UPDATE: Junket Canceled... Bailed-Out Wells Fargo Plans Vegas Casino Junkets

WASHINGTON — Wells Fargo & Co. abruptly canceled Tuesday a pricey Las Vegas casino junket for employees after a torrent of criticism that it was misusing $25 billion in taxpayer bailout money.

The company initially defended the trip after The Associated Press reported it had booked 12 nights beginning Friday at the Wynn Las Vegas and the Encore Las Vegas. But within hours, investigators and lawmakers on Capitol Hill had scorned the bank, and the company canceled.

The conference is a Wells Fargo tradition. Previous all-expense-paid trips have included helicopter rides, wine tasting, horseback riding in Puerto Rico and a private Jimmy Buffett concert in the Bahamas for more than 1,000 of the company's top employees and guests.

"In light of the current environment, we have now decided to cancel this event as well," the company said Tuesday night in a news release that also said the it had never planned to use taxpayer bailout money for the trip.

Corporate retreats have attracted criticism since the bank bailout last fall. Congress scolded insurance giant American International Group Inc. for spending $440,000 on spa treatments for executives just days after the company took $85 billion from taxpayers. AIG has since canceled all such outings.

Because of the bailout and the recession, other banks have canceled employee outings, including Morgan Stanley, which informed employees Monday that an appreciation trip to Monte Carlo was off.

Wells Fargo, however, had not. And initially, the company indicated it had no plans to cancel.

"Recognition events are still part of our culture," spokeswoman Melissa Murray said Tuesday afternoon. "It's really important that our team members are still valued and recognized."

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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."

The trip was to come on the heels of this week's announcement that Wells Fargo lost more than $2.3 billion in the last three months of 2008.

"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.

Rooms at the Wynn and the Encore are consistently among the most expensive in Las Vegas. The $2.3 billion Encore opened in December. Its decor includes a 27-foot Asian dragon made from 90,000 Swarovski crystals and artwork by Colombian artist Fernando Botero. One of the restaurants features Frank Sinatra's 1953 Oscar.

Both properties have high-end retail stores, including Manolo Blahnik at Wynn and Chanel at Encore.

Wells Fargo reversed course Tuesday evening. The company said it had planned to scale back the Las Vegas trip but decided to cancel it, just as it had already done for other events scheduled for this year.

The statement did not say what, other than a four-night sales conference, the company had planned for its 12 nights in Las Vegas. The company said, however, it did not plan any other employee recognition events this year.

Morgan Stanley, which received $10 billion in bailout funds, had been planning to send its top employees to a hotel in Monte Carlo this April. A Morgan Stanley travel agent said that the trip, along with a similar event in the Bahamas, was still on as of Tuesday afternoon. But company spokesman Jim Wiggins said employees were told Monday that the events were canceled. He said the travel agent was incorrect.

___

Associated Press writer Oskar Garcia in Las Vegas contributed to this report.

(This version CORRECTS in last graf amount of bailout monies Morgan Stanley has received to $10 billion, sted $25 billion.)

Comments

[BigJohnfromMN]

If I was the CEO...

I would get on the phone - call Barrack Obama and say

"You need to publicly apologize to my company, we took TARP funds at your request, we did not ask for them. You wanted us to take these funds so capital would not flee from weak banks (percieved as such because of TARP) to STRONG banks like mine.

If you don't, I will pay back the TARP (maybe I have to cut back on lending a little, not what you need right now) but.. Here is my new advertising campaign:

MOVE YOUR MONEY TO WELLS FARGO - WE ARE STRONG AND SECURE

See how the govenments investment in these other banks does after that!

By the way, you had a choice of power or money (politics or business) your choice should not adversly effect mine.

Thanks. - bye bye I will be waiting for yur announceme­nt."

See how he likes them apples

[dameofdismay]

BigJohn, I agree (and I'm also from MN). But wasn't it GW that made them take the money?

