TARP Repayments

[davelj]

[quote=jpinpb]From my perspective, it is easy to pay back money if you’re not reporting a loss on your books. The accounting rules are assisting their “profits” and the banks are just kicking the can for whatever reason, intentional or not, and not foreclosing, therefore no losses occurring. [/quote]

Tell me something… did the “accounting rules” raise the $161 billion in new equity capital that has been injected into these banks over the last nine months? Or did that capital come from investors? That’s a rhetorical question.

We can debate the extent of “extend and pretend” (E&P)(of which there is a fair amount even outside of SFRs) and I can point out – again – that most of the SFR E&P occurs within MBS (and not with mortgages sitting on bank balance sheets), but the $161 billion in new equity capital is not debatable – it’s real.

[davelj]

[quote=analyst]

8. Banks are now able to convince somebody to buy new issues of stock.

9. TARP money is repaid.
[/quote]

As a Taxpayer, these are my two primary concerns. Not my ONLY concerns, but my primary concerns.

The next step is to clamp down on the Big Banks via regulation so that we don’t see this sort of debacle again any time soon.

[davelj]

[quote=analyst]

8. Banks are now able to convince somebody to buy new issues of stock.

9. TARP money is repaid.
[/quote]

As a Taxpayer, these are my two primary concerns. Not my ONLY concerns, but my primary concerns.

The next step is to clamp down on the Big Banks via regulation so that we don’t see this sort of debacle again any time soon.

[davelj]

[quote=analyst]

8. Banks are now able to convince somebody to buy new issues of stock.

9. TARP money is repaid.
[/quote]

As a Taxpayer, these are my two primary concerns. Not my ONLY concerns, but my primary concerns.

The next step is to clamp down on the Big Banks via regulation so that we don’t see this sort of debacle again any time soon.

[davelj]

[quote=analyst]

8. Banks are now able to convince somebody to buy new issues of stock.

9. TARP money is repaid.
[/quote]

As a Taxpayer, these are my two primary concerns. Not my ONLY concerns, but my primary concerns.

The next step is to clamp down on the Big Banks via regulation so that we don’t see this sort of debacle again any time soon.

[davelj]

[quote=analyst]

8. Banks are now able to convince somebody to buy new issues of stock.

9. TARP money is repaid.
[/quote]

As a Taxpayer, these are my two primary concerns. Not my ONLY concerns, but my primary concerns.

The next step is to clamp down on the Big Banks via regulation so that we don’t see this sort of debacle again any time soon.

[davelj]

[quote=sdrealtor]Thanx dave. I’m just a layperson in these matters and wonder where the truth lies. I’m sure plenty others do also.[/quote]

Well, I don’t know where the “truth” lies either. No one does. But, I do have a few numbers that can shed some light on the subject.

Total TARP outlays have been $458 billion to 734 institutions, broken out as follows:

$228 billion to banks and CIT
$110 billion to Fannie/Freddie
$ 70 billion to AIG
$ 50 billion to Auto Companies

Of the BANK-related TARP, here are the stats:

$161 billion has been repaid (including Citi). There are $58 billion of planned repayments via capital raises currently in the works, scheduled to be completed by the middle of 2010. That leaves $9 billion of bank-related TARP that will likely be outstanding for at least a few more years.

Treasury has collected $9.7 billion in interest payments plus profit on warrants sold (which does not include warrants sold in BofA or Citi). Total losses – which won’t be recovered – from failed entities are $2.5 billion thus far. There are also $2.8 billion worth of TARP in which interest payments have been deferred (that is, the banks can’t make them) – so, let’s just call those losses to make things easy. So, $5.3 billion of losses (almost half of which is from CIT alone).

So, barring a cataclysm over the next six months, it’s likely that less than $20 billion of bank-related TARP will be left outstanding by mid-2010 (held by hundreds of small banks, however), and revenues (interest + sold warrants) will have exceeded expenses (charged-off TARP).

I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.

I think the Fannie/Freddie (F&F) TARP will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.

