Feb. 25 (Bloomberg) -- Northern Trust Corp., a recipient of $1.6 billion in federal bailout funds, defended its sponsorship of a professional golf tournament after it was criticized by members of Congress.
“We came to the conclusion that no public purpose would be served by canceling the Northern Trust Open and related events,” Chief Executive Officer Frederick H. Waddell said in a letter posted on the Chicago-based company’s Web site.
U.S. Representative Barney Frank and 17 other Democratic lawmakers yesterday demanded that Northern Trust pay the government the equivalent of what it spent entertaining employees and clients during the tournament, held outside Los Angeles Feb. 19 through Feb. 22. Northern Trust hosted parties and concerts that included performances by Sheryl Crow and the band Chicago, according to the Web site TMZ.com.
Waddell’s letter ignored the demand from Frank, chairman of the House Financial Services Committee, and didn’t say whether the company would return any government funds. Waddell said no money from the Troubled Asset Relief Program had been used for operating expenses, including marketing, advertising or corporate sponsorship.
The company plans to respond with a letter to Frank and members of his committee, Northern Trust spokesman John O’Connell said in an e-mail.
Wells Fargo & Co., a recipient of $25 billion in government aid, said it’s cutting spending on the Wachovia Championship golf tournament April 27 through May 3 in Charlotte, North Carolina. Wells Fargo, which acquired Wachovia Corp. in December, is evaluating all sponsorship agreements to determine how they benefit the company and communities, Mary Beth Navarro, a spokeswoman for the San Francisco-based company, said yesterday in an e-mailed statement.
Making More Loans
Under TARP, Northern Trust sold the U.S. Treasury $1.6 billion in preferred stock and warrants. The company pays the Treasury $19.7 million in dividends each quarter.
Government funds supported “high-quality loan growth,” helping to increase Northern’s loans and leases by 21 percent in 2008 to more than $30 billion, Waddell said in the letter.
“At a time when the nation is attempting to rise above its current economic difficulties, it is important for healthy banks like Northern Trust to continue to invest in our clients and the communities we serve,” Waddell said.
The letter also didn’t respond to criticism yesterday by Senator John Kerry, like Frank a Democrat from Massachusetts. Kerry called Northern Trust’s spending “another idiotic abuse of taxpayer money while our country is on the brink.”
Kerry proposed legislation that would impose a $100,000 fine on any TARP recipients misusing the funds and require them to reimburse the government. The TARP program, under which the U.S. Treasury has injected $295 billion into banks, was begun under former Secretary Henry Paulson.
‘Sheer Idiocy’
“This is sheer idiocy by people making rules who have never worked anywhere but in the government,” Chris Kelly, an attorney in charge of capital markets business for Washington-based law firm Jones Day, said in an interview. “Are we going to have a bureaucracy determining whether a private business can hold a conference?”
Northern Trust isn’t a client of Jones Day, Kelly said. The firm does work with other banks that have received TARP money.
Frank said today in an interview he was “disappointed” with Northern Trust’s reaction to his letter. “They can’t argue anymore that they didn’t want the money but Paulson made them take it. While that’s accurate, they can return it now.”
President Obama’s economic stimulus package included provisions that allow banks to return TARP funds.
Northern Trust agreed in 2007 to sponsor the annual tournament, held at Riviera Country Club in Pacific Palisades, California, for five years beginning in 2008. The event, one of the oldest stops on the PGA Tour, drew 29 of the top 50 ranked golfers in the world. Phil Mickelson won the tournament last weekend, taking $1.13 million of the $6.3 million purse.
Still Profitable
Waddell said the tournament has raised $3 million for the Los Angeles Junior Chamber of Commerce Charity Foundation in the two years it has sponsored the event.
Unlike TARP recipients such as Citigroup Inc. and Bank of America Corp., Northern Trust has remained profitable amid the financial crisis. The company, which has handled accounts for President Barack Obama and his wife, reported operating profit of $323.3 million in the fourth quarter, a 48 percent increase compared with a year earlier.
Bank of New York Mellon Corp. and Boston’s State Street Corp., custody banks that also received TARP funds, reported lower profits.
‘Conservative Approach’
“Northern Trust has always taken a more conservative approach to managing their balance sheet,” Mark Fitzgibbon, an analyst at Sandler, O’Neill & Partners LP in New York, said in an interview last month.
American International Group Inc. and Bank of America have been criticized by politicians and government watchdog groups for their spending after receiving TARP money. New York-based AIG spent $440,000 soon after its bailout sending top producing sales staff to a California spa.
Bank of America, based in Charlotte, North Carolina, sponsored an entertainment event connected to the National Football League’s Super Bowl in Tampa, Florida, earlier this month.
Northern Trust’s primary business is keeping records, tracking performance and lending securities to institutional investors including mutual funds, pensions and hedge funds. It has $3 trillion in assets under custody.
The company also runs mutual funds and accounts for institutions and wealthy individuals, with $575.5 billion of assets under management.
Customers of its wealth management division include 20 percent of Forbes’s list of the 400 richest Americans, according to the company’s Web site.
Bush’s Blind Trust
The company managed George W. Bush’s investments in a blind trust during his presidency. Obama and his wife, Michelle, had their checking account and home mortgage with Northern Trust as of mid-January.
Northern Trust fell $2.65, or 4.4 percent, to $58.14 at 4:00 p.m. in Nasdaq Stock Market composite trading. The stock has declined 20 percent in the past year, compared with the 44 percent drop by the Standard & Poor’s 500 Index.
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