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Bailed out? Don't be seen having a good time

February 25, 2009|MICHAEL HILTZIK

To paraphrase the Beatles, they should have known better.

The Chicago bank Northern Trust, that is, which decided to roll on last week with a round of lavish festivities pegged to its annual golf tournament at the Riviera Country Club in Pacific Palisades.

Northern Trust Corp. is a 130-year-old bank that serves mostly an upper-crust clientele -- it claims 20% of the Forbes 400 list among its customers, which may be enough capital on the hoof to pay for the whole bank bailout.

But it clearly had no experience navigating the new shoals of corporate public relations, which are marked with caution signs stating that if you accept money from the taxpayers, you shouldn't be seen having fun while the dollar bills are still stuffed in your pockets.

Instead, the bank stroked a gang of wealthy clients with parties, banquets, shows and golf events around Southern California.

Here at Paparazzi Central this was received joyfully as a gimme. Predictably, cameras were out in force to document the Sheryl Crow concert, the Chicago concert and the Earth, Wind and Fire concert, videos of which were promptly posted on TMZ.com, complete with the high-protein, angioplasty-inducing menu at the gala and an inventory of the gift bags from Tiffany's.

The disclosures inspired the usual burst of cabaret from our government watchdogs. Northern Trust, see, is the recipient of $1.6 billion in bank bailout money from TARP, the government bank bailout.

Rep. Barney Frank (D-Mass.), head of the House Financial Services Committee, instantly shot off a letter to Northern Trust's CEO demanding that the bank return to the federal government all the money it "frittered away on these lavish events." (This is beginning to sound like a form letter.) Sen. John F. Kerry (D-Mass.) proposed henceforth fining TARP banks that sponsor entertainment events. A publicist for Earth, Wind and Fire, acting like he was afraid the band might catch cooties, said they had no idea they were being paid with TARP money.

Northern Trust denied using TARP money on the festivities. But the firm's executives still don't know what hit them. They issued a statement to the effect that they're a healthy bank that turns a profit and that they never asked for the TARP money but it got shoved down their throats by ex-Treasury Secretary Hank Paulson, which may well be true.

Northern Trust apparently believed it was immune to criticism for profligacy because it wasn't a "real" TARP bank that seems to need the money to survive, like Bank of America Corp. or Citigroup Inc. Given that it arranged the event long before TARP even existed, it thought it could argue that one thing had nothing to do with the other.

It also maintains that the parties were a wise expenditure designed to keep its best customers within the fold.

"From a marketing standpoint, it makes a lot of sense," said spokesman Doug Holt.

The bank plainly didn't realize that the ground has shifted beneath the industry's feet; in the post-meltdown spotlight, no institution, no matter how fiscally virtuous it thinks it is, can do business the old way. One reason that banks have become such a despised species is that their managers still resist publicly accepting responsibility for their role in the financial meltdown. Instead they resist caps on executive pay and gripe about coming regulations.

In the current economic environment, there's no way to rationalize an entertainment expenditure that looks so insensitive on the surface. Wells Fargo & Co. tried and failed: After the bank (TARP balance: $25 billion) got slammed for a sales recognition event scheduled for Las Vegas, it ran a full-page ad in the New York Times and elsewhere to defend such parties from the perception that each one was invariably "a junket, a boondoggle, [or] a waste." The bank canceled the event but then got slammed for wasting money on the full-page ads.

Still, it's fair to observe that some of this criticism is opportunistic. For preening congressmen, the banks' public relations missteps are handy tools to distract voters from their own entitled lifestyles. Any lawmaker afraid his name is about to surface in the black book of an indictable financier knows the best way to change the subject is to hector a CEO about fancy parties billed to the taxpayer.

And some is overblown. Consider employee recognition events, which a few banks have canceled for fear of a nasty letter from Rep. Frank.

From my perspective as an employee of a company that used to fete its worker bees at annual banquets, now sadly a quaint memory, these opportunities for browsing and sluicing on the company dime while grousing cynically about management provided a terrific lift to morale and esprit de corps.

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