Fresh off his objection of Northern Trust's spending this past weekend, Rebecca Jarvis and I interviewed House Financial Services Chairman Barney Frank to talk about how companies that have taken bailout money should advertise.
What are the rules here? How do we separate rational advertising from this type of advertising?
Frank: Well, common sense applies. It’s interesting. Bankers don’t have trouble figuring out some of these things until people are somewhat critical. Let’s be honest. I don’t think you do this primarily for advertising. I think it has a lot to do with ego. I don’t think people decide that they’re going to take a loan because they sponsored a golf tournament. By the way, what we have, the situation now, is where we’re told that loans are tough to get. It’s not as if there are, that the customers have all this choice. Advertising and marketing generally means you’re trying to attract a customer to you rather than to the other bank. But all the evidence we’ve gotten is that people are having trouble getting loans. So a bank willing to make loans doesn’t have to go out and give people a luxury hotel room. Secondly, the bank, I’m told, said we didn’t need the money and didn’t want it. They can pay it back. One of the things we did in the bill that just passed, because I anticipated this kind of argument, was make it clear any bank that believes they didn’t want the money and George Bush made them take it, that’s their argument, they have the option of paying it back without any penalty. So they have the option of paying the money back if they don’t need it or they have an option of living by the rules. And the rules are, of course, you can advertise. But advertising doesn’t mean taking a few favorite people, including some of your employees, and putting them up in a luxury hotel. What’s the marketing advantage of putting your employees up in a luxury hotel? The favored employees. While the other of course get fired.
It seems like you’re questioning sports marketing or marketing in general with companies that have taken federal money here. So my question to you, then is Wachovia – obviously now owned by Wells Fargo—they took $25 billion in funds. They have a golf tournament in two months. Buick, obviously part of General Motors, they’ve taken $16 billion and are asking for more. What do you want these companies to do? Do you want them to cancel their deals now?
Frank: Well, in the first place, you underposed the question. It wasn’t simply the sponsorship that was at issue, but the luxury hotels, taking employees, for example, and putting them in luxury hotels. I don’t know what the marketing argument is what that.
But that happens with all sponsorships.
Frank: Please, if you ask a question, I’ll try to answer it, but if you ask a question and cut off my answer I don’t know how to respond. This is the distinction I’m trying to make. You cannot bootstrap this. If the justification is marketing, bringing your brand to the attention of the public, presumably you do that by putting your name on a tournament. What’s that got to do with taking some of your employees and putting them up in luxury hotels? Again, the answer is with purely private money, they’re free to do what they wish. But if they’ve got federal taxpayer dollars, remember the dollars were put to them on the grounds, oh well, we don’t have enough money here. If they thought they had enough, then give it back. The other point I would make is this. These are not normal times. Marketing should change. The overwhelming argument we get is that it’s hard to get loans these days. The notion that there are—if you’re a borrower—a whole bunch of banks competing for your business is backwards. As far as Wachovia is concerned and throw in Merrill Lynch too, it does seem expensive sponsorship of a tournament shouldn’t survive the life of the entity that sponsored it… I do believe there is an element in the sponsorship of ego and of the bosses wanted to hobnob, etc. They’re entitled to do that with their own money. I do also want to stress again the luxury catering to people, employees and customers, I don’t think that’s marketing. I think that’s people wanting to have a good time.
What do you advocate in Citigroup’s case? Obviously $46 billion in (government) funds. Great debate about this. They have a 20-year, $400 million deal with the New York Mets. Some say the breakup fee for that could be in the $150 to $200 million range. So they could get nothing for that…
Frank: You have to look at this case by case. I will say this. Once again, it’s not simply the sponsorship. Let’s not oversimplify this. I don’t think they’ve bought 20 years of hotel rooms, I don’t think that they’ve bought 20 years of chauffeured limousines, I don’t think they’ve bought 20 years of first class tickets on airplanes. So they can certainly get rid of that. As to whether or not it would be more expensive to break it or not, I don’t know. I will say Citigroup decided to cancel a plane they had bought even though it might have cost more. The American taxpayer is very angry. It’s bad enough they have to go to the rescue of these institutions, which made a lot of mistakes. We do have to do that because we need a credit system and you can’t simply junk it and start from scratch. But it calls on those institutions to show some humility, to accept the fact that they made mistakes, that they are now being helped out to deal with their own mistakes by the taxpayers, who are not rolling in dough themselves right now. And I don’t think it’s excessive to ask them to show some restraint. Again, I will stress, we put into the bill, if Northern Bank (sic) or any others think that they are being unduly put upon, give us the money back. We’ll take the money back and then go their own way.
A handful of banks out there have stepped forward and said, we felt compelled to do this by the government. Now the government is imposing something on us that doesn’t allow us to generate the kind of returns that will actually pay off and make something of this investment.
Frank: There’s a very simple answer. They can give it back. I understand that. The Bush administration made them take it. We understood their complaints. Because they took it and then there was a lot of anger about some things we did. So when we passed the Recovery bill, I sponsored an amendment that was accepted, supported by both parties, that gives them the right to give it back. So if they think that having the money comes with too many restrictions, they can simply return it. The argument that they were forced to take it no longer applies because they’re not forced to keep it. So if they think that these restrictions are unfair or intrude – and I’m very skeptical again this really is for marketing—they can simply give the money back.
They say, “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. CPP funds are not allocated to operating expenses, including marketing, advertising, corporate sponsorship or charitable activities.” Let’s get your response on that.
Frank: First of all, we talk about their employees and others who are getting these purposes. The notion (that) this is basic marketing belies common sense. This is kind of a perk a lot of people get. Beyond that, when they say it’s not used with the funds for the federal government, there’s a real inconsistency here. When we ask the banks to show us that they received federal money as capital infusions and then lent it out, they tell us, oh, we can’t do that because money is fungible. How can we possibly tell you that we lent this out or not? But when it comes to this, the accounting is more precise and they can tell us for sure this money wasn’t there, etc. Once again, the answer is simple. If they didn’t need the money and didn’t want it and this wasn’t involved, pay the money back. And if don’t pay the money back I’m going to be very skeptical of all of the money you just gave me.
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