Geithner may expel CEOs at banks seeking help

Treasury Secretary Timothy Geithner said he's prepared to oust the senior management and boards of directors at banks that require "exceptional" assistance from the United States
Government.

"If, in the future, banks need exceptional assistance in order to get through this, then we will make sure that assistance comes," while ensuring taxpayers are protected, Geithner said yesterday in an interview on the CBS Face the Nation programme. "Where that requires a change in management and the board, then we will do that."

Geithner noted that American International Group, Fannie Mae and Freddie Mac had their chief executives removed after it became clear the companies couldn't survive without government rescues. The Treasury is reviewing how much capital the biggest US financial companies need to endure a severe economic downturn.

"Where we've had to do exceptional things", the Government has replaced management and boards of directors, Geithner said.

Geithner's pledge comes as signs emerge that the world economy may be stabilising. Confidence among US consumers climbed last month from the lowest level on record, according to the Conference Board.

UK house prices rose in March for the first time since October 2007, while Chinese manufacturing increased, reports last week showed.

The Treasury secretary pledged to enforce congressional legislation that limits pay at companies receiving government loans. Geithner said the Government has no intention of letting banks get around the rules.

"Our obligation is to apply the laws that Congress just passed," he said. "We want the American taxpayer's assistance going to generate greater lending, not providing excess compensation."

Treasury last month proposed a public-private partnership to spur investors to buy - and banks to sell - the illiquid real estate assets clogging lenders' books. The programme relies on financing from the Federal Reserve and debt guarantees from the Federal Deposit Insurance Corp, and it could use up to US$100 billion ($168 billion) from the Government's bank-rescue fund.

Geithner, responding to a question about whether rules approved by the Financial Accounting Standards Board (FASB) last week may deter banks from participating, said Treasury will make sure companies do what's needed to clean up their balance sheets. He declined to say whether Treasury will force banks to sell assets.

Norwalk, Connecticut-based FASB voted on April 2 to let banks use "significant" judgment in gauging how much securities are worth. Richard Dietrich, an accounting professor at Ohio State University, said the change may discourage financial companies from selling securities because it may allow them to avoid writing down the value of their holdings.

Geithner, who accompanied President Barack Obama to London last week for the meeting of the Group of 20 policy makers, also said the administration will "keep acting as forcefully as we can" to pull the nation out of a recession.

At the summit, the world leaders called for tougher oversight of hedge funds, executive pay, credit-rating firms and derivatives trading.

The World Bank is warning of an "unemployment crisis", and the US lost 663,000 jobs in March, the Labour Department said at the weekend. The jobless rate jumped to 8.5 per cent, the highest level since 1983.

Banks and financial institutions worldwide have reported more than US$1.2 trillion in credit losses and writedowns.

- BLOOMBERG