[ggirl00]

So a pizza party, company picnic, half-day off or a simple thank you note isn't enough to recognize employees? It kills me that people are acting like good employees can't be recognized without an all-expense paid trip to Las Vegas. There are many, less expensive, and thoughtful ways to recognize hard workers.

[TaylorRae]

Have you heard? ABC News implies that lavish junkets like this actually HELP the economy. You know, when those folks are happy with their special meals, expensive gifts and trinkets and more, we are happy.

Right, and I have a bridge I'd like to sell you.....

[Hdaryl01]

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155_pf.html

'The Wells Fargo Ruling'

As turmoil swept financial markets, banking officials stepped up their efforts to change the law.......­..

Senior executives from the banking industry told top Treasury officials at the beginning of the year that Section 382 was bad for businesses because it was preventing mergers, according to Scott E. Talbott, senior vice president for the Financial Services Roundtable, which lobbies for some of the country's largest financial institutions. He declined to identify the executives and said the discussions were not a concerted lobbying effort....­..........­.

.........T­he notice was released on a momentous day in the banking industry. It not only came 24 hours after the House of Representatives initially defeated the bailout bill, but also one day after Wachovia agreed to be acquired by Citigroup in a government-brokered deal.

The Treasury notice suddenly made it much more attractive to acquire distressed banks, and Wells Fargo, which had been an earlier suitor for Wachovia, made a new and ultimately successful play to take it over.

The Jones Day law firm said the tax change, which some analysts soon dubbed "the Wells Fargo Ruling," could be worth about $25 billion for Wells Fargo. Wells Fargo declined to comment for this article.

[Ju2]

So if WF saved $25 billion in taxes from this provision and it received an additional $25 billion capital injection from the US treasure, then one would assume that this was sufficient to take on potential losses from Wachovia that could potentiallly exceed $42 billion (from my post below: "the FDIC would assume any losses above $42 billion on Wachovia"s $312 billion loan portfolio," which refers to the original Citibank deal). Hence this cushion was theoretically enough to cover potential Wachovia losses, which, with the current economic conditions and potential quality of Wachovia loans and assets could exceed $50 billion-- and that is my guess only, certainly nothing official. Now take that $50 billion from tax savings and TARP funds, and compare that to the potential jobs that were saved with this acquisition, as well as the amount of new loans that WF has made. Then factor in the economic impact that those employed people in NC and elsewhere have on the economy. So seriously, while a Vegas trip sounds tacky on face value, consider all the facts and a more objective picture of the story. That's all I've been arguing.

[Hdaryl01]

A Quiet Windfall For U.S. Banks
With Attention on Bailout Debate, Treasury Made Change to Tax Policy

By Amit R. Paley
Washington Post Staff Writer
Monday, November 10, 2008; A01

The financial world was fixated on Capitol Hill as Congress battled over the Bush administration's request for a $700 billion bailout of the banking industry. In the midst of this late-September drama, the Treasury Department issued a five-sentence notice that attracted almost no public attention.

But corporate tax lawyers quickly realized the enormous implications of the document: Administration officials had just given American banks a windfall of as much as $140 billion.

The sweeping change to two decades of tax policy escaped the notice of lawmakers for several days, as they remained consumed with the controversial bailout bill. When they found out, some legislators were furious. Some congressional staff members have privately concluded that the notice was illegal. But they have worried that saying so publicly could unravel several recent bank mergers made possible by the change and send the economy into an even deeper tailspin.

"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

WELLS FARGO ANYONE?????????????

[Hdaryl01]

(cont.)

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155_pf.html

The story of the obscure provision underscores what critics in Congress, academia and the legal profession warn are the dangers of the broad authority being exercised by Treasury Secretary Henry M. Paulson Jr. in addressing the financial crisis. Lawmakers are now looking at whether the new notice was introduced to benefit specific banks, as well as whether it inappropriately accelerated bank takeovers.

