2011   Financial Report of the United States Government

Notes to the Financial Statements

Note 5. TARP Direct Loans and Equity Investments, Net

The TARP was authorized by the Emergency Economic Stabilization Act of 2008 (EESA). This Act gave the Secretary of the Treasury broad flexible authority to establish the TARP to purchase and guarantee mortgages, mortgage related securities, and other troubled assets from financial institutions. This permitted the Secretary of the Treasury to inject capital into, and receive equity interests in, banks and other financial institutions. Treasury established several programs under the TARP to help stabilize the financial system, restore the flow of credit to consumers and businesses, and tackle the foreclosure crisis. Under the TARP programs, Treasury made direct loans and equity investments as well as entered into the asset guarantees program. This authority to make new commitments to purchase or guarantee troubled assets expired on October 3, 2010.

The following table lists the TARP programs and types:

Program Program Type
Capital Purchase Program Equity Investment/Subordinated Debentures
American International Group, Inc. Investment Program * Equity Investment
Targeted Investment Program Equity Investment
Automotive Industry Financing Program Equity Investment and Direct Loan
Consumer and Business Lending Initiative
Direct Loan, Subordinated Debentures and Equity Investments
Public-Private Investment Program Equity Investment and Direct Loan
Asset Guarantee Program Asset Guarantee
Housing Programs Under TARP ** Expenditure and Loss Sharing
* Formerly known as the Systemically Significant Failing Institutions Program.
** Housing Programs Under TARP are not designed to recoup money spent on loan modifications or payments on the loss sharing agreement. As such, these programs do not include direct loans, equity investments, or asset guarantees.

TARP Direct Loans and Equity Investments, Net and Asset Guarantee Program balances as of September 30, 2011, and 2010 are as follows:

Troubled Asset Relief Program as of September 30, 2011, and 2010
(In billions of dollars)
2011
2010
Direct Loans and Equity Investments, Net 80.1 142.5
Asset Guarantee Program - 2.2
Total 80.1 144.7

The Direct Loans and Equity Investments, Net represents the estimated net outstanding amount of direct loans and equity investments.

The table below is a summary of TARP loans and equity investments.

Troubled Asset Relief Program Direct Loans and Equity Investments
as of September 30, 2011 and 2010
(In billions of dollars)
Direct Loans and
Equity Investments
Subsidy Cost Allowance
Net Direct Loans and
Equity Investments
Subsidy Expense (Income)
for the Fiscal Year
 
2011
2010
2011
2010
2011
2010
2011
2010
American International Group, Inc. Investment Program 51.1 47.5 (20.7) (21.4) 30.4 26.1 1.6 (7.7)
Public-Private Investment Program 15.9 13.7 2.4 0.7 18.3 14.4 (1.9) (0.7)
Automotive Industry Financing Program 37.3 67.3 (19.4) (14.6) 17.9 52.7 9.7 (16.6)
Capital Purchase Program 17.3 49.8 (4.9) (1.5) 12.4 48.3 (1.8) 3.9
Consumer and Business Lending Initiative 0.8 0.9 0.3 0.1 1.1 1.0 (0.2) 0.3
Targeted Investment Program - - - - - - (0.2) (1.9)
Total 122.4 179.2 (42.3) (36.7) 80.1 142.5 7.2 (22.7)

American International Group, Inc. Investment Program (AIG)

Treasury provided assistance to AIG in order to prevent its disorderly failure as well as to prevent broader disruption to the financial markets. In November 2008, Treasury invested $40.0 billion in AIG's cumulative Series D perpetual cumulative preferred stock with a dividend rate of 10.0 percent compounded quarterly. On April 17, 2009, AIG and Treasury restructured their November 2008 agreement. Under the restructuring, Treasury exchanged $40.0 billion of cumulative Series D preferred stock for $41.6 billion of non-cumulative 10.0 percent Series E preferred stock. In addition to the exchange, Treasury agreed to make available an additional $29.8 billion capital facility to allow AIG to draw additional funds if necessary to assist in AIG's restructuring. As of January 14, 2011, AIG had drawn an aggregate of $27.8 billion from the capital facility. On September 30, 2010, Treasury, FRBNY, and AIG announced plans for a restructuring of the U.S. Government's investments in AIG. The restructuring, which occurred on January 14, 2011, converted Treasury's $27.8 billion investment in Series F preferred stock into $20.3 billion of interest in AIG Special Purpose Vehicles (SPVs), and 168 million shares of AIG common stock. As a result of the restructuring, Treasury under TARP also converted its AIG Series E preferred stock into 925 million shares of AIG common stock.

