Wachovia won’t be outdone for gall
As ailing Wachovia Corp. waits to see whether it will be acquired by Wells Fargo & Co. or Citigroup Inc. -- possibly with taxpayers paying the tab for hundreds of billions of dollars in bad loans -- some of the company’s top brokers are preparing to depart Saturday for an all-expenses-paid cruise of the Greek Isles.
The weeklong trip for up to 75 employees of brokerage A.G. Edwards, which Wachovia acquired last year for nearly $7 billion, will also include spouses and significant others, said Teresa Dougherty, a Wachovia spokeswoman.
“This is one way that we recognize our top financial advisors,” she said.
Word of the Wachovia junket follows reports that senior executives of troubled insurance giant AIG attended a $440,000 company retreat last month at Southern California’s swanky St. Regis Resort in Monarch Beach just days after being bailed out with $85 billion in taxpayer funds.
A White House spokeswoman Wednesday called the AIG outing “despicable.” Yet even as the Bush administration was wagging its finger at AIG, the Federal Reserve was announcing $37.8 billion in additional loans for the company.
Moreover, a spokesman for American International Group said the company was going ahead with plans to host a three-day confab for about 150 insurance brokers at the Ritz-Carlton Resort in Half Moon Bay next week. About 50 AIG employees also will attend.
“This is an annual affair,” said AIG’s Joe Norton. “It’s a key meeting.”
Such five-star shindigs have long been a standard practice for the U.S. financial industry. They serve as incentives and rewards for top performers, and as regular get-togethers for senior execs.
But the gatherings raise ethical questions at a time when many institutions are turning to taxpayers to cover their bad mortgage bets, and when millions of Americans are tightening their belts.
“It’s clear that these executives don’t get it,” said Stephen Conroy, an associate professor of economics at the University of San Diego who focuses on business ethics. “These are the same excesses that got them where they are today.”
Conroy acknowledged that companies still need to recognize their biggest moneymakers during hard times, and that such events are typically scheduled months in advance. But he said the only prudent thing to do when a company faces troubles like AIG or Wachovia does is to behave with some humility.
“Some expenses are clearly valid,” he said. “But things like the Ritz-Carlton are hard to justify.”
As I reported Wednesday, AIG spent more than $440,000 wining and dining salespeople and company managers at the St. Regis. The bill included nearly $200,000 for rooms, $150,000 for meals, $23,000 in spa charges and almost $7,000 for golf outings.
Responding to outrage over the wingding, AIG said the company’s CEO, Edward Liddy, sent a letter to Treasury Secretary Henry M. Paulson explaining the nature of the event. Liddy was quoted as saying that AIG was “reevaluating the costs of all aspects of our operations in light of the new circumstances in which we are all operating.”
Be that as it may, AIG’s Norton said next week’s Ritz-Carlton retreat would proceed as planned. He said the event would introduce new insurance products to salespeople who specialize in wealthy clients.
Norton declined to provide a price tag for the event. A Ritz-Carlton spokeswoman also declined to comment.
The hotel’s website describes the facility as “an elite golf and spa resort” where guests can “enjoy soothing coastal breezes and captivating ocean views,” and “estate-style accommodations.”
Rates vary from $399 a night for a run-of-the-mill room to more than $1,000 for a suite. In other words, just the place to bask in what’s now more than $100 billion in taxpayer cash pouring down on AIG.
In Wachovia’s case, the company declined to say what cruise line the Edwards workers would be taking or what islands they would be visiting.
Dougherty called the cruise a “recognition trip” and said such things “are common practices around brokerage firms.”
Wachovia agreed last week to be purchased by Citi for about $2 billion. Under terms of the deal, Citi said it would assume the first $42 billion in losses related to Wachovia’s stinkiest mortgages, and the Federal Deposit Insurance Corp. would shoulder all losses above that amount -- possibly as much as $270 billion.
Days later, though, Wells Fargo stepped in with a $15-billion offer that wouldn’t include taxpayer funds. Citi and Wells then unleashed their lawyers on each another.
A compromise was expected to be reached by Wednesday. The two sides now say they’ll try to cook something up by Friday.
Sounds like stressful work. What these guys need is a little vacation.
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