Thread: U.S. Sees Profit From TARP Repayments

U.S. Sees Profit From TARP Repayments - Update

8/31/2009 1:22 AM ET

(RTTNews) - Almost a year after the U.S. government stepped in to rescue the troubled banks with taxpayers' money through its Troubled Asset Relief Program or TARP, signs are emerging that point to profits from those investments, the New York Times reported.

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or about 15% annually, the report added, based on calculations compiled by the newspaper.

The government has reportedly taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The other banks that repaid the government, namely Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T, each brought in $100 million-$334 million in profit.

The real profit is reported to have come from the warrants that the banks were permitted to buy. The low fixed price of these warrants provided a windfall for the government as the shares of the companies soared.

However, a debate still remains over whether the government could have done better with its bank investments.

On the flip side, the government still faces potentially huge long-term losses from its investments in American International Group, Fannie Mae, Freddie Mac, General Motors and Chrysler. The Treasury Department could also suffer from its guarantees on toxic mortgages.

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15% is a pretty good interest rate any time much less in this economy.