Bank Bailout Returns 8.2% Beating Treasury Yields

(Bloomberg) -- The U.S. government’s bailout of financial firms through the Troubled Asset Relief Program provided taxpayers with higher returns than yields paid on 30- year Treasury bonds -- enough money to fund the Securities and Exchange Commission for the next two decades.

The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money- market funds and certificates of deposit. Investing in the stock market or gold would have paid off better.

When the government first announced its intention to plow funds into the nation’s banks in October 2008 to resuscitate the financial system, many expected it to lose hundreds of billions of dollars. Two years later TARP’s bank and insurance investments have made money, and about two-thirds of the funds have been paid back. Yet Democrats are struggling to turn those gains into political capital, and the indirect costs of propping up banks could have longer-term consequences for the economy.

“From the perspective of the taxpayers getting their money back, TARP has been a great success,” said Todd Petzel, chief investment officer at New York-based Offit Capital Advisors LLC, which has more than $5 billion of assets under management. “But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.”

Low Interest Rates

Banks benefited from dozens of other programs instituted by the Federal Reserve and the U.S. Treasury Department during the worst financial crisis since the Great Depression, from the purchase of mortgage-backed securities to the bailout of home- lending giants Fannie Mae and Freddie Mac. The suppression of interest rates at close to zero for most of the last two years has also boosted banks’ income, enabling them to borrow money at almost no cost and lend at higher rates.

Those low rates drove down yields on instruments used by American savers. U.S. Treasury 30-year bonds yielded an average of 4.1 percent from Oct. 20, 2008, through yesterday, according to Bloomberg data. When the price appreciation of the bonds is taken into account, the return for the two years is 13.9 percent.

Two-year Treasury notes fared even worse. They returned 6.2 percent over two years, yielding less than 1 percent on average.

S&P 500, Gold

Average rates for high-yield savings accounts, which generally have at least $10,000 in deposits and are insured by the Federal Deposit Insurance Corp., have ranged from 0.36 percent to 0.92 percent over the past two years, based on data from research firm Market Rates Insight in San Anselmo, California. A two-year CD purchased in October 2008 returned 2.8 percent annually, according to Bankrate.com, the North Palm Beach, Florida-based website that tracks bank products.

Taxable money-market funds, sold by brokerage firms and not FDIC-insured, offered cumulative returns of 0.5 percent for the two years beginning September 2008, based on data from iMoneyNet, a research firm in Westborough, Massachusetts.

Better performers include the stock market, with the Standard & Poor’s 500 Index gaining 24 percent in the two years since Oct. 20, 2008. SPDR Gold Trust, a gold exchange-traded fund, offered a total return of 66 percent, according to Bloomberg data.

The $25 billion TARP return could fund the SEC for more than 20 years, based on the agency’s proposed 2011 fiscal year budget. It could pay for all farm subsidies in the U.S. for more than two years. Bloomberg compiled the TARP data from reports by the Treasury, FDIC and the Office of the Special Inspector General for the Troubled Asset Relief Program.

$11 Billion Gain

“I am surprised at the numbers because the consensus seemed to be we threw good money after bad and wouldn’t get repaid,” said Jane King, president of Fairfield Financial Advisors Ltd., a Wellesley, Massachusetts-based fee-only firm whose clients have $5 million to $10 million in net worth.

The Treasury said in an Oct. 5 report that it expects to lose about $17 billion on the separate $80 billion TARP payout to Detroit automakers General Motors Co. and Chrysler LLC. The bank and insurance portion of the bailout, which includes $47.5 billion to New York-based American International Group Inc., will probably earn $11 billion in the end, taking expected losses into account, according to Treasury estimates.

Career-Killer

One of the biggest investments produced one of the best returns. While New York-based Citigroup Inc. still hasn’t paid back $12 billion of the $45 billion it received, Treasury has already made $8.2 billion, or an 18 percent return, mostly as a result of selling its stake in the lender at a higher price, according to data analyzed by Bloomberg.

After collecting repayments, dividends and proceeds from warrant sales, the government earned a 14 percent return on the $10 billion it gave Goldman Sachs Group Inc. and a 13 percent return on the $10 billion that went to Morgan Stanley. Both firms are based in New York.