At the completion of the January 14, 2011, restructuring, Treasury held 1,093 million shares of AIG common stock under TARP and the General Fund held an additional 563 million shares (see Note 6—Non-TARP Investments in American International Group, Inc.) resulting in a combined total of about 1.7 billion shares (or 92.1 percent ownership) of AIG common stock. In fiscal year 2011, Treasury sold 200 million shares of AIG common stock (68 million General Funds shares and 132 million Treasury under TARP shares) for $5.8 billion, of which the General Fund and Treasury under TARP received $2.0 billion and $3.8 billion, respectively. Treasury also received $11.5 billion in distributions from the AIG SPVs in fiscal year 2011. Treasury received no payments from AIG in fiscal year 2010. At September 30, 2011, Treasury held 960 million shares of AIG common stock under TARP, and the General Fund held an additional 495 million shares, resulting in a combined total of about 1.5 billion shares of AIG common stock with a market value totaling approximately $31.9 billion, or 76.9 percent of AIG's outstanding common stock on a fully diluted basis, of which TARP owned 50.8 percent. As of September 30, 2011, Treasury also owned preferred units in an AIG SPV with an outstanding balance of $9.3 billion.

According to the terms of the preferred stock, if AIG misses four dividend payments, Treasury may appoint to the AIG Board of Directors, the greater of two members or 20.0 percent of the total number of directors of the Company. On April 1, 2010, Treasury appointed two directors to the Company's Board as a result of non-payments of dividends. The additional two directors increased the total number of AIG directors to 12. The two additional Treasury-appointed directors remained on the Board as of September 30, 2011.

Public Private Investment Program (PPIP)

The PPIP is part of Treasury's efforts to help restart the markets and provide liquidity for legacy assets. Under this program, Treasury makes equity and debt investments in investment vehicles (referred to as Public Private Investment Funds or "PPIFs") established by private investment managers. The equity investment is used to match private capital and will equal not more than 50 percent of the total equity invested. Treasury's debt commitment, at the option of the investment manager, equals to 50 percent or 100 percent of the total equity (including private equity). The PPIFs invest primarily in commercial mortgage-backed securities and non-agency residential MBS. At least 90 percent of the assets underlying any eligible asset must be situated in the United States. During fiscal year 2010, Treasury disbursed $4.9 billion as equity investment and $9.2 billion as loans to these eight PPIFs. During fiscal year 2011, Treasury disbursed $1.1 billion as equity investment and $2.3 billion as loans to these PPIFs. At September 30, 2010, Treasury had equity investment in PPIFs outstanding of $4.8 billion and loans outstanding of $8.9 billion for a total of $13.7 billion. At September 30, 2011, Treasury had equity investment in PPIFs outstanding of $5.5 billion and loans outstanding of $10.4 billion for a total of $15.9 billion. In addition, as of September 30, 2011, Treasury had legal commitments to disburse up to $4.3 billion for additional investments and loans in PPIFs.

Automotive Industry Financing Program (AIFP)

The Automotive Industry Financing Program was designed to help prevent a significant disruption of the American automotive industry, which could have had a negative effect on the economy of the United States. The various activities undertaken by Treasury in the automotive industry include:

