WASHINGTON (Reuters) - Wall Street bank executives squirmed under a public scolding in the U.S. Congress on Wednesday over how they used $176 billion in bailout money without noticeably improving the battered economy.
“America doesn’t trust you anymore,” Massachusetts Democratic Rep. Michael Capuano told eight bank chief executives during six hours of congressional questioning on the troubled bank bailout plan.
The lawmakers reflected public outrage over the failure so far of a $700 billion financial bailout program to stop the economic free fall and growing taxpayer fatigue as the price tag for rescuing the economy grows.
They demanded to know what the banks have done with the bailout money, given an ongoing credit crisis that has added to the country’s deteriorating economy.
The CEOs, who as the titans of the once seemingly invincible capitalist society earned a total of $118 million in 2007, struck a contrite tone.
“I feel more like corporal of the universe, not captain of the universe at this moment,” said Ken Lewis, CEO of Bank of America, as he came under intense questioning from California Democratic Rep. Maxine Waters.
The CEOs argued they had responsibly used the billions in taxpayer dollars to increase lending, not to pay executives, lobbyists or shareholder dividends.
Three of the biggest lenders to consumers — Citigroup, Bank of America and JPMorgan — said they made $340 billion in new loans in the fourth quarter of 2008.
British bank executives were also on the hot seat Wednesday as a parliamentary inquiry into that country’s banking crisis continued.
And the Irish government beefed up its bailout package Wednesday with a pledge to inject $9 billion into two top banks in return for guarantees on lending.
The eight U.S. CEOs, questioned about their own income, said they had received 2008 salaries ranging from $600,000 to $1.5 million and had not received bonuses.
All but one reported that their companies own or lease aircraft, prompting California Democratic Rep. Brad Sherman to advise them to give up the expensive planes.
“You could sell them,” he said.
Prodded by New York Democratic Rep. Gregory Meeks on whether Americans deserved an apology for lax loan standards that fueled the now-collapsed debt bubble, Morgan Stanley CEO John Mack spoke up.
“I think the entire industry bears responsibility, and I’m sorry for it,” said Mack, who earned $9.2 million in 2007.
Wednesday’s hearing came a day after Treasury Secretary Timothy Geithner failed to inspire market confidence over the government’s financial bailout plans and sent stocks tumbling.
Bank shares traded higher Wednesday as bargain-hunters moved in after Tuesday’s 14 percent sell-off, and added to their gains on hopes a separate $789 billion stimulus package moving through Congress will reinvigorate the economy.
More so than other lawmakers, Capuano expressed frustration.
“You come to us today on your bicycles after buying Girl Scout cookies and helping out Mother Theresa and telling us, ‘We’re sorry, we didn’t mean it, we won’t do it again, trust us.’ Well, I have some people in my constituency that actually robbed some of your banks and they say the same thing,” he said.
By the end of the day, Lewis’ patience appeared to be running thin as he was asked about Bank of America’s capital levels and solvency. “To ask me that question is amazing.”
Outside the building where the hearing took place, about a dozen protesters taunted Lewis. “Hey, Ken Lewis feel our pain,” they chanted.
Democratic Rep. Barney Frank, chairman of the House of Representatives Financial Services Committee, opened the proceedings by telling the CEOs they needed to understand Americans’ anger and frustration and cooperate with lawmakers willingly, “not grudgingly, not doing the minimum.”
New York Democratic Rep. Gary Ackerman said that in “the real world,” people cannot get loans to buy cars or homes or send children to college.
“It seems to me and some of us that this money hasn’t reached the street, that you haven’t loaned it out,” he said.
Democratic Rep. Paul Kanjorski of Pennsylvania was equally baffled, telling the executives that if their banks did not use the money, “Please find a way to return that money before you leave town.”
South Carolina Republican Rep. Gresham Barrett said his constituents “simply have not seen the evidence that the money you were given is working or making their lives better.”
The CEOs reported they had forsworn bonuses for now.
“I’ve told my board of directors that my salary should be $1 per year with no bonus until we return to profitability,” said Vikram Pandit of Citigroup Inc.
But Frank demanded why they needed bonuses at all when a good salary would do. New York state officials say financial companies doled out $18.4 billion in bonuses last year.
“This notion that you need some special incentive to do the right thing troubles people,” Frank said.
“It’s complicated,” Mack replied, citing the risks involved, the global nature of the banking business and the size of the companies. “If you gave me no bonus for the best year, I’d still be here.”
The executives also said they are embracing some of the reforms proposed for the badly crippled U.S. financial system.
Jamie Dimon, head of JPMorgan Chase & Co, said he is endorsing a proposal to create a systemic risk regulator to help oversee U.S. markets.
“This would allow us to begin to address some of the underlying weaknesses in our system and fill the gaps in regulation that contributed to the current situation,” he said. “We stand ready to work with you on the range of issues confronting the financial services sector and our economy.”
Others testifying included Lloyd Blankfein, CEO of Goldman Sachs Group Inc., Robert Kelly of Bank of New York Mellon Corp, Ronald Logue of State Street Corp and John Stumpf of Wells Fargo & Co.
Additional reporting by John Poirier, Karey Wutkowski, Rachelle Younglai and Julie Vorman; Editing by Tim Dobbyn