The change to Section 382 of the tax code -- a provision that limited a kind of tax shelter arising in corporate mergers -- came after a two-decade effort by conservative economists and Republican administration officials to eliminate or overhaul the law, which is so little-known that even influential tax experts sometimes draw a blank at its mention. Until the financial meltdown, its opponents thought it would be nearly impossible to revamp the section because this would look like a corporate giveaway, according to lobbyists.

Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. "This is part of our overall effort to provide relief," he said.

The Treasury itself did not estimate how much the tax change....

[Hdaryl01]

(cont.)

cost, DeSouza said.

A Tax Law 'Shock'

The guidance issued from the IRS caught even some of the closest followers of tax law off guard because it seemed to come out of the blue when Treasury's work seemed focused almost exclusively on the bailout.

"It was a shock to most of the tax law community. It was one of those things where it pops up on your screen and your jaw drops," said Candace A. Ridgway, a partner at Jones Day, a law firm that represents banks that could benefit from the notice. "I've been in tax law for 20 years, and I've never seen anything like this."

More than a dozen tax lawyers interviewed for this story -- including several representing banks that stand to reap billions from the change -- said the Treasury had no authority to issue the notice.

Several other tax lawyers, all of whom represent banks, said the change was legal. Like DeSouza, they said the legal authority came from Section 382 itself, which says the secretary can write regulations to "carry out the purposes of this section."

Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.

[Ju2]

http://online.barrons.com/ article/ SB12230912­8710204813­.html

WELLS FARGO APPEARED LATE FRIDAY to be on the verge of stealing Wachovia out of the arms of Citigroup . The California-based bank announced an agreement to buy the ailing Wachovia for $15.4 billion, or $7 a share, in a stock-financed deal that doesn’t require any support from the Federal Deposit Insurance Corp.

Wachovia (ticker: WB) shares gained almost 60%, or $2.30 each, to 6.21 as the Wells Fargo (WFC) deal was deemed more attractive. Under the Citi (C) offer, Wachovia shareholders were to receive $2.16 billion of Citi stock in return for Wachovia’s banking assets, and Wachovia shareholders would continue to own Wachovia’s wealth-management and securities businesses.

The Wells deal was also perceived to be more beneficial for U.S. taxpayers. Under the Citi deal, the FDIC would assume any losses above $42 billion on Wachovia’s $312 billion loan portfolio.

For the record WFC’s ended 2008 with a $2.8 billion profit even after writing off Wachovia’s crap. Again, that is amazing.

[Ju2]

From the WSJ:
http://online.wsj.com/article/SB122402486344034247.html

During the discussion, the most animated response came from Wells Fargo (WFC) Chairman Richard Kovacevich, say people present. Why was this necessary? he asked. Why did the government need to buy stakes in these banks?

Morgan Stanley (MS) Chief Executive John Mack, whose company was among the most vulnerable in the group to the swirling financial crisis, quickly signed.

Bank of America's (BAC) Kenneth Lewis acknowledged the obvious, that everyone at the table would participate. "Any one of us who doesn't have a healthy fear of the unknown isn't paying attention," he said.

It continues:

Mr. Paulson said the public had lost confidence in the banking system. "The system needs more money, and all of you will be better off if there's more capital in the system," Mr. Paulson told the bankers.

After Mr. Kovacevich voiced his concerns, Mr. Paulson described the deal starkly. He told the Wells Fargo chairman he could accept the government's money or risk going without the infusion. If the company found it needed capital later and Mr. Kovacevich couldn't raise money privately, Mr. Paulson promised the government wouldn't be so generous the second time around.

[nana4g]

It is not "the environment" that is the reason you need to cancel this little junket. It is because if I wanted to spend money to go to Las Vegas, I would have gone myself, not send you and your employees in my place with my money.

