Tuesday, December 15, 2009

Banks: We'll 'step up now'

Facing White House pressure to increase lending, bank CEOs plan to tell President Barack Obama in a meeting on Monday that they are ready to “step up” and take additional steps to promote economic recovery, industry officials tell POLITICO.

“Every CEO that’s participating is ready to a) listen and b) step up,” said an industry executive familiar with plans for the meeting. “Everybody’s goal is to come out of the meeting with actionable, constructive and measurable things that the industry can do to spur recovery.”

Obama will take a measured tone with the bankers, telling them he wants to have a candid and constructive conversation and doesn’t want to vilify anyone, according to administration officials. But the president will tell the banks that they have a special responsibility to help spur recovery because of the extraordinary bailout assistance they received last year.

The president will acknowledge the industry concern that regulators are overcorrecting and have become overzealous. And he’ll call for a dialogue about the issue.

Still, Obama wants the CEOs to send a signal to loan officers that they’ll not be rewarded for turning down loans. The president will say that lending is critical to the recovery and that he hears story after story about creditworthy borrowers who haven’t missed a payment but have been cut off.

Lucas van Praag, a Goldman Sachs managing director who is the firm’s global head of corporate communications, said: “Coming into this meeting, we are focused on helping our clients to protect and grow their businesses. Clients are at the heart of our business. And whether it is helping a client restructure debt, raise equity [or] make a strategic acquisition, helping a U.S. aircraft manufacturer to finance the export of American-made planes or underwriting Build America bonds so that municipalities can build schools, roads and hospitals, meeting clients’ needs is the role we play in bringing a broad-based economic recovery closer for all Americans.”

The meeting comes as public anger about the Wall Street bailout — and the federal deficit spending necessary to finance it — is becoming a major political challenge for the Obama administration. At a time when unemployment is at 10 percent, the administration has expressed frustration that the big banks have been slow to lend to the small businesses that can generate job growth.

Major Wall Street players say they are caught between the urging of the White House to lend and the equally forceful guidance from federal regulators not to lend to uncreditworthy borrowers. It was willy-nilly lending to unqualified subprime mortgage customers, after all, that triggered the global economic meltdown. The bankers say they’ve learned their lesson and are trying to avoid a repeat of that fiasco.

Obama has suggested in public comments that the pendulum has swung too far, hurting small firms that can’t get credit to finance growth.

The bankers — including the heads of Goldman Sachs, American Express, JPMorgan, Capital One, Bank of America, Morgan Stanley, Citigroup and Wells Fargo — will not present a specific industry plan. Instead, they’ll talk about their own organizations’ plans, especially to help small businesses, a key White House focus.

The industry executive said that ideas that come out of this meeting could include more lending for small business and an extension of Treasury’s Build America bonds program, a stimulus measure that was designed to lower borrowing costs for state and local governments in getting infrastructure projects moving.

“There’s a very strong understanding that we have to work constructively on financial regulatory reform that will provide markets with certainty,” the executive said. “The industry is perceived as recalcitrant because it has raised issues with particular details of reform. However, as a general matter, all of the firms at the table recognize that reforms are necessary to prevent future crises, reestablish confidence in the system and provide certainty. Markets crave certainty.”

Rob Nichols, president and COO of the Financial Services Forum, said: “We are in agreement with the administration that we need reform and modernization of the U.S financial supervisory framework. We are committed to the important task of creating an efficient and flexible 21st century regulatory architecture that ensures the safety and soundness of financial institutions, and protects the interests of investors, depositors, and customers. A safe, sound, and efficient financial sector is critical to the health of the U.S. economy, our recovery prospects, and job creation.”

The industry executive said the message of the meeting appears to be “half woodshed and half help us move forward.”

The White House said Obama “will meet with members of the financial services industry to discuss our shared interest in economic recovery, the need to increase small-business lending and the administration’s plans for financial regulatory reform."

The president told CBS’s “60 Minutes” in an interview aired Sunday night: “I did not run for office to be helping out a bunch of fat-cat bankers. ... What’s really frustrating me right now is that you’ve got these same banks who benefited from taxpayer assistance who are fighting tooth and nail ... against financial regulatory control.”

The administration official said that in the meeting, Obama is expected to compliment banks that have moved toward more stock-based compensation that’s held for the long term — an indirect reference to Goldman Sachs’s announcement last week that it would convert the bonuses of its top executives from cash to stock.

The president will ask more banks to move in that direction, but there’s little the administration can do to force changes in compensation at the banks. Still, “pay czar” Ken Feinberg announced dramatic pay cuts last week for firms that still have not repaid bailout funds from the Troubled Asset Relief Program.

Feinberg has no legal authority to impose similar measures on banks that the government no longer controls. For them, Obama must use the bully pulpit.

The Goldman spokesman, van Praag, said: “Our compensation principles are founded on the idea that our employees’ interest should be directly aligned with our shareholders’ best interest. Supporting a shareholder vote on executive compensation is a logical extension of the compact we have with our shareholders. The announcement that our most senior executives will receive all their discretionary compensation in equity, which will be ‘at risk’ and which they won’t be able to sell for five years, is a recognition of their responsibilities and the circumstances under which we are operating.”

An administration official said a dozen top executives will attend Monday’s meeting at the White House: Lloyd Blankfein, chairman and CEO of Goldman Sachs; Ken Chenault, president and CEO of American Express; Richard Davis, chairman, president and CEO of US Bancorp; Jamie Dimon, chairman and CEO of JPMorgan Chase; Richard Fairbank, chairman and CEO of Capital One; Bob Kelly, chairman and CEO of Bank of New York Mellon; Ken Lewis, president and CEO of Bank of America; Ron Logue, chairman and CEO of State Street Bank; John Mack, chairman and CEO of Morgan Stanley; Dick Parsons, chairman of Citigroup; Jim Rohr, chairman and CEO of PNC; and John Stumpf, president and CEO of Wells Fargo.

Also attending will be Treasury Secretary Timothy Geithner and three top White House officials: senior adviser Valerie Jarrett; Christina Romer, chairwoman of the Council of Economic Advisers; and National Economic Council Director Lawrence Summers.

In November, Goldman Sachs launched 10,000 Small Businesses, a five-year, $500 million commitment, in development for nearly a year, that was modeled on the Goldman Sachs 10,000 Women Initiative.

Also last month, JPMorgan told Reuters that it was raising its lending to small businesses by $4 billion this year and hiring more than 300 new bankers to cater to these businesses.

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