Even with the turnaround on bank and insurance investments, TARP remains a political career-killer. Some candidates lost primaries this year in part because they voted for the program, which was proposed by President George W. Bush. The Republican president urged lawmakers to approve it or risk a global financial calamity. Candidates from both parties who are running for election in November have been attacked for backing TARP.

That’s because of voters’ dissatisfaction with banks. A July poll by Angus-Reid Public Opinion found that 90 percent of Americans blame financial institutions for the crisis. The public also feels the pain of indirect subsidies to the banks, Offit’s Petzel said.

‘Wealth Transfer’

One of those subsidies is the $350 billion that savers forgo each year because the Fed keeps interest rates near zero, according to Petzel’s calculations. While banks can borrow at close to zero from the Fed, they lend to consumers and corporations at almost 5 percent, or to the Treasury at 2.5 percent, and they get to keep the difference.

“The huge wealth transfer from fixed-income pensioners to the banks has helped the banks repay TARP,” Petzel said.

The government and the Fed took on more risk than just TARP during the crisis, which isn’t reflected in the program’s cost, said Nomi Prins, a former Goldman Sachs managing director and author of the 2009 book, “It Takes a Pillage: Behind the Bailouts, Bonuses, and Backroom Deals from Washington to Wall Street.”

According to Prins’s tally, the money plowed into the financial system to prop it up peaked at $19.4 trillion. Banks have benefited from that cash, which helped keep prices of mortgage securities, house prices and other assets overvalued, Prins said in an interview. Even though some of the support has been withdrawn, part of it will likely be lost, such as the hundreds of billions of dollars put into Fannie Mae and Freddie Mac, she said.

“These are all indirect subsidies the banks got,” Prins said. “So the TARP gains touted by the Treasury are only true if you ignore all the other costs.”

Cost of TARP drops to $50bn, US government claims

The cost of the Troubled Asset Relief Program (TARP), the initiative set up to help ailing banks during the global credit crisis, has fallen to less than $50 billion.

President George Bush’s administration initially introduced the fund at a cost of $700 billion to prop up financial firms affected by the fall out from the subprime mortgage crisis.

The government has now revealed that after the assets are sold, the total cost of TARP should be lower than $50 billion.

Timothy Geithner, US Treasury Secretary, who was quoted by Reuters, said: “The people who voted for that - Republicans and Democrats - deserve a lot of credit because that was a deeply difficult political decision for them ... and the returns on that program have been overwhelmingly positive for the economy and for the American people.”

The fund faced criticism from many when it was first launched as it was viewed as funding those responsible for creating the economic crisis.

According to news reports, some candidates running in the forthcoming mid-term November elections are pursuing a line of ‘no more bail outs’ as a way of attracting votes.

TARP expired on October 3rd.

As TARP expiration looms, some banks can't let go

The government's $700 billion financial bailout officially ends Monday, costing far less than expected and having largely achieved its goal of propping up the financial sector. But some banks are having a hard time letting go.

For months, financial institutions across the U.S. fought to extricate themselves from the much-maligned Troubled Asset Relief Program, which was viewed as a liability for banks because of pay restrictions and the potential for government meddling.

Yet with Monday's TARP expiration looming, more than 600 banks are sitting on about $65 billion in government bailout funds. The situation is frustrating federal officials who believe some larger institutions can repay the government but have chosen not to because it would require them to raise additional capital and weaken existing shareholders, according to government officials.

http://online.wsj.com/article/SB10001424052748703431604575522242672430182.html

Chicago : Four banks refinance TARP funds

(Crain's) — The first of the Chicago area’s small banks that got bailout funds from the federal government are paying the money back.

But the news isn’t as good as it first appeared: The four small lenders that recently redeemed preferred shares they issued to the Treasury Department under the Troubled Asset Relief Program have effectively refinanced into a cheaper federal bailout program.

The four all are designated as community development financial institutions — institutions that lend to low-income or underserved communities or individuals — and have transferred their original TARP funds into a new, lower-interest program to provide federal assistance to CDFIs.

The two largest are the Hanover Park-based parent of $327-million-asset First Eagle Bank, which refinanced $7.5 million in TARP shares on Sept. 17, and the Wilmette-based parent of $338-million-asset Premier Bank, which refinanced $6.8 million on Aug. 13, according to the Treasury Department.

First Eagle received the funds on Sept. 11, 2009, while Premier got them on May 8, 2009.

