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Tips to sift through bailout data as banks exit TARP


By Flicker user Adam Fagen

It hasn’t been easy for journalists to sort through the dozen programs Congress authorized in 2008 to stabilize and restore confidence in the economy. Some programs, like the $245-billion bank rescue, arguably have been more successful than others — at least if they are measured by how much the government will be able to recoup on its investments.

The U.S. Department of the Treasury says it will earn a $20 billion profit on its bank investments, but even by that measure, 300 banks out of the original 707 recipients had yet to repay the government at the end of August. Journalists can use Treasury Department data to dig into which banks remain in the program and how much they owe.

Most of the banks that have yet to repay the government are community banks with less than $1 billion in assets. Besides dealing with troubled real estate and commercial loans, their size restricts access to the capital markets, limiting their ability to raise new funds to replace the government support.

“Journalists pay a lot of attention to the juggernauts: AIG, GM, Chrysler, for instance,” said Kayla Tausche, a CNBC reporter. “But for the community banks, many of them have the toughest slog ahead.”

The devil is in the details

The majority of the government’s investments in community banks are in the form of preferred shares. If the government invested $1 million, it received preferred shares worth $1 million with a 5 percent dividend rate. That rate will jump to 9 percent after three years for banks remaining in the Capital Purchase Program.

In May, the Treasury Department announced it wants to wind down its TARP investments, and is willing to exit some investments at a deep discount — if it originally bought the preferred shares for $1 million, it might be willing to sell for less than that. The government has said it will use three options to phase out its bank investments: waiting for banks to repay Treasury at full value, restructuring the investments or selling the investments to third parties.

“While it’s critical for Treasury to be able to exit these investments, it’s also critical for these banks to stay afloat — investments in many of which already have wiped out Treasury completely,” Tausche said.

This summer, a letter went out to 200 community bankers that said the government is considering including their banks in pooled auctions of community bank securities beginning this fall. Banks can opt out, but they had to designate an approved bidder by Aug. 6 — or Oct. 9 for banks that were granted an extension. Each bid will have to meet a minimum price level set by the Treasury Department. It’s likely some banks with rejected bids will be included in auction pools.

Already, some community bankers — especially those that repaid TARP without a discount — are expressing concern about whether the government is equitably determining the discounts. While bankers remaining in TARP are concerned about which investors will end up owning interests in their banks and whether the investors will be able to appoint directors. That’s a more likely scenario for banks that have missed at least six dividend payments.

Using Treasury reports, journalists can track whether banks in their communities remain in the program and whether they will be impacted by the government’s plans to wind down its investments. Call up the bankers remaining in the program in your area, and ask how they feel about the plans. Accountants, investment bankers, analysts and local lawyers also are all great sources for drilling deep into TARP details.

It’s also important to note the $245-billion bank bailout represents about 43 percent of the total funds deployed under the Emergency Economic Stabilization Act —  billions were doled out under separate programs to the auto industry, AIG, Citigroup, mortgage servicers, investors, state governments, and a host of other businesses and organizations.

Was TARP profitable?

“There are many different perspectives on the crisis and how the investment was structured. There will always be one perspective, like Treasury’s current perspective, that points to a profit,” Tausche said. “Others — for one example, Neil Barofsky, one of the TARP advisers — who will say otherwise. Even in cases where it is impossible to include every single accounting figure, it’s of the utmost importance to denote from which side of the story the figures are coming from.”

Barofsky, who was previously the special inspector general for the Troubled Asset Relief Program, fought for greater transparency and has criticized the government about not being transparent about the true cost of TARP and the overall rescue package.

Some of the finer points can be difficult to track, and arguably opaque. While 407 bank bailout recipients have exited their TARP investments — 165 of those institutions still owe money under programs with more favorable dividend terms. One hundred and thirty seven banks refinanced into the Small Business Lending Fund and another 28 banks converted to the Community Development Capital Initiative.

What banks in your area remain in the bank bailout? Did the institution pay the government in full or did it refinance into another government program? If the bank refinanced into the SBLF, another program, is the institution’s lending benefiting the community, or is it using the funds as cheap capital?

With so many banks that have yet to repay the government, the story angles are plentiful for reporters willing to do the legwork.


In Economy, Investigation, Investing | Banking.

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