WASHINGTON (Reuters) - Documents made public on Wednesday confirm former U.S. Treasury Secretary Henry Paulson gave nine major banks no choice but to allow the government to take equity stakes in them as the Bush administration moved to address turmoil in the financial industry.
The documents, obtained by the public interest group Judicial Watch under a Freedom of Information Act request, include “talking points” used by Paulson at the October 13, 2008, meeting with the banks’ CEOs in Washington.
The details of the meeting had been widely reported at the time, but the documents offer a first-hand account of what transpired behind closed-doors.
“We don’t believe it is tenable to opt out because doing so would leave you vulnerable and exposed. If a capital infusion is not appealing, you should be aware your regulator will require it in any circumstance,” the document said, citing Paulson talking points.
U.S. regulators recently completed stress tests of the U.S.’s 19 largest banks and have determined that 10 of them need to raise a combined $74.6 billion to provide a buffer against potential losses should the economy continue to weaken.
The U.S. Treasury, however, has said it would welcome the return of taxpayers’ funds from the strongest banks as long as it didn’t weaken the sector as a whole.
According to the documents released by Judicial Watch, Treasury Secretary Tim Geithner, FDIC Chair Sheila Bair and Fed Chairman Ben Bernanke co-hosted the October meeting with Paulson.
Suggested edits of the “talking points” by Geithner, then-New York Fed president, were withheld by the Treasury Department, Judicial Watch said.
The CEOs wrote by hand the names of their institution and multibillion dollar amounts of “preferred shares” to be issued to the government, the documents show.
“These documents show our government exercising unrestrained power over the private sector,” Judicial Watch president Tom Fitton said in a statement.
The CEOs present were Vikram Pandit of Citigroup, Dimon of JP Morgan, Richard Kovacevich of Wells Fargo, John Thain of Merrill Lynch, John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs, Robert Kelly of Bank of New York Mellon Corp, and Ronald Logue of State Street Bank.
The documents include an email showing a public relations effort, run in part out of the Bush White House, to tamp down public concerns about nationalizing the banks, Judicial Watch said.
The Fed, the Treasury Department and the FDIC called the bank rescue “necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.”
Reporting by JoAnne Allen.