The smaller banks are two Asian-American-owned lenders in the city: International Bank of Chicago, which refinanced $4.2 million on Sept. 10, and Chinatown’s Pacific Global Bank, which refinanced $3 million on Aug. 13.

International Bank received the TARP funds on May 15, 2009, and Pacific Global on Feb. 16, 2009.

All but one of the four banks were profitable through the first six months of this year. The exception was Pacific Global, which posted a $207,000 loss.

International Bank of Chicago CEO Frank Wang said the move effectively reduced the interest his bank is paying on the federal investment to 3.1% from 7.7%.

Neil Barofsky expands staff as TARP expires

The U.S. Treasury's $700 billion bailout fund officially expires in two weeks, but not for Neil Barofsky, the top cop for the Troubled Asset Relief Program.

He's hiring new staff and opening four regional branch offices to pursue TARP-related fraud cases and monitor remaining taxpayer investments for years to come.

Barofsky, the TARP Special Inspector General, said his office staff, now numbering around 140, is expected to reach a previously stated goal of 160 in coming months and may go beyond that.

"Most of the ramp-up in our numbers, the expansion in our hiring, is due to our criminal investigations," Barofsky told Reuters in an interview.

Of those investigations, a big part is focused outside of the Washington, D.C., area. So the SIGTARP, as his operation is known, is opening branch offices in New York, Atlanta, Los Angeles and San Francisco.

more at http://www.reuters.com/article/idUSN1919586520100919

A Big Surprise: Troubled Assets Garner Rewards

American taxpayers are already poised to make unexpected billions from rescuing the nation’s banks. Now, they could reap another sizable profit from a government program devised to purge troubled real estate assets from the financial system.

The Obama administration made the so-called Public-Private Investment Program a centerpiece of its plan to help unlock the frozen credit markets in the spring of 2009, when a lack of buyers for complex mortgage securities threatened the health of the nation’s banks and put a drag on lending.

Under the program, the government provided matching funds and ultracheap loans to investment firms like AllianceBernstein and Oaktree Capital that agreed to buy mortgage securities from banks and other financial institutions.

Taxpayers stood to share in any of the profits, though the prospects of such a windfall were seen as secondary to the goal of unclogging the markets.

Nine months into the program, the eight investment funds chosen by the Treasury Department have generated an estimated return of about 15.5 percent for taxpayers, according to an analysis of their results through the end of June by Linus Wilson, an assistant professor of finance at the University of Louisiana, Lafayette.

Two of the investment funds — one operated by an Angelo, Gordon-GE Capital consortium and another by BlackRock — have gotten off to even stronger starts, posting returns of more than 20 percent.

That translates into a paper profit of roughly $657 million for taxpayers. Some Wall Street analysts project that taxpayers could earn as much as $6.2 billion on these investments over the next nine years, from an investment of about $22 billion.

To be sure, the funds’ standout performance can be attributed to a rally in the mortgage bond market that began late last year and may be hard to repeat.

Still, it is a remarkable turnabout. When the administration announced the Public-Private Investment Program, critics lambasted it as yet another giveaway to private equity firms and other Wall Street money managers — a program so ill-conceived that one prominent economist, the Nobel laureate Joseph Stiglitz, characterized it at the time as a “robbery of the American people.”

But the strong start of the funds has pushed aside many of those concerns.

“We feel very good about the performance to date,” said David N. Miller, the Treasury Department’s chief investment officer who oversees its bailout-related holdings.

The administration has not yet provided its own profit projections, and all proceeds will be used to pay down the nation’s ballooning debt. But any windfall, Mr. Miller suggested, would be icing on the cake for taxpayers.

The program’s main benefit, he said, has been to help revive the market for complex mortgage bonds, whose trading ground to a halt a year and a half ago. That helped break the downward spiral of asset prices and paved the way for a wave of new bond deals, which lenders rely on to finance new mortgages.

“We view that as accomplishing the mission,” Mr. Miller said.

The scope of the government’s action was scaled back before it got started. In fact, the original purpose of the $700 billion federal bailout program, authorized by Congress during the tenure of Treasury Secretary Henry M. Paulson Jr., was to buy mortgage assets much more aggressively. Instead, that money was used to make direct investments in troubled banks.

