Following a White House meeting more likely to affect the tone surrounding the bailout of financial institutions than the substance of the rescue plan, executives from the nation's leading banks pledged on Mar. 27 to work with the Obama Administration to get the economy moving again. The summit capped a week in which the Administration detailed its plan to cleanse bank balance sheets of toxic assets and laid the groundwork for stricter regulation on Wall Street.
The biggest shift to come out of the meeting may be one of messaging, as both the Administration and financial executives try to stave off widespread public anger over the size of bailouts and bonuses to executives at troubled companies that received federal funds. Several of the 13 CEOs who attended the meeting said afterward that they shared an interest with the American people in getting the economy to recover.
"We understand that we have not done a good job of telling our story," U.S. Bancorp (USB) CEO Richard Davis told CNBC in an interview on the White House grounds. "We understand the anger that the American people feel about executive compensation. We understand the sound bites around the TARP, and the fact of the matter is that those are probably factual, but they're not the whole story. We need to get back out and tell about the great things that are happening," like home refinancings and new businesses supported by lending, he said.
One person close to the discussions, but who wasn't in the room, said the meeting was amicable but included little in the way of specifics. "You have the major players for the recovery effort coming together for a rah-rah leadership meeting," he said.
White House Press Secretary Robert Gibbs said Obama generally was pleased with the meeting, which lasted more than an hour.
"The President emphasized that Wall Street needs Main Street and Main Street needs Wall Street," Gibbs told reporters.
He said the President stressed "that he had no agenda beyond working to get a solution, the right solution for our financial system, and to get it stabilized and working again for the American people."
Among the CEOs at the meeting were JPMorgan's (JPM) Jamie Dimon, Bank of America's (BAC) Ken Lewis, Citigroup's (C) Vikram Pandit, and Goldman Sachs' (GS) Lloyd Blankfein. Also in attendance were chiefs of the American Bankers Assn. and Independent Community Bankers of America trade groups.
Country over Company
All of the financial companies at the White House meeting have received assistance from the government, to the tune of $184 billion under the Troubled Asset Relief Program (TARP) alone, according to a tally kept by journalism organization ProPublica. One of the institutions, housing lender Freddie Mac (FRE), was taken into conservatorship by the federal government last fall.
Dimon said Obama asked bankers to put the needs of the country above the interests of their companies. "He set the tone up front about the issues facing the country and that he expects everyone to help in every way they can, and to be very responsive to the needs of this country," he said on CNBC.
He also said Obama told executives to beware of public anger over compensation that erupted in backlash against insurer American International Group (AIG) in recent days. AIG has been roundly criticized for retention contracts that resulted in $165 million in bonus payments this month to executives at the division considered to have caused the most financial damage to the company.
"The President thinks that we should be very cognizant of the needs and desire and anger around the country on compensation," he said. But Dimon stopped short of saying whether the President explicitly addressed government intervention in compensation—like the House plan for a 90% tax on bonuses at banks that received federal aid. "I think he would like to see an awful lot of self-restraint," Dimon told the network.
Support for Geithner's Toxic-Asset Plan
Bank of America's Lewis said that while it wasn't clear what actions the Administration would ultimately take on compensation, he didn't think Obama was on board with the House plan. "I got the impression both from him and from some of the things that are going on behind the scenes that cooler heads are going to prevail, and that nothing will be done that is that punitive," he told CNBC.
Bank executives said they will wait until the Treasury Dept.'s stress tests are complete before deciding when to repay the TARP funds. Some have indicated they plan to return the TARP aid early to avoid restrictions on compensation and other potential government interference. "I think it's in everyone's interests that when someone can return it, that they do so," Goldman Sachs' Blankfein told CNBC.
Blankfein also endorsed Treasury Secretary Timothy Geithner's plan to use public-private partnerships to remove toxic assets from banks' books. He downplayed the risks shouldered by the Treasury and the Federal Deposit Insurance Corp., which will finance the purchases with non-recourse loans, if the assets turn out to be worth less than the partnerships pay for them.
"Anybody who invests in that partnership must believe the U.S. is not going to lose money on its lending, because the equity goes first, and so instead of having the government price it and the government manage it, here private interests manage it and price it," Blankfein said.
Tozzi is a writer for BusinessWeek. Staff writer Theo Francis contributed from Washington, D.C. The Associated Press also contributed to this report.