Government To Gain $8B In Profit From Citigroup TARP Buyback

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More encouraging news about the TARP program…

From Washington Post:

Among the banks that rule Wall Street, Citigroup got a bailout that was bigger than the rest. Now the company is about to pay a king’s ransom for its federal rescue.

The Obama administration is making final preparations to sell its stake in the New York bank, according to industry and federal sources. At today’s prices, the sale would net more than $8 billion, by far the largest profit returned from any firm that accepted bailout funds, and the transaction would be the second-largest stock sale in history.

On paper, the government’s 27 percent stake has grown in value to $33 billion. The size of the deal in the works has Wall Street buzzing. Only the stock offering by Japan’s Nippon Telegraph and Telephone, which raised $36.8 billion in 1987, was larger, according to Thomson Reuters.

So, considering that these banks were in serious peril in 2008 and now we’re looking at making profits from those deals…does anybody question that this was a good idea?

And, as a reminder…from the CBO’s projections in late January

The CBO projects the government will ultimately make a profit of $7 billion from assisting the banks: $3 billion from the Capital Purchase Program, in which the government propped up banks by purchasing preferred stock; $2 billion from helping Citigroup and another $2 billion from helping Bank of America.

In other words, the banks are on track not only to pay taxpayers back all the $200 billion plus we’ve lent them, but put a dent — albeit a small one — in our enormous budget deficits.

So, since the CBO thought Citigroup would only gain us $2M, looks like we’ll be up another $6B…which results in a $13B profit.

Seems a fair cry from the claims of conservative and libertarian economists’ claims that we’d lose this money forever.

But hey, let me know what you think…

  • Tillyosu

    So, if the government stands to recoup all of the TARP funds it paid to the banks, and then some, can we do away with the absurd “Bailout Tax” that Obama was proposing?

  • kreiz

    Justin, TARP has worked surprisingly well in the face of criticism of the extremes of both parties, not just conservative and libertarian economists. Credit needs to be given where it belongs. Too often, the herculean efforts of Treasury Secretary Paulsen, a Bush Admin official, have been overlooked. Paulsen originated TARP, although he was roundly savaged by the House GOP in doing so. He, along with Geithner, Bernanke, and Bair, saved the crumbling financial system at a very crucial time. TARP’s success has been largely bipartisan, with continuity between the Bush and Obama administrations.

  • Thomas

    This is really good news but it shouldn’t be taken as too good. An “everything worked out okay” mentality could be really bad for the future of regulation and thus the future of the economy as a whole.

    Let’s remember that the financial meltdown could have been a lot worse and that we basically dodged a bullet. We now have to see that the gun doesn’t get reloaded.

  • WHQ

    I don’t know the specifics of Citigroup, but one thing to keep in mind is that banks that didn’t really need TARP money to survive were told to take it to avoid a potential TARP stigma against banks that did really need it, were they the only ones to receive it. So now that the panic has largely subsided, the banks in better shape can get out of the deal, thereby being the ones to do so first and most likely to yield the biggest gains.

    Don’t get me wrong, I think TARP was needed, if imperfect. But I wouldn’t judge the entire exercise on the early gains, unless someone can give a good reason why I should in light of what I wrote above.

  • Tully

    Funny, I don’t see any mention of the final disposition of that $335B in federal stop-loss guarantees on Citi’s troubled assets. Wonder what the tab for that is? And when the government will quit kicking it down the road with creative inter-institutional liability shifting? You’d think that would be a material figure in assessing any REAL “profit” to be derived there. At least, in any honest non-cheerleading accounting thereof.

    For those who don’t get the relevance of that, google up “Ponzi” and “The Producers.”