Monday, August 31, 2009

Profiting from Payback? Unlikely

The New York Times today released a look at the amount of profit coming to the US government from TARP. The government has made about $4 billion from repayment so far with some likely to continue. As the Times’ graphic points out the Treasury still holds warrants with JPMorgan and Capital One. It could profit from a third-party sale or, much more likely, repurchase by JPMorgan and Capital One.

The Times does some credit for pointing out that this is far from final. Rather than quoting the early arguments for possible TARP profit from then-Treasury Secretary Henry Paulson they look at current market conditions. Paulson’s case needs a grain of salt since he began making it back when TARP was going to be used to buy assets not bank equity.

More importantly the money made back from TARP has vanished in other areas. The FDIC reported last week that it lost almost $3.7 billion in its insurance fund. While the fund is paid for by bankers rather than taxpayers the fund is dipping as the FDIC increased its concern for “problem institutions,” rose. At the end of June the list had 416 institutions with $299.8 billion in assets.

The TARP figures also exclude possible losses on Bear Stearns and AIG, which were funded by separate programs. A year from the tumult of late August and early September 2008 the financial situation is markedly improved but it’s not time to start counting profit yet.

No comments: