US prepared to oust bank chiefs

US prepared to oust bank chiefs
By Demetri Sevastopulo in Washington
Copyright The Financial Times Limited 2009
Published: April 5 2009 19:38 | Last updated: April 5 2009 19:38
http://www.ft.com/cms/s/0/172538d8-2210-11de-8380-00144feabdc0.html


Tim Geithner warned on Sunday that the US government would consider ousting board members at American banks as a condition for giving the institutions “exceptional” assistance in the future.

The Treasury secretary said the Obama administration would be prepared to force out senior management to protect US taxpayers, and ensure accountability, as a condition for providing money to help banks restructure. “If, in the future, banks need exceptional assistance in order to get through this, then we’ll make sure that assistance comes with conditions,” Mr Geithner told CBS television.

“Not just to protect the taxpayer but to make sure this is the kind of restructuring necessary for them to emerge stronger. And where that requires a change of management of the board, we’ll do that.”

Mr Geithner was responding to a question about whether the chief executives of Citigroup and Bank of America should worry that they could suffer the same fate as Rick Wagoner, the former chief executive of General Motors who was ousted last month.

The White House put pressure on GM to secure Mr Wagoner’s resignation as a condition for giving the beleaguered car manufacturer more time to complete a restructuring plan with government loans.

The Obama economic team has faced heavy criticism in recent weeks after it emerged that AIG employees were awarded large bonuses even as the group was bailed out by the US taxpayer.

Mr Geithner pointed out that the administration had replaced the management and board of other companies that had received “exceptional” help, including Fannie Mae, Freddie Mac and AIG.

“We’ve done that because we want to make sure that taxpayers’ assistance is going to make these companies stronger, make sure there’s accountability, make sure it comes with strong conditions,” he said. “And we’ll do that in the future if that is necessary. It’s a single standard, a single principle. And our obligation to the American people is to do what’s necessary to try to bring recovery back on track as quickly as possible.”

Mr Geithner declined to say whether Treasury would ask Congress for another stimulus package, saying the priority was to move quickly ahead with the current economic and financial recovery plan.

Separately, the Congressional Budget Office last month raised its estimate to $356bn from $189bn in January for the final cost to the government of the $700bn for the troubled asset relief programme.

Mr Geithner also denied a Washington Post report at the weekend that the White House was attempting to create bail-out plans that would exempt some companies from complying with Congressional measures aimed at limiting executive compensation.

“No, that’s not true,” he told CBS. “Our obligation is to apply the laws that Congress just passed on executive comp[ensation], and we’re going to do that.”

Some banks have warned that the “Pay for Performance Act of 2009” recently passed by the House of Representatives would diminish their appetite to take part in government financial rescue schemes because it would impact their ability to pay top management.