Waxman Questions Use of TARP Funds
As the U.S. Treasury begins dispersing the first $125 billion of taxpayer funds to nine key commercial banks under the TARP program, Henry Waxman (D-CA), chairman of the House Committee on Oversight and Government Reform, said Tuesday that his committee will investigate executive compensation at banks receiving federal funds. That group includes Bank of America Corp. (BAC), Bank of New York Mellon Corp. (BK), Citigroup Inc. (C), Goldman Sachs (GS), JP Morgan Chase & Co. (JPM), Merrill Lynch & Co. (MER), Morgan Stanley (MS), State Street Corp. (STT), and Wells Fargo & Co. (WFC). In a letter sent to the nine banks on Tuesday, Waxman expressed concern that the group has already spent or reserved $108 billion for employee compensation and bonuses thus far in 2008; he noted that this year's total was "nearly the same amount as last year," clearly alluding to the worsening state of U.S. banking in 2008 versus one year earlier. "Some experts have suggested that a significant percentage of this compensation could come in year-end bonuses and that the size of the bonuses will be significantly enhanced as a result of the infusion of taxpayer funds," he wrote. "While I understand the need to pay the salaries of employees, I question the appropriateness of depleting the capital that taxpayers just injected into the banks through the payment of billions of dollars in bonuses, especially after one of the financial industry’s worst years on record." Waxman has requested full compensation details from each of the banks, including all employees paid more than $500,000 in total compensation during each of the past two years. The Oversight Committee chair did not announce a formal hearing on the issue, but did say that the subject banks must report back by Nov. 10. "Waxman's barking up the wrong tree," Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, told the Washington Post in an interview. "We reject his basic premise. The institutions fully intend to use the money to start making loans." Nonetheless, not all financial services execs share Talbott's dismissive tone. Lee Farkas, chairman at Taylor, Bean & Whitaker Mortgage Corp., last week decried the continued delevering of bank balance sheets in an interview with Bloomberg News, saying that the additional capital should be used to make loans. “The big banks are acting irresponsibly,” he told the news agency. “They’re continuing to reduce their balance sheets. Period. That’s not what the Treasury wants.” Farkas did not name individual banks. On Tuesday, White House spokesperson Dana Perino reiterated the White House's stance that banks receiving capital need to begin lending. “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America,” she told reporters at a press conference. Acting Treasury under secretary for domestic finance Anthony Ryan also suggested Tuesday that TARP funding to banks carried an implicit mandate surrounding lending activity. “As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy,” he said in remarks at SIFMA’s annual conference. “It is in a strengthened institution’s best financial interest to increase lending once it has received government funding.” Write to Paul Jackson at firstname.lastname@example.org. Disclosure: The author held no positions in any of the stocks mentioned when this story was published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.