Treasury Raises TARP Cost Estimate as Share Prices Shift
Published August 13, 2012 Dow Jones Newswires
The Treasury Department raised slightly its cost estimate for the financial bailout, largely reflecting shifting share prices for two of the companies it rescued at the height of the crisis.
The Troubled Asset Relief Program, or TARP, will ultimately cost taxpayers $47.75 billion, the Treasury said in a monthly report sent to Congress Friday. That is up from the previous estimate of $43.32 billion.
The latest figures are based on General Motors Co. (GM) and American International Group Inc.’s (AIG) share prices from May 31, when GM was at $22.20 and AIG at $29.18. The prior report used share prices from the end of February, when GM was $26.02 and AIG was $29.22.
The latest calculation puts the cost of the auto bailout at $25.05 billion, up from the previous estimate of $21.70 billion.
Meanwhile, the two stocks have since moved in opposite directions. GM closed Friday at $20.54 a share and AIG at $32.60. The Treasury also has pared back its AIG holdings, selling its fourth tranche of shares early this month for $5.75 billion.
Nearly four years after TARP’s launch, the U.S. still has substantial investments in AIG, GM, Ally Financial Inc. and hundreds of smaller banks. The U.S. holds a 53% stake in AIG and a 26.5% stake in GM–the largest of the publicly traded companies.
TARP ended up a smaller and less costly program than initially projected. At one point, TARP’s price tag was set at $700 billion. Ultimately, $431 billion was disbursed through a handful of programs and much of that has been recovered as companies paid back funds or the government sold off investments.
Indeed, some of TARP’s components are expected to turn a profit.
“To date, we’ve already recovered nearly 84% of the funds disbursed for TARP and the program is expected to cost dramatically less than many once feared,” a Treasury official said Monday.
In the Treasury’s latest estimate, the biggest chunk of costs are expected to arise from $46 billion set aside for housing–funds that some think will never be used.
The Congressional Budget Office, for example, expects only $16 billion will ultimately be disbursed for mortgage programs. Because of the big difference, CBO this spring forecast that TARP will end up costing taxpayers $32 billion.
The remaining costs stem largely from assistance to AIG and aid to the automotive industry.
Write to Jeffrey Sparshott at firstname.lastname@example.org