MBNA-Expired: How a Credit King Was Cut Off

N a chilly Monday in early November, Laura Bush appeared at a lunchtime reception at a baronial mansion in Wilmington, Del., to express her husband's gratitude for $350,000 in contributions to his re-election campaign. Her host was Charles M. Cawley, and most of the money had come from employees of the MBNA Corporation, the highflying credit card company that he had run for two decades.

The Bush family was well acquainted with Mr. Cawley and his generosity. Only Enron, before its fall, was a bigger source of political donations to George W. Bush than MBNA. Mr. Cawley was also a benefactor to the president's father. Besides donating $1 million to the foundation that built George H. W. Bush's presidential library, Mr. Cawley and MBNA have paid more than $300,000 to the former president and his wife for appearing at company events.

Friends in the highest places were not all that Mr. Cawley collected. As he built the company into the world's largest independent credit card issuer, he gained a reputation as a free spender. Over the years, MBNA accumulated a fleet of airplanes, helicopters, yachts and expensive cars, as well as a $65 million art collection.

Although hardly a household name, even on Wall Street, Mr. Cawley, 63, became a powerful figure in business by catering to the national addiction to credit. Operating in a heavily regulated industry, he curried favor in Washington through political contributions and by hiring former senior government officials. MBNA's management team is studded with retired F.B.I. officials, including Louis J. Freeh, its former director.

But two days after Mr. Cawley played host to the first lady, his stewardship of the company unraveled quickly. At a meeting on Nov. 12, people who were present said, he locked horns with board members over the compensation of his management team - a subject dear to a man whose own pay was among the nation's highest, topping $50 million in each of the two previous years.

Ten days later, Mr. Cawley announced that he would retire; by the end of the year, he was gone. MBNA portrayed his exit as part of an orderly transition. But according to current and former executives, his departure was a result of a yearlong confrontation between a driven and sometimes imperious chief executive and directors alarmed by the post-Enron call for accountability at the highest rungs of corporate America.

MBNA's board members said they feared finding themselves in the shoes of directors elsewhere who were taking flak for being too cozy with the executives they were supposed to keep in check. Their concerns grew through the fall of last year as the New York Stock Exchange was engulfed in controversy over a $140 million payday for its once-popular chairman, Richard A. Grasso, that cost him his job.

Mr. Cawley's spirited defense of the company's traditional ways signaled to other company officials that he was out of step. "It probably was time for him to go," said an MBNA director who insisted that he not be identified. "Had he been willing to change and do things the way the board wanted him to do, there's no doubt in my mind he would be there today."

Mr. Cawley declined to comment but said in a statement issued by his personal lawyers that he had been "a dedicated, responsible and ethical executive" throughout his time at the company. With the exception of his family, he said, MBNA "always came first in my life."

Yet months before his final board meeting, Mr. Cawley was still behaving as if he was running a private company. In June, he borrowed two of MBNA's jets to ferry a group of friends and relatives to Spain and Italy, company officials confirmed. (Mr. Freeh said Mr. Cawley reimbursed the company $35,000 for the use of the planes, much less than a charter would have cost.) Among the vacationers were four students from St. Benedict's Preparatory School in Newark, which Mr. Cawley attended and later adopted as a pet project. MBNA is now the school's biggest benefactor, according to the Rev. Edwin D. Leahy, the headmaster. The school declined to provide figures.

After he returned, Mr. Cawley used $3.5 million of MBNA's money to buy a painting, titled "Other World," directly from Andrew Wyeth, the 86-year-old artist, Mr. Freeh confirmed. MBNA has one of the biggest collections of Mr. Wyeth's paintings, and Mr. Freeh, who represented the company in a series of interviews, said some of the company's art was occasionally displayed in Mr. Cawley's homes. But even Bruce L. Hammonds, Mr. Cawley's longtime No. 2 who would succeed him at year-end, was uncomfortable with some of the company's customs. Last year, citing a need to cut costs, Mr. Hammonds canceled an annual summer retreat for managers at its hilltop campus in Maine, a private event that in 2002 had drawn people like former President Bush; George J. Tenet, the director of central intelligence; and Alma Powell, the wife of Secretary of State Colin L. Powell. The company spent more than $1 million on that gathering, which Mr. Hammonds said was probably the last of its kind.

