TARP Losses Recalculated to $66bn as GSE Outlook Improves
The Congressional Budget Office (CBO) projected Friday the total cost of Troubled Asset Relief Program (TARP) over its lifetime would be $66bn. This is down from the $109bn lifetime cost projected in March. Outlays for Fannie Mae and Freddie Mac will fall from $96bn in 2009 to $41bn this year, the CBO estimates, mostly because the two entities are expected to recognize fewer losses on their mortgage investments and guarantees. The CBO said three things account for the predicted cost reduction: further repurchases of preferred stock and sales of warrants from banks, a lower estimated cost for assistance to the automobile industry, and the elimination of the opportunity to create new programs. Under the Dodd-Frank Act, signed by President Obama on July 21, TARP's funding was cut to $475bn from $700bn. The legislation does not permit TARP to create or fund any new programs. "Taken together, outlays for the Troubled Asset Relief Program, Fannie Mae, Freddie Mac, and federal deposit insurance will be $361bn lower in 2010 than they were last year," according to page 9 of the CBO budget and economic outlook, available by clicking here. The Pay It Back Act of the Dodd-Frank Act effectively ended the TARP program by reducing available funds to $475bn, from $700bn, and mandating that unused funds cannot be used for any new programs, according to an email from Keefe, Bruyette & Woods (KBW), an international financial services firm. KBW released its latest edition of the Troubled Asset Relief Program (TARP) Tracker reporting that the TARP Capital Purchase Program (CPP) posted losses of $2.3bn. The official numbers, released Friday, show expectations of losses for the entire TARP program are lower. The loss, according to KBW, came from CPP investments in Commercial Investment Trust (CIT), which were replaced by contingent value rights (CVRs) which expired without value in Feb., and Pacific Coast National Bancorp, which dismissed its bankruptcy proceedings with no recovery to the US Treasury. CIT declared bankruptcy in November 2009. The original investments made by the Treasury were $2.3bn and $2.1m, respectively. The Treasury initially invested $204.9bn in 707 banking institutions under CPP and, to date, received repayments totaling $147.5bn. There are currently $55.1bn remaining in outstanding CPP capital investment in 617 banks. Of those 707 banks, 98 failed to make the most recent TARP dividends payments -- due in May -- and 64 repaid the Treasury in full. Full repayments totaled $13bn. The Treasury's average return on investment (ROI) for the banks that fully repaid their investment was 10.3%, with six investments yielding more than 20%. First ULB Corp. yielded the highest ROI at 29% while SBIB yielded the lowest ROI at 2.9%. KBW said that the banks that fully repaid CPP outperformed the Standard & Poor's 500 Financial Index since the disposal of warrants with an average gain of 2.3%. However, three TARP recipients, UCBH Holdings, Pacific Coast National Bancorp and Midwest Bank Holdings, are now failed institutions. Write to Christine Ricciardi. Additional reporting by Jacob Gaffney.