It's time to fire up the ticker again as the House Financial Services Committee returns from a recess to ask the heads of the eight largest US banks about what they did with their Tarp money. So far, it's been pretty smooth sailing for the witnesses. Here's a refersher on who's testifying:
Lloyd C. Blankfein, Chief Executive Officer and Chairman, Goldman Sachs & Co.; James Dimon, CEO, JPMorgan Chase & Co.; Robert P. Kelly, Chairman and CEO, Bank of New York Mellon; Ken Lewis, Chairman and CEO, Bank of America; Ronald E. Logue, Chairman and CEO, State Street Corporation; John J. Mack, Chairman and CEO, Morgan Stanley; Vikram Pandit, CEO, Citigroup; John Stumpf, President and CEO, Wells Fargo & Co.
Hold on to your hats!
3:01pm: Rep. Walter Jones, R-N.C., asks Mr. Pandit why Citigroup hasn't cleaned up its credit card practices. "In 2006, after tax, those banks that get fees from credit cards made $18.37 billion. Since the consumer has done such for you, is it even possible when the average penalty interest rate is 24%, when the taxpayer is hurting so badly and he or she is helping you out, couldn't there be a period of time when I am not going to make him or her pay 24%, so I can make billions of dollars?...Can you reduce that rate?"
Mr. Pandit responds, "we did not change our rates for two years." He says Citi eventually raised the rates in order to "keep credit flowing."
3:05pm: Wait, now Rep. Jones is saying, "I want to commend you." And to Mr. Lewis: "Show some compassion. The majority of Americans are not members of the country club--and I'm not saying you are." (He isn't?)
3:08pm: Rep. Rubén Hinojosa, D-Tx., is asking what the bankers are doing to prevent foreclosures. It's mid-afternoon and since mid-morning we've been hearing about their loan mod programs. This hearing will not be made into a prime-time TV miniseries.
3:12pm: Now Rep. Hinojosa is asking again whether the CEOs support bankruptcy cramdowns. Rep. Frank mercifully points out that the issue has already been raised. "It was behind in the early returns," he adds.
3:14pm: Rep. Stephen Lynch, D-Mass., points out that after the 1929 stock market crash regulators and investors got together and agreed upon transaction fees--tiny ones--for each new trade made over an exchange. Couldn't something similar work now? "Do you support the idea--and this could be a microscopic, given the volume of trades every day--is there any appetite out there to look at transaction fees as a way to pay this back?"
The responses are cautious. We should look at it, Mr. Pandit replies. "We would have no problem paying some fees to help bear the cost of regulation," Mr. Dimon says.
3:20pm: Rep. David Scott, D-Ga., asks for a complete foreclosure moratorium "The committee in the Tarp bill has put foreward up to $100 billion" and your moratorium would only have to last for three weeks. "That's the fair thing to do."
Mr. Lewis says "If we could put a time frame on it, and not just say it's two weeks or three weeks, we could commit to that." Mr. Pandit added that he will impose a moratorium on foreclosures on homes that are the owners' primary residences.
Rep. Frank interjects that legislation that may be passed soon may offer servicers legal protection from investor lawsuits. "Help is on the way."
3:25pm: Now Rep. Scott is talking about a change in how banks should report the value of assets linked to loans that have defaulted and triggered foreclosures.
3:26pm: Rep. Frank points out that the Office of Thrift Supervision has joined the call for a foreclosure moratorium.
3:27pm: Another request for reports on salaries down the line, this time the 2007 salaries. Mr. Blankfein's bonus totalled $67 million.
3:28pm: Jamie Dimon on the spot: He's asked to opine on an arbitrary mortgage cramdown in bankruptcy law. He replies that it would increase the losses on assets as well as the cost of unsecured credit.
3:31pm: A chuckle runs through the room as a Florida congressman calls Mr. Lewis "Mr. Countrywide."
3:33pm: Rep. Brad Miller, D-N.C., asks, "If there are banks that are, in fact, insolvent, can you think of any reason that that loss should be borne by taxpayers instead of shareholders and unsecured creditors?"
Mr. Blankfein is asked to respond and after some badgering says "the shareholders should pay for the losses if possible." Down the line, the CEOs say "shareholders." Mr. Mack qualifies that it would have to be determined first whether there's a systemic issue.
Rep. Miller on the newly announced stress test: "What sort is credible?"
"I've only had a three-month relationship with my new regulator," Mr. Blankfein responds.
3:38pm: Rep. Al Green, D-Tx. says his constituents "really want to know what happened to the money. And I'm not sure that after today they will have any less anger."
"Is it possible to ascertain the amount of increase in new lending attributable to Tarp?" He repeats the question twice and then asks for a show of hands.
There is some confusion, as the corporate bankers abstain...someone murmurs "this is going to make a good Saturday Night Live skit."
3:41pm: Rep. Green announces a bill that would force the banks that received Tarp to report the amount of new lending as a result of the infusion.
"We do that in our Tarp filing to the Federal Reserve," Mr. Mack says.
