U.S. Sees A Profit As Big Banks Repay Bailout Money

WASHINGTON — The U.S. government has hauled in about $4 billion in profits from large banks that have repaid their obligations from last year's federal bailout, The New York Times reported Sunday.

Last September, Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson pressed congressional leaders for legislation authorizing a $700 billion financial bailout of some of the nation's largest financial institutions, which were in danger of collapsing. The bill was signed into law in October.

Critics of the bailout were concerned that the Treasury Department would never see a return on its investment. But the government has already claimed profits from eight of the biggest banks.

The Times cited government profits of $1.4 billion from Goldman Sachs, $1.3 billion from Morgan Stanley and $414 million from American Express. It also listed five other banks – Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T – that each returned profits between $100 million and $334 million.

The government has also collected about $35 million in profits from 14 smaller banks, the Times reported.

Federal investments in some other banks, including Citigroup and Bank of America, are still in question, and the government could still lose much of the money it spent to bail out insurance company American International Group, mortgage lenders Fannie Mae and Freddie Mac, and automakers General Motors and Chrysler.

Comments

[pkafin]

A lot of folks here are quite confused about what this means. One group of commentators keep repeating that the govt. gave out $1 trillion and only got back $4 billion in return. Others are stating that until the entire $1 trillion is back, nothing counts as profit.

Neither of these is a decent way to look at the information provided in the article. The article is referring to some very specific loans that can appropriately be considered independent transactions. Of those that have been repaid, the govt. is running an over 15% rate of return (when calculated as an annual rate). That fact stands alone.

While it does not mean that the whole bailout provided a profit for the govt., it is true that, so far, things are working out better than expected. The idea was never that the govt. would kiss the $1 trillion goodbye as a gift. The hope was most would come back with the slight chance that a profit could, perhaps, be seen. AS the article points out, of the monies lent that have been paid back so far, the govt is running a profit.

That's a good thing to hear about a small part of the overall bailout picture.

[LunaPark]

You're spinning the story so it looks good. mrcontinental is right. I want see a balance sheet that includes toxic debt. These banks are worthless and the government has turned them into zombie institutions. The tax payers are on the hook for trillions while the bank employees who ran their companies into the ground are getting rewarded.

[pkafin]

"The tax payers are on the hook for trillions" no, they are not. The taxpayers are not on the hook for any more than what has been doled out. That has not been "trillions". But, more to the point, the whole thing was not a giveaway. I doubt it will all come back, but much of it will. You are correct, the big picture requires a complete balance sheet. But, whenever that arrives, we will see that only a fraction fo what has been given out amounts to an actual loss for the taxpayers. At that point, we can have a discussion about whether it would have been best to do nothing, something, or everything.

[spinns17]

http://video.google.com/videoplay?docid=7065205277695921912

[mrcontinental]

Those toxic derivatives still have not gone anywhere and are just as poisonous now as they where two years ago.

And these numbers are complete and utter nonsense. The only way you can have a "profit" is after all outstanding liabilities have been paid so until they have repaid ALL of their TARP loans I don't want to hear drivel like this. Lying b@stards!

[phoenixbc]

I don't recall that the goal was to eliminate the "toxic derivatives", as you call them. They are bad debts, and eliminating them would involve paying off the debts. The purpose of the loans was to infuse capital so that the banks could continue to do business and earn enough to repay the loans. It seems that, as to some of them, that has been accomplished.

Additionally, the loans were to individual banks, not to an entire industry, as your comment suggests. Therefore, the numbers are not nonsense. There are profits on the loans to these particular banks. Some will make it sooner than others. Some might not make it. So far, none of the large TARP recipients have failed. You might not like that the loans were made, but the cost of doing nothing could have resulted in a complete collapse of the economy. The loans were a risk, but so far they appear to be paying off.

[phoenixbc]

There seem to be a number of persons who are confused about the rate of return on the TARP amounts loaned under the Bush Administration and the Obama Administration.

The figures in this article do not include Bank of America, Citigroup, and AIG, which were the recipients of the largest individual loans. Also, the government has not released figures for many of the smaller loans which account for the bulk of the TARP monies. As for the amounts repaid by the larger banks listed in this article, the effective interest rate, after 9 months, is as follows:

Goldman Sachs - $10 billion TARP loan, $1.4 billion profit = 18.6% return
Morgan Stanley - $10 billion TARP loan, $1.3 billion profit = 17.3% return
American Express - $3.389 billion TARP loan, $414 million profit = 16.3% return

I don't know about anyone else here, but I'd love for some investment to pay me at those rates.

