their credit standards, despite the government having injected almost $200 billion in hundreds of banks across the country as part of the $700 billion TARP.

Under the rescue plan, the government has purchased preferred stock in banking companies. But critics have slammed the Treasury Department for failing to require capital recipients to boost lending, something experts say is needed to help the ailing economy get back on track.

Additionally, the public has grown frustrated over reports of bank executives receiving big bonuses and large compensation packages, as most Americans grapple with layoffs and home foreclosures.

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.

—--Michael R. Crittenden contributed to this article.

Write to Maya Jackson Randall at Maya.Jackson-Randall@dowjones.com

3 Comments – Post Your Own

#1) On February 11, 2009 at 6:07 PM, awallejr (83.78) wrote:

The most sickening moment of the hearing was when the bank executives were asked to disclose their 2007 compensation.  Listening to the litany of "millions" wanted you see them behind bars.  Not that I am opposed to appropriate compensation, but these were presumeably the leaders of the industry.  They really had no excuse not to understand what excessiveness was taking place.  And they profited bigtime, while putting the economies of the world on the brink of catastrophe.

There damn well better be some criminal indictments, and John Thain sure as hell should be charged,  although Ken Lewis might rank up there along with Lois Lane  out as one of the most stupid people on the planet.

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#2) On February 11, 2009 at 6:18 PM, TDRH (99.72) wrote:

amen awallejr, I vote for public hangings.

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#3) On February 11, 2009 at 6:23 PM, retailsails (95.08) wrote:

It reminded of me of the "seven dwarfs" hearings when the big tobacco CEO's had to raise their hands and swear that nicotine wasn't addictive - especially when each of them had to swear that they were going to pay back the TARP funds.

As far as insiders purchasing shares, the only thing that has shown over the past several years is they are terrible market timers, and it has been the best contrarian sell signal of all...

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