Vegas Proves Reckless for Wells Fargo

You've probably heard by now: Wells Fargo (NYSE: WFC  ) abruptly canceled an employee gathering in Las Vegas earlier this week after various media outlets and politicians stomped their feet in objection.

And why not? Wells Fargo is the recipient of $25 billion in TARP funds provided by taxpayers last fall. Amid the furious (and justified) criticism flung at AIG (NYSE: AIG  ) and Citigroup (NYSE: C  ) for basking in the luxury of weekend junkets and private jets, it should have known better.

No one disagrees: Every bank should be exercising restraint these days, if only because we're flirting with an economy rivaling the Great Depression. Factor in that most banks -- including Wells Fargo -- are padding their books with taxpayer money, and just discussing the possibility of lavish corporate spending seems absurd.

Still, a few of us here at the Fool can play devil's advocate. For one, Wells Fargo isn't even remotely close to the white-flag-in-the-air, four-horsemen-have-arrived kind of mess banks such as Citigroup and Bank of America (NYSE: BAC  ) are in. In fact, when the TARP funds were doled out last October, Wells Fargo made it clear that it (a) didn't need the money, (b) didn't want the money, and (c) found the entire bailout absurd to begin with. Nonetheless, the TARP funds were forced down its throat by then Treasury boss Hank Paulson. As my Foolish colleague Chuck Saletta put it, this was Paulson's offer no bank could refuse -- Godfather comparisons intended.

I'm not trying to defend Wells Fargo’s attempted Vegas excursion. Whether it wanted taxpayer money doesn't override the fact that it had taxpayer money. Even so, there's a point to be drawn from a Wells press release that states:

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.

The bottom line is that, yes, it was in bad taste for Wells to plan a lavish recognition party while the economy was sinking into a dark abyss, but lumping every bank into the government-sucking fail pile is hardly fair. If there's one big bank that deserves to keep its corporate independence, it's Wells Fargo.

Further Foolishness:

Fool contributor Morgan Housel doesn’t own shares in any of the companies mentioned in this article. Bank of America is a former Motley Fool Income Investor recommendation. The Fool has a disclosure policy.


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  • Report this Comment On February 05, 2009, at 3:06 PM, Elshua wrote:

    I understand that the press and the American People love the terms "bailout" and "taxpayer money". We have to understand that TARP money is an "investment" the government is making in banks, and as you point out in your article, they didn't want that money, but they HAVE to pay a dividend and, believe me, it's very expensive. IT IS NOT the government giving away our money, they are inviting banks to receive money, to increase lending and reactivate the economy. IT'S NOT FREE MONEY FOR BANKS!!!

  • Report this Comment On February 05, 2009, at 3:18 PM, kujayhawk89 wrote:

    Morgan, THANK YOU so much for telling the proper story about WF. Indeed, the whole Vegas thing can be viewed pretty negatively (perhaps rightly so). However, as you said, WF did NOT want Paulson's investment or need it for all the reasons you mentnioned. While Citi and B/A are sucking cash out of the FED (close to nationalizing) AND cutting their dividend at the same time...WF is doing just the opposite. In fact, as you know, they just payed their full quarterly dividend of $371 Million back to the FED, and are poised to do it again and again from quarter to quarter. How many other big banks are doing that? I could continue giving WF their proper accolades; because truthfully...they've run a tight ship. In fact, if every bank in America operated their business the past 10 years like Wells Fargo...this country would absolutely NOT have the crisis in the financial sector that it has now. Thanks again for a very intelligent and well-written article!

  • Report this Comment On February 05, 2009, at 3:34 PM, rsmiller05 wrote:

    Thanks for bringing some sense into this Wells thing. Employee "retreats" is a fully legitimate part of corporate life that is intended to reward top performers. Its a way of rewarding for past performance and incentivising employees to work harder and be more productive in the future (which will ultimately be the way the TARP funds will be paid back). What isn't mentioned in all of this criticizm of Wells Fargo is that these retreats are a strong motivating factor in various lines of businesses. However, they are not all fun and games. Believe it or not, much of the time spent at these retreats are spent in dark conference rooms going over business plans and discussing the next year's goals.

    It is so hypocritical and disturbing that the day after Obama and the Democratic leadership bashed Wells Fargo, they are going to their own "retreat" (at significant taxpayer expense) to a luxury resort in Williamsburg Virginia (see story in Washington times today for the full story).

    http://.washingtontimes.com/news/2009/feb/05/apologies-no-more-obama...

