In today's market, the TARP's 27% take in Citi has grown in value to $33B. And as the bank contemplates it's payback, the ultimate size of the deal may be the largest in Wall street history... and may net U.S. taxpayers another cool $8B for their trouble. (Federal taxpayers received a 23% annualized return on their investment in Goldman Sachs when that wall street firm paid back it's bailout.)
Leading financial firms, including J.P. Morgan Chase and Morgan Stanley, are vying to be chosen as the deal's underwriters to gain the prestige of managing a historic stock sale as well as the fees from investors who buy the shares. To improve their chances, some big banks, such as Goldman Sachs, are offering their services to the Treasury Department at almost no cost.
The windfall expected from the stock sale would amount to a validation of the rescue plan adopted by government officials during the height of the financial panic, when the banking system neared the brink of collapse. A year ago, Citigroup's stock hovered around a dollar a share, and the bank's future seemed in doubt. On Friday, the stock closed at $4.31.
If the sale proceeds as planned, Citigroup would be able to cut nearly all of its ties to TARP and the Obama administration can continue to highlight the profit generated from the rescue of big banks.
"It's unprecedented to do [a stock sale] of this size right after the financial industry has been so battered," said one industry official on Friday. "It's just a very bullish sign."
Citigroup was among nine major banks that were the first to take bailout funds in October 2008, and all have returned their federal loans. In addition to these repayments, the Treasury has received interest, dividends and about $3.5 billion from the sale of warrants, which are contracts allowing a holder to buy a company's stock in the future.
To many it is now clear that rescuing large the Wall Street firms has come at a much lower cost to taxpayers than many had expected. In fact, so far the investment program has produced all net positive results for the U.S. Treasury.
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good. the gov't needs the money.
ReplyDeleteso where do I buy some stock?
ReplyDeleteHow do you account for the fact that $2 trillion in highly impaired mortgaged backed securities have been bought from the bailout banks by the Federal Reserve (backed by the Treasury)?
ReplyDeleteTo only look at the TARP loans is misleading, bordering on the criminal.
The bailout banks have also been saved from ruin because the Fed has taken over their worst risks.
Your answer?
Anonymous3,
ReplyDeleteHere is my answer... written just a bit over a year ago... read the scenario and you too will see how "toxic assets" over time are an investor's (and in this case the Treasury's) best friend...
http://mast-economy.blogspot.com/2009/03/how-toxic-assets-turn-to-gold.html
If you need a mountain of evidence, talk to any (now seasoned) investor that snapped up devalued notes and real estate in the years just following the great depression. They are very, very content with their holdings today.
You are right the government has taken over the banks "worst risks." And since the government has the ability to hold for an extended period, by taking on the greatest risk, the Treasury will benefit from the greatest reward.
Taxpayers' money would have been much better invested in non-TARP receiving companies, at random. A simple Nasdaq index investment is up 60% over the past year. Once again, the little guy gets clobbered by the professional investor.
ReplyDelete