The Treasury has added $12.2 million to its kitty by selling warrants in 17 Troubled Asset Relief Program (TARP) banks that have already repaid the bailout money. This indicates that the Treasury is clutching every opportunity to recoup the cost of the $700 billion bailout program that was initiated three years back to rescue the nation’s financial system.
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.
Money Yet to Come
Even after the sale of 200 million American International Group Inc. (AIG) shares in May, the Treasury still owns about 77% stake (down from 92%) in the company. Additionally, the Treasury owns about $11.3 billion AIG preferred shares and plans to exit from its holding on the company over the next couple of years.
The Treasury also holds significant stakes in other rescued companies like General Motors Company (GM), Chrysler and Ally Financial (previously known as GMAC). Chrysler has repaid $10.6 billion of its total $12.5 billion TARP loan and General Motors has repaid $8.1 billion of the total $13.4 billion it borrowed from the Treasury. Overall, out of the total $80 billion given to the auto industry, only $29 billion has been recovered.
Similarly, about $20 billion is still due from more than 500 banks. However, the TARP for banks turned into a profit due to steady dividends and interest payments.
Bank Bailout is Profitable
Out of the total $700 billion bailout money, about $245 billion was handed out to banks. So far, the Treasury has recovered a total of $317.6 billion from bailed out banks, bringing home a significant profit.
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 earn about $23.6 billion by 2013.
TARP: A Success Story
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 programsinitiated by the government, the Treasury’s recovery mission continues, raising optimismfor greater success.
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