Where AIG and the Autos are concerned, I don’t have a good idea as to what’s going to happen with that crap. Do we get back half of our money one day? Maybe. I think the likelihood of getting it all back is not materially different from zero.

So, our financial system made it through the Cat 5 hurricane damaged but not sunk, but the seas are still very choppy and the government continues to wield lots of buckets to bail out water that continues to leak into the boat. I’ll be surprised if we don’t have another tropical storm before 2010 is out, but the threat of all-out collapse has been diminished significantly. But I still see very stormy seas ahead for the next couple of years. It’s not going to be pretty.

[davelj]

[quote=sdrealtor]Thanx dave. I’m just a layperson in these matters and wonder where the truth lies. I’m sure plenty others do also.[/quote]

Well, I don’t know where the “truth” lies either. No one does. But, I do have a few numbers that can shed some light on the subject.

Total TARP outlays have been $458 billion to 734 institutions, broken out as follows:

$228 billion to banks and CIT
$110 billion to Fannie/Freddie
$ 70 billion to AIG
$ 50 billion to Auto Companies

Of the BANK-related TARP, here are the stats:

$161 billion has been repaid (including Citi). There are $58 billion of planned repayments via capital raises currently in the works, scheduled to be completed by the middle of 2010. That leaves $9 billion of bank-related TARP that will likely be outstanding for at least a few more years.

Treasury has collected $9.7 billion in interest payments plus profit on warrants sold (which does not include warrants sold in BofA or Citi). Total losses – which won’t be recovered – from failed entities are $2.5 billion thus far. There are also $2.8 billion worth of TARP in which interest payments have been deferred (that is, the banks can’t make them) – so, let’s just call those losses to make things easy. So, $5.3 billion of losses (almost half of which is from CIT alone).

So, barring a cataclysm over the next six months, it’s likely that less than $20 billion of bank-related TARP will be left outstanding by mid-2010 (held by hundreds of small banks, however), and revenues (interest + sold warrants) will have exceeded expenses (charged-off TARP).

I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.

I think the Fannie/Freddie (F&F) TARP will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.

Where AIG and the Autos are concerned, I don’t have a good idea as to what’s going to happen with that crap. Do we get back half of our money one day? Maybe. I think the likelihood of getting it all back is not materially different from zero.

So, our financial system made it through the Cat 5 hurricane damaged but not sunk, but the seas are still very choppy and the government continues to wield lots of buckets to bail out water that continues to leak into the boat. I’ll be surprised if we don’t have another tropical storm before 2010 is out, but the threat of all-out collapse has been diminished significantly. But I still see very stormy seas ahead for the next couple of years. It’s not going to be pretty.

[davelj]

[quote=sdrealtor]Thanx dave. I’m just a layperson in these matters and wonder where the truth lies. I’m sure plenty others do also.[/quote]

Well, I don’t know where the “truth” lies either. No one does. But, I do have a few numbers that can shed some light on the subject.

Total TARP outlays have been $458 billion to 734 institutions, broken out as follows:

$228 billion to banks and CIT
$110 billion to Fannie/Freddie
$ 70 billion to AIG
$ 50 billion to Auto Companies

Of the BANK-related TARP, here are the stats:

$161 billion has been repaid (including Citi). There are $58 billion of planned repayments via capital raises currently in the works, scheduled to be completed by the middle of 2010. That leaves $9 billion of bank-related TARP that will likely be outstanding for at least a few more years.

Treasury has collected $9.7 billion in interest payments plus profit on warrants sold (which does not include warrants sold in BofA or Citi). Total losses – which won’t be recovered – from failed entities are $2.5 billion thus far. There are also $2.8 billion worth of TARP in which interest payments have been deferred (that is, the banks can’t make them) – so, let’s just call those losses to make things easy. So, $5.3 billion of losses (almost half of which is from CIT alone).

So, barring a cataclysm over the next six months, it’s likely that less than $20 billion of bank-related TARP will be left outstanding by mid-2010 (held by hundreds of small banks, however), and revenues (interest + sold warrants) will have exceeded expenses (charged-off TARP).

I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.

I think the Fannie/Freddie (F&F) TARP will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.

