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Wisconsin Governor's Allies Ran a Toxic Bailout Bank... and Got Rich
Huffington Post | March 14, 2011
People in Wisconsin are pulling their money out of Marshall & Ilsley (M&I) Bank because they know it's been helping their Governor's crusade against public employees and the middle class.
They might also like to know that M&I's executives ran one of the most conspicuous dumping sites for toxic financial waste in the country. And that the same executives are about to get very rich, even though TARP rules supposedly don't allow big bonuses for underwater bankers like the leadership at M&I.
These executives didn't just contribute to Scott Walker's campaign. They also helped the governor avoid the press -- and his own constituents -- by letting him use their bank's underground tunnel, which leads directly from its parking lot into the Capitol Building in Madison. Using it for this purpose may have been a violation of the bank's own Code of Business Ethics. [See update below.]
That tunnel's not just a convenient way to help a political crony. It's also one heck of a metaphor.
The M&I Bank's behavior mirrored that of banks across the country who were rescued by the public, then used their money to lobby against the public interest. M&I executives have gone the extra mile for Scott Walker as he fights to strip employees of their benefits and cut vital services. Walker's goal is to keep taxes low for wealthy Wisconsin residents by cutting services for the middle class -- the same middle class that paid for M&Is bailout and keeps its money in M&I's vault.
And once again, these bankers will benefit personally from the public's sacrifice.
M&I Bank had a dangerously high percentage of toxic assets -- mostly crappy mortgages that aren't worth nearly what these bank executives claimed they were worth. There are only two ways bankers can accumulate so many bad loans: either by being, shall we say, morally elastic, or by being bad at the fundamentals of their profession. (Although, come to think of it, the two are not mutually exclusive.)
How toxic were M&I's loans? As Bloomberg News reported in 2009, "The biggest banks with nonperforming loans of at least 5 percent include Wisconsin's Marshall & Ilsley Corp. and Georgia's Synovus Financial Corp." Bloomberg quoted one former regulator as saying these figures were "off the charts," while another said: "If (a bank) is at 5 percent, chances are regulators have them classified as being in unsafe and unsound condition."
At its worst, M&I Bank's figure was 5.18%.
And yet investors might not have known the bank was in "unsafe and unsound" conditions by reading SEC filings for previous years. That document made it sound as if the bank was merely suffering from the difficult conditions everybody was facing. What's more, "management concluded that internal control over financial reporting was effective as of December 31, 2008."
The bank's most recent 10-K filing states that in 2009 "the Corporation continued to experience elevated levels of expenses due to the increase in operating costs associated with collection efforts and carrying nonperforming assets." That included, among other things, the cost of foreclosing on Wisconsin residents.
Some reports suggest that the bank's purchase was a "shotgun marriage" arranged by regulators who forced the Bank of Montreal to make the acquisition. The fact that this deal will make some sub-par bankers very rich and let them skirt TARP rules in the process didn't seem to concern these anonymous regulators at all. In fact, if the plan helps regulators get their TARP dollars back, a whole host of substandard executives at other regional banks may get rich too.
Money For Nothing
Every "toxic loan" represents a household whose life has become a shambles. The executives of Marshall & Ilsley Bank, on the other hand, are doing just fine. Thanks to a a legal workaround discovered by the enterprising folks at M&I, they're using a 2008 contractual provision to write themselves fat checks before taxpayers get their money back.
How fat are those checks? The CEO, Mark Furlong, is getting $18 million. CFO Gregory Smith is getting $5.5 million. Senior Vice President Kenneth Krei will receive the same amount, while Senior Vice Presidents Thomas Ellis and Thomas O'Neill are getting $4.1 million and $5.1 million, respectively, with another $26.7 million being distributed to other M&I executives (many of whom undoubtedly oversaw the writing of toxic loans).
If these underperforming executives gave back all this bonus money they'd be less than 1/25th of the way toward paying back the $1.5 billion that the bank still owes on its TARP money. ($1,543,261,806, to be precise.) That's not much of a dent, but it would be a nice good-faith gesture.
Tunnel of Love
Instead, a number of these executives have been using their money to back Scott Walker, lavishing more campaign cash on him than they gave to all other candidates put together. And they didn't just donate money. As Mary Bottari reported, the bank has been letting the Governor ferry himself and a number of his lobbyist friends to the Capitol through that underground tunnel. (Are they sure it doesn't lead to the River Styx?)
About that tunnel: In a section of M&I's Business Code of Ethics entitled "Protection and Proper Use of Company Assets," employees are told that "The resources of the Company should be used only for legitimate business purposes and for the benefit of the Company." The tunnel is clearly a "resource," and M&I has not reported its use as a lobbying activity. In fact, the bank's disclaiming any institutional involvement with Gov. Walker. So who violated the Code of Ethics?
The Code states that "Employees who violate the standards in this Code will be subject to disciplinary action, which depending on the severity of the situation, may include dismissal." We await the Bank's announcement of disciplinary action in the Scott Walker case.
You Got to Move
Now, as both Mary Bottari and Mike Elk have reported, the unions are striking back with a "Move Your Money" campaign. That could hurt since, as Mike Elk reports, a researcher estimates that unions may have more than $1 billion in pension funds invested at M&I Bank.
On one side of this conflict you have undeservedly rich bankers. On the other side you have teachers, firefighters, and cops. And the middle class is getting the short end of the stick, too. (See this video clip from Dave Johnson for a gut-level response from a Wisconsin farmer.)
In response to the protest, M&I issued a statement insisting that these donations from senior executives were the actions of individuals and not of the bank itself. But those individuals run the M&I Bank. And they literally have an underground connection to Walker and the lobbyists who are running Wisconsin's state government.
Unless the Board of Directors is willing to replace these executives, their actions can reasonably be considered the Bank's actions as well. And if nobody's disciplined for for that tunnel, M&I can be considered an active collaborator in the Governor's actions.
Replacing these executives would be a good idea for M&I, too. They haven't been very good at their jobs. Fortunately for them, good performance isn't a prerequisite for getting rich in today's banking industry.
But really: A tunnel? What would Dr. Freud say? The people who
are taking their money out of M&I Bank seem to think somebody's getting
the shaft, and they want it to stop.
NOTE: You don't have to live in Wisconsin to join the Move Your Money fun! M & I also has branches in Arizona, Minnesota, Missouri, Kansas, Nevada, Florida, and Illinois. The Move Your Money website can help you make the switch.
UPDATE: Some commenters are saying the report we cited is incorrect. We're looking for a clarification - whether the tunnel leads to the bank's parking lot, to a shared lot, or somewhere else. We'll correct or amend as needed. In the meantime, we'll give the benefit of doubt to the bank and its executives and assume they did nothing wrong regarding the tunnel.
After all, the tunnel's a great metaphor but the real issue is the money.