General Motors (GM)—In fiscal year 2009, Treasury provided $49.5 billion to Old GM through various loan agreements including the initial loan for general and working capital purposes and the final loan for debtor in possession (DIP) financing while Old GM was in bankruptcy. Treasury assigned its rights in these loans (with the exception of $1.0 billion which remained in Old GM for wind down purposes and $7.1 billion that would be assumed) and previously received common stock warrants to a newly created entity New GM. New GM used the assigned loans and warrants to credit bid for substantially all of the assets of GM in a sale pursuant to Section 363 of the Bankruptcy Code (see 11 U.S.C. 363). Upon closing of the Section 363 sale, the credit bid loans and warrants were extinguished and Treasury received $2.1 billion in 9.0 percent cumulative perpetual preferred stock and 60.8 percent of the common equity interest in New GM. In addition, New GM assumed $7.1 billion of the DIP loan, simultaneously paying $0.4 billion (return of warranty program funds), resulting in a balance of $6.7 billion. The assets received by Treasury as a result of the assignment and Section 363 sale are considered recoveries of the original loans for subsidy cost estimation purposes. During fiscal year 2010, Treasury received the remaining $6.7 billion as full repayment of the DIP loan assumed. During fiscal year 2011, pursuant to a letter agreement between Treasury and New GM, New GM repurchased its preferred stock for 102.0 percent of its liquidation amount, or $2.1 billion. As a result of the New GM initial public offering (IPO), in fiscal year 2011, Treasury sold approximately 412 million shares of its GM common stock. Treasury received approximately $13.5 billion in net proceeds, and its equity stake in General Motors Company decreased from 60.8 percent to 33.3 percent. Market value of the 500 million shares of New GM common stock held (representing 32 percent equity stake in New GM) as of September 30, 2011, was $10.1 billion. On March 31, 2011, the Plan of Liquidation for Old GM became effective and Treasury's $1.0 billion loan was converted to an administrative claim. Treasury retains the right to recover additional proceeds but recoveries are dependent on actual liquidation proceeds and pending litigation. Treasury recovered $0.1 billion in fiscal year 2011 on the administrative claim. Treasury does not expect to recover any significant additional proceeds from this claim.

GMAC LLC Rights Offering—In December 2008, Treasury agreed, in principal, to lend up to $1.0 billion to Old GM for participation in a rights offering by GMAC (now known as Ally Financial, Inc.) in support of GMAC's reorganization as a bank holding company. The loan was secured by the GMAC common interest acquired in the rights offering. The loan was funded for $0.9 billion. In May 2009, Treasury exercised its exchange option under the loan and received 190,921 membership interests, representing approximately 35.36 percent of the voting interest at the time, in GMAC in full satisfaction of the loan.

Ally Financial Inc. (formerly known as GMAC Inc.)—In December 2008, Treasury purchased preferred membership interests for $5.0 billion with an 8 percent annual distribution right (dividends) from GMAC. In May 2009, Treasury had invested $7.5 billion in 9 percent Mandatory Convertible Preferred Stock in GMAC to support its ability to originate new loans to Chrysler dealers and consumers, and help address GMAC's capital needs. As of September 30, 2009, Treasury owned $13.1 billion in preferred shares in GMAC, through purchases and the exercise of warrants, in addition to 35.36 percent of the common equity in GMAC, as described previously under GMAC LLC Rights Offering.

In December 2009, Treasury invested $2.5 billion in 8 percent Trust Preferred Securities and $1.25 billion in GMAC's Series F-2 shares which have a $50 per share liquidation preference and are convertible into GMAC common stock at the option of GMAC or Treasury. Absent an optional conversion, the Series F-2 shares automatically convert to common stock after 7 years from the issuance date. In addition, as part of the December 2009 transactions, Treasury exchanged its preferred membership interests and its 9 percent Mandatory Convertible Preferred Stock for a combination of additional Series F-2 convertible shares and GMAC's common shares. The additional shares in GMAC common stock increased Treasury's ownership in GMAC from 35.36 percent to 56.3 percent.

In May 2010, GMAC changed its corporate name to Ally Financial, Inc. (Ally). As of September 30, 2010, Treasury owned $2.7 billion of Trust Preferred Securities and $11.4 billion of Series F-2 Convertible Securities in Ally, through purchases, exchanges, and the exercise of warrants, in addition to 56.3 percent of common equity in Ally. In December 2010, Treasury converted 110 million shares of the Series F-2 preferred stock into 531,850 shares of Ally's common stock.

In March 2011, Treasury sold its Trust Preferred Securities for $2.7 billion. On March 31, 2011, Treasury announced that it had agreed to be named as a selling shareholder of common stock in Ally's registration statement filed with the Securities and Exchange Commission (SEC) for a proposed initial public offering. Since March 31, 2011, Ally has filed four amendments in response to SEC comments and the public offering has not been made.

At September 30, 2011, Treasury held 981,971 shares of common stock (73.84 percent of Ally's outstanding common stock) and 119 million shares of the Series F-2 preferred securities.

Chrysler Holding LLC (Chrysler)—In January 2009, Treasury provided a $4.0 billion General Purpose Loan to a parent company of Chrysler (Chrysler Holdings). On April 30, 2009, Chrysler filed for Chapter 11 bankruptcy. In May 2009, Treasury provided an additional $1.9 billion to Chrysler under the terms of a DIP credit agreement. On June 10, 2009, substantially all of the assets of Chrysler were sold to a newly-created entity (New Chrysler). Recovery of the DIP loan is subject to the bankruptcy process associated with the Chrysler assets remaining after the sale to New Chrysler.