"Charlie would rather have had that," Mr. Hammonds said. "I'm going to send a different message."

That is not the only change he is making. Since Mr. Cawley left, MBNA has started searching for new directors, cutting executive pay and paring its real estate. Mr. Hammonds said that the company also decided to sell its two yachts and two of its planes.

In many ways, the MBNA that Mr. Cawley left behind is a quirky, paternalistic company that reflects his values and tastes, from the vintage Duesenberg automobiles in its lobbies to the Wyeth paintings and Norman Rockwell sketches that adorn the green-and-tan walls of its immaculate offices.

It has come a long way from 22 years ago, when Mr. Cawley and a small team started operating out of a converted A&P supermarket in Ogletown, Del. The business was spun off from a bank known as Maryland National. Its clunky name was short for Maryland Bank National Association, but it set up shop in neighboring Delaware, which had just removed its cap on the interest rates lenders could charge.

In 1983, Mr. Cawley hit upon the idea that ignited the company's evolution from fledgling to financial powerhouse. He persuaded the alumni association of Georgetown University, his alma mater, to sponsor a credit card for its members, and the concept of affinity lending was born.

Mr. Cawley recognized that people were more likely to use a card that bore the name of their alma mater or favorite team than that of their local bank. Likewise, these cardholders were less inclined to shop for lower rates and less likely to default on their debts. They tended to carry a sizable balance and roll it over from month to month, incurring interest charges. That made them ideal customers for a credit card company.

Today, analysts estimate that the company has 85 percent of the affinity card market. It has arrangements with more than 5,400 groups and institutions, from the American Trial Lawyers Association to the Manchester United soccer team in England. The terms of those contracts vary, but they generally call for sharing revenue from group members' account activity, either through a flat fee or as a percentage of the charges. MBNA zealously guards details of its affinity deals, refusing to allow its partners - even public institutions like state universities - to reveal them, unless required by law.

Under Mr. Cawley, MBNA became one of the 50 most profitable companies in America. Last year, it turned a profit of $2.34 billion. The company's share price has also risen more than 28 percent a year, on average, since it went public in January 1991.

Throughout that period, its single biggest shareholder has been the family of Alfred Lerner, who was a co-founder of the company with Mr. Cawley and was its chairman and chief executive until he died in October 2002. By then, Mr. Lerner's 13 percent stake in the company had helped make him one of the 100 richest people in the world, with a fortune estimated by Forbes magazine at $4.2 billion.

Mr. Lerner and Mr. Cawley formed an effective partnership: Mr. Lerner managed the company's finances, and Mr. Cawley oversaw its operations, down to the finest detail. Current and former employees of MBNA tell countless stories about Mr. Cawley's penchant for order. In one instance, he knelt in one of the company's flower beds to pull up a bloom he deemed the wrong color. People who know Mr. Cawley said it was fitting that one of the company's yachts was named Impatience. Mr. Cawley, who started out as a bill collector on the streets of Newark, also had a generous streak. The company, regularly listed by Fortune magazine as one of the best places to work, provides day care and funeral assistance to employees and encourages them to volunteer in their communities. MBNA, the biggest private-sector employer in Delaware, is also the leading contributor to some charities in the state.

More idiosyncratic was Mr. Cawley's preoccupation with security. The company cited security concerns, for example, as the justification for maintaining a fleet of corporate jets. It also hired a half-dozen former high-level F.B.I. officials, including Mr. Freeh and John E. Collingwood, who until last year lobbied Congress on behalf of the bureau.

Mr. Freeh said he first met Mr. Cawley in the summer of 1998. Taking a break from his F.B.I. duties, he packed his wife and six children into a Chevrolet Suburban and drove up Interstate 95 to Foxhill, as Mr. Cawley calls his sprawling waterfront estate in Camden, Me.

The idea for the trip had come from Jules J. Bonavolonta, a former chief of the organized crime and narcotics division of the F.B.I.'s New York office who had joined MBNA as a vice chairman a year earlier. Mr. Freeh said he did not reimburse Mr. Cawley because he considered the stay a gift from a friend.

Besides Mr. Freeh and Mr. Bonavolonta, MBNA has employed a few other former officials of the bureau: Lewis D. Schiliro, who was an assistant director and ran the F.B.I.'s New York office; James K. Kallstrom, who preceded Mr. Schiliro as head of that office; and William J. Esposito, who was deputy director of the bureau in 1997.

