Bank Execs Get Pass as Lawmakers Harp on Tarp

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Bank Execs Get Pass as Lawmakers Harp on Tarp

American Banker | Friday, November 14, 2008

By Stacy Kaper

WASHINGTON — Lawmakers had the equivalent of red meat before them Thursday: Four executives representing big financial companies were sworn in and ready to answer questions about how they planned to use billions of capital fronted by the government.

And yet, the hearing never got contentious.

Several lawmakers urged the witnesses to detail how they were using their capital injections, but there was little protest when they offered only general responses.

Instead, lawmakers — who have urged the Treasury Department to require banks to use the money for aggressive lending — offered excuses for why Congress could not force the issue.

"I really tried to stay away from the Congress … sort of dictating specifics here," Senate Banking Committee Chairman Chris Dodd, D-Conn., told reporters after his committee's hearing on the Troubled Asset Relief Program. "I'm a little reluctant in this case to start doing that or trying that."

Republican lawmakers agreed with that stance.

"It's always difficult to say that Congress ought to start micromanaging, because in many respects micromanaging generally gets it wrong," Sen. Mike Crapo of Idaho, the most senior Republican on the committee to attend the hearing, told reporters.

Sen. Tim Johnson of South Dakota, one of the few Democrats to oppose the Oct. 3 financial rescue bill, asked bankers if they intended to use the capital to pay executive bonuses, increase dividends, or acquire other institutions.

Representatives from JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs Group Inc., and Wells Fargo & Co. said that the money would not go toward executive compensation or dividend increases, and that their boards determine executive compensation and dividends largely by looking at earnings.

Jon Campbell, the executive vice president and Minnesota chief executive officer for Wells Fargo, also said capital would not be used for dividends, and he cautioned lawmakers to avoid actions that could hurt dividends and scare off investors.

"Continuing to pay dividends at appropriate levels while we maintain appropriate capital levels is critical to investor confidence remaining, so I would just say that while we clearly agree with you that the use of the funds is not for dividends, to consider restricting them has unintended consequences that we all should be cognizant of," he said.

The executives gave vaguer responses when pressed about purchases.

"Our growth has basically been organic, as opposed to through acquisitions," said Gregory Palm, the executive vice president and co-general counsel of Goldman Sachs.

Sen. Dodd interrupted Mr. Palm to point out that his company had said the night before that it would increase its deposit base "through acquisitions and organically." ...cont'd

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