Where AIG and the Autos are concerned, I don’t have a good idea as to what’s going to happen with that crap. Do we get back half of our money one day? Maybe. I think the likelihood of getting it all back is not materially different from zero.

So, our financial system made it through the Cat 5 hurricane damaged but not sunk, but the seas are still very choppy and the government continues to wield lots of buckets to bail out water that continues to leak into the boat. I’ll be surprised if we don’t have another tropical storm before 2010 is out, but the threat of all-out collapse has been diminished significantly. But I still see very stormy seas ahead for the next couple of years. It’s not going to be pretty.

[davelj]

[quote=sdrealtor]Thanx dave. I’m just a layperson in these matters and wonder where the truth lies. I’m sure plenty others do also.[/quote]

Well, I don’t know where the “truth” lies either. No one does. But, I do have a few numbers that can shed some light on the subject.

Total TARP outlays have been $458 billion to 734 institutions, broken out as follows:

$228 billion to banks and CIT
$110 billion to Fannie/Freddie
$ 70 billion to AIG
$ 50 billion to Auto Companies

Of the BANK-related TARP, here are the stats:

$161 billion has been repaid (including Citi). There are $58 billion of planned repayments via capital raises currently in the works, scheduled to be completed by the middle of 2010. That leaves $9 billion of bank-related TARP that will likely be outstanding for at least a few more years.

Treasury has collected $9.7 billion in interest payments plus profit on warrants sold (which does not include warrants sold in BofA or Citi). Total losses – which won’t be recovered – from failed entities are $2.5 billion thus far. There are also $2.8 billion worth of TARP in which interest payments have been deferred (that is, the banks can’t make them) – so, let’s just call those losses to make things easy. So, $5.3 billion of losses (almost half of which is from CIT alone).

So, barring a cataclysm over the next six months, it’s likely that less than $20 billion of bank-related TARP will be left outstanding by mid-2010 (held by hundreds of small banks, however), and revenues (interest + sold warrants) will have exceeded expenses (charged-off TARP).

I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.

I think the Fannie/Freddie (F&F) TARP will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.

Where AIG and the Autos are concerned, I don’t have a good idea as to what’s going to happen with that crap. Do we get back half of our money one day? Maybe. I think the likelihood of getting it all back is not materially different from zero.

So, our financial system made it through the Cat 5 hurricane damaged but not sunk, but the seas are still very choppy and the government continues to wield lots of buckets to bail out water that continues to leak into the boat. I’ll be surprised if we don’t have another tropical storm before 2010 is out, but the threat of all-out collapse has been diminished significantly. But I still see very stormy seas ahead for the next couple of years. It’s not going to be pretty.

[davelj]

[quote=sdrealtor]Thanx dave. I’m just a layperson in these matters and wonder where the truth lies. I’m sure plenty others do also.[/quote]

Well, I don’t know where the “truth” lies either. No one does. But, I do have a few numbers that can shed some light on the subject.

Total TARP outlays have been $458 billion to 734 institutions, broken out as follows:

$228 billion to banks and CIT
$110 billion to Fannie/Freddie
$ 70 billion to AIG
$ 50 billion to Auto Companies

Of the BANK-related TARP, here are the stats:

$161 billion has been repaid (including Citi). There are $58 billion of planned repayments via capital raises currently in the works, scheduled to be completed by the middle of 2010. That leaves $9 billion of bank-related TARP that will likely be outstanding for at least a few more years.

Treasury has collected $9.7 billion in interest payments plus profit on warrants sold (which does not include warrants sold in BofA or Citi). Total losses – which won’t be recovered – from failed entities are $2.5 billion thus far. There are also $2.8 billion worth of TARP in which interest payments have been deferred (that is, the banks can’t make them) – so, let’s just call those losses to make things easy. So, $5.3 billion of losses (almost half of which is from CIT alone).

So, barring a cataclysm over the next six months, it’s likely that less than $20 billion of bank-related TARP will be left outstanding by mid-2010 (held by hundreds of small banks, however), and revenues (interest + sold warrants) will have exceeded expenses (charged-off TARP).

