Treasury may accelerate TARP bank exits
The Treasury Department may offer more stock it holds in bailed out banks as profits from its sales in larger firms cover the losses, according to some analysts.
The Treasury spent $204.9 billion through the Troubled Asset Relief Program to buy preferred stock in 707 firms. As of June 30, a total of 325 remained in the program, according to the latest Special Inspector General for TARP report.
Nearly $11 billion remains outstanding. As of May 31, Treasury estimates the bank programs will return $22 billion total to taxpayers.
This includes a nearly $3 billion setback from selling stock in banks with assets less than $10 billion. Exiting investments in banks with assets $10 billion or more could result in nearly $11 billion in return, according to its latest monthly report to Congress.
"Treasury can continue to take haircuts on its small bank investments because of the broader performance of the TARP," said Mike Turner, an analyst with policy research firm Compass Point.
Last week, the Treasury announced its fifth bank auction scheduled for Tuesday. It will sell roughly $80.2 million in securities tied to BNC Bancorp, First Community Corp., First National Corp., Guaranty Federal Bancshares, and Mackinac Financial Corp.
Treasury took an average 12% discount on its four previous auctions, according to Turner.
In a May blog post, the Treasury Assistant Secretary Tim Massad wrote the administration would continue to evaluate strategies for selling the securities – whether individually or in pools. Turner expects the first pool of bailed-out bank debt to be offered this fall.
"The sale prices may be less than the original par value," Massad wrote. "But we have already estimated that the value of these investments is less than par in our budget projections, and we'll only sell above a pre-set reserve price in order to best protect taxpayer value."
While $11 billion remains outstanding in the bank programs, most of the $91.7 billion in overall outstanding TARP dollars is tied up in automotive programs and monoline insurer American International Group (AIG). Counting housing programs as well, Treasury estimated a total lifetime TARP cost of $47.7 billion in its latest report.
In March, the Congressional Budget Office estimated TARP would cost roughly $32 billion.
The largest remaining firm in the bank programs is Synovus Financial Corp. The Treasury still owns more than 15.5 million shares bought at a strike price of $9.36 per share. According to SIGTARP, the stock was worth less than $2 per share as of June 29.
It's not just banks the Treasury is looking to exit. The administration announced on Friday a plan to end the dividend payments from Fannie Mae and Freddie Mac and force the government-sponsored enterprises to sweep all future profits back to the Treasury. More than $148 billion in GSE bailouts remain outstanding.
"The Treasury Department continues to divest and reassess its crisis-related holdings and we expect this trend to continue throughout 2012 – likely accelerating in the fall," Turner said.