By Kevin Bogardus and Silla Brush - 10/20/09 10:00 AM EDT
Less than a week after Banco Popular, a Puerto Rico-based bank, asked Gutierrez for help in October 2008, Gutierrez wrote to Henry Paulson, who was Treasury secretary at the time. In an Oct. 20 letter, Gutierrez portrayed the bank as a special case in need of an urgent rescue.
Left unmentioned was the Illinois Democrat’s long affiliation with the bank and its U.S. operations in particular. Bank executives had contributed tens of thousands of dollars until 2004 to Gutierrez’s political campaigns. The congressman’s wife, Soraida, was a senior vice president at the firm from 2005 to 2007, before being fired.
On Dec. 5, the bank received $935 million from the government, but it continues to struggle. It said Monday it had lost $361 million for the nine months ending Sept. 30, 2009.
A year later, the Troubled Asset Relief Program (TARP), as the bailout is known officially, remains one of the most controversial and politically tinged government efforts in decades. Lawmakers continue to clash over the program’s merits. But last fall, when the crisis threatened to swallow the entire economy, some had a simple goal: help banks back home.
Small- and medium-size firms, in particular, lacked the Washington presence to do their own lobbying and reached out directly to lawmakers. Eager to support firms in their states and districts, some lawmakers listened to the pleas and tried to sway federal officials into awarding money to the banks.
Gutierrez broke no laws or congressional ethics rules, but his connections with Popular illustrate the efforts lawmakers made to secure help for favored banks at a critical time in the crisis. The TARP program does not require members of Congress to disclose any connections they have to banks they are trying to help.
Gutierrez sought to help a bank that he had a long history with; that had built up a major lobbying presence in Washington; and that is headquartered far from his Chicago district. Helping Popular, he wrote, was of “utmost importance” to four million American citizens in Puerto Rico and minority communities across the country.
A Gutierrez spokeswoman denied that the congressman made any special efforts to aid the bank and emphasized that the lawmaker had no campaign or family ties to the firm when he wrote the letter.
“Rep. Gutierrez has led the [House] Financial Services Committee in ensuring that TARP is working for Main Street by lending to the small and medium-sized businesses that are the backbone of our economy,” Rebecca Dreilinger, the lawmaker’s spokeswoman, wrote in an e-mail.
“Neither Rep. Gutierrez nor his wife maintains financial ties with the bank, outside of a small savings account of less than $1,000.”
In his letter to Paulson, Gutierrez stressed Popular’s importance to the Puerto Rican economy, but he also noted its business operations in the United States.
The bank, founded in 1893 in Puerto Rico, needed additional capital in part because of poor investments in the United States. Like many banks that suffered in the financial crisis, Popular Inc., the bank holding company, had expanded into the market for riskier home loans.
The bank grew its American business in five primary markets: Illinois, southern California, Texas, Florida and the New York-New Jersey area. Bain Slack, an analyst who covers the bank at Keefe, Bruyette & Woods, said Popular executives “expanded as fast as they could between ’04 and ’07,” the peak years of the housing boom.
Banco Popular North America, said Slack, “has definitely been the anchor on this ship.”
The financial crisis erupted last fall, and Popular recorded a $700 million loss in the fourth quarter alone. The firm had an annual loss of $1.2 billion in 2008.
In October 2008, the bank sent letters to several lawmakers, including Gutierrez, “to ensure participation” in TARP, said Teruca Rullan, senior vice president of corporate communications at Popular. “Communicating directly with members of the U.S. Congress was a prelude to secure capital in this historic financial juncture,” she wrote in an e-mail to The Hill.
Popular was no stranger to Washington’s ways. Gutierrez received close to $15,000 in campaign contributions since 1997 from the bank’s executives, according to the Center for Responsive Politics. The last donation came in 2004.
Apart from the contributions to Gutierrez, bank officials have given more than $113,000 to both Democratic and Republican lawmakers since 1989, according to the center.
As the bank grew, it also hired some of the most prominent firms on K Street, spending close to $2.9 million on lobbying since 2003.
Popular hired blue-chip firms like Quinn Gillespie & Associates and Sullivan & Cromwell and maintained its own in-house team, according to federal lobbying records.
Gutierrez’s relationship, though, has included more than campaign contributions. In January 2005, Soraida began working for Popular Securities, a bank subsidiary, and was based in the Chicago branch office. Her biography, including her marriage to Gutierrez, was featured prominently on the firm’s website.
Soraida, then a senior vice president, registered in January 2005 as an Illinois state lobbyist for the bank. She worked on “financial underwriting requests” and contacted the governor’s office as well as the housing development and health facilities authorities in the state, according to state lobbying records.
But Gutierrez’s relationship with the bank deteriorated in 2007. In December of that year, Soraida was fired. Dreilinger said Soraida was called to her supervisor’s office and told “Merry Christmas. Your services are no longer needed. And by the way, happy new year.”
Dreilinger said that Gutierrez chose to help Popular even though the bank fired his wife.
“In spite of the ill treatment afforded by the bank to Rep. Gutierrez’s wife, he placed the well-being of consumers ahead of his personal feelings,” Dreilinger wrote.
After leaving Popular, Soraida rejoined her former employer, Ramirez and Co. Inc., where she also registered to lobby in Illinois.
Popular has used the TARP money to bolster its capital positions. According to bank documents filed with the special inspector general of TARP, Neil Barofsky, Popular has used hundreds of millions of dollars for “substantial investments” in its U.S. operations.
The bank invested $200 million in Banco Popular North America on Nov. 28 after it received preliminary approval for TARP money. After it received the TARP money, the firm invested another $275 million in Banco Popular North America, according to the documents.
In August 2009, the Treasury Department and Popular agreed to convert the government’s preferred shares in the firm, issued under TARP, to trust preferred shares. That change in capital structure, Slack said, has been a major boost to the firm. Popular netted a tax-free and non-cash gain of roughly $500 million, Slack said in a research note.
As the financial crisis swept through the economy, Popular moved to cut back on its Washington lobbying. The bank terminated its own in-house team at the end of 2008.