You cannot do this with my money because I cannot afford it, and neither can you. I do not work night duty to supplement my living expenses and pay all of my insurances and utility bills so that you can take your employees to Las Vegas. If you can afford to do that, you do not need my money. Same thing for Citibank: if they can afford to buy that stadium, they do not need a bailout from tax money. Demand that they return that $36 million dollar hand out.

[roshni]

Exactly - do what you want if your institution is so wildly successful that you can subsidize this on your own dime. ( I wouldn't let you if I were a shareholder, but that's a different issue).
When you want MY tax dollars to save your b.utt because you have failed, don't you dare use bailout money for your entertainment.

[dameofdismay]

They didn't use your money.

[elvee]

How would you like it if you had worked hard all year to earn a bonus, and then at the last minute to be told you wouldn't get it? Most of the people attending WF recognition events are in lower-paid positions, people who look forward to being recognized once a year by their peers and senior leadership. These recognition events are meant to make people who work their tails off every year to feel truly appreciated by their company. Lumping ALL of these events into the category of "junkets" is just not true. How would you like to have the sad job of telling Wells Fargo team members they won't be getting the reward that they've waited for all year long?

Feel better, media? Got what you wanted? At least somebody is...

[roshni]

Isn't a bonus linked to performance, and if you need bailout money for a bonus linked to performance, shouldn't you forfeit the bonus?
If this is part of the regular salary, that's a different issue, but horseback riding in Puerto Rico is not part of post people's salary.

[elvee]

It's not the regular employees who didn't do their jobs - did anyone bother to look at the roster of people who would have attended that event? You'd find that most were mid-level positions, not high-ranking managers. For some of these people, they look forward to these events all year long. These employees not only met but exceeded the goals they were given. Don't forget that Wells Fargo didn't need the bailout money and tried to refuse it. Wells Fargo is still lending more money out than any other bank. THERE HAVE BEEN NO LAYOFFS. They're keeping people employed, and still trying to recognize outstanding work.

[katlade]

Wells Fargo didn't need the TARP money because they make so much in service fees. I am surprised they don't charge you for air while you stand in line waiting for one of thier rude tellers.

A former Wells Fargo banker.

[Ju2]

I like that you point out you are a "former" WF banker as if that adds some sort of gravitas to your assertion. Really, ANYONE, can comment on any bank's service fees! LOL

[Hdaryl01]

Like maybe katlade has inside experience of the workings of Wells Fargo? Like maybe this WOULD be a certain gravitas?

[biotechwoman]

I WAS a Wells Fargo customer, since 1987. Not any more. These bastards can sit on it and rotate.

[Hdaryl01]

I was a former Norwest customer from 1982. Norwest got bought by Wells Fargo. Was a Wells Fargo customer until 2008. No more......­.....never again.....­.........e­ver.......­...

[Ju2]

AH! I guessed right. Now I can see the anger against WF.

[OlderWoman]

Yes, recognition events are very important for employees--WHO PERFORM WELL!!! Banks who need a bailout aren't performing well, therefore, no employee is performing well, therefore, no recognition events are needed. What don't these people understand?

[Hdaryl01]

But, alas, they performed VERY well. They achieved the $25 Billion in bailout, AND the Paulson reversal of section 382 that let Wells Fargo write off more than it paid for Wachovia, by absorbing its losses. The bank's team of 250,000 employees successfully socialized their risk, and capitalized their profits, with appropriate tax breaks so they don't need to pay any tax.......­...

[Ju2]

You're still at it? LOL Did WF turn you down because of your poor credit. You really seem to have an axe to grind and little interest to get your facts straight, Mr. Socialist Delta.

[Ju2]

They made a profit for all of 2008, so how does that make this bank non-performing. They budgeted for this event and paid deposits a year before. Those funds which the stupid writers of this article insist on calling a "bailout" are not that. Thegovernment used those funds to buy a portion of Wells Fargo and the other banks that were asked or forced to participate in this special capital injection program. And as partial owners of WF, the federal government now gets a share of any profit. Just last week, WF send the federal government $372 million for its share of the bank's profit.

