House members grill bank execs on TARP

House members from both parties Wednesday grilled the heads of the eight banks receiving the bulk of the federal government’s financial bailout, while bank officials did their best to appear contrite and argue that they are working to lend money.

House Financial Services Committee Chairman Barney Frank (D-Mass.) told the corporate chieftains that they must do much more to win the government’s confidence that they are using the money appropriately.

{mosads}“I urge you going forward to be ungrudgingly cooperative,” Frank said, adding that the banks must “make some sacrifices.”

Rep. Randy Neugebauer (R-Texas) called the hearing a “shareholders’ meeting,” adding that “the American people are your shareholders. There is a new accountability structure that will come.”

Rep. Michael Capuano (D-Mass.) was perhaps the bluntest of the members: “Basically you come to us today on your bicycles, saying, ‘We’re sorry, we didn’t mean it, trust us’ … Honestly, none of us — America doesn’t trust you anymore.”

Lawmakers and government watchdog panels have spent months lashing out at the federal government’s $700 billion financial rescue package, the first half of which was doled out under President Bush and former Treasury Secretary Henry Paulson.

On Tuesday, Tim Geithner, who replaced Paulson at Treasury, outlined a plan for the second half of the package, which would leverage the remaining $350 billion to commit up to $2 trillion to ease the crisis. The new program received a dismal reaction from lawmakers and investors after key details were left missing.

Lobbyists and analysts for the financial services industry are now awaiting further specifics about several parts of the program. In announcements Wednesday, government officials said parts of the program would be run by Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation and would also involve private capital.

Lawmakers put the bank executives through a daylong round of questioning, but the hearing lacked many of the expected fireworks that surrounded the House and Senate hearings in December when the heads of Ford Motor Co., General Motors Corp. and Chrysler LLC came to Congress seeking financial aid.

Vikram Pandit, the CEO of Citigroup, attempted to head off a line of questioning by specifically apologizing for the corporate jet that the company had been in the process of purchasing while the firm received bailout money.

The automakers were berated for traveling to Washington aboard corporate jets for the first round of hearings.

{mospagebreak}“We did not adjust quickly enough to this new world, and I take personal responsibility,” Pandit said. “We canceled delivery … I get the new reality, and I will make sure Citi gets it as well.”

More broadly, the bank heads defended the Troubled Asset Relief Program (TARP), as the bailout is known formally, and said that the money was helping to increase lending, which was the main goal of the bailout program when it was passed in October.

{mosads}“J.P. Morgan is lending,” CEO Jamie Dimon said. Kenneth Lewis, CEO of Bank of America, added, “It’s in all of our interests that banks lend as much as they can. Despite recessionary headwinds, we are lending … We intend to pay all the TARP funds back as soon as possible.”

There were also fresh concerns on Wednesday about executive compensation rules surrounding companies that receive bailout money.

“If in good times you were told you were not going to get a bonus, what part of your job would you not do?” Frank asked.

Pandit said he would receive a $1 salary and forgo a bonus until Citigroup returns to profitability. Dimon and Lewis also said they would not receive bonus compensation for 2008.

In a letter to the Financial Services Committee on Tuesday, New York state Attorney General Andrew Cuomo revealed details of his investigation into executive compensation at Merrill Lynch while it was in the process of being acquired by Bank of America at the end of 2008. The federal government has provided billions of dollars to the bank, in part to help complete the transaction.

“Merrill Lynch’s decision to secretly and prematurely award approximately $3.6 billion in bonuses, and Bank of America’s apparent complicity in it, raise serious and disturbing questions,” Cuomo wrote.

The top four bonus recipients received $121 million. The top 14 received a combined $250 million, according to Cuomo’s letter.

“My personal involvement was very limited. We urged Merrill Lynch execs involved in this compensation issue to reduce the bonuses substantially, particularly at the top,” said Lewis. “They were a public company until the first of this year. We had no authority to tell them what to do.”