[chandu11]

Exactly what I was thinking.
Thanks for doing the math.
I was too lazy to do it myself.

[NevaforLeadership]

AIG. That's a big question. A new CEO with his mind on his grapes.

[NevaforLeadership]

Zachery,

You count your profits investment by investment, as you cash out.

[goswim12]

Private central banks will always hold the reins until America takes back the power to issue her own money. Delete the Elite

http://video.google.com/videoplay?docid=-515319560256183936

[TJCole]

We are still at a net loss these are gypsy accounting practices..!

Does the $2 Trillion, Bernanke gave away even count..?

[SMP]

I say...redirect that 4 billion profit toward the public option portion of the Health Insurance Reform Bill....then Pass the dang Bill.....


Affordable Health Insurance is a right not a priviledge for a chosen few.

[Malron Jett]

Apparently a lot of the commenters have no idea what the word "profit" means.

[steppenwolfsayshi]

Yeah, but aren't these "profits" in theoretical terms. The government owns all those worthless derivatives. They suddenly became worth something because the government bought them-because their was a buyer. They are worth less than nothing on the free market. If the banks had to write that stuff off then we wouldn't be seeing these profits.

[BurtonOerney]

No, the treasury has proposed a public-private partnership to buy the securities you're talking about at limited risk to the private investor. Don't you remember the big deal about how that would never work? Remember how so many people were upset that the bad debts weren't nationalized?

If you're wrong, you're wrong. If you thought the bailout money would never come back, you were wrong. If you think this $4 billion is the end of repayment, you're wrong. The bailouts are being repayed ahead of schedule and are generating money. It's a working program. I don't understand why so many people are so proud to use their own refusal to understand what's actually happening to fight against a program that's working. Some people believe in the magic of the free market, others believe in the magic of benevolent government regulation. I think both are wrong.

[den1953]

All the Republicans trolls ready 3 2 1 Oh sh*t more good news about the bailouts now we can't b*tch about President Obama!

[texaz3step]

Now let us just wait and see what our government does with the money that was returned. Do you think they will pay down the deficit?

[iridium53]

Well that's outstanding.
The government made a Trillion dollar investment and got 4 Billion "profit".
What was the cost of money for the government to give the money to the banks?
Oh, so it wasn't a profit?

Hmmm.

But, the banksters got paid well.

[mudbones]

We have also received a billion or so in preferred stock dividends from several banks.

[ObamaLuva]

Obama has made perferred stock obsolete......

Remember GM?

[PhyloSeFiser]

A lot of people criticized the bank bailouts. I understand the principles behind why, but as a practical matter, it seems to have been the best way to handle a really bad situation. I'm all for massive regulation on the financial sector, but Obama deserves credit for handling the crisis. A less mature, more ideological president might have made a real mess of the situation.

[RJII]

well said. totally concur.

[swift goat pet for truth]

"A less mature, more ideological president might have made a real mess of the situation."

A less mature VP, too.

[ObamaLuva]

SHEEP!!!!!!

Invest (Print) $1 Trillion and get back $4 Billion

And all his Buddies get rich!

Hope and Change has turned into Smoke and Mirrors!

[argyle]

Rich Sheep

[ilikebeer]

Right, so I guess he could follow in Bush's footsteps and just start a war and award no bid contracts for profit, but he actually has a moral compass.

$650 billion (printed or borrowed from China) + 4,000 American lives and 100k more ruined for nothing, or $1 trillion to try to keep us from going in to a depression and saving jobs....I'll take the latter... Why all of the sudden are re.pubs concerned about money when we have been hemmoraging it in Iraq FOR 6 YEARS!!!!

[USBlues]

If this passed last October it was a Bush administration program.

[AfroGoddess]

Hey, folks have been blaming Obama (and his less than 1 year in office) for the 8 years of Bush mistakes. Why not reep the benefits?

Like my father always said, "If it takes you years to make a mistake, don't think that it will take you days to fix it!"

[NevaforLeadership]

I agree.

According to all the experts, there was no other choice. The world did the same.

Don't agree with you about massive regulation. The financial sector is actually already highly regulated.

Ironically, focusing on the derivatives market (asset securitization), with the appropriate regulation, will go a long way to moving credit again; not shoring up bank credit.