To the sheer shock of…everyone, the TARP is beginning to do the unthinkable: turn a profit.
Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.
The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.
Profits would have been almost three times that had the government not bought at so far above their actual value at the time, so don’t everyone stampede to invest in any hedge fund Hank might start in the future. If, for some reason, any of you as private investors had bought what the government bought when the government bought it, today you’d be sitting on a 44% annualized profit.
Of course, this is just from institutions that have paid back the government. For every Goldman Sachs ($1.4b profit) and Morgan Stanley ($1.3b), there is an AIG who has not paid back the government and may never completely do so. But let’s save those losses for another day and another administration. Oh, and Fannie and Freddie, GM and Chrysler, and let’s not forget the Treasury guarantees on all those billions of dollars of mortgages, some of which will certainly default.
American taxpayers could still collect additional profits on their investments in two other big banks that have repaid their preferred stock but not their warrants: JPMorgan Chase and Capital One. They are expected to yield over $3.1 billion in gains for the Treasury in the next month or so, although the full tally will depend on how much they will pay to buy back their warrants.
But all the profits taxpayers have won could still be wiped out by two deeply troubled institutions. Both Citigroup and Bank of America are still holding mortgages and other loans that were once worth billions of dollars but whose revised values are uncertain. If they prove “toxic” because they cannot attract buyers, they could leave large holes in the banks’ balance sheets.
Neither bank is ready to repay its bailout money anytime soon, even though the banks’ stock prices have surged in the last month, leaving the government sitting on paper profits of about $18 billion between them.
Hey, at least someone is making stacks of money from C.