TARP Bank Investments Are ‘In The Money’ Just 4.6% Of The Time

Data compiled by Zachary Meisel of the Center for American Progress Action Fund.

Yesterday, Elizabeth Warren, Chair of the $700 billion Troubled Asset Relief Program’s (TARP) Congressional Oversight Panel, told the Senate Banking Committee that “the Treasury Department overpaid for the assets it purchased” under the program. Currently, the $254 billion in assets that the government bought are worth $176 billion — $78 billion less than what Treasury paid. As Warren said:

Despite the assurances of then‐Secretary Paulson, who said that the transactions were at par — that is, for every $100 injected into the banks the taxpayer received stocks and warrants from the banks worth about $100 — the valuation study concludes that Treasury paid substantially more for the assets it purchased under the TARP than their current market value.

An analysis by the Center for American Progress Action Fund (CAPAF) shows just how poorly these investments by the Treasury have fared. Looking at recipients of more than $1 billion in TARP funds, CAPAF examined the date on which each investment in a bank was made and the stock price on said date, to determine how many market days the U.S. taxpayer has been “in the money.” (Each day that money was invested in an individual bank counted towards the total, and a day was recorded as “in the money” if that day’s closing share price was greater than the price of Treasury’s warrants.)

Of the 888 possible days, taxpayers have been in the money for just 41 of them, or 4.6 percent of the time. Here is a sample of how some of the larger investments have panned out. Full table after the jump.

Date Institution Price (Billions) Days In The Money
10/28/08 Bank of America 15 0
10/28/08 Goldman Sachs 10 0
10/28/08 JP Morgan Chase 25 0
10/28/08 Morgan Stanley 10 1

Of course, it wasn’t really expected that these investments would be worth much yet, considering how the deals were structured. However, this data shows that the Obama administration can almost certainly redesign TARP to be more beneficial to the taxpayer.

To that end, Treasury Secretary Timothy Geithner on Monday plans to announce the “combination of approaches” that the administration will use for the TARP overhaul: “Along with further injections of taxpayer funds into major financial firms, the strategy is likely to include guarantees for illiquid assets on banks’ balance sheets and possibly some form of a so-called bad bank that would purchase toxic investments.”

As Warren said, Treasury needs to “articulate a clear strategy, otherwise they are spending billions of dollars on an ad hoc basis.” Ad hoc is exactly the way to describe Paulson’s use of the TARP; Obama and Geithner must not fall into the same trap.

Date Institution Price
Days In The Money
10/28/08 Bank of America 15 0
10/28/08 Bank of NY Mellon Corp. 3 8
10/28/08 Citigroup Inc. 25 13
10/28/08 Goldman Sachs Group Inc. 10 0
10/28/08 JP Morgan Chase and Co. 25 0
10/28/08 Morgan Stanley 10 1
10/28/08 Wells Fargo and Company 25 2
11/14/08 Sun Trust Banks Inc. 3.5 0
11/14/08 BB&T Corp. 3.1 0
11/14/08 Regions Financial Corp. 3.5 0
11/14/08 Capital One Financial Corp. 3.6 3
11/14/08 U.S. Bancorp 6.6 1
12/31/08 Sun Trust Banks Inc. 1.4 2
12/31/08 PNC Financial Services Group 7.6 5
12/31/08 Fifth Third Bancorp 3.4 6
1/9/09 Bank of America 10 0
1/9/09 American Express 3.4 0


Andrew Jakabovics explains “bank bailouts done right.”

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