'Here's the problem... people really hate you,' US bankers told

Wall Street's most powerful figures yesterday faced Congress to explain why taxpayers' money is being spent on bonuses, jets and junkets. Stephen Foley reports

It took lawmakers three hours to hear the word that the US public has been demanding for months, but it came first out of the mouth of John Mack, the chief executive of Morgan Stanley.

"If we could play the clock over again, we would do it differently," he said. "I'm especially sorry for what has happened to shareholders, and as a knock-on effect of that, what has happened to the American people. I take that responsibility for my firm."

Mr Mack and seven other of the most powerful men on Wall Street had been summoned to Washington to face lawmakers who, channelling public fury, assailed them over their bonuses and the recklessness that had brought the financial system to the edge of collapse.

What exactly, Republicans and Democrats alike demanded, did the US taxpayer have to show for the $176bn (£123bn) in bailout money that has been pumped into their eight firms since last October, without causing a notable increase in lending and alleviating the squeeze on businesses and consumers who need credit?

Announcing the hearings last week, Barney Frank, the chairman of the Financial Services Committee, said that public patience with Wall Street bailouts had worn thin.

"As I've said to a couple of the bankers, 'Here's this problem: People really hate you, and they're starting to hate us because we're hanging out with you,'" Mr Frank said.

Yesterday, he urged them to be "cooperative, not grudgingly, not doing the minimum" as the US government seeks to impose a new culture of responsibility on an industry that has become known for its enormous pay packets, corporate jets and lavish junkets.

"Understating that there is substantial public anger and alleviating that public anger not with mumbo jumbo but with reality is essential if we're going to have the support in the country to take the right steps," Mr Frank said.

Public anger boiled over last month when it was revealed that the total amount of bonuses paid out to staff for 2008 was $18.4bn – a figure that prompted President Barack Obama to describe the pay-outs as "shameful" while banks were being propped up by taxpayer money, and led him to impose a pay cap of $500,000 on executives of banks that need more emergency cash.

"It is abundantly clear that we are here amidst broad public anger at our industry," Lloyd Blankfein, the head of Goldman Sachs, said.

The chief executives before Congress included Vikram Pandit, the head of Citigroup, which received government guarantees of more than $300bn after coming close to collapse in December.

Mr Pandit made $216m when Citigroup bought his hedge fund business to lure him to a top job at the company and paid him bonuses to sign on as chief executive in 2007.

Yesterday, he took the lead in promising that Wall Street understands the new realities of life with the government as a significant investor. "I've told my board of directors that my salary should be $1 per year with no bonus until we return to profitability," he said. "We will hold ourselves accountable and that starts with me," he said.

Outside the House of Representatives office building where the hearing took place, about a dozen protesters taunted Bank of America's Ken Lewis. "Hey, Ken Lewis, feel our pain," they chanted.

"I feel more like corporal of the universe, not captain of the universe at this moment," Mr Lewis said inside, after coming under intense questioning from the California Democrat Maxine Waters.

Lawmakers' opening statements reflected public outrage over the economic crisis, but the questioning stayed mostly civil, in contrast to a grilling last week by many of the same lawmakers of securities regulators over Bernard Madoff's alleged fraud.

The intensity was dialled up as the hearing went into the afternoon, however. A Massachusetts congressman said that he wondered why the bank bosses hadn't been prosecuted. "I have some constituents who have robbed your banks, and they say the same thing, they say they are sorry, they didn't mean it, they won't do it again if you'll only let me out."

One by one the executives said that they did not take a bonus for 2008 and would not be having a salary increase this year. Between them, the eight took home around $400m in 2007, the last year for which figures have been published.

All the talk about bonuses triggered Mr Frank's ire, prompting him to demand why they needed bonuses at all when a good salary would do. "At your level, why do you need bonuses?" he demanded. "This notion that you need some special incentive to do the right thing troubles people."

"It's complicated," Mr Mack replied, citing the risks involved, the global nature of the banking business and the size of the companies. "If you gave me no bonus for the best year, I'd still be here."

South Carolina Republican Gresham Barrett said: "My folks simply have not seen the evidence that the money you were given is working or making their lives better."

But the executives insisted that money from the Wall Street bailout fund – known as the troubled asset relief programme, or Tarp – is being lent out into the real economy. "Make no mistake: We are still lending, and we are lending far more because of the Tarp," Mr Lewis said.

"The American people are right to expect that we use Tarp funds responsibly, quickly and transparently," Mr Pandit said.

In the dock: The bank bosses facing the music

Vikram Pandit

Vikram Pandit replaced Charles Prince, who left Citigroup in November 2007. The bank's shares have fallen by 79 per cent since 13 October and Citigroup, which required an emergency bailout in November after market panic on its prospects, has so far received around $45bn from the US Treasury. Pandit is foregoing his bonus for 2008, but will still earn more than $400,000.

Jamie Dimon

Jamie Dimon, chairman and chief executive of JP Morgan, joined the bank in 2004 when it bought rival Bank One, which he led. He was paid $1m a year in both 2006 and 2007 and turned down his bonus for 2008. JP Morgan has accepted about $25bn of US government bailout money, though it has emerged from the crisis stronger than some rivals, having absorbed the failed Bear Stearns and Washington Mutual last year.

Kenneth Lewis

Kenneth Lewis, Bank of America's CEO, was hailed for his acquisition of Merrill Lynch last year, but may have been better off doing more due diligence. Bank of America shares have fallen 76 per cent since mid-October, to a large extent on the back of write-downs related to Merrill. Bank of America has so far received $45bn in bailout assistance from the US Treasury. Lewis earned $24.8m incompensation in 2007.

Lloyd Blankfein

Lloyd Blankfein succeeded former Treasury Secretary Hank Paulson as CEO of Goldman Sachs in 2006. Goldman Sachs shares have fallen 19 per cent since October 13 and the bank has so far received $10bn from the US Treasury. Blankfein earned a record $70m in compensation in 2007, though he and other top Goldman executives were among the first on Wall Street todecline bonuses for 2008.

John Mack

John Mackbecame CEO of the New York-based investment bank Morgan Stanley in 2005. He then presided over the expansion of trading and privateinvesting. Mack has kept the bank on its feet by securing $9bn from Japan's Mitsubishi UFJ Financial. Morgan Stanley has also received $10bn from the US Treasury. Mack has given up bonuses for the past two years but earned $1.6m in 2007.

Robert Kelly

Bank of New York boss Robert Kelly was CEO of Mellon Financial Corporation from February 2006 until its merger with BoNY in 2007. Bank of New York shares have fallen about 15per cent since mid-October, making it one of the better-performing US banks in the period. Even so, Bank of New York has received $3bn from the US Treasury. Kelly earned $20.1m in total compensation in 2007.

John Stumpf

John Stumpf became CEO of the historic US bank Wells Fargo in June 2007, just as the credit crunchbegan. In 2000, he oversaw Wells Fargo'sacquisition of First Security Corp, and last year spearheaded its acquisition of Wachovia. Wells Fargo shares have fallen 46 per cent since mid-October, as the bank has received $25bn from Treasury. Mr Stumpf earned $22.9m in total compensation in 2007.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent