Committee for a Responsible Federal Budget

So, How About That TARP?

Last week, we reported the good news from the Congressional Budget Office that the Troubled Asset Relief Program (TARP) would cost $25 billion, significantly less than any previous estimates. Now, the Treasury has announced the sale of its remaining Citigroup stock for $10.5 billion, another bit of good news for taxpayers.

Here's some background. Citigroup has gotten assistance through various sections of TARP. Through the Targeted Investment Program (TIP), Citigroup got $20 billion in December 2008. About a year later, the company repaid the full amount. Through the Capital Purchase Program (CPP), Treasury invested $25 billion of equity in Citigroup in October 2008 (Citigroup was part of the first group to participate in CPP). This is the stock that Treasury currently is selling-- part of a bit-by-bit sell-off that the department has been conducting since May. Also, Citigroup took part in the Asset Guarantee Program (sorry, no acronym) with an initial guarantee of $5 billion. The Treasury got about $2 billion in proceeds and never had to fund the guarantee, so the program was pure profit for Treasury.

Overall, from that $45 billion investment in Citigroup came proceeds of about $57 billion for the Treasury, for a total profit of $12 billion. That is certainly great news for taxpayers. In fact, it is even better than CBO estimated just a week ago. In that report, CBO expected that assistance to Citigroup and Bank of America would yield a profit of $7 billion. Bank of America also received assistance through TIP and CPP and repaid both in full with a profit of about $1.5 billion. Thus, CBO's estimate of this category actually still underestimates the profit that Treasury received by about $6.5 billion. Assuming that no other estimates have changed, this would put TARP's deficit impact at more like $18 or $19 billion over ten years. 

That's not the only good news that has come from some of TARP's biggest still-outstanding investments, though. Last month, Treasury sold almost half of its common stock held in GM, reducing its stake in the company from 60 percent to one-third in two separate offerings. It appears that CBO only took into account the first offering, but it's unclear how the second offering would affect their estimates (the first offering was more than ten times larger than the second). There is still $32 billion outstanding in GM investments from TARP.

Then there is AIG. Currently, the Treasury has a $70 billion outstanding investment in the company, but an "exit plan" was announced in September that would restructure the company and increase the return to taxpayers. The plan is somewhat complicated (for more on the plan, see this press release). AIG will take the proceeds from sales of two of its subsidiaries to pay off a loan extended by the New York Fed. Then, AIG will draw on its remaining TARP money to purchase interest in two New York Fed vehicles that are holding the two subsidiaries. After the restructuring, the Treasury will hold 92 percent of all AIG common stock, from which it will recoup at least some of its initial investment. CBO estimated a cost to the Treasury of $14 billion, but if the restructuring goes through as planned by the end of the 2011 first quarter, it's likely that the cost will be lower.  

It would be really nice if that $25 billion estimate comes down again in January when CBO releases an updated Budget and Economic Outlook.