Friday, July 9, 2010

TARP Banks Yield Better Return for Taxpayers Than S&P 500

The taxpayers’ profits from the bank TARP programs are no surprise to the banking industry; in fact, in testimony before Congress nearly a year and a half ago (January 2009), the American Bankers Association (ABA) stated: “There is also the misperception that somehow taxpayers are going to lose money on the CPP [Capital Purchase Program of TARP]. ABA strongly believes that Treasury will make money on the CPP – billions of dollars.” [1]

Nearly 18 months later, it is now more widely recognized that TARP investments in banks are providing taxpayers with a significant return. According to a July 6 report from Keefe, Bruyette & Woods Inc., bank TARP programs yielded on average 5.5% more than the S&P 500 returned over the same period. The taxpayers earned an average 10.3% return on banks repaying their TARP investment, with returns equal to or exceeding 20% for six of the bank investments.

As of June 30, 2010, banks had repaid $138.4 billion, or roughly 75% of the Treasury’s investments. Additionally, banks paid $14.9 billion in dividends and interest, or 98% of scheduled payments. Treasury has also received $17.5 billion from warrants and the sale of Citigroup stock.

According to a Treasury spokesman, “almost all of the $24 billion in profits TARP has realized to date has emanated from the banking sector,” a fact ABA has been predicting all along.

1. Testimony of Edward Yingling on behalf of the American Bankers Association to the House Financial Services Committee. January 7, 2009.
2. “Return on Banks Receiving TARP Payments Exceed S&P Financials Index, Study Reports,” Daily Report for Executives. BNA. July 8, 2010.

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