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A TARP Auction Loss for Treasury (3/29/12)

By ANDREW ACKERMAN And JEFFREY SPARSHOTT
WASHINGTON—The Treasury Department on Thursday said it lost about $50 million in the public offering of its preferred stock in six smaller banks this week, though the department garnered a modest profit when counting dividends and interest paid on the investments over the past three years.

In the first auction of preferred stock purchased through the Troubled Asset Relief Program, the bailout vehicle launched during the financial crisis, the Treasury recouped about $362 million of the $410.8 million it invested in the six smaller banks, the Treasury said, a loss of about $50 million.

But the department said total income to taxpayers—counting dividends and interest along with auction proceeds—was $426.4 million, representing a net profit of about $15.6 million.

"Today's auction is part of our ongoing efforts to wind down TARP," said Assistant Treasury Secretary for Financial Stability Tim Massad, noting the program has turned a profit overall.

The inability of the Treasury to fully recoup its investment through the auction process suggests it will be more difficult to sell off stakes in other banks that are financially strapped; more than 150 have missed a quarterly dividend payment they are obligated to make under the terms of the rescue.

Despite some missed payments, the Treasury has turned a profit on the Capital Purchase Program, the main federal effort to help stabilize financial markets. It invested a little less than $205 billion in 707 banks, and as of mid-February had gotten about $211 billion back. More broadly, the department has recovered about $260 billion from the $245 billion invested through TARP's bank programs.

Still, the rescue is expected to cost taxpayers money. The Treasury last month estimated that TARP would end up costing $67.82 billion.

The Bush administration launched the financial bailout in the autumn of 2008 at the height of the financial crisis. At one point, the plan was estimated to cost as much as $700 billion. Ultimately, $431 billion was disbursed through a handful of programs and much of that has been recovered.

More than three years after the launch of TARP, the federal government still owns stakes in about 350 banks. While the biggest institutions have long since paid back their rescue funding, many smaller banks have been slow to shed government aid.

The divide in part reflects the difficulties faced by many Main Street banks, often saddled with poorly performing commercial real-estate loans and limited ability to raise new funds. Together with weak regional economies and a tough lending environment, the banks haven't been able to exit TARP.

Lou Crandall, chief economist of Wrightson ICAP, said that while TARP shouldn't be judged on individual transactions, the $50 million auction loss announced Thursday likely reflects the fact that banks that could exit the TARP program early did so, and the ones still in the program have generally had trouble coming up with a capital plan that would support an exit.

He said TARP succeeded in providing "blanket coverage for a financial system where you didn't know exactly where the deepest problems would be."

The Treasury sold its stakes in the six banks as it looks to recoup its investment. The six have kept up on dividend and interest payments to the Treasury, making them relatively healthy compared with institutions that have skipped payments in an effort to hold on to cash.

The six banks were: Banner Corp. BANR -2.13%of Walla Walla, Wash., First Financial Holdings Inc. FFCH -1.55%of Charleston, S.C.; MainSource Financial Group Inc. MSFG +1.10%of Greensburg, Ind.; Seacoast Banking Corp. of Florida SBCF -1.60%of Stuart, Fla.; Wilshire Bancorp Inc. of Los Angeles; and WSFS Financial Corp. WSFS +0.79%of Wilmington, Del.

The Treasury lost money overall at just one of the six banks, Seacoast, having garnered just $48.3 million out of its $50 million investment, the Treasury said.

In addition to hundreds of smaller banks, the government still owns majority stakes in American International Group Inc. AIG +0.81%and Ally Financial Inc., along with a minority stake in General Motors Co. GM +0.64%
Before this week's transactions, $16.42 billion was outstanding under TARP's Capital Purchase Program.

Treasury Secretary Timothy Geithner on Wednesday told a Senate panel that his department is focused on getting banks to exit TARP.

"We're working with those institutions and their regulations to encourage them to repay and make it possible for them to repay. Not everybody is going to be able to do it, there will be some banks that can't do it. But we're trying to … encourage those firms to replace those investments by the taxpayer with private investments as quickly as possible," Mr. Geithner said.

Write to Andrew Ackerman at [e-mail] and Jeffrey Sparshott at [e-mail]

http://online.wsj.com/article/SB10001424052702303404704577311323366221962.html?KEYWORDS=tarp