3:43pm: Rep. Emanuel Cleaver, D-Mo., reads a question from a constituent: "How dare you?" Then he asks Mr. Blankfein, "Do you believe that warehouse lending is responsible?
"You mean against a physical warehouse?" Mr. Blankfein responds.
"It's when you issue a line of credit to an originator for 30 days and they sell the mortgage somewhere else," Rep. Cleaver explains.
Mr. Stumpf: "We like to make mortgage loans ourselves."
3:49pm: Rep. MaryJo Kilroy, D-Ohio, asks Ken Lewis whether Bank of America needs additional government funding.
Mark his words: No.
Rep. Kilroy wants a commitment from all of the CEOs that they will pay their Tarp money back.
Mr. Blankfein: "That is my expectation."
Rep. Frank: "You're not under oath, guys."
Mr. Stumpf: "As we're positioned today, we will not need any more funds."
3:54pm: Rep. Keith Ellison, D-Minn., asks whether "any company that gets Tarp funds, those fund should be used to recapitalize the bank or increase solvency and promote lending...can I have your assurance that no tarp funds have been devoted to lobbying?"
He's asking Mr. Lewis whether he thinks Bank of America should, while it has Tarp funds, refrain from lobbying against the Employee Free Choice Act. He's citing an alleged conversation with a Financial Services Roundtable member disparaging the Act. Mr. Lewis says, "I think it's always right to do what's best for your company."
4:00pm: Rep. Ellison to Mr. Lewis: Should your bank be nationalized? Mr. Lewis: "Are you talking to me?"
4:05pm: Rep. Steve Driehaus, D-Ohio, asks Mr. Lewis why some banks didn't take Tarp.
"They don't want the government involved in their business," Mr. Lewis replies.
4:09pm: In response to a question about "too big to fail," Mr. Dimon replies that some companies need to be large. The size isn't the issue. Sometimes size is a benefit. "If you have the systems and people to handle the size and the complexity," things are OK, he reasons. Earlier, Mr. Mack said Morgan Stanley is going to continue to grow.
4:11pm: Rep. Judy Biggert, R-Ill., asks Mr. Dimon how to restore market confidence. "We will beat this thing," he says. "We will move on."
Mr. Stumpf takes a swing at mark-to-market accounting. He also says the procedures for loan-loss reserves are badly conceived. And servicing FHA and VA loans, he says is a pain. "At the end of the day, serving more customers and partnering with you in Congress to create more jobs" will be the answer, he concludes.
4:15pm: "In extraordinary times like this, there should be another alternative" to mark-to-market accounting, Mr. Lewis says.
Mr. Stumpf elaborates on the difficulties of servicing FHA and VA loans. A typical FHA loan goes into a Ginnie Mae pool to which the bank is obligated to pay the full monthly amount due whether or not the borrower makes payments on time.
4:19pm: Rep. Joe Donnelley, D-Ind. asks whether banks can work with companies to help them keep their credit lines even if they don't meet revenue requirements.
Mr. Stumpf says yes.
4:26pm: The room has really thinned out. Most of the Democratic committee members are gone (Frank is there, though). The bankers are talking about their risk assesments. The afternoon is growing long.
Rep. Frank says "I'm afraid that sometime later in the evening I'm going to be beseiged with the image of the eight of you standing up and singing 'I Will Survive.' I hope that doesn't happen."
4:29pm: Rep. Andre Carson, D-Ind., asks the bankers how they will better modify their risk assesment policies. Mr. Mack is responding with a report on how Morgan Stanley has just finished an outside audit and added staff, etc. The CEOs were completely prepared for these questions. A ponderance is beginning to form in my mind: Are they doing a really great job today or are the committee members doing a terrible one? Either way, the confrontations have been muted.
4:35pm: Rep. Jackie Speier, D-Calif. suggests to Jamie Dimon that there should be a usurous rate, and he agrees. Tellingly, he posits that there may already be state consumer protection laws against certain high credit card rates.
4:40pm: Rep. Alan Grayson, D-Fla. and Mr. Pandit are squaring off over the asset guarantees that the Treasury and the Fed established as part of Citi's second bailout. "Did you ever hear of the phrase 'heads I win tails you lose?'" Rep. Grayson asks. Mr. Pandit says he doesn't think that's a good characterization of the guarantees.
4:50pm: Rep. Gary Peters, D-Mich., is asking about automakers again. Most of the CEOs say they lend to the Big Three and Mr. Lewis says he's helping the automakers attempt to restructure their debt. Their answers seem to be satisfying Rep. Peters, who adds, "Bankruptcy is not an option for the auto industry."
4:53pm: "It's been a long day," says Ron Klein, D-Fla. But he gets down to business and tells the bankers that no matter what they say about increasing lending, the supposed increase is "not getting through" to consumers.
4:58pm: "Congratulations, gentlemen, you've reached the last questioner." That's Dan Maffei, D-N.Y., who continues by assuring the bankers that he found "some of the leading questions" unfair, and that the CEOs before him "are reformers in your industry." He's ending the day on a peaceful note, for sure. But where is the enlightenment?
5:03pm: Hearing adjourned. The bankers can breathe a sigh of relief. That wasn't so bad!