    Obama's "change" is "good for this country" as long as it doesn't infringe on him and his Democratic cronies!

    Please!

  • Report this Comment On February 05, 2009, at 3:39 PM, cc95624 wrote:

    if and because this is indeed an investment by the govt and not free money, why all the fuss? i know people are dissappointed with the likes of aig, bac, and citi, but don't paint with such a broad brush. if and when wfc and usb make it through this madness with investments paid in full it will be the employees of these banks that will have paid the price of all the wrongdoers and the govt will have a very nice investment payout. sounds really fair doesn't it? But i am sure that all of you out there screaming about employee recognition in tough times will be willing to reimburse us for the hard work and commitment despite being crapped on because of poor govt mandates.

  • Report this Comment On February 05, 2009, at 3:42 PM, wingnut100 wrote:

    Morgan, lay off already. Beside the points already metntioned, I'll add these.

    The trip was a business meeting and a REWARD for the TOP PERFORMERS in the company. If you start taking rewards away from employees, the incentive to produce goes down precipitously. Business suffers as a result.

    Have you considered the negative economic impact of cancellation on the hotels, their employees, and other businesses in the area? No rooms rented. No meals sold. No tips garnered. No souveniers bought. I thought a large part of the recovery is to get money back into circulation - none circulated there.

    I wish Mr.Stumpf had been more persistent in the initial stand he took with "Mr." Paulson. Wells isn't respsonsible for the arm twisting that was foisted upon them.

  • Report this Comment On February 05, 2009, at 6:07 PM, Fallfromgrace wrote:

    Negotiation and PR tactics aside WF could no sooner pay back that Tarp $ than fly to the moon. While very good with controlling the media they needed every penny. Every tax payer out there deserves to have some say in how this money is spent. The correct call was made. WF needed to cancel that free for all on taxpayer money and they did as expected.

  • Report this Comment On February 05, 2009, at 10:48 PM, valari25 wrote:

    Fallfromgrace, WFC can't repay the TARP funds because the Feds won't let them. Go look up the terms of the deal.

    And Morgan, did you see the WSJ article that went into a little more detail about BAC being forced to complete the MER buyout? They basicly threatened all the BAC executives jobs if they pulled the plug on the deal.

  • Report this Comment On February 05, 2009, at 11:15 PM, tismeinaz1 wrote:

    Think about this - The Government owns a type of stock in the Banks that the average fool could not buy even if he had the money. It may not be voting stock but they are still pulling the strings just like Carl Icahn does. The Fed can't get any interest on it's Treasury bills but they will earn dividends close to 20K a share on the that stock. The Government isn't going to lose in this deal.

    Here is another viewpoint - what is a stimulus pkg? It is a way to get money into the hands of the average citizen so they can spend it. How about all of the employees at the hotels, airlines etc that would have benefited from the money that Wells was going to spend? They aren't going to get that money now and may lose their jobs because the banks and other businesses can't or won't spend for fear of being drawn and quartered by the press and some really stupid senators and members of congress. You know - the idiots saying we need a stimulus pkg but can't decide on one that will work.

  • Report this Comment On February 05, 2009, at 11:48 PM, Fallfromgrace wrote:

    valari25:

    you completely missed the point - yes the tarp cannot be repaid and thankgoodness for WFC - because if you look at their balancesheet there is now way they could possible repay it - and yes they needed it. Your stock does not fall from 44 to 13 because you are healthy - just becaus they are not as bad off as C or BAC does not give them permission to take our money and spend it in Vegas. This is a very very sick bank that bit off more than it can chew. They will be back in DC before this is over for round two....

    I do have concerns for the Vegas economy, however, these type of trips are for earned money not borrowed money. The lender gets to set the rules on purpose and the goverment said this was not the right purpose. Better yet the taxpayer who provided the funds said this is not the right purpose. This is a concept Wells knows very well as they determine purpose appropriate with every credit decision they make. If Wells does not like the purpose...they don't make the loan. Well this time the real bank did not like the purpose - get use to it.

  • Report this Comment On February 06, 2009, at 12:19 AM, tismeinaz1 wrote:

    valari25,

    Wells didn't need the money. They made money last year. They are paying dividends on those profits. The only reason they posted a loss in the 4th quarter was because of all the money (more than required) they deposited in the FED as a cushion for the Cal West/Wachovia write downs. Banks in trouble don't pay nearly $400 million to the Fed for dividends or build up 21 billion in reserves at the Fed. They earned nearly 3 billion last year even with the write downs from the merger. You can't go by Wall Street - even in the best of times they are fickle.

