Grassley Seeks Inspector General Review of Treasury Bank Merger Move
WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee on Finance, today asked the Treasury Department inspector general to review the circumstances and any possible conflicts of interest involving the Treasury Department’s administrative move that gives a big tax break to banks that acquire poorly performing banks.
“Treasury’s move took a lot of people by surprise,” Grassley said. “It was a big policy change for an agency to take administratively. Treasury didn’t involve Congress, so there were no checks and balances to vet the policy. The relationships of the players involved might give the appearance of conflicts of interest. I’m asking the inspector general to look at Treasury’s move after the fact and make sure the agency was fair, unbiased and above board in its actions.”
The text of Grassley’s request letter to the inspector general follows here.
November 14, 2008
Via Electronic Transmission
The Honorable Eric M. Thorson
U.S. Department of Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Inspector General Thorson:
I am writing to ask you to conduct an investigation into the facts and
circumstances leading to the Treasury Department’s issuance of Notice 2008-83
(“Notice”) on September 30, 2008, as well as possible conflicts of interest involving
Department of the Treasury (“Treasury”) officials, former Goldman Sachs executives,
and board members in the sale of Wachovia Corporation to Wells Fargo.
The Notice changes the rules governing the deductibility of losses under section
382(h) of the Internal Revenue Code as it applies to banks. While section 382 provides
Treasury the authority to issue regulations to implement section 382, Treasury's action
raises significant questions about whether it exceeded implementing authority by
attempting to change the law. Prior to the Notice, the amount of income that an acquiring
bank could shelter in order to be able to absorb the losses of a bank it acquired was
limited. Now, the Notice allows an acquiring bank to use an acquired bank’s losses to
shelter its income without limitation.
As you know, Treasury Secretary Henry M. Paulson, Jr. was formerly the
Chairman and CEO of Goldman Sachs. Former Goldman Sachs board member Edward
M. Liddy was selected to lead AIG when the Treasury loaned AIG the first $85 billion of
$150 billion of taxpayer funds. Neel Kashkari is the head of Treasury’s new Office of
Financial Stability, created to oversee the $700 billion of funds authorized by Congress
for the bailout, and was a former vice-president at Goldman Sachs. Secretary Paulson’s
team at Treasury also includes senior advisors formerly at Goldman Sachs, such as Dan
Jester and Steve Shafran.
Given these relationships, there is reason for concern about the appearance of
preferential treatment created by the Treasury Department’s decision to issue Notice
2008-83. The Notice, issued just days before Congress voted on the Emergency
Economic Stabilization Act of 2008, appears to have had the effect of benefiting
Wachovia Corporation executives and Wells Fargo. Robert Steel, the CEO of Wachovia,
was a former Undersecretary for Domestic Finance and was a vice chairman at Goldman
Sachs prior to that. He joined Treasury in 2006 to work on issues pertaining to Fannie
Mae and Freddie Mac. Mr. Steel left Treasury to become chief executive of Wachovia
just this summer.
Treasury’s issuance of the Notice apparently enabled Wells Fargo to take over
Wachovia despite a pending bid from Citibank. Without the issuance of the Notice,
Wells Fargo would have only been able to shelter a limited amount of income. Under the
Notice, however, Wells Fargo could reportedly shelter up to $74 billion in profits. It also
potentially enabled Wachovia’s senior executives to qualify for parachute payments that
may not have been available under the Citibank deal.
The facts and circumstances surrounding the issuance of the Notice, particularly
as it relates to Wells Fargo’s purchase of Wachovia Corporation, raise concerns about the
independence of the decision makers. Since the Notice and the FDIC’s intervention are
part of the federal government’s larger efforts to stabilize the economy, I ask that your
office conduct this investigation since you have broader jurisdiction over Treasury than
the Treasury Inspector General for Tax Administration. As part of your investigation,
please obtain and review all documents and communication related to the issuance of
Notice 2008-83, including all records of communication between Treasury officials,
individuals at Wells Fargo, and/or Wachovia Corporation or their representatives.
Should you agree to conduct the examination, please provide periodic updates on
your progress. Moreover and in the event that the Office of the Inspector General has
any difficulty obtaining access to any of the materials or persons needed to conduct this
review in an efficient and effective manner, I request that you contact me immediately.
Thank you in advance for your assistance in this matter and should you wish to discuss
this request in further detail please contact Ellen McCarthy and Jason Foster of my staff
at (202) 224-4515.
United States Senate
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