So, to restart the trading of mortgage assets, the incoming Treasury secretary, Timothy F. Geithner, announced the creation of a smaller Public-Private Investment Program. The administration hoped to establish market prices for the assets so that banks would not have to sell them at fire-sale prices, which would have threatened their solvency.

As a side effect, though, the extraordinary government interventions in the banking system made necessary by the financial crisis have turned the United States government into one of the world’s biggest vulture investors.

In addition to the $22 billion the Treasury Department has invested in the public-private program, the Federal Reserve has amassed about $69 billion of distressed loans and bonds from the 11th-hour rescues of Bear Stearns and the American International Group . That program appears poised to turn its own multibillion-dollar profit for taxpayers.

Together the Treasury and Fed have allocated more than twice as much taxpayer money toward distressed real estate assets as the combined total the 10 largest private real estate investment funds have raised for such assets over the last decade, according to Prequin, a financial information provider.

In normal market conditions, these funds are the lifeblood of real estate financing.

All that money invested by the government is still tiny compared with the estimated $1.8 trillion worth of distressed residential and commercial mortgage-related securities that were eligible for sale when the investment funds drafted by the Public-Private Investment Program began their purchases last fall, according to a Barclays Capital research report. Those assets remain on the books of many Wall Street investment houses, insurers and banks.

What the program has provided, though, is a big dose of confidence in the markets, assuring investors that there would be a steady stream of buyers for distressed securities.

More than 100 investment firms applied to participate in the program and raised money from private investors. Even though only eight funds were chosen to receive government money, many of the others have nonetheless been dabbling in the market, helping to bid up prices.

“That literally changed supply and demand,” said Wilbur L. Ross Jr., the veteran vulture investor who helps manage Invesco’s public-private fund.

The Public-Private Investment Program has run into its share of problems. For example, a second component of the program — to be run by the Federal Deposit Insurance Corporation and intended to encourage the purchase of real estate loans rather than bonds — never got off the ground.

Also, some of the early promises that ordinary investors would be able to “profit from the bailout” by owning stakes in public-private investment funds have failed to materialize. BlackRock, for example, failed to win regulatory approval to create a mutual fund for ordinary investors that would have largely invested in the firm’s public-private fund.

Legg Mason and Nuveen Investments have offered consumers the chance to own smaller slivers of the program’s investments through the Mortgage Opportunity mutual funds they sell — although they have only modestly outperformed their peers.

Government watchdogs have also raised concerns about the program. Neil M. Barofsky, the special inspector general assigned to monitor the use of bailout funds, faulted the Treasury Department by saying it had failed to establish “appropriate metrics and internal controls.”

Fund managers brief federal officials at least monthly on their performance, but Mr. Barofsky concluded that expecting private firms to develop detailed policies and procedures “is not appropriate in light of the risk of conflicts of interest inherent” in the public-private investment program. His follow-up audit of the public-private fund managers is expected to be completed in September.

Meanwhile skeptics like Professor Wilson question whether the government’s favorable financing terms were actually encouraging the fund managers in the program to make risky wagers without giving taxpayers a big enough piece of the upside.

"The U.S. Treasury has given the asset managers incentives to swing for the fences,” Professor Wilson said. “The asset managers have hit some early home runs, yet we are still in the first inning of these investments.”

Although the program’s eight investment funds have posted solid results so far, they have invested only about $16.2 billion, or just over 55 percent of the $29.2 billion of the total money they have raised, according to government data through June.

The Treasury Department has put up roughly three-quarters of that total, matching dollar-for-dollar money put up by private investors while also providing an even bigger helping of debt financing at about 1.3 percent, well below normal interest rates.

This story originally appeared in the The New York Times

Cost of financial rescue continues to shrink

The government's effort to extend aid to the financial industry, including Fannie Mae and Freddie Mac, appears to be much less expensive than previously thought. Officials at the Treasury Department estimated that the tab will equal about $89 billion. The figure includes the Troubled Asset Relief Program, loan guarantees by the Federal Housing Administration, and the Federal Reserve's effort to bolster the commercial-paper market and buy mortgage-backed securities.

http://online.wsj.com/article/SB10001424052702304846504575177950029886696.html

Treasury reaps more than $10 billion on TARP repayments

An analysis of the U.S. government's Troubled Asset Relief Program shows that the Treasury Department has made more than $10 billion on the financial sector's portion of the program. The analysis, by consultancy SNL Financial, suggests that taxpayers could actually turn a profit. The 8.5% annualized return earned on 49 banks' preferred stock and warrants is less than that of other investments in the sector, but it might be enough to cool political backlash against using government funds to help the banking industry.

more at http://www.reuters.com/article/idUSN0520351520100405

US Treasury has made more than $10bn from bailout fund repayments

The US Treasury has already made more than $10 billion worth of profit as banks repay their bailout debts to the organization, a study has said.

