Where did $33.5 billion in TARP losses go? Citibank to start.

Amidst  the Congressional turmoil about how TARP is being used, there is no question we know where the money went.  So far, the US Treasury has actually invested $207.8 billion in equity positions in over 100 publicly traded financial institutions.  (Other monies have been promised and not yet invested, or are being used to guarantee other securities.)   Of that, $125 billion was committed to 9 banks on October 28.  Even though the S&P is slightly up since then (+2.68%) the financial stocks were hard hit.  The S&P Financial Sector Index was down -11.15% since October 28. 

However, during this same time frame, the 9 banks who were the first to receive TARP money are down -20.10%, weighted by their TARP investment.  So these large banks have underperformed by nearly 2 to 1 the rest of the financial sector.  After being given $125 billion in capital. 

Here are the biggest losers:  Citigroup -42.46% (received $25 billion with $20 billion more promised), Bank of America -34.09% and Merrill Lynch (soon to be owned by BofA) - 24.94%.  When you throw in the remaining six firms (Goldman Sachs, JPMorgan Chase, Wells Fargo, Bank of NY Mellon, State Street and Morgan Stanley) you have a weighted return on investment of -20.10%, or a loss of $25.2 billion of which $10.6 billion is due to the Citigroup investment.  If Citigroup were to not have received a dime, then the weighted return of the remaining 8 top-tier banks would be -14.50%. 

Note that for the remaining investments made by the US Treasury ($82 billion), these weighted return on investment is -10.14%, or $8.4 billion. 

So the primary set of questions about the wisdom of TARP investments should be focused on Citigroup, Bank of America and Merrill Lynch -- and add in Wells Fargo and JPMorgan Chase as well.  These five banks have accounted for losses that amount to $24 billion.  Or $80 for every person in the US.

As usual, its after the fact Congress and its oversight panel does its handwringing.  Congress was sloppy in its rush to deliver a big check to the US Treasury and failed to put any real restrictions on its use.  The US Treasury invested the money and the banks treated it like any other capital infusion (i.e., its use was not specifically tracked).  Banks, though, can tell you how their capital has been used, and therefore should be able to provide this bigger picture information and also provide what percentage of their capital did the infusion from the US Treasury represent.  

So for Elizabeth Warren, the chair of the Congressional Oversight Panel, the first questions should be just for the set of five banks starting with Citigroup.  1)  Tell me how your capital has been used since October 28.  2) At the end of the day on October 28, what % of your capital did the TARP investment represent.   With these two questions asked of the five largest losing banks, the panel would have nearly all of the information it could want.  You can hear the protests -- there's no place for government interference on how the bank is run.  If a bank took a big capital infusion from an institutional investor, the bank would give answers.  The panel needs to approach the banks like an investor, not like government. 

Here are the numbers today:

Comments

[Jessica Paoli]

We know the mortgage foreclosures caused our economy's problem. Therefore, a mandatory foreclosure problem solution should have been tied to the monies given to the banks. A 2 to 3 % reduction in interest for 2 years ( with no qualifying--as these people can't qualify--added to the principal amount of the loan would have solved a lot of the foreclosure problem. Banks loose hundreds of thousands in each foreclosures. They show what stubborn idiots they are when they reject lower payments amounting to under $25,000 per year on each mortgage in order to take a loss of more than $1,000,000 on each loan immediately. Meanwhile, they are driving the economy to pieces!

[Reality]

Two months ago, we were told that our credit markets were completely frozen and that the economy was on the verge of collapse because of it. Action was needed NOW!, so that the banks could start lending again. Hank Paulson was to be trusted to dole out the $700B without questions or oversight. Yeah, the situation was that dire. Now, here we are, not knowing where our money went or what was done with it. And banks still aren't lending. The economy is still on the verge of collapse.

Many of us knew at the time that this "bailout" was to be one of the most expensive frauds ever perpetrated. It is. We got screwed with our pants on.

[pragito]

I am surprised to hear and read this question only now by Mary Snow! It is a question that had to be asked from the day the government decided to bailout the banks and other financial systems. Maybe, there was not enough Hyp to be gained? Anyway to answer were the money went? Well, CITI group just bought a couple of weeks ago a big ailing bank in Spain from that money. Now, interestingly, since this bank is owned in part by Indian Banks in Mumbai and Delhi, one must assume that some of that money went to India. Especially when you take in account that CITI group is now run by an Indian Financier with strong ties to the Indian Financial world.

Pragito

[thecookie]

I wrote this yesterday on this very subject -- I simply cannot believe the arrogance. No accountability whatsoever -- and it's designed that way!
Outrageous!
http://lifeisacookie.wordpress.com/2008/12/22/tarp-for-dummies/