This is why you don’t want to have anything to do with TARP money. If Congress perceives they have “given” something to a business, they want to run the business. I suspect we will see more of these kinds of stories, particularly regarding the initial nine banks that got TARP money. This story about TCF Financial appeared in yesterday’s edition of my local newspaper.
There are a few points that really need to be made about the Associated Press story on Wells Fargo.
First, Wells Fargo did not ask for TARP money, nor did it want to accept TARP money. On Oct. 13, when then-secretary of the Treasury Henry Paulson summoned the CEO’s of nine of the nation’s largest banks, he basically forced each of their banks to take money. The government was looking for a way to pump money into the economy and it figured by purchasing bank stock it could get a big multiplier effect on its investment. For every dollar of additional bank capital, the theory goes, we should be able to get an additional $10 in bank lending.
Since the federal government controls their charters, these bankers had no choice — participate in this Treasury experiment or risk additional regulatory scrutiny and ultimately loss of charter. After the meeting, Wells Fargo Chairman Dick Kovacevich made the nature of the meeting clear. The meeting was particularly troubling to Wells Fargo because it had just announced it would purchase Wachovia without government assistance and now the government steps in and says it will provide assistance, whether Wells Fargo wants it or not.
The public would understand the situation much better if the media did a better job reporting that Wells Fargo didn’t need or want the money. The public would be better served if the media explained that the initial TARP money was about stimulating the economy, not about propping up banks, (at least in the case of Wells Fargo).
The second point is, the government bought preferred shares in Wells Fargo; it didn’t give Wells Fargo anything. Treasury will get dividends from those shares, and ultimately, the government will sell the shares — most likely at a profit. So any implication that the government gave Wells Fargo anything is completely off base.
The third point is, there is nothing wrong with a company hosting a recognition event. Rewarding and motivating employees is good business. Stories like this one, however, are more about promoting envy and class warfare than they are about examining business practices.
Here is the statement Wells Fargo issued after publication of the AP story:
Today’s Associated Press story about Wells Fargo’s recognition events is intentionally misleading. The event is not a “junket” for executives but a four-day business meeting and recognition event for hard-working team members who made homeownership achievable and sustainable for borrowers across the nation. In 2008 alone, the team members who were invited to this event and their colleagues produced $230 billion in mortgage loans for U.S. homeowners.
Through all economic cycles, our recognition events have been an important part of our company’s culture. Late last year, we cancelled recognition events for 2009 except those where the financial commitment was so great that no meaningful savings would occur by cancelling these events. We had scaled back the mortgage event, but in light of the current environment, we have now decided to cancel this event as well. We do not plan to have any other recognition events this year.
The Associated Press story also misleads readers by implying Wells Fargo used the government’s investment to pay for these events. As we’ve said before, we’ve used the government’s investment to lend to creditworthy customers and to help homeowners avoid foreclosure.
Since credit began contracting 18 months ago, Wells Fargo has made almost half a trillion dollars in new loan commitments and mortgage originations. Last quarter alone, we made $22 billion in loan commitments and $50 billion in mortgage originations. That’s more than $70 billion or almost three times the amount of the U.S. Treasury’s investment in Wells Fargo — which has begun to benefit from our performance through the dividend we will pay to the Treasury this quarter.