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Old 08-31-2009, 08:53 AM  
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Taxpayers begin to see profits from the bank bailouts

NYT: U.S. sees profits from bank bailout
Early returns of 15 percent annually for TARP received as welcome surprise
By Zachery Kouwe
The New York Times
updated 3:55 a.m. CT, Mon., Aug 31, 2009


Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.
The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

These early returns are by no means a full accounting of the huge financial rescue undertaken by the federal government last year to stabilize teetering banks and other companies.

The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.

Welcome surprise
But the mere hint of bailout profits for the nearly year-old Troubled Asset Relief Program has been received as a welcome surprise. It has also spurred hopes that the government could soon get out of the banking business.

“The taxpayers want their money back and they want the government out of our banking system,” Representative Jeb Hensarling, a Texas Republican and a member of the Congressional Oversight Panel examining the relief program, said in an interview.

Profits were hardly high on the list of government priorities last October, when a financial panic was in full swing and the Treasury Department started spending roughly $240 billion to buy preferred shares from hundreds of banks that were facing huge potential losses from troubled mortgages. Bank stocks began teetering after Lehman Brothers collapsed and the government rescued A.I.G., and fear gripped the financial industry around the world.

American taxpayers were told they would eventually make a modest return from these investments, including a 5 percent quarterly dividend on the banks’ preferred shares and warrants to buy stock in the banks at a set price over 10 years.

But critics at the time warned that taxpayers might not see any profits, and that it could take years for the banks to repay the loans.
As Congress debated the bailout bill last September that would authorize the Treasury Department to spend up to $700 billion to stem the financial crisis, Representative Mac Thornberry, Republican of Texas, said: “Seven hundred billion dollars of taxpayer money should not be used as a hopeful experiment.”


So far, that experiment is more than paying off. The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to $334 million in profit.

The figure does not include the roughly $35 million the government has earned from 14 smaller banks that have paid back their loans. The government bought shares in these and many other financial companies last fall, when sinking confidence among investors pushed down many bank stocks to just a few dollars a share. As the banks strengthened and became profitable, the government authorized them to pay back the preferred stock, which had been paying quarterly dividends since October.
But the real profit came as banks were permitted to buy back the so-called warrants, whose low fixed price provided a windfall for the government as the shares of the companies soared.

Despite the early proceeds from the bailout program, a debate remains over whether the government could have done even better with its bank investments.


If private investors had taken a stake in the banks last October on par with the government’s, they would have had profits three times as large — about $12 billion, or 44 percent if tallied on an annual basis, according to Linus Wilson, a finance professor at the University of Louisiana at Lafayette, who analyzed the data for The Times.

Why the discrepancy? Finance experts say the government overpaid for the bank assets it bought, because its chief priority was to stabilize the teetering financial system, not to maximize profit.

“Had these banks tried to raise money any other way, they probably would have had to pay quite a bit more than the government received,” said Espen Robak, head of Pluris Valuation Advisors, which analyzes the value of large financial institutions.

A Congressional oversight panel concluded in February that the Treasury paid an average of 34 percent more than the estimated fair value of the assets it received.

Of course, many finance experts suggest that the comparison is academic at best, because there is no way to know what might have become of the banks or the financial system as a whole had the government not acted.
“Taxpayers should heave a sigh of relief that the investment in the banks protected them from even more catastrophic losses from more bank failures,” said Aswath Damodaran, a finance professor at the Stern School of Business at New York University.

A more direct comparison of profits can be made with the investment performance of other governments that poured money into ailing banks last fall.

The Swiss government, for example, said last week that it had pulled in a handsome profit for taxpayers on a $5.6 billion bailout it gave to UBS, the troubled Swiss bank, at the height of the financial crisis in October. The government netted $1 billion on its investment, a gain equal to a 32 percent annual return.

“They are substantially in the money,” Guy de Blonay, a fund manager at Henderson New Star in London, said after the announcement.


More profits?
American taxpayers could still collect additional profits on their investments in two other big banks that have repaid their preferred stock but not their warrants: JPMorgan Chase and Capital One. They are expected to yield over $3.1 billion in gains for the Treasury in the next month or so, although the full tally will depend on how much they will pay to buy back their warrants.

And the government is owed about $6.2 billion in interest payments from banks that have not yet repaid their federal money.

But all the profits taxpayers have won could still be wiped out by two deeply troubled institutions. Both Citigroup and Bank of America are still holding mortgages and other loans that were once worth billions of dollars but whose revised values are uncertain. If they prove “toxic” because they cannot attract buyers, they could leave large holes in the banks’ balance sheets.

Neither bank is ready to repay its bailout money anytime soon, even though the banks’ stock prices have surged in the last month, leaving the government sitting on paper profits of about $18 billion between them.
Eric Dash contributed reporting.

This article, "As Big Banks Repay Bailout Money, U.S. Sees a Profit," first appeared in The New York Times.

