The bank Tuesday cancelled a celebration bash in Las Vegas to honor and award its mortgage brokers after a backlash of the news ripped through the business media and halls of Congress.
Wells Fargo was one of eight major banks receiving Troubled Asset Relief Program funds from Congress in October. The $25 billion it reluctantly received was used in part to buy Wachovia. This Monday Wells Fargo was the first bank reporting a quarterly first installment of $371.5 million payback to the U.S. Treasury.
That happy face lasted less than 24 hours when news of the Las Vegas junket was reported. Bank executives woefully underestimated the resentment of taxpayers believing they were paying the bills to wine, dine, entertain and bestow gifts on mortgage lenders who corruptly contributed to the financial sector meltdown. That is the perceived bad rap that Wells Fargo probably does not deserve but remains a true picture of the times we are experiencing.
Wells Fargo's response:
"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 home ownership 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..."
Despite what Wells Fargo reports, there are some troubling questions remaining to its overall financial health. The bank is expected to report a $2.3 billion loss for the last three months of 2008. That reflects the bad loans remaining on its books in the mark-to-mark accounting system imposed on banks by regulators.
Also questionable is the value Wells Fargo established on its preferred stock of 25,000 shares Treasury purchased through TARP. It is unclear what price the government paid but the bank Monday said each share now is valued at $14,861 which seems artificially high to some observers.
The public and Congress is in no mood for corporate junkets, a tradition in the industry. President Obama announced today he wants financial executive pay capped at $500,000 annually before the second half of the $350 billion remaining TARP funds are disbursed.
Whatever its intentions, Wells Fargo may be the last TARP recipient rewarding its top employees. Initially, the company indicated it had no plans to cancel.
"Recognition events are still part of our culture," WFB spokeswoman Melissa Murray said Tuesday afternoon. "It's really important that our team members are still valued and recognized."
In previous years, top Wells Fargo loan officers were treated to performances by Cher, Jay Leno and Huey Lewis. One year, the company provided fortune tellers and offered camel rides, said Debra Rickard, a former Wells Fargo mortgage employee from Colorado who attended the events regularly until she left the company in 2004.
Every night when employees returned to their rooms, there was a new gift on their pillows, she said. "I was amazed with just how lavish it was," Rickard said. "We stayed in top hotels, the entertainment was just unbelievable, and there were awards — you got plaques or trophies."
Kevin Waetke, another spokesman for Wells Fargo, said the Las Vegas trip provided a "unique opportunity" for Wells Fargo employees and employees of newly acquired bank Wachovia Corp., "to focus on continuing to do all we can for U.S. homeowners."
On Capitol Hill, lawmakers disagreed.
"Let's get this straight: These guys are going to Vegas to roll the dice on the taxpayer dime?" said Rep. Shelley Moore Capito, a West Virginia Republican who sits on the House Financial Services Committee. "They're tone deaf. It's outrageous."
"Now, they're sending employees on junkets to Las Vegas. You do the math," said New York Attorney General Andrew Cuomo, who recently sought information about Wells Fargo's bonuses as part of his investigation into the banking industry.
These politicians are grandstanding, no doubt. Their statements are based on perception and, in Wells Fargo's case, on misrepresentation of facts.
That's the climate we live in. Get use to it, Mr. Bank man.