Bank CEOs voice support for Obama's economic plans

WASHINGTON (Reuters) – President Barack Obama won support from top bankers on Friday for his efforts to rid financial institutions of bad debts, but differences remained over broader U.S. plans for the financial industry.
Chief executives from Wells Fargo, JP Morgan Chase and other financial giants met Obama at the White House and echoed his call for cooperation to help the economy.
But their statements about tough trading conditions in March overshadowed the positive spin the executives and the White House sought to give to the meeting.
"The basic message is we're all in this thing together," Wells Fargo Chief Executive John Stumpf told reporters after the meeting, with other bank executives at his side.
Obama, in an interview later with CBS News, said he told the bankers they should be more sensitive to how Wall Street's actions look to the rest of the country.
"Show some restraint," he said he told them. "Show that you get that this is a crisis and everybody has to make sacrifices."
Obama saw the meeting as productive and frank, White House spokesman Robert Gibbs said, adding the president stressed the importance of dealing with "toxic assets" -- bad loans many banks are stuck with thanks to the collapse of the U.S. housing market.
"The president opened up by talking about the importance of dealing with toxic assets and getting banks lending again," Gibbs told a briefing.
The meeting came just days after the U.S. Treasury Department provided details on a government plan to cleanse banks' balance sheets of up to $1 trillion in distressed loans and securities, a plan the banks will have to support in order for it to work.
White House advisers said the president wanted to get a snapshot of the economy from the banking chiefs, and the message they sent was lukewarm.
"March was a little rough," said JPMorgan Chase Chief Executive Jamie Dimon. Bank of America's Ken Lewis said his institution's "trading book for March was not as good" as it was the first two months of the year.
The comments pushed bank stocks and the overall market lower.
The White House meeting came ahead of next week's G20 summit, at which Obama is expected to pitch his plans to rescue the recession-hit U.S. economy to fellow world leaders.
BONUSES, TARP MONEY
The executives, who have often found themselves bearing the brunt of Obama's criticism about the financial mess and the bonuses many executives in the struggling industry accepted, said not all issues were agreed upon at the meeting.
One hot topic involves government bailout funds and executive compensation limits.
Financial analysts are concerned that if healthier banks return government money to get out of newly imposed executive pay rules, weaker banks that cannot afford to return the funds will be stigmatized.
Dimon said Obama did not instruct the bankers to stop considering an early return of some of the bailout funds that they received as part of the government's $700 billion rescue plan for the financial industry.
Disagreements aside, the two sides acknowledged the need for regulatory reform. "It's fair to say that they agreed on the need to update the framework of regulations," Gibbs said.
The Obama administration announced on Thursday its plan to rewrite financial rules, including creating a single regulator to monitor any firm whose failure could threaten the financial system.
Officials said executive compensation was discussed, although it did not dominate the conversation, and bankers indicated a public outcry over the issue had sunk in.
"We know mistakes were made" around executive compensation, JPMorgan's Dimon told CNBC after the meeting. Bank of America's Lewis said everyone understood the "golden age" of bank pay was over.
About 15 chief executives attended, according to the White House, including Lloyd Blankfein of Goldman Sachs and Vikram Pandit of Citigroup.
Others on the list included chiefs from Freddie Mac, Bank of New York Mellon, Northern Trust, PNC Financial, State Street, Morgan Stanley, American Bankers Association and Independent Community Bankers.
(Additional reporting by Caren Bohan, Tabassum Zakaria, Kim Dixon, John Poirier, Rachelle Younglai, Matt Spetalnick, Ross Colvin and David Alexander)