  • Report this Comment On February 06, 2009, at 10:12 AM, gregish wrote:

    good job stopping the "reatreat" i'm guessing these are highly paid men what would help the las vegas economy which is already suffering. its silly for them not to go because they dont spend in vegas which doesnt help the economy!

  • Report this Comment On February 06, 2009, at 10:32 AM, AreURetarted wrote:

    Hello people, maybe you have never planned a huge event like this, but if you had you might have stopped to think that this event has been planned and paid for for well over a year now. Wells Fargo is not going to save a penny by not going through with the event. They've paid and are contractually obligated to pay the contracts they signed well over a year ago.

    I know its bad PR, but if more of this country was logical we wouldn't be in the position we're in. We have to many money hungry people trying to make fast cash and investing their money is bad high risk products and programs. We spend more money then we make and we feel like we are entitled to do so. We are the land of the free and the home of gluttony.

  • Report this Comment On February 06, 2009, at 2:06 PM, SimpLMinded wrote:

    To FallfromGrace -

    "The lender gets to set the rules on purpose and the goverment said this was not the right purpose." I don't know how it works for you, but I have more than one means for funding my life. Two examples: I have a loan for my home whereby the bank gets to set the rules, and I have my income - whereby the bank has nothing to do with how I use it - save taxing me on it.

    I don't think it is simple minded to say that Wells Fargo is more likely using government TARP money for the right purposes and following the rules set by the 'lender" (aka those representing the taxpayers). If it was not following the 'rules' I'm certain that these representatives and their mainstream media pitbulls would be doing more than having a 2-year old temper tantrum (you can't do it if I can't do it!).

    I believe that these well-deserved recognition celebrations are being funded by Wells Fargo's 'income' and not out of TARP money (I agree with AreURetarted). Well deserved recognition becomes even more critical during hard times!

    So, 'big-brother', are the recognition recipients really all the high-rolling executives you so conviently make them out to be - on what FACTS do you base that argument? I think the other taxpayers who are less single-minded understand that these recipients are likely very diverse in their income brackets and overall make-up.

    A dear Russian friend of mine who received her US citizenship in 2008 was preparing to vote for the first time and asked me, after hearing politicians on TV last fall, which party they represented - because they sounded exactly like the socialists in Russia and she wanted to be sure she didn't vote for anyone running on that party platform.

    Personally, I want the government to protect my country, create infrastructure (e.g. roads, schools, a reliable monetary system), and then get the hell out of my life!

    The US government is getting closer to absolute power - well, we all know what that leads to!

  • Report this Comment On February 07, 2009, at 12:19 AM, mikwilly wrote:

    They make the workers give up trips they have earned and then after trying and eventually most likely will be successfully in robbing America on pork projects disguised as "stimulus" http://www.onthewriteside.org/2009/02/who-smells-bacon-god-h... our almightily law makers decide to go relax in luxury on the tax payer dime. http://www.fool.com/news/associated-press/2009/02/06/inside-...

    They say some about that this was arranged ahead of time and "cleared" by the ethics committee. I wonder if they past this by the "perception" committee called the US states citizen. These guys are unbelievable. I don't believe they care one iota about America, and oly care about themselves.

  • Report this Comment On February 07, 2009, at 7:29 AM, m1415 wrote:

    "AreURetarted" is right. Wells Fargo holds an annual conference for all of their top performers from all regions of the U.S. It's a 4 day event where all of the top performers (no, not just executives---but the actual hard laborers---the little people) who have gone above and beyond to contribute to the company's profits and they get awards and get to meet everyone from Division. It's something employees look forward to every year and work their butts off to earn. Only a select few from each division are chosen. Wells Fargo was made to take that money, will probably be one of the first recipients to pay it all back, and holds this trip every year so they pay for it far in advance. So this trip was planned and mostly paid for before they even received that money. Now, because of all of this hoopla surrounding the recognition trip, employees who have worked all year to earn it have been informed that the trip was cancelled. Way to go all! You calim you're looking out for the people who are struggling but the trip was FOR the people who who are struggling and could use a few days to feel appreciated. Maybe everyone should get their facts straight before assuming.

  • Report this Comment On February 07, 2009, at 10:56 PM, Fallfromgrace wrote:

    Wow this is hard to take....the level of understanding basic financial information in the comments above is amazing. I'm not going to put on a class here on finance 101 so here is my last comment.

