House Financial Services Committee members called on the chief executive officers of the eight banks that received funds from the Troubled Asset Relief Program (TARP) to give a clear accounting of how the funds were used, including reconciling bonus payouts in a year when many of the firms lost money.

During an all-day hearing today that was still underway at press time, the executives were, in turns, chastised for what House legislators perceived as a lack of clarity on how TARP funds were used. About $300 million in TARP funds have been distributed as of Jan. 23, 2009, according to the Office of the Inspector General for the Troubled Asset Relief Program.

The New York Attorney General’s office also weighed in on the hearing, albeit indirectly. In a letter sent to committee chairman Rep. Barney Frank (D-Mass.), New York Attorney General Andrew Cuomo updated the committee on its current findings into ongoing investigations on $3.6 billion in 2008 bonus payments made by Merrill Lynch.

The payments were distributed earlier than usual, just before its acquisition by Bank of America was completed and before Merrill announced a $15.3 billion loss in the fourth quarter.

“One disturbing question that must be answered is whether Merrill Lynch and Bank of America timed the bonuses in such a way as to force taxpayers to pay for them through the deal funding,” wrote Cuomo.

When confronted with the findings in Cuomo’s letter, Kenneth Lewis, chief executive officer of Bank of America, said he had no personal involvement in the way that Merrill’s bonuses were distributed, and that Merrill Lynch was urged to reduce those payments.

“We take our responsibility as a TARP recipient very seriously,” Lloyd Blankfein, chief executive officer and chairman of Goldman Sachs & Co., said during his prepared remarks. As a market maker, Blankfein said, Goldman provided short-term liquidity to the mortgage market, saying that the extension of credit prevented mortgage rates from increasing in some cases.

JPMorgan Chase & Co. lent $150 billion in new loans in the fourth quarter, including an average of $15 billion in overnight loans to other banks, according to James Dimon, chief executive officer of JPMorgan Chase & Co.

Yet legislators were not satisfied that the funds had been effectively distributed to finance home mortgages, small business loans and student loans. Dimon was taken to task about JPMorgan’s lending activities, because on the surface, the bank seemed to fund the same amount of loans after receiving TARP funds as it had before. The committee members also questioned why so many of the banks abstained from mortgage warehouse lending, choking off essential capital to mortgage brokers in their legislative districts.

Lawmakers also expressed outright anger and frustration at the executives for enforcing extremely tight rules on credit card holders and customers in good standing with their business loan accounts, especially at a time when those customers needed leniency to weather tough times.
In one emotional exchange, Rep. Walter B. Jones (R-N.C.), engaged Citigroup chief executive officer Vikram Pandit directly. Barrett argued that companies like Citigroup should reduce penalty interest rates on credit cards from the current average of 24.5%, especially now that their tax money was dedicated to TARP funds to help companies like Citigroup recover from bad business decisions, and their families are hurting badly.

“Why can’t you do something like that?” he asked Pandit directly. “This country is in a recession headed for a depression. Why can’t you do something for them? Can you reduce that rate for a year or two?”

Citigroup actually implemented a series of forbearance programs to help cardholders, said Pandit. In certain cases, the company did not raise credit card rates for two years and the bank discussed alternate rate schedules with cardholders.

Lawmakers asked for a detailed accounting from all eight banks on how their TARP funds are being spent.

Congressman Jones urged the executives to show compassion for Americans who have lost jobs or had to take pay cuts, especially considering that taxpayers, especially ones in his district, often have to support their families on gross salaries of about $37,000.

“The image of the banking industry is about as low as it has ever been,” he said. He added that the banks should essentially say to the American public: ‘Yes, we’re going to suck it up, too. We’re going to take less interest so you can have better quality of life and meet some of your bills.’”