Gen. Charles C. Krulak, a former commandant of the Marine Corps, is a senior vice chairman of MBNA, and Benjamin R. Civiletti, former attorney general of the United States, has been a director since 1993.

It was never clear why a credit card company needed so many former law enforcement veterans. Mr. Freeh said that they lent management expertise and helped to bring in business. As evidence, he removed from his wallet an MBNA card issued by an exclusive group: the Society of Former Special Agents of the Federal Bureau of Investigation.

All of those law enforcement and military veterans were on hand on a Monday in July 2002, when Mr. Tenet skipped his daily presidential briefing to be at Point Lookout, MBNA's retreat on Ducktrap Mountain, about seven miles from Mr. Cawley's estate.

The occasion was one of Mr. Cawley's favorite events, the annual gathering of about 150 of the company's executives known as the Maine Management Conference. Mr. Cawley used it as a forum for his views on MBNA and to show off his connections to powerful people, current and former employees said.

Mr. Tenet had flown in the night before on an Air Force jet and slept in a cabin owned by MBNA, a spokesman for the C.I.A., Tom Crispell, said in an e-mail response to questions. Mr. Tenet spoke extemporaneously about matters of national security, Mr. Crispell said, adding that it was Mr. Tenet's only appearance before employees of a single company that tense summer.

In accepting the company's invitation, Mr. Tenet joined a list of people who had spoken at the conferences, including Mr. Powell, Rudolph W. Giuliani and Senators Joseph R. Biden Jr., Democrat of Delaware, and Olympia J. Snowe, Republican of Maine. Alma Powell, who flew in on an MBNA plane and was paid an undisclosed sum by the company to speak one day after Mr. Tenet, talked about her husband's life and thoughts and the importance of community involvement, company officials said.

But the surprise guest that Tuesday was George H. W. Bush, who, Mr. Freeh said, had traveled up the Maine coast from his home in Kennebunkport. Mr. Bush and his wife, Barbara, had appeared as paid speakers twice previously, receiving a joint fee of $120,000 each time, and had flown to the appearances on MBNA planes, Mr. Freeh said. On at least two other occasions, he said, Mrs. Bush gave talks sponsored by the company. It paid her a fee for one of those appearances, he said. When the Bush library in College Station, Tex., presented an award to Senator Edward M. Kennedy, the Massachusetts Democrat, in early November, it again tapped MBNA. The company provided a jet to carry Caroline Kennedy and other family members from New York to College Station, Mr. Freeh said.

MBNA has been the No. 1 donor to Senator Biden's campaigns since 1993 and has made substantial contributions to Senator Snowe and Representative Michael N. Castle, Republican of Delaware. Combined, those three politicians have received more than $700,000 from MBNA and its employees since 1993, according to the Center for Responsive Politics, a research group in Washington that tracks money in politics.

Mr. Freeh took issue with those figures, saying that putting all the individual contributions together was unfair and that only $57,000 of that total came from the company's official political action committee. He also said in an interview that, excluding the personal contributions of Mr. Lerner and Mr. Cawley, about 65 percent of MBNA's money goes to Republicans and about 35 percent to Democrats.

What did MBNA get for all that money? While Mr. Biden's main work has been on the Foreign Relations Committee, he has been a consistent advocate for MBNA. He has actively supported the company's favorite federal legislation, the Bankruptcy Reform Act, which would make it more difficult for consumers to escape their credit card debt.

Senator Biden shepherded the bankruptcy legislation along by taking the unusual tack of inserting it into a foreign relations bill in 2000, said his spokesman, Norm Kurz. But Mr. Kurz added that Mr. Biden said he would have backed the bill whether or not he was from Delaware or had received MBNA donations.

The bill passed Congress that year but President Bill Clinton vetoed it. President Bush has pledged to sign it if it passes again, despite opposition from consumer advocates.

"This bill is clearly a giveaway to the credit card industry, and free-spending MBNA has been at the head of the pack," said Travis Plunkett, legislative director of the Consumer Federation of America.

