Lawmakers Pull Few Punches With Bank Executives

By KATE KELLY and DAMIAN PALETTA

Reuters

The chief executives of banks that have received federal-government aid testified Wednesday before the House Financial Services Committee, including, from left: Lloyd Blankfein of Goldman Sachs, James Dimon of J.P. Morgan Chase, Robert Kelly of Bank of New York Mellon, Kenneth Lewis of Bank of America, Ronald Logue of State Street, John Mack of Morgan Stanley, Vikram Pandit of Citigroup and John Stumpf of Wells Fargo.

WASHINGTON -- Chief executives at eight banks and securities firms that have gotten $165 billion in federal aid were barraged by U.S. lawmakers, who showed little patience for a charm offensive aimed at defusing ire over pay and lending.

During Wednesday's seven-hour hearing before the House Financial Services Committee, Rep. Maxine Waters (D., Calif.) referred to the CEOs, sitting in alphabetical order at a long table, as "captains of the universe."

When Bank of America Corp. Chairman and CEO Kenneth Lewis responded, "corporals of the universe," Rep. Waters looked at him blankly. "Did you raise your credit-card rates?" she demanded.

Bank Chieftains Testify

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The Washington Times /Landov

Eight bankers testified before the House Financial Services Committee.

Statements

• Bank of New York's Bob Kelly
• J.P. Morgan's Jamie Dimon
• Morgan Stanley's John Mack
• Bank of America's Kenneth Lewis
• Goldman Sachs' Lloyd Blankfein
• State Street's Ronald Logue
• Citigroup's Vikram Pandit

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It was a typical moment in a hearing that underscored how big-bank CEOs have become lightning rods for the anger and misery fueled by falling home prices, rising unemployment and the deepening recession. From Goldman Sachs Group Inc. Chief Executive Lloyd Blankfein to John Stumpf of Wells Fargo & Co., the eight executives endured relentless questions that included being forced to recite their salary, bonus and stock compensation in a hearing meant to assess the Troubled Asset Relief Program.

In 2006 and 2007, the eight executives got total compensation of $401 million, according to securities filings. The combined stock-market value of their companies has plunged 69% since the Dow Jones Industrial Average peaked in October 2007.

"It is essential if we are to reverse the economic negativism that we now confront that we get the system of extending credit back to its fullest operation," said House Financial Services Chairman Barney Frank (D., Mass.).

Committee members did little to hide their ire about what they perceive as wasted aid from the government. Vikram Pandit, chief executive of Citigroup Inc., which got $45 billion in taxpayer-funded capital, apologized for plans by the New York bank to buy a corporate jet. The order was canceled last month under pressure from the Obama administration.

Mr. Pandit, who became CEO at Citigroup in December 2007, also vowed to take $1 a year in salary until the company returns to profitability. Citigroup has posted five quarterly losses in a row, including a net loss of $8.3 billion in the fourth quarter.

Anticipating tough questions about pay and perks, James Dimon, chairman and chief executive of J.P. Morgan Chase & Co., took the Acela, Amtrak's high-speed train, and stayed overnight at Washington's Park Hyatt hotel. He bumped into Bank of New York Mellon Corp. CEO Robert Kelly at breakfast. Mr. Blankfein and John Mack, Morgan Stanley's chief executive, flew commercial flights, but Mr. Blankfein stayed at a Ritz-Carlton hotel. Mr. Pandit spent hours cramming for the hearing.

"You come to us today on your bicycles, after buying Girl Scout cookies and helping out Mother Teresa, telling us: 'We're sorry. We won't do it again,' "said Rep. Michael Capuano (D., Mass.). "America doesn't trust you anymore."

In the hearing's more substantive moments, the CEOs painted grim portraits of the U.S. economy, predicting more pain on everything from credit cards to home loans, while opening the door to reforms the industry has long shunned. Mr. Lewis, for instance, suggested that Bank of America might support legislation that would allow bankruptcy judges to alter the terms of loans. Messrs. Lewis and Pandit agreed to suspend certain home foreclosures for three weeks while the Obama administration readies its foreclosure-prevention plan.

"This country is in a recession headed for a Depression," said Rep. Walter Jones (R., N.C.). "Why can't you do something for them?" he asked, referring to consumers.

In an acknowledgment of more bad times to come, Mr. Dimon said J.P. Morgan has reserved $10 billion to cover expected losses from credit cards. "That's part of the cost of doing business," he said.

The hearing attracted more than 100 onlookers, including the Rev. Jesse Jackson and shareholder activist Evelyn Y. Davis. Professional line-waiters arrived at the Rayburn House Office Building as early as 6 a.m., where they stood outside for an hour before the public doors opened. On the cul-de-sac outside the building's first floor before the hearing began at 10 a.m., ABC News paged through a sheet of CEO headshots, trying to figure out which CEOs might have walked in.

"He was suntanned," said one member of the TV crew, examining the picture of Mr. Blankfein. "He wasn't bald," his colleague hissed back, pointing to the Goldman's chief's smooth head.

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Reps. Barney Frank (left) and Paul Kanjorski speak during the testimony of executives from banks and financial institutions that received bailout money.

Buttonholed during a midday break, the CEOs wouldn't say much about the proceedings. "It's not over," Mr. Mack said dourly on his way to grab lunch.

"I'm much better forecasting the past than the future," Mr. Blankfein joked. "Let me get through it." Mr. Lewis said the hearing was going "about as expected."

Later in the afternoon, Mr. Lewis responded testily to Rep. Keith Ellison (D., Minn.), who asked Messrs. Pandit and Lewis about their banks' solvency. Mr. Pandit cited Citigroup's high capital ratio. Mr. Lewis, looking somewhat incredulous, said the Charlotte, N.C., bank, now on the hook for $45 billion from the government, had been profitable for the past two years.

"We did not lose money like some banks across the world. So to ask me that question is amazing," Mr. Lewis said.

At one point Mr. Blankfein took a shot at Mr. Pandit, who was sitting at the opposite end of the table. Rep. Nydia Velazquez (D., N.Y.) asked Goldman's chief why the firm wouldn't support legislation to prevent foreclosures that Citigroup recently supported. Mr. Blankfein said the legislation could cause major market disruptions.

"Are you implying that Citigroup lost their mind?" Rep. Velazquez said.

"If they have, it's not because of this issue," Mr. Blankfein responded, eliciting laughter from the audience.

Despite the largely chilly reception, the eight CEOs -- who also included State Street Corp.'s Ronald Logue -- were spared the indignity suffered by former Lehman Brothers Holdings Inc. chief Richard Fuld Jr. in a congressional hearing in October into the collapse of the securities firm he ran.

In contrast to Mr. Fuld, who was subjected to a long walk to and from his grilling, most of the chief executives summoned to Congress on Wednesday were ushered in and out through a discreet side door, leaving the media to scramble after them as they were whisked up the staircase. Most dodged reporters, but Messrs. Dimon and Mack stopped to answer multiple questions from reporters as they left.

Asked in the hallway after a men's-room break how the hearing was going, Mr. Pandit smiled, held his hand up and walked away.

Write to Kate Kelly at kate.kelly@wsj.com and Damian Paletta at damian.paletta@wsj.com