Caught on Tape: Bank Parties On After Bailout
Congress asking Northern Trust to return the cost of golf weekend to taxpayers.
February 24, 2009— -- The Chicago-based Northern Trust bank may have received $1.6 billion in federal bailout funds, but that did not dampen the lavish long weekend featuring a golf tournament and headliner music the bank threw in Los Angeles last week, much of which was caught on tape by the celebrity news outlet TMZ. Critics are up in arms over yet another apparent boondoggle hosted by a bank that received federal bailout funds.
Members of Congress are now asking Northern Trust for their money back, saying the bank should "immediately return to the federal government the equivalent of what Northern Trust frittered away on these lavish events", according to a letter sent by Rep. Barney Frank (D-Mass.), the chairman of the House Financial Services Committee, along with 17 Democrats on the committee, to Northern Trust's CEO.
"At a time when millions of homeowners are facing foreclosure, businesses and consumers are in dire need of credit, and the government is trying to keep financial institutions – including yours – alive with billions in taxpayer funds, this behavior demonstrates extraordinary levels of irresponsibility and arrogance," the letter states.
"They didn't get the message," said Tom Schatz, President of the watchdog group Citizens Against Government Waste. "Somewhere along the line they have to be more accountable."
This is the second year in a row that the bank has hosted the Northern Trust Open, a golf tournament held at the Riviera Country Club in Pacific Palisades. The bank described it as "an integral part of Northern Trust's global marketing activities". But according to TMZ, the parties surrounding the event featured multiple rock concerts, gift bags from Tiffany's, and private dinner parties at luxury hotels.
TMZ's cameras were rolling when Sheryl Crow took the stage at the House of Blues in West Hollywood for a small private party. (Click here to see TMZ's video of the Sheryl Crow concert)
They also took video of the band Chicago performing at the Ritz-Carlton after a dinner hosted by Northern Trust. (Click here to see TMZ's video of the Chicago concert)
Northern Trust says it did not approach the federal government for bailout funds, but rather "agreed to the government's goal of gaining the participation of all major banks in the United States."
"The key point is Northern Trust is a business that earned an operating net income of $641 million last year," said senior vice-president Douglas Holt. "We paid for these events ourselves. They were paid for as part of a business decision regarding an annual event to show appreciation for clients. Northern Trust is not a bank that was or is losing money and therefore had to go to the government for assistance."
Northern Trust Recently Cut 450 Jobs
But the bank took a strikingly different tone in December when it announced it would eliminate 450 jobs.
"The macroeconomic environment has been extraordinarily difficult and has impacted all segments of the global economy," said the bank's CEO Frederick Waddell.
"Our decisions, while difficult, will further enhance Northern Trust's position amid challenging conditions, while maintaining our focus on clients and those activities in which we have significant competitive advantage and continue to see opportunities for growth," said Waddell.
Some in Congress say whether or not the bank sought the funding, once they accepted it they have a responsibility to the taxpayer.
"This type of spending is outrageous and disgraceful. The government did not hand over $1.6 billion for Northern Trust to go off partying or give away taxpayer-subsidized trinkets from Tiffany's," said Rep. Elijah Cummings (D-Md.) who sits on the House oversight committee.
"This is money that should be used to expand lending or pay the salaries of the hundreds of employees that the company recently laid off," said Rep. Cummings.
Northern Trust says it is using the bailout money to support lending and that the expenses for the golf weekend came from their operating expenses, which do not include the federal funds.
"The CPP [Capital Purchase Program] capital is also supporting high quality loan growth, benefitting clients and institutions. As of December 31, 2008, our loans and leases totaled $30.8 billion, a 21% increase from 12/31/07 and a 3% increase from 9/30/08," said Holt.
Critics Say Bank Could Have Cut the Costs of the Event
Northern Trust did not reply to ABC News' inquiries about the cost of the performances nor about the costs of the accommodations for Northern Trust's clients and executives. A spokesperson did issue a statement saying the bank signed a five year contract to host the golf open in the fall of 2007, a year before the bank accepted federal funds, but made no comment on when the concert commitments were made. (Click here to read Northern Trust's full statement)
Critics say even if the bank has contractual obligations, money could have been saved by canceling concerts or staying in budget accommodations.
"That's really the issue more than prior commitments," said Schatz. "You can cancel a concert."
"You've recently fired 450 employees," said Schatz, "so this certainly isn't great for the morale of other employees or for the morale of taxpayers."