The company also has ties to Senator Biden's son, R. Hunter Biden, a lawyer in Washington. Hunter Biden joined MBNA as a management trainee after graduating from Yale Law School and rose to be an executive vice president. Now a partner in Oldaker, Biden & Belair, a lobbying and law firm, he receives a $100,000 annual retainer from MBNA to advise it on "the Internet and privacy law," Mr. Freeh said. He added that Hunter Biden was not a registered lobbyist and did not lobby on legislation for the company.

Mr. Cawley, of course, was not the only corporate chieftain to spread money around in the nation's capital. But as was his wont, he did so in a way that stood out from most of his peers. Indeed, in 2000, MBNA and its employees ranked first among contributors to Mr. Bush's presidential campaign.

Despite his generosity, Mr. Cawley's use of MBNA's planes and other corporate assets has been a source of controversy within the company for several years. But no employee broached the subject until Steven P. Chambers, a senior executive and one of Mr. Cawley's protégés, stepped forward in 1997.

Mr. Chambers, who oversaw the company's facilities, showed MBNA executives a box full of documents and other evidence that he said he thought proved that the company had been absorbing much of the cost of certain improvements to executives' homes and other services. Mr. Freeh confirmed that Mr. Chambers offered evidence of his allegations, but he added that the company conducted an "exhaustive" investigation and reported back to the board that it had found no wrongdoing.

The company also hired an outside investigator, Kroll Inc., to audit work done at two of Mr. Cawley's homes, including construction of a 16-car garage to showcase some of his classic cars, Mr. Freeh said. The Kroll investigators found that two vendors had not billed Mr. Cawley for their services, said Michael G. Cherkasky, the president of Kroll. The vendors said they had done "a favor for Charlie," Mr. Cherkasky said, but after Kroll spotted the lapses, the contractors billed him and he paid in full. Mr. Freeh said that Mr. Cawley had been unaware that the work had not been paid for and that he eventually did so. Otherwise, Mr. Freeh said, the investigations concluded that Mr. Chambers had been "confused" about how the billing and payments were processed.

Still, the company made changes in its procedures to distinguish more clearly between business and personal expenses and to set limits on the personal use of MBNA employees by senior executives. The board, Mr. Hammonds said, was "just making sure that things that should have been reimbursed were reimbursed."

Since 1998, Mr. Freeh said, Mr. Cawley has reimbursed the company more than $1.2 million for his use of its aircraft (like the $35,000 he paid for the company jets used for the European trip last summer) and an additional $3 million for the services of company employees and use of other company assets. On top of that $4.2 million, Mr. Cawley has made personal use of planes and assistants supplied by MBNA valued at $1.6 million, according to company filings. The company has treated that as compensation.

Despite the changes that their complaint spurred, Mr. Chambers and two lower-level employees who backed him are long gone from MBNA. Mr. Freeh said that Mr. Chambers left voluntarily before the investigations were concluded. But, he added, Mr. Chambers received a four-year severance package worth more than $1 million and signed an agreement that prohibits him from discussing the matter. Mr. Freeh said those terms were standard for a departing executive of Mr. Chambers's rank.

Mr. Chambers's effort to change MBNA is legendary inside the company. Contacted in Stowe, Vt., where he now lives, Mr. Chambers declined to be interviewed. But, informed of Mr. Freeh's characterization of his actions, Mr. Chambers replied in writing through his lawyer. "I cannot think of anyone who would describe me as someone who is easily confused," he said.

From the outside, MBNA did not appear to change much after Mr. Lerner died. Mr. Cawley was promoted to chief executive from president and Mr. Lerner's son, Randolph D. Lerner, known as Randy, succeeded him as chairman. Mr. Lerner's widow, Norma, also joined the board.

Soon after Mr. Lerner's death in October 2002, the company paid $160,000 for an antique rug for Mrs. Lerner's penthouse office in New York and parked a new Mercedes-Benz downstairs for her use. MBNA leases the 50th floor at 9 West 57th Street, which is among the most expensive office suites in Manhattan and offers views that sweep from Central Park up the Hudson River.

The first sparks of friction between the old and new ways flashed early last year, when Randy Lerner attended a gathering of the directors in Baltimore. It was a January meeting of the board's compensation committee, but it did not proceed as usual, said one director who was there. Instead of simply approving Mr. Cawley's recommendations for compensation of his management team, another director led off with a presentation about how the process of paying executives was changing amid the wave of corporate scandals, this director said.

