According to a top Troubled Asset Relief Program (TARP) watchdog, the Treasury still has the capacity to spend $60 billion of taxpayers’ money for TARP to support housing and other programs, MarketWatch reported today. The program was initiated two years ago to rescue the nation’s financial industry.
Considering the success of the program, it should not be a concern if the Treasury drains its TARP account. Moreover, this investment might even earn a decent profit like other investments under TARP.
Looking back at a calculation released by the Treasury last month, TARP will finally earn about $23.6 billion by 2013. Considering the effectiveness in easing credit and capital market pressure, restoring confidence in the financial system, and recovering the injected money at a lower-than-expected cost, it can be concluded that the government’s highly criticized bailout program has finally turned out to be a winner.
However, in its quarterly report to the Congress, the Office of the Special Inspector General for TARP said that the final return from the program depends on several enigmatic variables. Notable among these is the Treasury’s ability to sell securities of American International Group Inc. (AIG) and the repayment ability of banks that are yet to clear their dues.
The report also noted that as of March 31, 2011 there were about $146.8 billion funds due under TARP.
Out of the total $700 billion bailout money, about $245 billion was handed out to banks in 2008. With repayments by SunTrust Banks, Inc. (STI), KeyCorp (KEY) and Financial Institutions Inc. (FISI) last month, taxpayers have recovered a total of $251 billion from bailed-out banks, realizing a profit of about $6 billion. This recovery includes dividends and interest income from banks.
However, more than $20 billion is still due from over 550 institutions. Once these institutions reimburse, profits from the bank bailout will swell and grow even more.
The cost of the program will also depend on the success of housing programs initiated by the Treasury. These programs include Home Affordable Modification Program, which will require $30 billion to modify mortgages and a $7.5 billion housing rehabilitation program for 18 of the hardest-hit U.S. states.
Though a major chunk of the remaining TARP fund will likely be absorbed by the housing programs initiated by the government, the Treasury’s recovery mission continues, raising the optimism for greater success.
The relief program remains shrouded under uncertainties. By the look of things, we can presume that the final success of TARP is probably yet to come.
AMER INTL GRP (AIG): Free Stock Analysis Report
FINANCIAL INST (FISI): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
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