The TARP Peace Sign

Wednesday was a rare day in Washington: the Federal government was actually cash-flow positive.

The reason, of course, is that ten major banks repaid $68 billion in TARP money. Smaller banks had previously repaid about $2 billion, so Wednesday’s action lifted total repayments to $70 billion, almost 30% of TARP support to individual banks.

TARP Peace Sign(For those who don’t get the title, this pie chart reminds me of a peace sign.)

As noted in my previous post on TARP, that means that two firms — Citigroup and Bank of America — now account for the majority of outstanding TARP support to banks.  Citigroup has received $50 billion in three transactions, and B of A has received $45 billion in two transactions. Investments in all other banks now total “only” $79 billion.

To completely free themselves from TARP, the ten major banks still have to repurchase the warrants that Treasury received as part of its investment.  For taxpayers’ sake, let’s hope that Treasury gets full value for those warrants (for my earlier thoughts on the warrants see here).

Note: Bank investments have turned out to be only a fraction of what TARP has been used for, as shown in the following graph from my prior post on TARP.

Tracking the TARP

Disclosure: I have no investments in any TARP recipients except Citigroup. As research for my continuing series on the Citigroup anomaly (latest installment here), I am currently long a small amount of Citigroup preferred and short some call options on the common.

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