Obama exhorts top bankers to fulfill duty to taxpayers, economy

Even as major banks scramble to repay billions of dollars in taxpayer aid, President Obama took the nation’s top bankers aside Monday and implored them to do more to get people back to work and Main Street vibrant again.

On a day when Citigroup Inc. agreed to repay $20 billion in bailout money and Wells Fargo & Co. released details of its plan to return the $25 billion it received, Obama told the executives in a White House meeting that refunding money paid out at the height of the financial crisis wasn’t enough.

In the president’s view, taxpayers helped give the Wall Street executives he recently labeled “fat-cat bankers” another nine lives with government bailouts. Now he wants those executives not only to return the money but also to make an “extraordinary commitment” to “help rebuild our economy.”

That commitment is to lend more money to small businesses, which long have been the nation’s engine for job growth -- though some critics question the need for more loans.

After the closed-door meeting with executives from Wells Fargo, Citigroup, Bank of America Corp. and nine other large banks, Obama said in public comments that credit was still too tight where it counted the most.

“Given the difficulty businesspeople are having as lending has declined and given the exceptional assistance banks received to get them through a difficult time, we expect them to explore every responsible way to help get our economy moving again,” he said.

Executives said they got the point.

Bank of America pledged to make $5 billion more in loans available to small and medium-sized businesses next year. JPMorgan Chase & Co. reiterated an announcement it made last month to increase lending next year by as much as $4 billion. And other bankers also promised to lend more -- within limits.

“Every bank in that room talked about adding many, many small-business originators and setting very aggressive goals for small-business lending next year,” Richard Davis, chief executive of US Bancorp, said after the meeting.

“Lending is what we do, and so we want to make more loans,” he said. “We have to find a way to qualify more people and not put ourselves at risk three or four years from now because of actions we took at a moment in time.”

The Federal Deposit Insurance Corp. recently reported that business loans by banks fell $89.1 billion, or 6.5%, from July 1 to Sept. 30, compared with the previous quarter.

But pressuring executives at big banks will not solve the problem, analysts said.

Most loans to small businesses come from community banks, which also feel increased pressure from regulators to curtail risks. And many creditworthy small businesses aren’t seeking loans because the deep recession has scared away too many customers, they said.

“A huge part is the demand side, even though Washington says it’s a supply-side problem,” said William Dunkelberg, chief economist at the National Federation of Independent Business. The group’s survey of small businesses last month found that getting loans continues to be difficult but about the same as it was in the recovery from the recession during the early 1980s.

Overall, 29% of businesses said their borrowing needs over the previous three months had been satisfied, and 10% said they had problems getting the financing they needed. The report said that “many potentially good borrowers are simply sitting on the sidelines, waiting for a good reason to make capital outlays and order inventory and take out the usual loans used to support those activities.”

Obama said that though bankers complain that they can’t find enough creditworthy risks, he continues to hear from small businesses that say they are creditworthy but can’t get loans.

“My main message in today’s meeting was very simple: that America’s banks received extraordinary assistance from American taxpayers to rebuild their industry, and now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy,” Obama said. “That starts with finding ways to help creditworthy small and medium-size businesses get the loans that they need to open their doors, grow their operations and create new jobs.”

The bankers, three of whom attended by conference call, told him they were hiring more employees to work on loans, increasing their target lending and taking a second look at borrowers that had been rejected. Obama said it “all sounded positive,” but “we expect some results.”

“And so I urged these institutions . . . to go back and take a third and fourth look about how they are operating when it comes to small-business and medium-sized-business lending,” Obama said.

But the president is losing leverage as more of the banks repay their bailout loans.

The meeting came hours after Citigroup announced it had reached a deal with the Treasury Department to repay $20 billion in bailout money. The move still will leave the government with equity in the bank but will release it from strict executive compensation rules aimed at the seven recipients of “exceptional assistance” from the Troubled Asset Relief Program.

The Treasury Department said it planned to sell its 34% equity stake in Citigroup within a year. It will start with $5 billion worth in conjunction with the bank’s offering of $17 billion in stock, a step Citigroup is taking to raise the money to repay the government.

Late Monday, Wells Fargo said it had reached agreement with the Treasury Department to repay $25 billion in TARP money. The San Francisco bank, which has paid $1.4 billion in dividends to the Treasury on the bailout money, plans to sell $10.4 billion in new stock to help pay off its debt.

Wells also plans to raise $1.35 billion more by issuing stock to its benefit plans instead of paying cash bonuses and other cash compensation to employees, and it will sell $1.5 billion worth of assets to raise additional funds.

Critics have said that banks returning their TARP funds have been motivated more by a desire to avoid government restrictions, especially on lavish executive salaries, than by wanting to make taxpayers whole. BofA, for instance, has found it hard to find a new chief executive because of pay restrictions that had been imposed on it until the bank repaid its bailout last week.

With less leverage over banks, Obama has started resorting to jawboning.

Asked about Wall Street firms paying huge bonuses to their executives, Obama said on the CBS news show “60 Minutes,” aired Sunday: “I did not run for office to be helping out a bunch of, you know, fat-cat bankers on Wall Street.”

Bert Ely, an independent banking analyst, said the description smacked of demagoguery.

“This bank bashing is getting almost out of control,” he said. “A lot of the small businesses that are crying for credit are, in many cases, not creditworthy.”

Though Obama said he didn’t want banks making the same kind of high-risk loans that got the nation’s economy into trouble, regulators, fearing more bank failures, are warning executives not to make loans that are possibly less risky.

“You have the president, in effect, saying go out there and do riskier lending,” Ely said, “and yet the bank examiners are pounding on the banks and criticizing more of their loans. They’re going to respond a lot more to the regulators . . . than they are to the president.”

Davis, of US Bancorp, said the White House meeting was productive and “very, very serious.”

Obama “didn’t call us any names,” Davis said. “It was not a moment when we all went around and celebrated the holidays. We talked about how we can do a better job.”

jim.puzzanghera @latimes.com