Business
Bank CEOs: Sorry For Risky Behaviour, Bad Decisions
Wall Street executives said Wednesday they underestimated the severity of the 2008 financial crisis and apologised for risky behaviour and poor decisions. They also defended their bonus and compensation practices to a skeptical commission investigating what caused the collapse.
Americans are furious and “have a right to be” about the hefty bonuses banks paid out after getting billions of dollars in federal help, the commission’s chairman told chief executives of four major banks, all survivors of the deepest and longest recession since the Depression.
As the hearings opened before the Financial Crisis Inquiry Commission, chairman Phil Angelides pledged “a full and fair inquiry into what brought our financial system to its knees.”
The panel began its yearlong inquiry amid rising public fury over bailouts and bankers’ pay.
“We understand the anger felt by many citizens,” said Brian Moynihan, chief executive and president of Bank of America. “We are grateful for the taxpayer assistance we have received.”
“Over the course of the crisis, we as an industry caused a lot of damage,” Moynihan said.
With Bank of America having repaid its bailout money, he said “the vast majority of our employees played no role in the economic crisis” and do not deserve to be penalised with lower compensation. Moynihan said compensation levels will be higher next year than they were in 2008 but not at levels reached before the financial meltdown.
Jamie Dimon, chief executive of JPMorgan Chase & Co., said most of his employees took “significant cuts in compensation” in 2008. He said his company would continue to pay people in a “responsible and disciplined manner” to attract and retain top talent.
Still, Dimon said, “We did make mistakes and there were things we could have done better.”
John Mack, chairman of Morgan Stanley, said the crisis was “a powerful wake-up call for this firm.” He said he didn’t take a bonus in 2009 and that his bank has overhauled its compensation practices to discourage “excessive risk-taking.”
The other executives also said their companies had tightened bonus policies, including provisions to “claw back” some of the money when performance faltered.
Angelides, a former Democratic state treasurer of California, questioned Goldman Sachs’ Lloyd Blankfein about packaging soured assets into bond-like securities and selling them to investors, even as Goldman Sachs was “shorting” the same securities, or making inside bets they would fail. These included risky mortgages that were extended to borrowers with poor credit records and helped cause the home-loan bust.
“It sounds like selling a car with faulty brakes and then buying an insurance policy” on the driver, Angelides said in an animated exchange with the Goldman Sachs executive.
Responded Blankfein: “I do think the behavior is improper. We regret the consequence that people have lost money in it.”
Like the other witnesses, Blankfein acknowledged lapses in judgment in some practices leading up to the crisis.
“Whatever we did, it didn’t work out well,” he said. “We were going to bed every night with more risk than any responsible manager would want to have.”
The four bankers represent institutions that collectively received more than $90 billion in direct government assistance from the $700 billion federal bank bailout and availed themselves of billions from the Federal Reserve. Goldman Sachs received an additional $12.9 billion in bailout money that had gone to AIG.
Angelides suggested that blame for the crisis was widespread among the nation’s largest financial institutions. “Maybe this is like `Murder on the Orient Express’ — Everybody did it,” he said, referring to the Agatha Christie murder mystery. The four bankers appeared before the panel for just over three hours before it turned to other witnesses.
At the White House, presidential press secretary Robert Gibbs said that President Obama on Thursday will outline his plan to make sure taxpayers are able to recoup the money they are owed in the bailouts. The president is expected to announce a new fee on the country’s biggest financial firms to recover up to $120 billion.
Of the bankers’ testimony, Gibbs said, “It would seem to me that apology would be the least of what anybody could expect.” He said Wall Street officials need to show common sense.
The witnesses said they supported tighter oversight, but warned against going too far. Congress is considering limiting the size of financial companies or breaking up companies whose failure could collapse the whole financial system.
“The solution is not to cap the size of financial firms. … We need a regulatory system that provides for even the biggest banks to be allowed to fail, but in a way that does not put taxpayers or the broader economy at risk,” Dimon said.
The commission’s vice chairman, former Rep. Bill Thomas, R-Calif., said the inquiry would try “to get to the bottom of what happened and explain it in a way that the American people can understand.”
Thomas, a former chairman of the tax-writing House Ways and Means Committee, said one important question is, “If you knew then what you do now, what would you have done differently?”
Dimon said a crucial blunder was “how we just missed that housing prices don’t go up forever.” Added Mack: “We did eat our cooking and we choked on it.”
The bipartisan, 10-member commission was handed the job of writing the official narrative of what went wrong before the financial system nearly collapsed in the fall of 2008.
The commission is modeled on the panel that examined the causes of the attacks of Sept. 11, 2001. But the prototype could be the Pecora Commission, the Senate committee that investigated Wall Street abuses in 1933-34. It was named after Ferdinand Pecora, the committee’s chief lawyer.
Congress has instructed the current commission to explore 22 issues, from the effect of monetary policy on terms of credit to bank compensation structures.
“Payment of tuition fees for undergraduate/postgraduate studies shall be subject to a maximum limit of $25,000.00 per semester,” the Manual states.
The expansion of international card limits also reflects growing confidence among lenders that foreign exchange liquidity has improved enough to support retail dollar transactions.
Speaking recently at the BusinessDay 14th Annual CEO Forum in Lagos, CBN Olayemi Cardoso, governor of the CBN said buying and selling activities now increasingly determine outcomes in the foreign exchange market, unlike in the past when market participants relied heavily on routine Central Bank interventions.
According to Cardoso, Nigeria’s net foreign exchange reserves have risen from just over $3 billion at the start of the reform programme to more than $40 billion, while gross reserves have climbed to about $52 billion, providing stronger confidence for investors and enabling the Central Bank to reserve interventions for periods of market stress rather than day-to-day liquidity management.
The restoration and expansion of international naira card spending limits are increasingly being seen as one of the clearest signs that the benefits of the CBN’s foreign exchange reforms are beginning to reach households, students and businesses making legitimate cross-border payments.
The Secretary-General and Chief Executive Officer, WEC, Dr Angela Wilkinson, disclosed this in a statement, last Thursday.
“Nigeria’s participation comes at a pivotal time as the country seeks to expand energy access, strengthen energy security, accelerate gas development and mobilise the capital required for industrialisation and sustainable economic growth.
“WEC Nigeria will convene leaders from across the energy ecosystem, apply the WEC’s globally recognised Energy Trilemma framework to Nigeria’s unique context, and promote evidence-based dialogue, practical collaboration and informed policymaking.
“It will also ensure that Nigerian and broader African perspectives contribute meaningfully to global energy conversations,” she said.
Wilkinson expressed confidence that Nigeria would play a significant leadership role at the World Energy Congress scheduled for Riyadh in April 2027 and beyond.
The statement also quoted the Chairman of WEC Nigeria, Isa, as describing the country’s participation as an opportunity to deepen national and African leadership within the global energy community through practical solutions tailored to regional development priorities.
He said the platform would promote collaboration across sectors and attract sustainable investments into Nigeria’s energy sector.
The Chief Executive Officer of WEC Nigeria, Wunti, was quoted in the statement as saying that the council would connect leadership, evidence and investment to build a secure, affordable and sustainable energy system.
“This system will be capable of driving economic growth and shared prosperity.”
According to him, the platform will also connect Nigerian institutions and businesses with international knowledge, technology, partnerships and investment opportunities through the World Energy Council’s global network.
Recall that WEC, founded in 1923, is the world’s oldest independent and impartial community of energy leaders and practitioners, advancing informed, collaborative and practical action across the global energy system.
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