A fascinating headline in the AP tonight. The top bankers in the U.S. are now concentrating on rebuilding the public trust.
We are certainly going to be watching. In our opinion, there is nothing more important in this crisis than the public trust – and it has been violated with impunity.
The leaders of our financial institutions would be well-served to learn a valuable lesson. Stakeholder trust that you earn by leading with integrity, making sound business decisions, and exuding compassion and respect to valued stakeholders is far more important than short-term profits.
Lead. Thrive. Trust and be Trusted!
By JIM KUHNHENN, Associated Press Writer Jim Kuhnhenn, Associated Press Writer
WASHINGTON – The nation’s top bankers came to account for themselves Wednesday to a wary public, displaying a blend of financial might and humility as they pledged to build public trust with greater lending and fewer perks.
“We’re Americans first and bankers second,” John Stumpf, president and chief executive of Wells Fargo & Co., told a House committee. “As an industry, we clearly made mistakes,” added John Mack, chairman and CEO of Morgan Stanley.
Eight chief executives sat at a witness table for more than six hours Wednesday assuring lawmakers that an infusion last fall of $165 billion in taxpayer money to their banks was good for consumers. The money was part of a $700 billion financial rescue approved by Congress in October.
Lending has increased, they told the House Financial Services Committee, and CEO bonuses have been eliminated.
And while some lawmakers said they hoped that by their testimony the bankers could gain some credibility, some of their inquisitors weren’t convinced.
“America doesn’t trust you anymore,” declared Rep. Michael Capuano, D-N.J. Added committee Chairman Barney Frank, D-Mass: “There has to be a sense of the American people that you understand their anger.”
To a man — and, yes, all eight CEOs are male — the executives said they would pay back the taxpayer money by 2012 and sooner if they could help it.
As they made that pledge, Senators on the other side of the Capitol were pressing Treasury Secretary Timothy Geithner without success to reveal how much more money the federal government would have to inject into the financial system to improve lending and reverse the escalation of mortgage foreclosures. Geithner only conceded that further requests could be possible.
“So you have no clue,” said Sen. Lindsey Graham, R-S.C.
Geithner, a day after he outlined an overhaul to the government bailout, continued to face questions about the lack of details in his plan and promised specifics “as quickly as we can.”
The blunt treatment of the financial sector and its Obama administration overseer came as the House and Senate reached agreement on a $789 billion economic stimulus package that represented the other major component of President Barack Obama’s response to the economic crisis.
The financial sector was also in law enforcement’s cross hairs. FBI Deputy Director John Pistole told the Senate Judiciary Committee Wednesday that the FBI is conducting more than 500 investigations of corporate fraud amid the financial meltdown.
At the House Financial Services Committee, the bankers represented the eight firms that received capital injections last fall in hopes that the money would unfreeze credit and lead to more lending. Joining Stumpf and Mack were CEOs from The Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., State Street Corp. and the Bank of New York Mellon.
Treasury chose those banks for infusions because they were relative healthy banks that could spur more banking activity and eliminate the stigma of taking taxpayer money for other financial institutions.
Frank urged them to impose a moratorium on foreclosures until Geithner comes up with a plan to spend at least $50 billion of the bailout funds on foreclosure mitigation. The Office of Thrift Supervision, a government bank regulator, issued a similar call on Wednesday on the nation’s savings associations.
Time and again, lawmakers asked whether money from the program, formerly known as the Troubled Asset Relief Program, had helped extend credit. Without exception, the executives said it had.
“We are still lending, and we are lending far more because of the TARP,” said Kenneth Lewis, the chief executive at Bank of America.
Still, committee members appeared to have trouble squaring the bankers’ answers with the experiences of their constituents.
“We hear voices from the other world, people who can’t get loans, can’t refinance their homes, can’t send their children to college,” said Rep. Gary Ackerman, D-N.Y. “It seems to me, and some of us, that this money hasn’t reached the street.”
Repeatedly, lawmakers prodded the executives to respond to questions about perks and policies by raising their hands. Rep. Dennis Moore, D-Kan., got the CEOs to disclose, one by one, how much each had been paid in 2008. Their salaries ranged from $600,000 to $1.5 million annually, without bonuses.
Later, they were asked what bonuses or incentives they had received in 2007. The answers were in the millions of dollars, though much was in shares of stock that have lost much of their value.
