TARP deadbeats

October 8, 2009

Thirty-three TARP recipients missed a scheduled dividend payment to taxpayers last month, according to the Treasury Department, including 18 banks that missed a payment for the first time. It’s a powerful indication that the U.S. banking system remains troubled. And it throws cold water on talk that taxpayers are “making money” on the bailout.

(Click to enlarge in new window)


“It’s too early to tell if we’re making money on TARP,” according to Eric Fitzwater, an associate director at SNL Financial in Virginia. “Certainly the vast majority of the bailout money is still outstanding. While a lot of larger recipients say they plan to pay it back, we’re still waiting.”

The 33 banks that missed dividend payments in August have received $4.5 billion of TARP money. The biggest is CIT. Previously it paid $44 million of dividends, but with a bankruptcy filing looking likely, Treasury’s $2.3 billion investment seems headed toward zero.

A few of the banks may ultimately be able to pay what they owe, according to Fitzwater. These newer banks — “de novo” in regulator parlance — actually are not allowed to pay dividends.

Still, the bigger issue is the ultimate cost of the bank bailout, which we may not know for years.

When stronger banks including Goldman Sachs, Morgan Stanley and American Express repurchased warrants at modest premiums after paying back TARP, most news reports suggested that taxpayers were profiting from the bailout. But those reports didn’t tell the whole story.

For one, they ignored adverse selection, the propensity for the best borrowers to exit the program first, leaving Treasury holding the poorest performing investments. According to the latest data from Treasury, 42 banks have paid back some or all of the cash they got from TARP’s Capital Purchase Program, $70.7 billion in total. But more than 600 banks remain in the CPP program. Together, they still owe $134 billion.

And this excludes other TARP bailout programs that are likely to cost billions. The automotive industry owes TARP $80 billion. And AIG owes TARP $69.8 billion. Much of that isn’t coming back.

It’s also myopic to view TARP in isolation. Take Citigroup. After converting its preferred equity investment to 7.7 billion common shares at $3.25, Treasury is showing a paper profit of $11 billion. Sounds great, right?

But Citigroup’s common equity would long ago have fallen to zero if other bailouts, in particular FDIC’s debt guarantee program, weren’t insulating shareholders from losses.

Citigroup is the only large bank still using the FDIC’s program. Two weeks ago, the bank sold another $5 billion worth of guaranteed debt, bringing its total issued under the program to $49.6 billion.

The bottom line is that the government still stands behind the banking sector. While the cost of this “no more Lehmans” policy may not be known for years, our experience with Fannie Mae and Freddie Mac tells us that such implicit guarantees ultimately prove very expensive. The fact that more banks are falling behind on dividend payments reminds us the tab is growing.


We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

While I’m not connected with banking or finance, I do read some in the popular media about events in those sectors.The strongest statement I’ve read was a claim not that we were making money, but that some of the money has been paid back, but that we weren’t yet in the clear.That’s very different from saying “we’re making money.”I’m not going to say that hasn’t been said, because I may have simply missed it, despite reading business media sources daily.

Posted by Mekhong Kurt | Report as abusive

Remember to charge them all 33% in late fees!

Posted by Ubie Black | Report as abusive

CIT Group is not the same entity as Citigroup. This article implies that it is.

Posted by Catherine Potter | Report as abusive

Two things:(1) The TARP agreement with the banks allows for skipped payments. You should check it out before you write these articles.(2) Even if the bank has the money to make the TARP payment the FDIC can force them not to do it, so as to keep that money available for capital. The FDIC is looking out for their interests above ALL others.

Posted by LJ | Report as abusive

Let’s be real. So what there are thirty plus tarp deadbeats. Does that surprise anyone?And what garbage about paying money back to the tax payers. This is a load of crap too.I’ve not gotten a single check back in repayment of ANY monies taken from me in the from of taxes.Mortgage payments haven’t come down any. And as far as I know these same banks that bled us in order to stay alive still demand the tax payer “pay his debt”. Are you kidding me?!!If your tax dollars and mine went to keeping these vampires alive then why should we be paying interest of ANY KIND on money lent? Profit motive at its best. Profit and interest are diseases in today’s world. We need to leave the childish motivations of profit and interest alone. We need to be doing work because it solves problems. These bankers don’t have your interests or mine at heart.And the thing is that this is not a secret. So if as citizens we know that banks don’t have human interests at heart, but rather only have their own profit at heart, then why do we continue to help them?They have our money. They should not be charging us interest on ANYTHING.But we are so used to getting screwed that most of us don’t have the testicular fortitude to demand what is right. The banks hold a position of power that is not suited to them. They are interested in making money for themselves and that’s it.They should not be taken into account in matters where life/death, and human development are concerned.We cheapen ourselves when we subjugate our sovereignty to something as empty and lifeless as money. Work because things need to be done. Work because you have a desire to enrich the human experience or to ease the suffering of your brothers and sisters in this place. Work because you love what you do.But don’t work for profit. It will take over your vision. You will stop working for the joy in your path. You will become enslaved to the desire for profit. And eventually that desire will override your natural willingness to do good.If you don’t believe me just read the stories on this or any other site.

3 MOS IN ARREARS called “RECEIVERSHIP”.However, “THE RECEIVERSHIP” would be made up of American citizens called taxpayers. Then we force all of them into bankruptcy where we can finally dissect their accounting practices and policies and reconstruct them into a conservative solid foundation for the people who OWN this government/country. (unlike what the Fed would like us to believe) This would help us leave a responsible legacy not only to our children, but to other countries around the world leading by example, (grabbing the bull by the horns, and show business that we own what we say)Im tired of the marketing BS and the constant carney shell games from the industry leaders and the Fed. Truthfully guys, we already know your all a bunch of liars in Ponzi suits, and too lazy to make an honest buck.

Posted by Diane Wainscott | Report as abusive