Administration seeks to free frozen credit markets

WASHINGTON – The Obama administration launched a new effort Monday to end a paralysis in lending, saying it will team with investors to sop up a half-trillion dollars of bad assets from banks that have been reluctant to make loans to consumers and companies.
In announcing the program, Treasury Secretary Timothy Geithner pleaded for patience, saying that work to rehabilitate an industry with such systemic problems must go forward despite "deep anger and outrage" over executive bonus payments.
Geithner's performance in President Barack Obama's Cabinet has come under heavy criticism from some in Congress. The secretary announced the initiative in a Treasury Department room with no cameras allowed. He was with Obama later in the morning, however, when the president spoke briefly, saying he was "very confident" the latest plan will succeed.
Obama called it "one more critical element" in a multi-pronged effort to revive the economy and said the depressed housing market is beginning to show glimmers of hope.
Geithner said the new program will seek to harness government and private resources to purchase a half-trillion dollars of bad assets off the balance sheets of banks and said he expects purchases eventually could grow to $1 trillion.
The latest rescue plan represents another test for the embattled Geithner, whose performance has come under heavy criticism from some in Congress.
Wall Street seemed to feel rejuvenated, at least at the opening. In late morning, the Dow Jones industrial average was up 221 at 7,500. Reaction to an earlier administration bank rescue program on Feb. 10 was anything but enthusiastic, with dispirited investors sending the Dow Jones plummeting by 380 points.
The administration's newest toxic-asset repellant was another in a string of banking initiatives that have included efforts to deal directly with mortgage foreclosures, boost lending to small businesses and thaw out the credit markets for many types of consumer loans.
Administration officials said the plan put forth Monday will deploy $75 billion to $100 billion from the government's existing $700 billion bailout program for the purchase of bad assets — resources that will be supported by loans from the Federal Deposit Insurance Corp. and a loan facility being operated by the Federal Reserve.
Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan provided in many cases by the Federal Deposit Insurance Corp.
Geithner defended the decision to have the government carry so much of the risk. He said the alternative would have been to do nothing and risk a more prolonged recession or have the government carry all of the risk.
Geithner also said there would be significant advantages from having private market participants bidding against each other to set prices for which the bad assets will be purchased. "There is no doubt the government is taking risks," he told reporters. "You can't solve a financial crisis without the government taking risks."
Devising bailout plans has never been easy work, and the brouhaha surrounding millions in executive retention bonuses paid out by financially strapped American Insurance Group, Inc., hasn't improved the political atmosphere.
Geithner himself has been under siege from many quarters, with some congressmen saying they don't believe he's up to the job. President Barack Obama, however, has stood steadfastly behind his Treasury secretary.
Officials said they expect participation by a broad array of investors ranging from pension funds and insurance companies to hedge funds. To achieve that goal, the program would be set up to entice private investors with low-cost loans provided by the Federal Deposit Insurance Corporation and the Federal Reserve. The government itself would shoulder the bulk of the risk.
Geithner has said that the country cannot afford to simply wait for banks to work off these bad assets over time.
Christina Romer, who heads the White House Council of Economic Advisers, said: "This has never been about helping Wall Street or helping a firm that made mistakes. We're doing this for ourselves. ... It's absolutely about helping a system so that people can get their student loans, and that families can buy their house and buy their cars, and small businesses can get their loans."
The government has been struggling since the credit crisis hit last fall to figure out a way to sop up the bad assets, many of them involving home loans.
Former Treasury Secretary Henry Paulson never did come up with a solution and the Obama team has been wrestling with the same thorny problems of how to price the assets and make sure the government's resources are up to the task.
The program surfaced after a week of Wall Street-bashing in Congress, where lawmakers were outraged with the action by troubled insurance company American International Group Inc. to distribute $165 million in bonuses after obtaining more than $170 billion in government bailouts to remain in business.
Some hedge funds and other investors have expressed reluctance to participate in the new program for fear that Congress will subject them to what they view as onerous restrictions on executive compensation.
But administration officials insisted that they believe they have found the right mix to attract private investors and make a dent in what, by some estimates, could be more than $2 trillion in troubled assets on banks' books.
They said the program has the capacity to purchase $500 billion and possibly as much as $1 trillion in troubled loans, which go back to the collapse of the housing boom and the subsequent tidal wave of foreclosures.
But private analysts believe that with the $700 billion bailout fund nearly tapped out by capital disbursements to banks and lifelines provided the auto companies and AIG, there are only enough resources left to get the asset purchase program launched.
Mark Zandi, an economist with Moody's Economy.com, estimated the government will need another $400 billion to make a sufficient dent in the bad asset problem.
Administration officials said they want to get the new program launched and see how successful it is before deciding whether to ask Congress for more resources.
The administration included a placeholder in its budget request to Congress last month for an additional $750 billion, more than doubling the financial rescue effort, but many lawmakers have said the current bailout fatigue among voters dims the prospect of getting further resources.
According to administration officials, the toxic asset program will include a public-private partnership to back private investors' purchases of bad assets, with government support coming from the $700 billion bailout fund. The government would match private investors dollar for dollar and share any profits equally.

WaMu holding company sues FDIC over bank seizure

SEATTLE – Washington Mutual's holding company is suing federal regulators for billions of dollars, saying the firesale of the bank's assets to JPMorgan Chase violated its rights.
The lawsuit was filed Friday in federal court against the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September. It was the largest bank failure in U.S. history.
Lawyers for the holding company, Washington Mutual Inc., argue that the bank was worth more than the $1.9 billion JPMorgan paid for it in a deal arranged by the FDIC. The lawsuit argues that if WaMu's assets had been liquidated prudently, they would have been worth more than that.
An FDIC spokesman did not immediately return a call seeking comment Saturday.

