TARP Close to Breaking Even

by: Zacks Investment Research

The Treasury Department reported on Wednesday that six more banks repaid a total of $475 million in funds they had received as part of their participation in the $700 billion Troubled Asset Relief Program (TARP). The reimbursement lifted the recovery under the program to about 99%. The program was initiated more than two years ago to rescue the nation’s financial industry.

There is more good news for the Treasury. In addition to the recovery of the entire TARP money, the Treasury expects the program to earn a handsome $20 billion in profit from banks.

So the government’s highly criticized bailout program has finally been able to silence quite a few of its detractors. The program has been effective in easing the pressure on credit and capital markets. It was also instrumental in restoring confidence in the financial system to a great extent.

Banks That Repaid

  • Cincinnati-based Fifth Third Bancorp. (NASDAQ:FITB) paid $280 million to repurchase warrants issued to the U.S. government that would allow it to purchase more than 43.6 million shares at $11.72 a share on some future date. The company also fully repaid its $3.4 billion to repurchase preferred stock held by theTreasury.
  • Oak Ridge-based Lakeland Bancorp Inc. (NASDAQ:LBAI) paid back $20 million of bailout money. It also paid $86,111 in preferred dividends. Still, $19 million TARP money remains due for the bank.
  • Boyertown-based National Penn Bancshares Inc. (NASDAQ:NPBC) repaid $150 million of bailout money and paid dividends of $645,833.
  • Rapid City-based Stockmens Financial Corp. repaid its remaining $11.6 million TARP fund. The company also paid $49,807 in dividends.
  • Norfolk-based Heritage Bancshares repaid $2.6 million of its TARP money. The company also paid $11,220 in dividends.
  • San Jose-based Bridge Capital Holdings (NASDAQ:BBNK) repaid $8.9 million in bailout money and paid dividends of $38,164.

Overall, taxpayers have recovered about $244 billion of the $245 billion in TARP funds that were handed out to banks. This recovery includes dividends and interest income from banks.

More Cost Efficiency Expected

Another major success of TARP is its lower-than-expected cost to taxpayers. The estimate of its overall cost has been decreasing consistently.

According to the Congressional Budget Office’s (CBO) estimate, the cost related to TARP will drop to $25 billion from its previous estimate of $66 billion in August 2010. The present estimate by CBO is a quantum drop from the Treasury’s initial estimate of $350 billion.

What’s Costly?

The assistance to American International Group (NYSE:AIG), support to automakers and efforts to prevent foreclosures remain on the costs side of the ledger. Together, these actions are expected to leave a $45 billion dent in the program. However, a net gain of $20 billion is expected from other transactions.

The Treasury now owns 92% of AIG and expects to sell some of its holdings, pulling the total cost of TARP further down.

Better Results Ahead?

The final success of TARP is probably still to be seen. While most of the major financial institutions have cleared their TARP dues, many banks are still to repay their bailout loans.

Though a major chunk of the remaining TARP fund will likely get consumed in the Home Affordable Modification Program, the Treasury is in the process of recovering as much as it can. As a result, there is high possibility of further profits and cost reductions in future, raising hopes for more success.

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