According to a report from consultancy firm SNL Financial, the US government is making unexpectedly large returns on money that was not intended as a profitable investment when it was handed out.

Around $10.5 billion has been made from the 49 companies which have returned all or some of their Troubled Asset Relief Program (TARP) debts.

It was originally expected that the bailing out of companies operating in the financial sector would cost the Treasury up to $76 billion, but an overall profit now seems possible, reports the Financial Times.

Despite the strong performance of the financial sector, the Treasury may still lose a total of $117 billion on its TARP handouts, due to aid given to other sectors such as the car industry.

Russ Yates, one of the authors of the SNL report, said: "The government did not do the bailout to make money but to provide stability to the financial system.

"The government's job is not to make money off the private sector."

But companies such as Goldman Sachs and American Express agreed to pay a favourable price for the warrants received by the Treasury in return for bailout funding, leading to profits for the government organization.

Goldman Sachs provided the Treasury with an annual return of 20 per cent, while American Express helped it to a 23 per cent profit.

Linus Wilson, a finance professor at the University of Louisiana, said: "[The] Treasury continues to get lucky.

"A year ago, few could have predicted the stock market would have been as high as it is today."

Last month, Bloomberg reported that home and auto lender GMAC is planning to hire the services of Goldman Sachs and Citigroup to help advise it on how to repay its $17.3 billion TARP debts.

TARP proves to be successful, a good deal for taxpayers

The Troubled Asset Relief Program was established at the height of the financial crisis in September 2008, breaking free-market capitalism rules and angering many Americans. However, the bipartisan program has proven to be a winner. "When the country faced imminent disaster, political leaders suppressed ideology and partisanship -- and acted, in the national interest," according to this Washington Post editorial. "If only they could apply some of that same spirit to problems before they reach the crisis stage."

more at http://www.washingtonpost.com/wp-dyn/content/article/2010/03/31/AR2010033103710.html

Investigation launched into bonuses at TARP banks by US pay tsar

Bonus payments made at US banks including Goldman Sachs and JPMorgan which took advantage of the Troubled Asset Relief Program (TARP) are to be analysed by the US government’s pay tsar.

Kenneth Feinberg

Kenneth Feinberg, special master for executive compensation, is to send letters to all the banks and financial service providers which used TARP funds during the global financial crisis.

A total of 419 organisations will be contacted and asked to provide details on salaries of more than $500,000 paid to top executives.

The institutions contacted will have up to 30 days to provide information on payments made between October 2008 and February 2009.

Cornelius Hurley, director of the Morin Centre for Banking and Financial Law at Boston University, told Reuters: “If the notion was to see who had their hand in the cookie jar when the crisis was unfolding, then that should be revealed.”

Mr Feinburg does not have the power to force executives to return any pay packages.

However, if it is deemed in the “public interest”, he could renegotiate figures with bankers.

The tsar is also expected to reveal pay packets for executives at the five firms still receiving state bailouts as part of TARP.

General Motors, AIG and Chrsyler are among the organisations continuing to rely on the program of fiscal stimulus.

TARP is expected to cost $109 billion

A report from the Congressional Budget Office estimates that the government's $700 billion Troubled Asset Relief Program will actually cost about $109 billion during its lifetime. The projection is $10 billion more than the agency's estimate in January. The CBO said that while American International Group and the auto industry are weighing on the program, capital infusions into banks will actually earn the government an estimated $7 billion.

more at

http://money.cnn.com/2010/03/17/news/economy/CBO_TARP/index.htm

Bank Chief Accused of TARP Fraud

The former president of New York's small Park Avenue Bank was arrested on fraud charges, one of the first such cases involving a TARP recipient. The bank was shut Friday.

