WASHINGTON (Reuters) - Northern Trust Corp took a pounding on Tuesday from U.S. lawmakers who said the bank must repay millions of taxpayer bailout dollars spent on “lavish parties” during a Southern California golf tournament.
The Chicago-based bank’s sponsorship of the expensive bash prompted Sen. John Kerry, a Massachusetts Democrat, to say he will introduce a bill this week to end “extravagant spending practices of U.S. banks” that receive taxpayer bailouts.
“I’m sick and tired of picking up the newspaper and reading about another idiotic abuse of taxpayer money, while our country is on the brink,” Kerry said in a statement.
Kerry plans to introduce legislation targeting banks that got taxpayer assistance under the government’s $700 billion Troubled Asset Relief Program (TARP). Chicago-based Northern Trust received $1.6 billion under TARP.
Democratic lawmakers in the House of Representatives, led by Barney Frank, chairman of the Financial Services Committee, demanded Northern Trust repay the cost of festivities that surrounded last week’s Northern Trust Open at the Riviera Country Club in Pacific Palisades, California.
“This behavior demonstrates extraordinary levels of irresponsibility and arrogance,” wrote Frank and 17 other Democrats in a letter to Northern Trust CEO Frederick Waddell.
TMZ, a website for celebrity news, reported that hundreds of Northern Trust clients and employees were flown in and put up in luxury hotels for the tournament, won by American golfer Phil Mickelson. Besides the golf, there were concerts by Sheryl Crow, Chicago, and Earth, Wind & Fire, TMZ reported.
Northern Trust said in a statement that the golf tournament and related events are “part of a business decision regarding an annual event to show appreciation for clients.”
“This is the second year Northern Trust is sponsoring the Open as part of a five-year contract. The contract was signed in the fall of 2007 -- a year before the U.S. government’s Capital Purchase Program (under the TARP) existed.”
The bank said it is healthy and did not seek TARP aid, but entered the program at the government’s request. It said TARP “funds are not allocated to operating expenses, including marketing, advertising, corporate sponsorship or charitable activities. These are funded through our normal cash flow.”
Asked about Northern Trust’s statement that it did not seek TARP aid, Frank said on a CNBC television business news program: “If they didn’t want the money, and didn’t need the money... then pay the money back.”
The TARP was launched last year by the Bush administration in an effort to stabilize the troubled banking system. The Obama administration is working on a plan for remaining TARP funds amid the worst U.S. financial crisis in decades.
The House lawmakers’ letter to Northern Trust said they would insist that any future Treasury Department support for Northern Trust “be conditioned on a thorough reform of your company’s policies and practices.”
Under Kerry’s legislation, which would take effect on March 1, a TARP recipient could not “host, sponsor, pay for conferences and events and pay for holiday or entertainment events for the year in which they receive TARP funds.”
A waiver could be sought under some circumstances. A violation would require a TARP recipient to reimburse the government for the cost of the event and pay a fine.
Northern Trust in December announced plans to cut 450 jobs in 2009.
Insurer American International Group was criticized widely in October for spending $200,000 on hotel rooms and $23,000 on spa services at an event for its executives days after getting a government loan to avoid bankruptcy.
Reporting by Kevin Drawbaugh; Additional reporting by John Stempel in New York; Editing by Gary Hill and Tim Dobbyn
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