    Folks - without the TARP there is no Wells Fargo and there is no fancy trip - get it. WF has the minimum equity needed to run their business - ie they need the 25B in equity to stay alive. The trip was not pre-paid. The comments above clearly represent the tone deaf nature of people not getting what we are dealing with... Wells is going to lay off thousands of workers across the nation per Stumpf directly. It is not responsible to take the peoples (gov't) money spend it on a few folks and lay off thousands of others. It is a new game. It is the same as flying your corporate jet to Wanshington to get a hand out - how stupid.

    As for simple minded....your are really missing the boat with two ways to fund your life...What are you talking about. If you have debt...you do not control your income. Why don't you try and not pay your mortgage for 3 months and find out how much you control - that is a crazy comment. If a commercial customer walked into WF and said I do not have the net worth to run my company but I was profitable - so I'll take all my employees to Hawaii - WF would call the loan. He who has the gold set the rules...all the rules. In this case this trip was a bad idea and WF should have cancelled it the day they "took" the TARP. Yes I know WF has always stated they did not want the money and were forced to take it. That is media control folks. They have at best 100B in equity and almost 1.3 Tril in assests to cover. If your remove $25B in Tarp - you cannot run that size bank on $75B in equity. The ratios do not work the FDIC will not stand for it and the customer will put a run on the bank. The comment - we don't need the money was made months ago - when a few of the executives were afraid they would not get their bonus if they took it - ask them now if they need the money. Ya they need it, and ya they needed to cancel that trip. By the way what type of company puts out a press release that they are making a payment on their loan. What kind of media show was that??? Should we all put out a press release when we pay our mortgage payment each month? How about our car paymants? Are they going to press release every payment for the next 5 years? Are we all suppose to thank them for making a payment on the funds we gave them? Do they thank us for all the mortgage and car payments every month? It is pretty simple folks without the tarp they are dead - the right call was made and the trip was rightly cancelled. I am sorry folks that worked hard did not get this recognition - but across america there are folks that worked hard and do not have a job. Obama has it right the old stuff has to change!!!

    Does any one know of a website that is more geared for financial people?

  • Report this Comment On February 12, 2009, at 1:02 AM, Truth23 wrote:

    Fall from Grace. I am humored by your arrogance. You might want to check your balnce sheet numbers on the combined company versus the pre-TARP Wells Fargo Balance Sheet.

    Cancelling the trip just held money out of the economy. The TARP money is not a gift it is an investment in non-voting stock. The government can convert to common stock if they want to vote on how to run the company.

    They also could have directed Fannie and Freedy to open up underwriting guidlines instead of writing checks...(opps they tried that already - hence the financial crisis of today). The politicians want to free up money for lending. The loans are there for the qualified as they always have been. Full documentation, verified assets, a real down payment with money left over for an emergency loans are envouge.

    You may want to check the SEC site to see one geared toward financial people. You need to reevaluate the balance sheet impact of Wachovia and the timing of the purhcase. Then you need to take into account the mark to market impact on the balance sheet along with the cash reserves for non-performing assets above and beyond what is required.

    On your Obama change support. I would really like to know how giving more loans to people that cannot pay them helps spur the economy more than the nation's only AAA rated bank keeping the morale of its top performers strong to keep making good loans and investing into one of the most dramatically hit markets of this economic time by paying people to go to work.

    What I have not heard is the comparison of this bailout to the bailout of welfare that has been going on for years. Why are we not concerned with what these bailout receipients do with the funds we give them? Oh we are if they have 8 babies at once, but not when they have 5 one at a time. That is hypocrasy.

    The U.S. Economy is not much different that a small church. If they cannot get contributions they get volunteers. Well if we continue to fund the lives of our citizens are going to be the First US Church of Volunteerism because we wont have money to pay teachers, fireman and police men.

    How many non-tax paying citizens does the average Wall Street Investment Banker cover with his taxes if you average all the taxes paid across the 18 and older population?

    Obamanomics is going to hit a wall here pretty soon. Once he has all the companies scared to spend and shedding every non-essential employee everyone will need the government to survive and Mr. Obama will save the free world with Hope and rations.

    Don't let a 25b TARP check negate the prudence of Wells Fargo. They make the right choices at the right time.

    If Citi buys Wachovia instead of Wells and you had to choose where to put your money I bet you would choose Wells without a second thought.

    It is easy to be idealistic, however when it is your money, future and career on the line. What finacial institution would you choose?

    Think about it. I think we can find better enemies than companies that employee more than 150,000 tax paying citizens don't you?

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