GOP senators plan to ask pointed questions about Jack Lew’s work at Citigroup — and his pay at the bailed-out bank — when the Treasury nominee appears before a Senate panel for his confirmation hearing Wednesday, officials said Monday.
Some Republicans think Lew has not provided satisfactory answers about his exact responsibilities at the bank during the financial crisis, congressional staffers say. The issue is relevant, they say, because the Treasury secretary has new responsibilities for overseeing Wall Street.
“If taxpayers are going to prop up failed banks, they have a right to know what a key executive like Mr. Lew did at that time,” said Sen. Orrin G. Hatch (R-Utah), ranking Republican on the Senate Finance Committee, which is vetting Lew. “The American people will want to know what his role was there and how that might have prepared him for this critical job after the most severe financial crisis and prolonged economic downturn in generations.”
For the past two weeks, members of the committee have been reviewing Lew’s tax returns and personal records. The nominee has sat down for hours of interviews.
An administration official involved with his confirmation process said Lew was focused on consolidating costs for the firm’s operations rather than acting as an investment banker. The official added that having been through his experience at Citigroup, Lew understands the dangers of banks taking on too much risk — and that he would carefully implement financial reform to avoid a similar catastrophe from occurring again.
The official spoke on the condition of anonymity because the confirmation hearing has not taken place. Lew has said that he was merely a manager, not a financial expert, at the bank.
Questions about Lew’s pay are also likely to surface. Sen. Charles E. Grassley (R-Iowa) has repeatedly raised concerns about a $940,000 bonus Lew received from Citigroup in early 2009, just before the government agreed to provide the bank with a $301 billion guarantee to support its mortgage-backed securities.
On Wednesday, Grassley will ask Lew again about the bonus and whether it was appropriate to accept, given the government’s support of Citigroup, according to an aide to the senator.
Some lawmakers may also ask about Lew’s investment in a Citigroup fund registered with a Cayman Islands address that has been accused by critics, including President Obama, as being a notorious center for tax-haven abuse.
Lew invested $56,000 in the fund, according to the Senate Finance Committee, and then sold his investment for $54,418 in 2010.
“Jack Lew paid all of his taxes and reported all of the income, gains and losses from the investment on his tax returns,” White House spokesman Eric Schultz said last week.
Obama has called for a crackdown on tax-haven abuse. As Treasury secretary, Lew would have a hand in shaping the country’s tax policy.
In the context of a career spent mostly in government, Lew’s time at Citigroup from 2006 to 2008 was relatively short. But it was during a pivotal time for the banking industry and for the broader economy.
Citigroup ended up as the biggest recipient of government cash and guarantees, totaling $476.2 billion, according to the final report by the Congressional Oversight Panel. (The Treasury Department has since exited its investment in Citigroup with a positive return for taxpayers.)
Lew joined Citigroup in 2006 to become chief operating officer of the bank’s wealth management unit. In January 2008, he moved over to Citigroup’s alternative-investments unit, or CAI, to serve again as chief operating officer.
According to an internal Citigroup document obtained by The Washington Post, Lew oversaw legal, finance, human resources and corporate communications, in addition to “liquid operations” and “illiquid operations,” as of June 2008.
By the time Lew joined CAI, it had become clear that the unit was in trouble. Then-Treasury Secretary Henry M. Paulson Jr. had unsuccessfully tried to engineer a rescue plan for the unit’s troubled off-the-books funds, known as structured investment vehicles, or SIVs. In late 2007, Citigroup agreed to bring these funds onto its balance sheet, a move that threatened the bank’s survival.
In the ensuing months with Lew on board, CAI fought to keep its hedge funds afloat and faced lawsuits from angry investors who had lost money in products they thought were safe.
“Mr. Lew has been confirmed by the Senate three times already,” Sen. Max Baucus (D-Mont.), chair of the Finance Committee, said Monday. “I don’t expect there to be any reason why he should not be confirmed this time around as well.”
Baucus added that he hopes Lew will be confirmed quickly “so he can help tackle our country’s pressing economic issues.”