TARP Costs Narrow as Treasury Sheds Capital One Investment
The US Treasury Department is looking to offload its remaining investment in Capital One Finance (COF), initially made through the $700bn Troubled Asset Relief Program (TARP). A report on the TARP due this week will reveal the program will cost as much as $200bn less than previously projected, according to one of HousingWire's sources familiar with the Administration's plans. Because of the narrowed expense projection, the US deficit should also be reduced. Initial projections put the cost of the financial stabilization efforts at more than $500bn, which factored into the President's budget in February. Of that projection, $300bn was expected directly from TARP, and another $250bn was included in the budget to cover needed resources beyond TARP's $700bn. Because of these estimates, TARP was projected to add $341bn to add to the deficit, as of a review in August. But HousingWire's source said revised projections -- not final until the Administration's new budget is published in February -- will put the TARP-related deficit at least $200bn lower than the August projection. These improvements are the result of both lower spending than the planned $700bn and higher returns on investments than anticipated, according to the source. TARP repayments are also driving the improvement, and could reach $175bn by year-end, the source said. The news comes as Bank of America (BAC) joins a handful of firms that either repaid TARP funds or are in plans to repay. BofA's planned TARP repayment would bring total repayments to $116bn, Treasury secretary Tim Geithner told Bloomberg last week. But the Treasury is unwinding its investments in financial firms in other ways than voluntary TARP repayments. The Treasury on Friday priced a secondary public offering of more than 12.6m warrants to purchase common stock of Capital One at $11.75 per warrant. The Treasury expects about $146.5m in proceeds from the offering, which would provide an additional return on taxpayer funds beyond the dividend payments received on the related preferred stock. The warrants will list on the New York Stock Exchange under "COF WS", in an offering expected to close by December 9. Deutsche Bank Securities acts as the sole book-running manager on the offering. Write to Diana Golobay.