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Bank Investments Paying Off for TARP

The banks have born the brunt of public criticism for the financial bailout but the government's TARP investments in the industry have returned a profit so far.



) -- In the latest affirmation that taxpayers haven't lost money on the so-called "bank bailout," a financial data firm has calculated the return on investment to be 8.5% so far.

Timothy Geithner, Treasury Secretary

The calculation, of course, is a sticky one and doesn't paint a full picture. It applies to

the Troubled Asset Relief Program, and only to loans issued to banks through TARP. Yet the program -- and the banks that were its initial target -- have all gotten a bad rap because of other money-losing investments that flowed from TARP coffers, or longer-term programs that have nothing to do with TARP at all.

Hartford Financial

(HIG) - Get Hartford Financial Services Group, Inc. Report

, the latest bank to return TARP funds at a profit, is an example of how the government has gleaned rewards from a program first thought to be a money-loser.

Hartford bought back $3.4 billion worth of preferred stock last week, after having paid six quarters of interest and dividends. The Treasury Department will also auction 52 million warrants to buy Hartford common stock, with an exercise price of $9.79. Hartford closed at $28.88 on Friday.

Including Hartford's repayment, the Treasury said it has now received $181 billion to-date from the $245 billion it extended to the banking industry. According to SNL Financial, the 49 companies that have repaid TARP through March 30 generated an 8.5% annual return.

"Bank investments ... that were initially projected to cost $76 billion are now projected to bring a profit," the

Treasury Department


SNL points out that redemption of preferred stock alone provided a 5% return, while the warrant deals boosted profits further. The Treasury has rid itself of common stock exposure to

JPMorgan Chase

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Bank of America

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and other large banks directly through the market, but others provided even higher returns by repurchasing warrants. For instance, the government's investment in

American Express

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delivered a 23% annualized return, while its investment in

Goldman Sachs

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delivered a 20% annualized return. Both firms repurchased the Treasury warrants early on.

The news may work to de-stigmatize the industry, and the government's handling of the financial crisis. However, it should serve more as a clarification for the public about which investments are likely to remain sour, and which have turned out pretty well.

TARP doesn't apply just to the recapitalization effort of the banking sector. Funds have also been used to support

American International Group

(AIG) - Get American International Group, Inc. Report

, the still-troubled auto industry, and to bail out mortgage-borrowers who may never regain full equity in their homes.

AIG has made

tremendous progress in its turnaround effort, but still hasn't actually paid back any money that the government has lent. Nor has it

paid any dividends on taxpayer investments. According to the Treasury's most recent estimates on Sept. 30, taxpayers may lose over $30 billion on its $70 billion investment in AIG.

While GM repaid another $1 billion in federal aid last week, it still owes nearly $50 billion to the Treasury Department. That doesn't include the $16.3 billion lent to its one-time lending subsidiary GMAC, or the $12.5 billion that Chrysler has yet to repay.

Finally, when it comes to TARP funds, the $75 billion

foreclosure-prevention program called

HAMP wasn't meant to recoup value at all. Non-TARP investments in

Fannie Mae



Freddie Mac


represent the second-largest bailout when combined, and perhaps the least-likely to be repaid. And of course, none of this factors in the

Federal Reserve's

trillions of dollars in aid to defrost the icy credit markets, and prop up failing financial firms.

In short, taxpayers aren't likely to walk away from the financial crisis happy or made whole. A massive amount of value was destroyed, some of which -- like multimillion-dollar loans backed by subprime real estate -- was never really there to begin with. But as far as the $245 billion extended to U.S. lenders is concerned, taxpayers appear to be earning a pretty penny.

-- Written by Lauren Tara LaCapra in New York