That sure doesn't sound like a bank that is not performing.

[davispty5]

"The trip was to come on the heels of this week's announcement that Wells Fargo lost more than $2.3 billion in the last three months of 2008."

Try again.

[roshni]

Shouldn't the "entertainment" money be budgeted out of what taxpayers are subsidizing? Is it regular banking operation expense to go horseback riding in Puerto Rico?

[MNgirl]

This is an example of someone trying to make a story out of nothing. First, WF was already in the process of acquiring Wachovia before the bailout. So for the people saying that they used that money to acquire Wachovia, that is just completely false. Secondly, I know that WF in fact did deny the bailout money at first but was pressured to take it so they could start making additional loans with the hope that this would help the economy. So the fact remains, WF did not need this money to stay afloat and the money was put towards new loans. So to say that recognition event money came from the bailout is just wrong - they were doing fine before the bailout and had more than enough of their own funds to pay for it.

[biotechwoman]

The fact of the matter is, that Wells Fargo DID accept taxpayer's money. If they had enough money then they should not have asked for the bailout. And, by the way, as an Ex-customer of this bank, they charge outrageous fees. So there is justice in this world. If a few winers can't go to Vegas...to­o bad.

[dameofdismay]

Well Fargo was forced to take the TARP money. They didn't need it or want it.

[hardisun]

Seriously, read an article (besides this hit-piece) before spewing forth with utter nonsense. WF did not ask for any bail out money. They are profitable.

Use your righteous indignation on something real next time.

[Y2KCockroach]

(Sigh). If you are correct, and if in fact they "did not need this money to stay afloat", and if in fact they were "doing fine before the bailout" then why on earth did they queue up for, and then accept 25 BILLION dollars in bailout funds? You are trying to suggest that WF was "pressured" into taking the funds, but that is just patent nonsense. Nobody can tell the bank what to do (pre-bailout), and if they feel so aggrieved by this "unsolicited" gift of 25B they can simply give it back, and then blow their shareholders' money on junkets for their employees. The bailout funds were to be provided to struggling banks, with toxic assets and negative balance sheets, and which banks might not survive without it. They were certainly not meant for healthy banks, flush with cash, and which banks did not want the funds in the first place. Yeesh. The facts as you present them only make the whole story worse than what was presented in the article above. Barney Frank is correct: people now hate bankers. What he didn't add was that people now have every reason to hate bankers.

[Hdaryl01]

Really? That's funny. I seem to remember that Citi was all the way to the alter with Wachovia. Got a little p*ssed. Sued Wachovia AND Wells Fargo to prevent the deal from going through. Just exactly how long was Wells Fargo courting Wachovia (in minutes or seconds if at all) BEFORE it received bailout funds? Further, I guess you don't consider Paulson's re-write of section 382 that allowed Wells Fargo to absorb Wachovia's losses for tax purposes bailout funds? Notwithstanding that this re-write wil eliminate the payment of north of $150 Billion in taxes.....­..? Do your research. When exactly did Paulson re-write section 382? You'll find that this was the exact time Wells Fargo began courting Wachovia. And, you'll find that the section 382 re-write occurred AFTER bailout funds were distributed to Wells Fargo.....­......

[porchrd]

WHAT I CANNOT BELIEVE IS THAT THESE IDIOTS ARE SUPPOSE TO BE VERY BRIGHT
AND BUSINESS SAVVY.

HOW IN THE WORLD WOULD ANYONE WITH HALF OF A BRAIN AND WITH THE WAY THE
ECONOMY IS TODAY EVEN THINK OF DOING THIS.

HONESTLY EVERY ONE OF THESE CEOS OR HIGHER UPS SHOULD BE FIRED, TERMINATED IMMEDIATELY.

