Feb. 24 (Bloomberg) -- U.S. Representative Barney Frank has demanded that Northern Trust Corp., a recipient of $1.6 billion in U.S. bailout funds, pay the U.S. government the equivalent of what it spent entertaining employees and clients at a company- sponsored golf tournament in California.

Frank and 17 other Democratic members of the House Financial Services Committee said they were “dismayed and angered” by reports that the firm “hosted clients and employees at places like the Beverly Wilshire and Ritz Carlton hotels and gave away Tiffany souvenirs,” in a letter to Northern Trust Chief Executive Officer Frederick Waddell.

The Chicago-based custody bank, which received funds under the Troubled Asset Relief Program in October, sponsored the Northern Trust Open, a PGA Tour event outside Los Angeles on Feb. 19 through Feb. 22. The company hosted parties and concerts that included performances by Sheryl Crow and the band Chicago, according to the Web site TMZ.com.

Frank, a Massachusetts Democrat who is chairman of the congressional committee, and his colleagues said Northern Trust’s behavior “at a time when millions of homeowners are facing foreclosure” demonstrated “extraordinary levels of irresponsibility and arrogance.”

Reacting to the news, Massachusetts Senator John Kerry said he will file legislation to “end the extravagant spending practices of U.S. banks that received taxpayer dollars.”

“I’m sick and tired of picking up the newspaper and reading about another idiotic abuse of taxpayer money while our country is on the brink,” Kerry said in a statement issued by his office.

An outline of Kerry’s proposed legislation, dubbed the “TARP Taxpayer Protection and Corporate Responsibility Act,” would ban TARP recipients from “hosting or sponsoring conferences and events and pay for holiday or entertainment events for the year in which they receive TARP funds.”

Violating the ban would carry a $100,000 fine. The Treasury could grant waivers for events directly related to business operations.

John O’Connell, a spokesman for Northern Trust, said in an e-mailed statement that sponsoring the golf tournament and related events “is part of a business decision regarding an annual event to show appreciation for clients.” He declined to provide details of what the company spent on the events.

“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,” O’Connell said.

Top-Ranked Golfers

The company agreed in the fall of 2007 to sponsor the annual tournament, held at Riviera Country Club in Pacific Palisades, for five years beginning in 2008. The tourney, one of the oldest stops on the PGA Tour, drew 29 of the top 50 ranked golfers in the world. Phil Mickelson won the event last weekend, taking $1.13 million of the $6.3 million purse.

Under TARP, Northern Trust sold the U.S. Treasury $1.6 billion in preferred stock and warrants.

“Northern Trust did not seek the government’s investment, but agreed to the government’s goal of gaining the participation of all major banks in the United States,” O’Connell said in the statement.

The company pays the Treasury $19.7 million in dividends each quarter.

‘Royal Treatment’

“It’s the controllable part of the event, the royal treatment of employees and clients, that shows once again that banks aren’t fully aware of how taxpayers feel about events like this,” Thomas Schatz, president of Washington-based Citizens Against Government Waste, said today in an interview.

The taxpayer group criticized Bank of America Corp., another TARP recipient, for sponsoring events at the Super Bowl in Tampa, Florida, earlier this month.

The group was founded in 1984 by the late industrialist J. Peter Grace and syndicated columnist Jack Anderson, according to its Web site.

Custody banks keep records, track performance and lend securities to institutional investors including mutual funds, pensions and hedge funds.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

Last Updated: February 24, 2009 16:10 EST