By Ian Swanson - 04/28/10 10:00 AM EDT
The Treasury Department is making an 8.5 percent return from the
bailout it provided to hundreds of banks during the financial crisis.
Banks have a pariah-like status on Capitol Hill, something reflected in the public grilling Goldman Sachs executives took on Tuesday from a Senate panel that accused them of bilking investors and helping to bring about a financial crisis.
This fact has been lost during the lengthy Senate debate over the Wall Street reform bill, in which senators from both parties have accused one another of supporting bailouts.
SNL Financial, which studies the TARP closely, estimates the government has made an 8.5 percent annualized return on the 49 financial companies that have exited the bailout program, and it expects the government to stay close to that rate of return when the program ends.
“If anything, 8.5 percent may be a conservative estimate,” said Russ Yates of SNL.
Goldman, which has been criticized more than any other bank, returned a 20 percent profit to the Treasury from its $10 billion loan. That’s one of the highest returns any bank has provided the Treasury.
Not every bank has done as well as Goldman.
Three banks have gone bankrupt after entering the TARP, including CIT Group, which cost the government $2.3 billion.
More banks are likely to fall by the wayside, too, according to SNL. An increasing number of banks in the program have missed dividend payments to the government in recent months, a sign of possible trouble, said Yates.
Future losses in the banking sector are likely to be offset, however, by the government’s sale of its stock in Citigroup.
Treasury announced Monday that it would begin selling the common shares it holds in Citigroup, which received a $25 billion bailout from the government. Treasury plans to sell up to 1.5 billion shares of common Citigroup stock that it purchased for $3.25 per share. Because Citigroup’s stock now stands at $4.60, the Treasury is expected to turn a profit.
Treasury will still have to sell its preferred Citigroup securities and warrants for common stock, which it said would be disposed of separately.
All of this relatively good news from the banks doesn’t mean the TARP itself will make a profit.
The most recent estimate by the Congressional Budget Office (CBO) is that the TARP will cost taxpayers $109 billion. The Office of Management and Budget (OMB) estimates the cost will run to $127 billion.
Most of the difference is attributed to the cost of the Home Affordable Modification Program, which provides TARP funds to mortgage servicers to help homeowners avoid foreclosure.
OMB estimates this program will cost $49 billion, while CBO puts the cost at $22 billion.
Most of the projected losses come from the government’s investments in insurer AIG and auto companies General Motors and Chrysler.
The government’s $70 billion in assistance to AIG will end up costing it $36 billion, according to CBO’s estimate.
The $85 billion in help to General Motors and Chrysler will end up costing the government $34 billion, CBO estimates.