Northern Trust Corp., a bank that received $1.6 billion in government funds, is facing scrutiny for hosting parties and other events connected to its sponsorship of a professional golf tournament.
Reports of the parties brought a swift protest from Washington, with Democratic lawmakers pressing the bank to return the money spent on the events, and Sen. John Kerry proposing legislation restricting banks that received government funds from hosting, sponsoring or paying for conferences or entertainment events.
Many banks that received money as part of the government’s $700 billion government package passed last fall have come under heavy criticism from politicians in Washington in recent weeks about their spending habits — from hosting conferences to buying corporate jets — after obtaining the funds.
The Chicago-based custody bank was the title sponsor of the Professional Golfers’ Association of America’s Northern Trust Open that was played last week at Riviera Country Club in suburban Los Angeles.
The bank also hosted dinners and concerts for clients and employees who attended the weeklong event. A report by entertainment Web site TMZ said Northern Trust flew in hundreds of employees and clients for the event, putting them up at fancy hotels throughout the area and hosting dinners and concerts throughout the week of the tournament.
The events are part of the bank’s global marketing activities and are focused on showing appreciation for clients and attracting new business, said Douglas Holt, a spokesman for Northern Trust.
Northern Trust became the title sponsor for the event in 2007, about a year before it received federal funds as part of the bank investment program, Holt said. It has a five-year contract to sponsor the event.
“Northern Trust did not seek the government’s investment, but agreed to the government’s goal of gaining the participation of all major banks in the United States,” Holt said.
In Washington, Democratic lawmakers on the House Financial Services Committee pressed Northern Trust President and CEO Frederick Waddell to immediately return the money spent on the outing to the government.
Eighteen Democrats on the financial services panel, led by Chairman Barney Frank, D-Mass., told Waddell in a letter, “We insist that you immediately return to the federal government the equivalent of what Northern Trust frittered away on these lavish events.”
“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,” they wrote.
Kerry, D-Mass., a senior member of the Senate Finance Committee, called for government action to tighten the reins on recipient banks’ spending. The senator introduced legislation to restrict spending by financial firms that received government bailout funds as part of the Troubled Asset Relief Program. The legislation would require a company’s chief executive to reimburse the government for the cost of any events hosted and pay a $100,000 fine.
Other banks have faced heavy scrutiny before events even took place in recent weeks, forcing their postponement or cancellation. Political outcry led to Goldman Sachs Group Inc. and Wells Fargo & Co. altering conferences, while Citigroup Inc. canceled a contract to take delivery of a corporate jet. All three of those banks also received federal bailout funds, but at much larger amounts than Northern Trust.
Northern Trust’s Holt noted that no government funds are allocated to operating expenses, including marketing, advertising, corporate sponsorships or charitable activities. He said those costs come from cash flow from the bank’s operations.
Northern Trust made its first quarterly payment of $19.7 million to the government earlier this month as it repays the $1.6 billion investment.
Throughout the ongoing credit crisis and recession, Northern Trust has remained profitable, unlike some large commercial banks that have received larger sums from the government. Northern Trust earned $794.8 million, or $3.47 per share, in 2008.
Despite remaining profitable, Northern Trust announced in December it would cut 4 percent of its staff, or about 450 jobs.
As sponsor of the golf tournament, Northern Trust hosted dinners Wednesday, Thursday and Saturday for special guests, according to TMZ. Each dinner was followed by a concert, with performers including the bands Chicago and Earth, Wind and Fire as well as Sheryl Crow, according to the report.
“The band has had no knowledge of Northern Trust using bailout money to support their event last week,” said Earth, Wind and Fire’s publicist Mark Young in an e-mail to The Associated Press, in response to questions about the group’s performance Thursday at a private hangar at the Santa Monica Airport.
E-mails to Chicago and Crow’s publicists were not immediately returned.
PGA Tour Commissioner Tim Finchem noted that Northern Trust is in the wealth management business, and that entertainment vehicles help their business. “I think it’s unfair to them,” he said. “To take a company and say, ’You should play by these rules because you have tax dollars’ — the taxpayers should want the business to work. Most of these companies that are being beaten up so bad weren’t mismanaged companies.”
Michael Yamaki, a corporate office for the Riviera Country Club said unlike in past years, Northern Trust’s executives did not head to the tournament early to play golf at the host course.
Yamaki said: “You could tell they were really tightening their belts and doing this for business. All the executives I saw were in coats and ties, not golf clothes. I know everyone was wondering at the start what position they would be in. Years ago, the top executives would come out and golf. Not this time.”