Wall Street CEOs Testify in Congress on Pandemic Response -- 2nd Update

By Andrew Ackerman and Orla McCaffrey

WASHINGTON -- The chief executives of the six largest Wall Street firms came under pressure from Senate Democrats to increase lending to minority communities and to support efforts to reduce carbon emissions, while Republicans said they should abstain from taking stands on social and political issues.

In a hearing Wednesday before the Senate Banking Committee, CEOs including JPMorgan Chase & Co.'s James Dimon, Citigroup Inc.'s Jane Fraser and Wells Fargo & Co.'s Charles Scharf came under fire from some Democrats for what they described as excessive overdraft fees and executive compensation.

Banking committee Chairman Sherrod Brown (D., Ohio) faulted the firms for a drop in overall lending amid the pandemic while criticizing Mr. Dimon for a large pay gap between the JPMorgan chief and his workers. Sen. Elizabeth Warren (D., Mass.) criticized Mr. Dimon for the revenue the bank collected in overdraft fees in 2020.

Bank of America's Brian Moynihan said clients borrowed less from banks outside of the federal government's Paycheck Protection Program, which helped many small businesses pay employees and cover rent and other expenses. Mr. Dimon defended worker pay, saying his firm takes "very good care of our people" in terms of training, healthcare and retirement benefits.

Pennsylvania Sen. Pat Toomey, the top Republican on the panel, pressed the firms on their stated support for "stakeholder capitalism." Mr. Dimon led a group of executives who in 2019 said corporate decisions should take all stakeholders -- employees, customers and society at large -- into account.

"I would just ask you to reconsider this because stakeholder capitalism is meant to diminish the importance of a company's obligation to shareholders, relative to other stakeholders, and I think that's a contradiction of the fundamental aspect of capitalism," Mr. Toomey said.

The bankers are due to testify virtually again on Thursday before the House Financial Services Committee. The hearings mark the first time in about two years that the chief executives of major banks have appeared together before U.S. lawmakers.

Some of the questions Wednesday generated an awkward silence. Sen. Tim Scott (R., S.C.) pressed the executives to explain why some of their firms criticized new voting restrictions in Georgia. Asked what specific portions of the law they found discriminatory, none of the executives chimed in.

The hearings come after blockbuster earnings on Wall Street in the first quarter. JPMorgan notched its highest quarterly profit on record, driven by record revenue from trading stocks. Wells Fargo enjoyed its best-ever quarterly profit in corporate and investment banking.

"Profits have gone up, stock prices have soared, your own compensation is stratospheric -- but workers get a smaller and smaller share of the wealth they create...and they're working harder than ever," Mr. Brown said in prepared remarks.

After the 2008 financial crisis, big-bank CEOs were lightning rods for the anger and misery fueled by millions of foreclosures, rising unemployment and a deepening recession. Today, populist ire against the firms has waned, and the banking industry says it is helping to lead the economic recovery.

"Banks were a part of the solution to beat back the economic impacts of a global pandemic, and now we must continue to work together to ensure a fair and equitable recovery," Mr. Scharf said in prepared remarks.

Banks say they have played a key role in keeping businesses and consumers afloat during the pandemic. They helped disburse almost $796 billion in loans through the federal Paycheck Protection Program as of late May.

Still, some of the largest banks restricted loans to current customers or those who had previously taken out loans. Smaller banks picked up much of the slack. They issued 28% of PPP loans, despite holding about 12% of the industry's assets in 2020, according to the Federal Deposit Insurance Corp.

Overall, loans increased 3.3% in 2020, the lowest annual growth rate since 2013, according to Jason Goldberg, a banking analyst at Barclays. Excluding an estimated $407 billion PPP loans last year, 2020 saw a 0.6% decline in lending, the first decrease since 2009, a year that saw the end of an 18-month recession.

Last spring, when some lenders braced for a severe recession, banks tightened lending standards noticeably. Conditions remain tighter than before the pandemic on products including credit cards, auto loans and mortgages.

Demand has ebbed as well. Government lending and record-low interest rates made it cheap for companies to access cash, reducing their reliance on loans from banks.

Write to Andrew Ackerman at [e-mail] and Orla McCaffrey at [e-mail]

(END) Dow Jones Newswires

05-26-21 1306ET