THEY ARE JUST LIKE OUR POSTAL MANAGEMENT IF THEY HAD HALF OF A BRAIN THEY
WOULD BE DANGEROUS

OVER 600,00 AMERICANS HAVE LOST THEIR JOBS JUST IN JANUARY ALONE AND
THESES SOB's HAVE THE NERVE TO TAKE THE $ 25,000,000­,000.00 BILLION
DOLLARS WHEN MANY FAMILIES DO NOT EVEN KNOW WHERE THERE NEXT MEAL IS COMING FROM.

[TXfemmom]

I bank at Wells Fargo, and their rep. tried to tell me that they didn't want the TARP but the government forced it on them? I LAUGHED RIGHT IN HIS FACE. I said, you took the money and bought Wachovia, instead of making loans. Your bank is as bad as the rest.

[madders]

That is actually correct - I believe there is an article by Andrew Sullivan that has the comments from the Wells CEO arguing to congress against taking the money. The gov basically said "take it now or in the future you will be out of luck" - they already had the money to buy Wachovia without FDIC funds. They have also written $22B worth of loans since they were given the $25B. I think the Wells Fargo PR department needs to do a better job.

[proudthinker]

"your" opinions..­.excuse my typo...

[Hdaryl01]

That's funny, because SEVERAL banks have elected NOT to take the TARP money.....­....Furthe­rmore, what was the effect of writing off the $22 Billion in loans? No tax thanks to Paulson reversing section 382.....We­lls Fargo is not a White Knight.

[proudthinker]

Oooh, you laughed in his face? Your rep at WF was right, and you're opinions about the situation are absolutely wrong.

[Hdaryl01]

Fire Wells Fargo.

[Ju2]

Why yes, go to your credit union... just beware:
http://online.wsj.com/ article/ SB12331842­0520726249­.html

In the latest effort to prop up a sector of the finance industry, federal regulators on Wednesday guaranteed $80 billion in uninsured deposits at the powerful institutions that service the nation’s credit unions — a maneuver that shows how the economic crisis continues to ripple across the U.S.

Regulators also injected $1 billion of new capital into the largest of these wholesale credit unions, U.S. Central Federal Credit Union of Lenexa, Kan., after the firm on Wednesday posted an unexpected $1.1 billion loss for 2008. U.S. Central serves essentially as a main clearinghouse for the others in the network.

[dameofdismay]

That's not true.

[hardisun]

http://www.mrswing.com/artman/publish/best-financial-blogs/Wells_Fargo_Forced_Into_TARP_Plan.shtml

read this laughing man.

[Harmony1812]

So why did Wells Fargo get a bailout? Was it so they could buy Wachovia? Seems like they have plenty to spend.

[Horus45]

With what is going on they should have used that money to lower peoples mortgage interest rates instead of rewarding failure.

[porchrd]

I CANNOT SAY TOO MUCH GOOD BOUT THE GOVERNMENT EITHER

YOU BAIL OUT THESE RIP-OFF BANKS WITH BILLIONS OF DOLLARS
OF OUR THE AMERICAN TAX PAYERS HARD EARNED MONEY.

NOW THESE BANKS ARE HOARDING THE MONEY FOR THEY WILL
NOT LOAN IT TO US OR TO MANY OF US WHO ARE IN NEED OF
HOME MODIFICATION LOANS. THESE THIEVES PUT MANY AN
AMERICAN WHERE THERE ARE BECAUSE OF THESE MILLIONS
OF SUB-PRIME RATE LOANS WITH A.R.M."S.

WHEN PUSH COMES TO SHOVE HOW LONG DO YOU THINK THE
AMERICAN CITIZEN IS GOING TO PUT UP WITH THIS. YOU CORNER
EVEN A MOUSE AND IT WILL FIGHT BACK. NO ONE I REPEAT NO ONE
SHOULD HAVE TO WONDER WHERE THERE NEXT MEAL IS COMING
FROM.