The heads of Wall Street's biggest banks struggled nervously to defend the financial industry's culture of multi-million-dollar bonus payments as they faced a showdown with lawmakers on Capitol Hill today.
At a tense and closely watched hearing, the House financial services committee questioned the chief executives of eight top banks – Goldman Sachs, JP Morgan, Bank of New York Mellon, Bank of America, State Street, Morgan Stanley, Citigroup and Wells Fargo.
Barney Frank, the Democratic chairman of the committee, demanded to know why the chiefs needed bonuses to motivate them to work: "Why do you need to be bribed to have your interests aligned with shareholders?" He wondered whether the eight chief executives would work shorter hours – or take longer lunches – without the payments.
Morgan Stanley's boss, John Mack, replied: "We love what we do. If you gave me no bonus in the best of years, I'd still be here."
A New York congresswoman, Carolyn Maloney, asked why Merrill Lynch staff shared nearly $4bn of bonuses just before the firm was taken over by Bank of America in a rescue deal which required government aid. "How can you justify paying bonuses to managers who were running the company into the ground to the point where it was forced into a merger?" she asked. "Could this reasonably be described as looting the company prior to the merger?"
Bank of America's chief executive, Ken Lewis, said his firm had urged Merrill to reduce the bonuses but that the brokerage was an independent public company until the takeover was complete: "We had no authority to tell them what to do – just to urge them what to do."
In opening statements before the committee, several of the bank bosses offered a degree of contrition over the industry's role in the financial crisis.
Citigroup's chief executive, Vikram Pandit, apologised for trying to buy a $50m corporate jet after receiving $45bn of taxpayers' money. "We did not act quickly enough to adjust to the new world," he said. "I take personal responsibility for that mistake."
In a rare collective appearance, the eight rival bank chiefs were warned that they face much greater public scrutiny because of their receipt of public funds.
Paul Kanjorski, a Democratic congressman from Pennsylvania, told them: "As executives of large corporations, you once lived in a one-way mirror unaccountable to the public at large and often sheltered from scrutiny. When you took taxpayers money, you moved into a fishbowl."
Under questioning from the committee, the banking chiefs agreed that credit cards could pose the next major problem in the financial crisis. As unemployment rises, millions of jobless Americans are expected to default on credit card debt.
"Clearly this is going to be an awful year for the credit card industry," said Bank of America's chief executive Ken Lewis, who warned that unemployment of between 8% and 8.5% would cause "very high loss rates" on cards.
In written evidence prior to the hearing, Goldman Sachs's chief executive, Lloyd Blankfein, conceded that his industry had a serious image problem: "In my 26 years at Goldman Sachs, I have never seen a wider gulf between the financial services industry and the public."
He accepted that there were grounds for criticism: "Many people believe – and, in many cases, justifiably so – that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system's stability."
But the bankers shrugged off accusations that they are refusing to lend, offering statistics to show their firms' willingness to extend credit. JP Morgan's chief executive, Jamie Dimon, told lawmakers that his bank made $150bn in new loans during the final quarter of 2008, including $50bn to consumers, $20bn to small businesses and $90bn to corporate clients.
sourced from The Guardian
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