Charles J. Antonucci Sr., the former president and chief executive of the Park Avenue Bank of New York, made false statements to regulators in an effort to obtain about $11 million from the U.S. government's Troubled Asset Relief Program, prosecutors said. He is the first person to be charged criminally with attempting to defraud TARP, the bank bailout program passed as the nation teetered on the verge of an economic meltdown in 2008, prosecutors said.

http://online.wsj.com/article/SB10001424052748703909804575123672347495854.html?mod=WSJ_hps_LEFTWhatsNews

Losses for TARP drop from $341 billion to $117 billion

The Treasury Department estimated that losses for its Troubled Asset Relief Program will be about $117 billion. The figure was revised down from $341 billion after companies, including American International Group, raised money to repay the government. AIG's effort is "further evidence that our strategy is working," said Andrew Williams, a Treasury representative.

Secret AIG Document Shows Goldman Sachs Minted Most Toxic CDOs

(Bloomberg) -- When a congressional panel convened a hearing on the government rescue of American International Group Inc. in January, the public scolding of Treasury Secretary Timothy F. Geithner got the most attention.

Lawmakers said the former head of the New York Federal Reserve Bank had presided over a backdoor bailout of Wall Street firms and a coverup. Geithner countered that he had acted properly to avert the collapse of the financial system.

A potentially more important development slipped by with less notice, Bloomberg Markets reports in its April issue. Representative Darrell Issa, the ranking Republican on the House Committee on Oversight and Government Reform, placed into the hearing record a five-page document itemizing the mortgage securities on which banks such as Goldman Sachs Group Inc. and Societe Generale SA had bought $62.1 billion in credit-default swaps from AIG.

These were the deals that pushed the insurer to the brink of insolvency -- and were eventually paid in full at taxpayer expense. The New York Fed, which secretly engineered the bailout, prevented the full publication of the document for more than a year, even when AIG wanted it released.

That lack of disclosure shows how the government has obstructed a proper accounting of what went wrong in the financial crisis, author and former investment banker William Cohan says. “This secrecy is one more example of how the whole bailout has been done in such a slithering manner,” says Cohan, who wrote “House of Cards” (Doubleday, 2009), about the unraveling of Bear Stearns Cos. “There’s been no accountability.”

CDOs Identified

The document Issa made public cuts to the heart of the controversy over the September 2008 AIG rescue by identifying specific securities, known as collateralized-debt obligations, that had been insured with the company. The banks holding the credit-default swaps, a type of derivative, collected collateral as the insurer was downgraded and the CDOs tumbled in value.

The public can now see for the first time how poorly the securities performed, with losses exceeding 75 percent of their notional value in some cases. Compounding this, the document and Bloomberg data demonstrate that the banks that bought the swaps from AIG are mostly the same firms that underwrote the CDOs in the first place.

The banks should have to explain how they managed to buy protection from AIG primarily on securities that fell so sharply in value, says Daniel Calacci, a former swaps trader and marketer who’s now a structured-finance consultant in Warren, New Jersey. In some cases, banks also owned mortgage lenders, and they should be challenged to explain whether they gained any insider knowledge about the quality of the loans bundled into the CDOs, he says.

‘Too Uncanny’

“It’s almost too uncanny,” Calacci says. “If these banks had insight into the underlying loans because they had relationships with banks, originators or servicers, that’s at the least unethical.”

The identification of securities in the document, known as Schedule A, and data compiled by Bloomberg show that Goldman Sachs underwrote $17.2 billion of the $62.1 billion in CDOs that AIG insured -- more than any other investment bank. Merrill Lynch & Co., now part of Bank of America Corp., created $13.2 billion of the CDOs, and Deutsche Bank AG underwrote $9.5 billion.

These tallies suggest a possible reason why the New York Fed kept so much under wraps, Professor James Cox of Duke University School of Law says: “They may have been trying to shield Goldman -- for Goldman’s sake or out of macro concerns that another investment bank would be at risk.”

Poor Performers

Goldman Sachs spokesman Michael DuVally declined to comment.

Schedule A also makes possible a more complete examination of why AIG collapsed. Joseph Cassano, the former president of the AIG Financial Products unit that sold the swaps, said on a December 2007 conference call that his firm pulled back from selling swaps on U.S. subprime residential CDOs in late 2005. The list shows that the $21.2 billion in CDOs minted after 2005, mostly based on prime and commercial mortgages, performed as badly as or worse than the earlier subprime vintages.