I said many moons ago (I’ll try to find the thread) that we’d likely get back 80%-110% of the bank-related TARP. I think I can tighten that band to 90%-110%.

I think the Fannie/Freddie (F&F) TARP will also get paid back, but over a much longer time horizon. Spread lenders, almost no matter how bad off they are, can always fill a hole, the only issue being how long it takes. And it’s going to take F&F a long time. To use an example, lets say that F&F charge off 10% of their portfolio (which would be a big number). Further, let’s say the average yield on the remaining 90% of their book is 5.5% and their funding costs (now borrowing at govt rates) are 2.5%. Add in 100 bps of operating expenses and you have a 200 bp spread. Here, it takes F&F 5.5 years to fill its hole (from losses) with spread income from the performing portfolio. If you assume that F&F’s losses are going to be 20% of its book, it takes them 11 years to fill the hole, and so on. So, while we’re hearing about the big “losses” coming out of F&F – which are real losses – we will get that money back… eventually… but it could be many years. We will lose in real (that is, inflation-adjusted) terms for sure.

Where AIG and the Autos are concerned, I don’t have a good idea as to what’s going to happen with that crap. Do we get back half of our money one day? Maybe. I think the likelihood of getting it all back is not materially different from zero.

So, our financial system made it through the Cat 5 hurricane damaged but not sunk, but the seas are still very choppy and the government continues to wield lots of buckets to bail out water that continues to leak into the boat. I’ll be surprised if we don’t have another tropical storm before 2010 is out, but the threat of all-out collapse has been diminished significantly. But I still see very stormy seas ahead for the next couple of years. It’s not going to be pretty.

[davelj]

[quote=bubba99]Leave us not forget that the fed is lending to banks for day to day operations at 0% to 0.5%. The banks are lending that money out at 10% to 30%. Any idiot could earn on that point spread.
[/quote]

Yeah, but… first, banks can’t fund their operations with fed funds alone, and second, only a small part of any bank’s loan portfolio is yielding between 10% and 30%. The average cost of funds for banks right now is about 2.25%, and the average yield on assets is around 6%. So, that’s a 375 bp spread before operating expenses, credit costs and taxes. Clearly, not “any idiot” can make money under these conditions, and many of them are not.

[davelj]

[quote=bubba99]Leave us not forget that the fed is lending to banks for day to day operations at 0% to 0.5%. The banks are lending that money out at 10% to 30%. Any idiot could earn on that point spread.
[/quote]

Yeah, but… first, banks can’t fund their operations with fed funds alone, and second, only a small part of any bank’s loan portfolio is yielding between 10% and 30%. The average cost of funds for banks right now is about 2.25%, and the average yield on assets is around 6%. So, that’s a 375 bp spread before operating expenses, credit costs and taxes. Clearly, not “any idiot” can make money under these conditions, and many of them are not.

[davelj]

[quote=bubba99]Leave us not forget that the fed is lending to banks for day to day operations at 0% to 0.5%. The banks are lending that money out at 10% to 30%. Any idiot could earn on that point spread.
[/quote]

Yeah, but… first, banks can’t fund their operations with fed funds alone, and second, only a small part of any bank’s loan portfolio is yielding between 10% and 30%. The average cost of funds for banks right now is about 2.25%, and the average yield on assets is around 6%. So, that’s a 375 bp spread before operating expenses, credit costs and taxes. Clearly, not “any idiot” can make money under these conditions, and many of them are not.

[davelj]

[quote=bubba99]Leave us not forget that the fed is lending to banks for day to day operations at 0% to 0.5%. The banks are lending that money out at 10% to 30%. Any idiot could earn on that point spread.
[/quote]

Yeah, but… first, banks can’t fund their operations with fed funds alone, and second, only a small part of any bank’s loan portfolio is yielding between 10% and 30%. The average cost of funds for banks right now is about 2.25%, and the average yield on assets is around 6%. So, that’s a 375 bp spread before operating expenses, credit costs and taxes. Clearly, not “any idiot” can make money under these conditions, and many of them are not.

[Author]

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