Wells Fargo chair flays TARP, "asinine" stress test

NEW YORK (Reuters) – Wells Fargo & Co's (WFC.N) chairman lambasted the U.S. government for imposing new curbs on lenders that receive federal bailout money, and called the federal plan to subject big banks to stress tests "asinine."
In remarks after a speech Friday at Stanford University, Chairman Richard Kovacevich said the fourth-largest U.S. bank should not be lumped with weaker rivals in being forced to adhere to new rules governing such matters as lending and pay.
Wells Fargo took $25 billion of capital last year from the government's Troubled Asset Relief Program at the behest of regulators including then-Treasury Secretary Henry Paulson, but has said it did not need the money. It was one of nine original TARP recipients.
Like a growing number of rivals, the San Francisco bank is now complaining about TARP, including a provision that lets Congress unilaterally impose new restrictions on recipients.
"Is this America, when you can do what your government asks you to do and then retroactively you also have additional conditions put on?" Kovacevich said. A video of his comments was posted online by the Stanford Institute for Economic Policy Research.
Bank of America Corp (BAC.N), Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and several smaller lenders have said they want to get out of TARP when they can, although Bank of America Chief Executive Kenneth Lewis has said the program helped avert a financial meltdown.
On March 6, Wells Fargo slashed its quarterly dividend 85 percent to 5 cents per share, saving $5 billion a year.
The bank in the fourth quarter posted its first quarterly loss since 2001, and at the end of the year it completed its acquisition of troubled larger rival Wachovia Corp.
Even with the $25 billion of TARP capital, Wells Fargo has less capital relative to its size than some analysts prefer.
Kovacevich nevertheless said that had the bank not been forced to take TARP money last October, "we would have been able to raise private capital at that time, and with that private capital, given what is going on today, it is very unlikely that we would have had to reduce the dividend."
Wells Fargo and 18 other large companies are being subjected to stress tests to determine which can withstand a particularly severe recession. Those that cannot will need to raise more capital. Results are due by the end of April.
"We do stress tests all the time on all of our portfolios," Kovacevich said. "We (have) shared those stress tests with our regulators, forever. It is absolutely asinine that somebody would announce we're going to do stress tests of banks and we'll give you the answer in 12 weeks."
Kovacevich said press reports that Wells Fargo acted purely out of self-interest in resisting regulators' demand that it accept TARP money were misleading.
"They felt that if they gave it to everybody, whether they needed it or not, that the consequence would be that everyone would be raised up equally, and people would not know who was swimming naked and who wasn't swimming naked," he said.
In afternoon trading, Wells Fargo shares were up 69 cents, or 5 percent, at $14.63 on the New York Stock Exchange. They began the year at $29.48.
(Reporting by Jonathan Stempel; editing by John Wallace)

Treasury provides $284.7M to 22 banks from bailout

WASHINGTON – The Treasury Department has provided $284.7 million to 22 banks in the latest payments from the government's $700 billion financial rescue fund.
The government is buying preferred stock in banks as a way to bolster their balance sheets in hopes of getting them to resume more normal lending. With the new payments, the government said Tuesday it has spent $197 billion on this part of bailout.
The largest payment in the new round was $100 million to First Busey Corp. of Urbana, Ill., followed by Park Bancorporation Inc. of Madison, Wis., which received $23.2 million.
The smallest payment in the latest round was $500,000 to Community Bancshares of Kansas Inc. of Goff, Kan. The purchase program for preferred shares of bank stock has provided support to 489 institutions in 47 states and Puerto Rico.
The bailout effort also has supplied billions of dollars under other rescue programs, including one designed for large troubled banks that has provided aid to Citigroup Inc. and Bank of America Corp. Insurance giant American International Group Inc., as well as automakers General Motors Corp. and Chrysler LLC and their auto financing arms, also have received taxpayer support.
The purchase of bank stock is expected to use $250 billion of the first half of the rescue fund. Congress has authorized President Barack Obama's administration to use the second $350 billion of the fund. The new administration has promised to attach more strings to the assistance than the Bush administration did, but has not said how much of the fund will be used for bank stock purchases.
The overhaul is requiring 19 of the nation's largest banks to undergo stress tests to see whether they would need additional support to withstand a more severe downturn than the country is experiencing.
The administration has said that it would use part of the rescue fund to set up a private-public partnership to buy bad assets from banks, but it has not provided the specifics of how that program would work.
The Obama administration raised the possibility when it released its first budget request to Congress last month that it could ask for up to another $750 billion in rescue support.
The new round of stock purchases revealed Tuesday were made by the Treasury Department Friday. Under the law that created the rescue fund, the government has two business days to make its transactions public.