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TARP pay back nets big returns

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Daniel Gross writes in the latest edition of Newsweek that Treasury has made big profits from the banks that have paid back their TARP loans.

The spreadsheets at financialstability.gov document the status of the 667 investments, worth $204.4 billion, made under the CPP. Morgan Stanley, which borrowed $10 billion in October 2008, paid back the cash in June and purchased the warrants for $950 million on Aug. 12, giving taxpayers a 12.7 percent return, according to SNL Financial. For the 22 companies that have bought back shares and warrants, the taxpayer received an annualized return of 17.5 percent—better than most hedge funds have done lately. (Another 15 have repaid part or all of the principal.) Since many of the largest financial institutions have left the program, the 37 “exits” represent 34 percent of the total cash initially disbursed. The bottom line: taxpayers have received $70.3 billion in principal, plus about $10 billion in dividends and warrant payments. This money goes back into the Treasury’s general fund, while the CPP continues to dole out cash to little banks. On Aug. 21, AmFirst Financial Services in McCook, Neb., received $5 million. Today, 633 banks owe $134.2 billion.

Investors have seen other returns. Since the Treasury Department in July converted the $25 billion CPP loan to Citi into common stock, at $3.25 a share, the U.S. taxpayer now holds 7.69 billion shares of the once mighty bank. As of Aug. 26, thanks to the rallying market, taxpayers were sitting on a $10.52 billion paper gain.

A 17.5% annualized return ain’t too shabby. I wish my 401(k)s and IRAs were given me returns of that size.

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Written by Valerie Curl

August 29, 2009 at 9:51 PM

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