More on: Troubled Asset Relief Program

Copyright © 2009 The New York Times
URL: http://www.msnbc.msn.com/id/32623489/ns/business-the_new_york_times/
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Old 04-22-2010, 12:37 PM   #16
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Originally Posted by petegz28 View Post
The Fed is holding a bunch of paper that was deemed worthless or "toxic" on a company's balance sheet, thus the need for TARP, and are now claiming they are worth something. It's magical!!!
Exactly, the stated purpose of TARP was to buy up all the toxic assets---

well it's been what two years now and that shit is still on the banks balance sheets.
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Old 04-22-2010, 12:49 PM   #17
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Originally Posted by Amnorix View Post
the Fed remits profits above a certain (fairly low) point back to the US Treasury.
I think it's neato how a piece of paper was deemed "toxic" and otherwise worthless on the balance sheet of a bank yet once transferred to the Fed it is valuable. I am in awe.
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Old 04-22-2010, 01:07 PM   #18
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Old 04-22-2010, 01:13 PM   #19
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What a ****ing joke. The "taxpayers" aren't seeing a goddamn thing from this.
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Old 04-22-2010, 03:35 PM   #20
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Originally Posted by petegz28 View Post
The Fed is holding a bunch of paper that was deemed worthless or "toxic" on a company's balance sheet, thus the need for TARP, and are now claiming they are worth something. It's magical!!!
goddamn you must be one miserable son of a bitch. You know that it's not worthless. That stuff has a market price but the banks didn't want to sell at that price because it would trigger more write downs which would have shown they were insolvent.
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Old 04-22-2010, 03:36 PM   #21
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That being said, until ALL the money from all the financial bailouts is paid back then no one can say we're seeing a profit on the bailouts.
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Old 04-22-2010, 03:40 PM   #22
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Originally Posted by petegz28 View Post
I think it's neato how a piece of paper was deemed "toxic" and otherwise worthless on the balance sheet of a bank yet once transferred to the Fed it is valuable. I am in awe.
You don't seem to understand very well what makes something toxic, and whether the toxic asset had any value to begin with, or has any value now.
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Old 04-26-2010, 10:21 AM   #23
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Associated Press
- April 26, 2010
Treasury Announces Plan for First Sales of Citigroup Stock


The Treasury Department said Monday that its first sales of Citigroup stock will cover up to 1.5 billion shares.




WASHINGTON -- The Treasury Department said Monday that its first sales of Citigroup stock will cover up to 1.5 billion shares.

That would amount to about 20 percent of the 7.7 billion shares of Citigroup common stock that the government owns.

It received the shares as compensation for the massive support it extended to the bank during the height of the financial crisis.

In a statement Monday, Treasury said Monday that it planned to proceed with the sales of the Citigroup common stock "in an orderly fashion under a pre-arranged trading plan with Morgan Stanley, Treasury's sales agent."
Treasury did not disclose in its brief announcement exactly when the initial stock sales would begin or how long the sales would last.

Treasury said Morgan Stanley had the authority to make the initial sales "under certain parameters" and that Treasury expected to give the company the authority to sell additional shares after the initial 1.5 billion shares had been sold.

The sales should earn a tidy profit for the government which purchased the common stock in the summer of 2009 at a share price of $3.25 a share. Citigroup closed Friday at $4.86 a share but was changing hands in pre-opening trading on Monday at $4.82 per share.

At the moment, the Treasury owns 27 percent of the company in return for an investment of $25 billion.

Treasury had announced last month that it would soon begin sales of its Citigroup stock and planned to sell the shares over the course of this year.

Citi, one of the hardest-hit banks during the financial crisis and Great Recession, received a total of $45 billion in bailout money. That was one of the largest rescues under the goverment's $700 billion bailout fund, known as the Troubles Assets Relief Program.

Of the $45 billion, $25 billion was converted to a government ownership stake in Citi last summer and the bank repaid the other $20 billion in December.
http://www.foxnews.com/politics/2010...k.opinionPrint
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Old 04-26-2010, 10:23 AM   #24
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You don't seem to understand very well what makes something toxic, and whether the toxic asset had any value to begin with, or has any value now.
I understand perfectly.
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Old 04-26-2010, 10:34 AM   #25
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I understand perfectly.
Good, so you agree they aren't worthless (or less than worthless). Glad to hear it.
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Old 04-26-2010, 10:37 AM   #26
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Good, so you agree they aren't worthless (or less than worthless). Glad to hear it.
No, they aren't worthless. But they were worthless on a bank's balance sheet because of MTM, correct?
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Old 04-26-2010, 11:06 AM   #27
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No, they aren't worthless. But they were worthless on a bank's balance sheet because of MTM, correct?
No. The banks didn't want to mark them to market because if they would have taken the writedowns on those positions then they would have been deemed insolvent.

FASB collapsed on this issue and removed mark to market and other issues with bringing things on balance sheet. IMO, the SEC should sue FASB as well because FASB has been complicit in the accounting shenanigans that have happened during this crisis.
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Old 04-26-2010, 11:11 AM   #28
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The check I'm getting as my share of the profits as a taxpayer must still be in the mail.

What are you going to do with the cash, BRC?
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Old 04-26-2010, 11:19 AM   #29
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The check I'm getting as my share of the profits as a taxpayer must still be in the mail.

What are you going to do with the cash, BRC?
This is like getting a bonus from work then, instead of paying down your $50,000 student loan, going to Disneyland first class.

Anyone who thinks this is helping the taxpayer is delusional, i.e. a liberal.
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Old 04-26-2010, 11:23 AM   #30
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Looks like my share of the profits is about $26 if you count me and my wife together. Or it's $52 if the money only goes to the 50 percent of households who pay taxes, and I'm sure they'll do it that way since we were the ones who paid in the first place.

With my $52, I think I'm going to take the wife out to about 80% of a nice sushi dinner. Thanks, Obama!
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