Former Treasury Secretary Henry Paulson, saying nine US banks were “central to any solution” of the credit crisis, told their leaders to take government aid or be forced to by regulators, according to a memo prepared for an October meeting.
Investing $125 billion 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 containing 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.
Andrew Williams, a spokesman for the Treasury, didn’t return calls seeking comment.
Banks worldwide have taken $1.45 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, which he called “a significant part of our financial system” and “central to any solution.”
More From This Section
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 yesterday, 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.
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 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, said JP O’Sullivan an SNL Financial bank analyst in Charlottesville, Virginia.
“It was a calming mechanism,” O’Sullivan said.