Northern Trust, a Chicago-based bank, is on the hot seat this week.
The bank sponsored a lavish, four-day event in Los Angeles. It flew numerous people to California, booked them in a fancy hotel, paid for several parties, including a private concert with the band Chicago and singer Cheryl Crow, and handed out party gifts with Tiffany jewelry.
The event was part of the Northern Trust Open golf tournament.
Northern Trust accepted $1.5 billion in federal funds—and recently laid off 450 employees, or four percent of its workforce.
The national press, Congress and various members of the public are going bat s*** crazy over Northern Trust. House Financial Services Committee Chairman Barney Frank wants Northern Trust to reimburse the government. Gossip Web site TMZ, known for its intense coverage of Britney Spears’ meltdowns, broke this story.
By late Tuesday, the bank responded with a written statement to media outlets. Here is the statement, which a CBS-owned radio station in Los Angeles posted to its Web site.
Here are a few points for the consideration of CBS news. My hope is that the journalistic standards of TMZ are different than that of CBS.
* Why do this: The Northern Trust Open is an integral part of Northern Trust's global marketing activities, focusing on retaining and growing business with existing clients, and attracting new clients.
* Consider chronology. 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 US government's Capital Purchase Program existed.
As a healthy bank, Northern Trust participated in the U.S. Treasury's Capital Purchase Program, issuing approximately $1.6 billion of preferred stock and warrants in November, 2008. 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.
* Where the CPP funds go:
Northern Trust is using CPP funds to support the strong capital levels that our personal and institutional clients expect, including non-profit foundations, college and university endowments, and retirement plans for corporations, unions, and local, state and national governmental agencies.
The CPP capital is also supporting high quality loan growth, benefiting 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.
CPP funds are not allocated to operating expenses, including marketing, advertising, corporate sponsorship or charitable activities. These are funded through our normal cash flow. Last year, Northern Trust earned operating net income of $641 million.
* Is "bailout" the right word for CPP funds?
Unlike common shareholders, U.S. taxpayers are contractually assured a return on their investment. Currently, Northern Trust pays the government $78.8 million on an annual basis as a return on taxpayers' investment - $19.7 million per quarter.
* NT Open background:
Over its 83-year history, the Northern Trust Open has created enormous benefits for the Los Angeles community.
Over the two years, we will have raised $3 million dollars for the Los Angles Junior Chamber of Commerce Charity Foundation and the many non-profit organizations it supports. Over its entire history, this tournament has raised more than $50 million for the community.
In addition to raising millions for charity, this year, as you may know, Northern Trust created the first-ever exemption for minority golfers at the professional level. The honor is named for Charlie Sifford, the African-American athlete who broke the color barrier in professional golf. * Is Northern Trust really healthy? Aren't all banks in bad shape?
I'd suggest a review of the following story in the current issue of Barron's:
Aside from the dig on TMZ—deserved, but in poor taste—the bank’s spokesman lets the facts do the talking. There’s a refreshing lack of “spin” to this response.
What do you think?