A lawyer for Cassano declined to comment.

As details of the coverup emerge, so does anger at the perceived conflicts. Philip Angelides, chairman of the Financial Crisis Inquiry Commission, at a hearing held by his panel on Jan. 13, questioned how banks could underwrite poisonous securities and then bet against them. “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars,” he said.

‘Part of the Coverup’

Janet Tavakoli, founder of Tavakoli Structured Finance Inc., a Chicago-based consulting firm, says the New York Fed’s secrecy has helped hide who’s responsible for the worst of the disaster. “The suppression of the details in the list of counterparties was part of the coverup,” she says.

E-mails between Fed and AIG officials that Issa released in January show that the efforts to keep Schedule A under wraps came from the New York Fed. Revelation of the messages contributed to the heated atmosphere at the House hearing.

“What date did you know there was a coverup?” Republican Congressman Brian Bilbray of California demanded of Geithner. Lawmakers used the word coverup more than a dozen times as they peppered Geithner with questions.

Geithner said that he wasn’t involved in matters of disclosure and that his former colleagues did the best they could. In a Jan. 19 statement, the New York Fed said, “AIG at all times remained responsible for complying with its disclosure requirements under the securities laws.”

The government has committed more than $182 billion to AIG and owns almost 80 percent of the company.

Document Withheld

In late November 2008, the insurer was planning to include Schedule A in a regulatory filing -- until a lawyer for the Fed said it wasn’t necessary, according to the e-mails. The document was an attachment to the agreement between AIG and Maiden Lane III, the fund that the Fed established in November 2008 to hold the CDOs after the swap contracts were settled.

AIG paid its counter parties -- the banks -- the full value of the contracts, after accounting for any collateral that had been posted, and took the devalued CDOs in exchange. As requested by the New York Fed, AIG kept the bank names out of the Dec. 24 filing and edited out a sentence that said they got full payment.

The New York Fed’s January 2010 statement said the sentence was deleted because AIG technically paid slightly less than 100 cents on the dollar.

Paid in Full

Before the New York Fed ordered AIG to pay the banks in full, the company was trying to negotiate to pay off the credit- default swaps at a discount or “haircut.”

By March 2009, responding to a request from Christopher Dodd, chairman of the Senate Committee on Banking, Housing and Urban Affairs, AIG released the names of the counterparty banks. In a filing later that month, AIG included Schedule A, showing bank names while withholding all identification of the underlying CDOs and the amounts of collateral each bank had collected. The document had more than 800 redactions.

In May 2009, AIG again filed Schedule A, this time with about 400 redactions. It revealed that Paris-based Societe Generale got the biggest payout from AIG, or $16.5 billion, followed by Goldman Sachs, which got $14 billion, and then Deutsche Bank and Merrill Lynch. It still kept secret the CDOs’ identification and information that would show performance.

‘Right to Know’

“This is something that belongs in the public domain because it was done with public money,” Issa says. “The public has the right to know what was done with their money and who benefited from it.” Now, thanks to Issa, the list is out, and specific information about AIG’s unraveling can be learned from it.

At the Jan. 27 hearing, the New York Fed was still arguing that the contents of Schedule A shouldn’t be fully disclosed. Thomas Baxter, the New York Fed’s general counsel, testified that divulging the names of the CDOs could erode their value: “We will be hurt because traders in the market will know what we’re holding.”

Tavakoli calls that wrong. With many CDOs, providing more information to the market will give the manager a greater chance of fetching a realistic price, she says.

Jack Gutt, a spokesman for the New York Fed, declined to comment, as did AIG’s Mark Herr.

Bad to Worse

Tavakoli also says that the poor performance of the underlying securities (which are actually specific slices or tranches of CDOs) shows they were toxic in the first place and were probably replenished with bundles of mortgages that were particularly troubled. Managers who oversee CDOs after they are created have discretion in choosing the mortgage bonds used to replenish them.

“The original CDO deals were bad enough,” Tavakoli says. “For some that allow reinvesting or substitution, any reasonable professional would ask why these assets were being traded into the portfolio. The Schedule A shows that we should be investigating these deals.”

