According to an article published by CNNMoney on Wednesday, after the repayment of $5.9 billion by Chrysler Group LLC and receipt of $8.7 billion in proceeds from the sale of American International Group Inc. (AIG) shares, about $102 billion is still pending in the Treasury’s $700 billion bailout through Troubled Asset Relief Program (TARP). The program was initiated two years back to rescue the nation’s financial industry.
However, many of the institutions are yet to repay their TARP loans and the Treasury holds significant stakes in many of the rescued companies. This keeps the program far from wrapping up.
What’s Still Pending?
Even after the latest sale of AIG shares, the Treasury still owns about 77% stake (down from 92%) in the company. Additionally, the Treasury owns about $11.3 billion AIG preferred shares. The Treasury plans to exit from its AIG holding over a period of 18 months to two years.
Apart from holding stake in AIG, the Treasury also holds significant stakes in other rescued companies like General Motors Company (GM), Chrysler and Ally Financial (previously known as GMAC). Currently the Treasury has a 26% ownership in GM, 6.6% in Chrysler and 74% in Ally Financial. The Treasury is expected to sell Chrysler and Ally stocks soon.
Also, the Treasury still has $23 billion bailout money outstanding out of the total $51 billion given to GM. Ally Financial has $14 billion in dues out of its total $16 billion TARP loan.
Though the TARP for banks turned into a profit, thanks to steady dividends and interest payments, more than $20 billion is still due from about 550 institutions.
Bank Bailout: The TARP Champ
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,the Treasury recovered a total of $251 billion from bailed out banks, bringing home profit of about $6 billion.
Will Income Offset Costs?
The government’s expected recovery from the bailed out institutions along with dividend and interest income will more than offset costs related to the pending deals. Looking back at a calculation released by the Treasury in March, TARP will finally earn about $23.6 billion by 2013.
However, the final profit 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.
Is TARP Fund Yet in Store?
A top TARP watchdog said last month that the Treasury still has the capacity to spend $60 billion of taxpayers’ money for TARP to continue housing and other support programs.
Considering the success of the program, it should not be a concern if the Treasury drains out its TARP account.Moreover, this investment might even earn a decent profit like other investments on TARP.
Will TARP Finally Stand Tall?
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.
Moreover, the final success of TARP is probably still in the works. While most of the major financial institutions have cleared their dues, many banks are still to repay their bailout loans.
Thougha major chunk of the TARP fund will likely be absorbed by the housing programs initiated by the government, the Treasury’s recovery mission continues, raising optimism for greater success.
AMER INTL GRP (AIG): Free Stock Analysis Report
FINANCIAL INST (FISI): Free Stock Analysis Report
GENERAL MOTORS (GM): Free Stock Analysis Report
KEYCORP NEW (KEY): Free Stock Analysis Report
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