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The Ghost of TARP


NEW YORK ( TheStreet) -- Do you remember the Troubled Asset Relief Program established in 2008? Most think that the program has ended. It has not! There is a Special Inspector General to provide an oversight function called SIGTARP. It is investigating how some TARP funds were wasted, stolen or otherwise abused.

On July 24, Christy L. Romero, the Special Inspector General, presented to Congress the SIGTARP quarterly report. Included in the 400-page report is information on the alphabet soup of all programs related to the Great Credit Crunch.

My focus is on the Capital Purchase Program, the facility through which the Treasury directly purchased preferred stock or subordinated debentures in FDIC-insured financial institutions.

CPP intended to provide funds to stabilize the banking system by raising the capital base of banks deemed to be healthy. These funds were supposed to be used to increase lending to consumers and businesses. In my opinion, this program failed to accomplish that goal.

The Treasury invested $204.9 billion in 707 institutions through the CPP facility within TARP. This source of funding was closed on December 29, 2009. As of June 30, 195 of the 707 CPP participants remained in TARP. Stripping out the 53 institutions from which Treasury holds only warrants to purchase stock, 142 of the financial institutions still have outstanding CPP principal balances in TARP funding.

According to the Treasury, $193.8 billion of the $204.9 billion in CPP principal has been repaid as of June 30. The Treasury continues to manage its portfolio of CPP investments, and 96 banks are not current on their interest payments on these commitments. To make these payments, the state regulator of a TARP recipient must approve the payments owed to the government. In many cases, regulators don't approve this reduction of capital as that would put the institution at risk of failure.

Data from SNL Financial show the top 30 publicly traded FDIC-insured financial institutions that have TARP exposure outstanding as of June 11. Today I profile eight community banks that are tradable among these 30. Synovus Financial (SNV) is the largest bank on this list, but it competed its redemption of TARP funds on July 26.

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