Dow Jones Newswires - Update: Banks Defend Use Of Billions Of Dollars From Treasury

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Dow Jones Newswires - Update: Banks Defend Use Of Billions Of Dollars From Treasury

By Michael R. Crittenden

Of DOW JONES NEWSWIRES

U.S. lawmakers put banks on the defensive Thursday, chastising them for not using billions of dollars from the Treasury Department to lend to consumers and businesses and threatening to legislate if improvements aren't made.

"If you believe that you would be no worse off than you are today, then I invite you to return to the Treasury the billions of dollars in taxpayer investments, guarantees and discounts that you currently receive," Senate Banking Chairman Christopher Dodd, D-Conn., said at a hearing.

Sen. Sherrod Brown, D-Ohio, said lawmakers may need to rethink the terms of the $700 billion financial rescue plan passed by Congress and signed by President George W. Bush in October. Restrictions on executive compensation and real inducements to prevent foreclosures are necessary to make the current program work, he said.

"If taxpayers' funds are not going to be used for lending, then we need to give serious thought to whether this effort still makes sense," Brown said.

Major banks, which have received the lion's share of the $250 billion capital injection plan announced by Treasury over the last several weeks, defended their use of the government funds, saying they would use the money for lending, among other things.

"As with any other bank, Bank of America (BAC) has every incentive to do so, as lending is our core business and a crucial component of our business," Anne Finucane, global marketing and corporate affairs executive at Bank of America Corp., said in her prepared remarks.

Barry Zubrow, chief risk officer at JPMorgan Chase & Co. (JPM), said his firm fully intends to "honor that responsibility by promoting the goals" of Treasury's capital purchase program, though he said the firm will continue to act "prudently and sensibly." He said JPMorgan didn't seek out the $25 billion it received from Treasury and that the money served to enhance the firm's " already strong capital position."

Zubrow said JPMorgan would use the $25 billion for, "among other things," lending to consumers and businesses but warned that other considerations could affect their decisions.

"At the same time, the decisions on capital usage must be consistent with prudent business practices and underwriting standards, appropriately mindful of market and credit risks and in the best interests of all of our shareholders," Zubrow said in his prepared remarks.

Lawmakers met those claims with skepticism, expressing dissatisfaction with banks' executive-compensation policies, lack of lending and the limited efforts by Treasury and private industry to reduce the record numbers of foreclosures that continue to weigh on the economy and global credit markets.

"Lenders who receive public funds should use those funds to lend," Dodd said. "Many are failing to do that."

Sen. Mel Martinez, a Republican from Florida and former Secretary of Housing and Urban Development, said he was disappointed by Treasury Secretary Henry Paulson's acknowledgment Wednesday that the $700 billion financial rescue plan wouldn't be used to purchase illiquid assets as it was originally conceived. He said it raises questions about how Treasury plans to meet requirements in the financial rescue package that the plan be used to reduce foreclosures.

"Until we take a bolder, more systematic approach to loan modifications ... we will not make significant headway with this crisis," Martinez said.

Gregory Palm, general counsel at Goldman Sachs Group Inc. (GS), sought to reassure lawmakers about the firm's executive-compensation strategies. He said Goldman is expected to report positive results for year-end 2008, but that revenue would be far lower than in past years.

"As such," Palm said, "compensation also will be down very significantly this year across the firm, particularly at the senior levels."

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

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