Citigroup’s Vikram Pandit stood out as something of a renegade within his millionaire peers. He was the only one to agree to a proposal that would let bankruptcy judges alter home loans in an effort to prevent foreclosures.
He also said he has asked his board of directors to pay him a $1 annual salary, with no bonuses, until Citigroup returns to profitability. No other banker said they would take a lower salary. Meanwhile, New York Attorney General Andrew Cuomo accused Merrill Lynch & Co. executives of corporate irresponsibility by secretly and prematurely awarding $3.6 billion in bonuses as taxpayers were bailing out the industry.
Cuomo made the claims in a letter to Frank, saying that Bank of America, which acquired Merrill last year, was apparently complicit in the move to award bonuses before Merrill’s dismal fourth quarter earnings were announced.
Lewis, pressed about the bonuses at the hearing, said Bank of America was aware of the bonuses, but said they were set by pre-exisitng Merrill Lynch contract.
“They were a public company until the first of this year,” Lewis said. “We had no authority to tell them what to do, just urge them what to do.”
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Associated Press writers Liz Sidoti, Chris Rugaber and Devlin Barrett contributed to this report.
Donna, I completely agree that specific trust-regaining criteria would be an intelligent place to start; particularly once these institutions and their leaders took a full account of all that they have broken. You correctly began to give name to the many people (that’s right – PEOPLE) who are affected by greed, bad decisions, and lack of integrity we are witnessing.
Let’s look deeper: there are small businesses, those of us who work hard, pay our bills, and serve our customers well; there are the homeowners, many of whom are also hard-working Americans, who are moments away from losing everything.
There are the consumers, who cannot trust peanut butter this week, the baseball player or swimmer whom their children idolize next week, and couldn’t trust that their deposits would still be exist in the same bank they deposited in the week before
There are shareholders (all of us with 401K’s… or who used to have them); and there is the collective community who suffers because others are suffering. Each is a real person. With a beating heart.
So, as we make business decisions it is so important that we understand the financial implications… and that there are human implications, too.
A keen observation indeed. I agree with Bruce, as well. To both of your points, I believe what this discourse on trust lacks–presuming that federal and corporate watchdogs are prepared to actively manage it–is an actual standard for regaining it. A broken, barely recognizable system cannot be repaired using instructions and tools crafted from the very fabric of its brokenness. Until Lewis, Stumpf and their cohorts are held to specific trust-gaining criteria (that far exceeds TARP salary caps, which simply turn Bank CEOs into the newest pro-sports expansion team) this is merely a bureaucratic scrimmage.
Families in foreclosure and struggling small business owners alike are overwhelmed with policies, procedures and rules that are as specific as they are dehumanizing and debilitating. Are we really surprised that those who, with OUR money, have pledged themselves to ‘heal’ the miry state of banking have not invested this level of detail into their own therapy? Physicians, heal yourselves!
I think it not a far stretch to suggest that the House panel’s time may have been better spent reviewing YOUR research, as opposed to stockpiling more bankrupt promises from those who last year were payed billions–“B,” billions–while bankrupting a nation!
Would that they subscribe to Synergy Blog!
Bruce, thank you for your comments. I think you are absolutely correct in pointing out that the lack of trust in our institutions is crippling our economy and our collective American spirit. The good news is that nothing can destroy that spirit.
We can improve the crisis of trust by following the golden rules: Act with integrity – in your life and in leadership roles in organizations; Act competently – make sound business decisions; Act passionately – in every decision, try to make sure value is created for all stakeholders.
Thank you, again, for your comments.
Thank you for posting this blog. I found it very interesting and look forward to see what the banks do with the 2nd phase of TARP monies. There isn’t a person in America who TRUSTS the banking industry right now. But what are we going to do? The banks have us between a rock nd a hard place.
I guess I could take my money from NCB/PNC, who I’ve been a customer with since 1981, over to Third Federal. Hmmmmm… What would happen, if Americans did switch their money to the smaller banks who were more conservative in their lending practices and therefore more trustworthy? I saw on CNN 2 days ago, where a pundit said the banking model as we knew changed about 20 years ago. That was when the bank knew the person they were lending to, versus now, where they don’t and the main concern is profit through leveraged risk.