Among the CDOs on Schedule A with notional values of more than $1 billion, the worst performer was a tranche identified as Davis Square Funding Ltd.’s DVSQ 2006-6A CP. It was held by Societe Generale, underwritten by Goldman Sachs and managed by TCW Group Inc., a Los Angeles-based unit of SocGen, according to Bloomberg data. It lost 77.7 percent of its value -- though it isn’t in default and continues to pay.

SocGen spokesman James Galvin and TCW spokeswoman Erin Freeman declined to comment.

Documentation Needed

Ed Grebeck, CEO of Tempus Advisors, a global debt market strategy firm in Stamford, Connecticut, agrees that more digging is necessary. “You need all the documentation and more than that, all the e-mails,” he says. “That would allow us to understand what went wrong and how to fix it going forward.”

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program, who delivered a report on the AIG bailout in November, says he’s not finished. He has begun a probe of why his office wasn’t provided all of the 250,000 pages of documents, including e-mails and phone logs, that Issa’s committee received from the New York Fed.

TARP repayment completed by PNC Financial Services

The PNC Financial Services (PNC) has completed repayments of the $7.6 billion it received in government aid as part of the Troubled Asset Relief Program (TARP).

Last month, PNC announced it was to pay back the funds by selling its Global Investment Servicing unit to the Bank of New York Mellon Group.

As part of the deal, the organisation also simultaneously offered $3 million worth of stock to help raise the funds.

James E Rohr, chairman and chief executive officer at PNC, said: “With signs of an improving economic environment and stabilizing financial system, we believe now is the appropriate time for us to redeem the preferred shares held by the US Treasury.

“As a result, we are pleased to have reached an agreement with our regulators to return the taxpayers' investment in PNC.”

The completion of the sale of the servicing unit is expected to increase PNC’s Tier 1 capital by $1.6 billion while leading to an after-tax gain of $5 million.

Meanwhile, the Treasury reported that the CIT Group has repaid its TARP debt of $2.3 billion.

Obama defends plan to charge banks to recoup TARP funds

In his weekly radio and Internet address, President Barack Obama defended his proposal to subject as many as 50 financial institutions to a levy to recoup the cost of the Troubled Asset Relief Program. Obama also vowed to enact legislation that would rein in practices and strategies that caused the financial crisis. Meanwhile, Democratic leaders in the House said they think Congress will support the fee. "I think Congress will go along," Rep. Chris Van Hollen said. "There's a real sense in Congress that it's time for the banks to pay back the taxpayers."

more at http://www.bloomberg.com/apps/news?pid=20601208&sid=arLRHwa4JNdI

White House considers fee to recoup losses from TARP

Although most of the major banks that received money through the Troubled Asset Relief Program have repaid the government, the White House is considering a fee to recoup the cost of the program. While few details about the fee are available, officials said the administration is attempting to structure it so banks cannot pass the cost along to customers. Officials acknowledged that doing so will be difficult. "In our industry, costs are typically passed along to institutions and individual investors, so the burden will likely fall on them," said Timothy Ryan, president and CEO of SIFMA.

more at http://online.wsj.com/article/SB126322918488724799.html

Citi, Wells Fargo repay TARP

As expected, Wells Fargo and Citigroup repaid government aid they received through the Troubled Asset Relief Program. Wells Fargo made its $25 billion repayment, while Citi repaid $20 billion. The development helps the banks escape the government's grasp. The four largest banks in the country, along with several regional banks, have repaid their government aid.

http://uk.reuters.com/article/idUKTRE5BM3UJ20091224

Citigroup and Wells Fargo make $45bn of TARP repayments

Citigroup and Wells Fargo have completed the repayment of the funds they received under the Troubled Asset Relief Program (TARP).

Between them the two banks received $70 billion worth of bailout funds under the scheme, which was designed to support the struggling financial services sector in the US.

Citigroup, which received $45 billion of support, confirmed it had made its planned $20 billion repayment and also announced it had ended its loss-sharing agreement with the US government.

The financial services company was able to repay the TARP investment after it raised $20.5 billion in a securities offering.

Under a previous agreement, the US government exchanged $25 billion worth of bailout funds for common stock in Citigroup.

Meanwhile, Wells Fargo has revealed it has repaid in full the $25 billion of TARP support it received.

Wells Fargo recently raised $12.25 billion in a public stock offering in order to help it to repay the TARP funds.