TARP and Some Statistics

We take a one post breather from our coverage of Merck, the case recently taken on by the Supreme Court that will help determine when the statute of limitations begins to run under Rule 10b-5.  

The GAO in May put out a report that included some stats on TARP.  Given that the bailout of financial institutions has been the main impetus for executive compensation reform, we thought we'd report some of the stats in the Report.  

First, how much has been paid out under TARP?  Congress authorized $700 billion for the program.  Only about half that amount, however, has actually been used.  According to the report:

• As of March 27, 2009, Treasury had disbursed $303.4 billion of the $700 billion in TARP funds. Most of the funds (about $199 billion) went to purchase preferred shares of 532 financial institutions under the Capital Purchase Program (CPP)--Treasury's primary vehicle under TARP for stabilizing financial markets.

Moreover, this does not take into account the recent swathes of repayments provided by a number of large and healthy banks.

What about the poster child for the bailout, AIG?  Although AIG has been promised as much as $70 billion, it has not drawn down on the full amount.  Again, according to the report:  "Also, while Treasury has announced up to $70 billion dollars in assistance to AIG--more assistance than has been announced for any other single institution to date--it has yet to disperse the up to $30 billion of additional assistance or finalize the agreement."

Likewise often overlooked is the return on the TARP investment.  The funds were generally used to buy non-voting preferred stock.  The stock, however, pays dividends.  According to the report:  "In addition, we specifically found that though Treasury is now receiving dividends from the investments it has made in CPP and certain other programs, it has not publicly reported these receipts, which totaled almost $2.9 billion through March 20, 2009."

The bottoming out of the crisis appears to be taking place.  Perhaps most of the funds authorized under TARP will not be used and, aside from a few spectacular cases like AIG, will be modest in amount and repaid in a timely fashion.  This suggests that if the Obama Administration wants to take advantage of the crisis to reform the executive compensation process, it should do so now.