He declined to identify the director who made the presentation, but said that it "met with a very, very, very spirited response from Charlie."

Mr. Cawley bristled at the notion that his top lieutenants should no longer be paid at the high levels to which they were accustomed, this director said.

"That was a new tone of exchange" between Mr. Cawley and the other board members, this director said. "It was a big day for us, a serious day."

Mr. Cawley's final showdown with the board came in the meeting on Nov. 12. That day, MBNA officials recounted, Mr. Cawley reacted angrily to the board's rising resistance to his authority. The board's compensation committee had already hired a consultant to advise it on restructuring executive pay, a common practice at big companies but one that Mr. Cawley opposed, these people said.

Mr. Cawley demanded that the compensation committee hold an unscheduled meeting to hear his proposals for 2003 bonuses and his ideas for how his management team should be paid for the next four years, these officials said. The committee met and listened to his suggestions but declined to consider them, spurring him to withdraw them and to leave in a huff, they said.

"The passion meter might have kicked up, but I've seen him much more upset," one director said, describing Mr. Cawley's reaction.

Nonetheless, another company official said: "I think it was a change in the relationship between the C.E.O. and the board. It marked a change."

On Nov. 22, Mr. Cawley called Randy Lerner and told him he had decided to retire. Directors said that none of them tried to dissuade Mr. Cawley. On Nov. 28, MBNA announced that Mr. Hammonds would succeed Mr. Cawley at year-end.

Now that Mr. Cawley has departed, change is sweeping through MBNA. Besides selling jets and boats, the company has decided to stop turning an old federal courthouse in Wilmington, which it bought for $13.5 million in 2002, into a new headquarters. It also canceled plans to build a nine-story building a few blocks away, for a combined savings of about $140 million, company officials said.

The company has even found a buyer for the Wyeth painting that Mr. Cawley just bought, Mr. Hammonds said. He said the buyer, whom he would not identify, had agreed to pay the same price, $3.5 million.

"It is a different kind of company today," Mr. Hammonds said. "That's why I'm selling things."

In its statement, the board said that its compensation committee had decided "to reduce the total compensation of the corporation's top nine executives by 22 percent from 2003 to 2004, pending achievement of certain financial goals." That cut would bring the reduction in their compensation to 44 percent from 2002 to 2004, it said. The top six executives received a total of $150 million in 2002.

The board said the company also made policy changes in the past year that had resulted in "a reduction in its use of consultants, expenditures on executive security and charitable contributions."

Despite the cutbacks, Mr. Cawley probably will not suffer much. The month before he left the company, he sold $21 million of MBNA stock. And a retirement agreement that was announced a year ago will pay him undisclosed consulting fees, provide him with two full-time personal assistants and access to the company's planes for him and his wife for the rest of their lives.

Marlena Telvick, Edward Carpenter and Bruce Gerstman contributed reporting for this article.

Let me make one observation that I didn't see in this post.
MBNA has made most of it's money FROM FINANCING FUNERAL EXPENSES. Funeral directors across the country charge astronomical fees for buriels and just as quickly offer easy financing. Financing within minutes to the bereaved families. Interest rates were high.

The Old Geezer. Been there and done that.

At least when Charlie Cawley was at the helm the rank and file employees were treated with much more respect than they are now.

During a few of the snowstorms last month in northern Delaware the Governor declared a state of emergency .....one of the things included in such declarations is limits on road use. MBNA apparently does not care for the safety of their employees, nor to the fact they may be subject to fines for being on the roads.....any employee who did not report for work, even during the declared emergencies faced possible immediate termination.

And that's just one of many examples of how things have gone down hill since Cawley's departure.

So many people think Republicans and Democrats are different. No longer...they're ALL the same.

I've been posting that same message here on FR since I first got here in 2000 (under a different screen name).
Dem or Pubbie it's all the same. It's all about getting into the Club on the Hill in D.C. Once you get there you're in with benefits that would make Louis XIV blush.
All the bi-partisan bickering is only so much smoke and mirrors to keep us, the little people from concentrating on the power-grab game too much.

But...I usually get smacked down as a whacko paranoid without a clear grasp on the political dynamics of this nation.

Right.

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