By Elliot Blair Smith
May 13 (Bloomberg) -- Former Treasury Secretary Henry
Paulson said nine U.S. banks would have to accept $125 billion
in government investments or be forced to by regulators,
according to a memo prepared for a meeting with the lenders’
chief executive officers in October.
“If a capital infusion is not appealing, you should be
aware that your regulator will require it in any circumstance,”
the one-page list of talking points said. “We don’t believe it
is tenable to opt out because doing so would leave you
vulnerable and exposed.”
Paulson’s plan to invest directly in the banks was a shift
for the Bush administration, which had proposed buying troubled
assets with $700 billion Congress approved 10 days earlier. The
memo was among Treasury Department documents providing details
about the Oct. 13 meeting.
“Most Americans are going to be uncomfortable with the
government forcing the banks into this arrangement,” said Tom
Fitton, president of Judicial Watch, a nonprofit research group
in Washington that obtained the documents under a Freedom of
Information Act request. “This is, in many ways, thuggery.”
Andrew Williams, a spokesman for the Treasury, didn’t
return calls seeking comment.
Banks worldwide have taken almost $1.5 trillion in
writedowns and losses during the worst credit crisis since the
Great Depression.
In his memo, Paulson said the government would buy
preferred stock in the banks.
“Your nine firms represent a significant part of our
financial system. Therefore, in our view, you must be central to
any solution,” the memo said.
Half-Page Forms
Three and a half hours after the meeting was scheduled to
begin, Paulson had obtained the bankers’ signatures on half-page
forms along with the handwritten amount of the federal
government’s investment, according to the documents. He
announced the actions publicly the next day.
In releasing the documents, Judicial Watch said Treasury
initially said it had no records about the meeting. It didn’t
release a transcript of discussions between government officials
and bankers.
The CEOs who attended included Kenneth Lewis of Bank of
America Corp., Vikram Pandit of Citigroup Inc., Lloyd Blankfein
of Goldman Sachs Group Inc., Jamie Dimon of JPMorgan Chase &
Co., John Thain of Merrill Lynch & Co., now part of Bank of
America;Robert Kelly of Bank of New York Mellon Corp., Ronald
Logue of State Street Corp., John Mack of Morgan Stanley and
Richard Kovacevich of Wells Fargo & Co.
Accompanying Paulson were Federal Reserve Chairman Ben
Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair
and New York Federal Reserve Bank President Timothy Geithner,
who succeeded Paulson as Treasury secretary.
Sunday Calls
The Monday meeting came after Paulson huddled with
Geithner, Bair and Treasury aides Sunday afternoon and then
placed calls that evening to each CEO except Blankfein,
according to the secretary’s daily activity log.
The Treasury has invested $199.1 billion in the bank
preferred share program, with $1.2 billion since returned by 12
institutions, according to government data.
Paulson succeeded at stabilizing the financial services
industry at a moment in crisis, said J.P. O’Sullivan an SNL
Financial bank analyst in Charlottesville, Virginia.
“It was a calming mechanism,” O’Sullivan said. “There was
no other way to obtain capital and hasn’t been until recently.
And at that time it was relatively cheap capital.”
To contact the reporter on this story:
Elliot Blair Smith in Washington, D.C., at
esmith29@bloomberg.net
Last Updated: May 13, 2009 17:51 EDT
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