In June 2009, Treasury entered into a credit agreement to lend an additional $6.6 billion. Also, New Chrysler assumed $0.5 billion of the General Purpose Loan, and the balance of $3.5 billion remained outstanding from the Chrysler Holdings. As of September 30, 2009, Treasury had funded approximately $4.6 billion of the $6.6 billion in new commitments to New Chrysler. Treasury also obtained other consideration relating to these new commitments, including a 9.85 percent equity interest in New Chrysler and additional notes with principal balances of approximately $0.3 billion and $0.1 billion.

In fiscal year 2010, pursuant to the terms of a settlement agreement, Treasury received approximately $1.9 billion and subsequently wrote-off the remaining $1.6 billion of the General Purpose Loan. As of September 30, 2010, Treasury had loans outstanding from New Chrysler of $5.1 billion and owned a 9.85 percent equity interest in New Chrysler and additional notes with principal balances of approximately $0.4 billion. Additionally, as of September 30, 2010, Treasury had an interest in an old Chrysler entity as a result of the $1.9 billion DIP Loan, recovery of which is subject to the bankruptcy process associated with the Chrysler assets remaining after the sale to New Chrysler. In May 2011, New Chrysler repaid $5.1 billion, the additional notes totaling $0.4 billion and all associated interests. New Chrysler's ability to draw the remaining $2.1 billion loan commitment was terminated. In July 2011, Fiat SpA paid Treasury $0.6 billion for all of its remaining equity interest and rights relating to New Chrysler. As a result of the fiscal year 2011 transactions, Treasury has no remaining interest in New Chrysler as of September 30, 2011. Treasury continues to hold a right to receive proceeds from a bankruptcy liquidation trust but no significant cash flows are expected.

Capital Purchase Program

In October 2008, Treasury began implementation of the TARP with the Capital Purchase Program (CPP), designed to help stabilize the financial system by assisting in building the capital base of certain viable U.S. financial institutions to increase the capacity of those institutions to lend to businesses and consumers and support the economy. Under this program, Treasury purchased senior perpetual preferred stock from qualifying federally- or state-regulated banks, savings associations, and certain bank and savings and loan holding companies (Qualified Financial Institution (QFI)). In addition to the senior preferred stock, Treasury received warrants from public QFIs to purchase shares of common stock. The senior preferred stock has a stated dividend rate of 5.0 percent through year five, increasing to 9.0 percent in subsequent years thereafter. The dividends are cumulative for bank holding companies and subsidiaries of bank holding companies and non-cumulative for others and payable when and if declared by the institution's board of directors. QFIs that are Sub-chapter S corporations issued subordinated debentures in order to maintain compliance with the Internal Revenue Code. The maturity of the subordinated debentures is 30 years and interest rates are 7.7 percent for the first 5 years and 13.8 percent for the remaining years thereafter. For fiscal years 2011 and 2010, repayments totaled $30.2 billion and $81.4 billion, respectively.

The Consumer and Business Lending Initiative (CBLI)

The Consumer and Business Lending Initiative is intended to help unlock the flow of credit to consumers and small businesses. The following three programs were established to help accomplish this: Term Asset-Backed Securities Loan Facility (TALF), Small Business Administration (SBA) 7(a) Securities Purchase Program, and the Community Development Capital Initiative (CDCI).

TALF, which was created to help jump start the market for securitized consumer and small business loans, was created by the Board of Governors of the Federal Reserve System and Treasury to provide low-cost funding to investors in certain classes of ABS. Treasury participates in the program as part of Treasury's Consumer and Business Lending Initiative by providing liquidity and credit protection to the FRBNY. As part of the program, the FRBNY has entered into a put agreement with the TALF, LLC, a special purpose vehicle created by the FRBNY. In the event of a TALF borrower default, the FRBNY will seize the collateral and sell it to the TALF, LLC under this agreement. Under the TALF, the FRBNY, as implementer of the TALF program, originates loans on a non-recourse basis to holders of certain AAA rated ABS. The TALF, LLC receives a monthly fee equal to the differences between the TALF loan rate and the FRBNY's fee (spread) as compensation for entering into the put agreement. The accumulation of this fee will be used to fund purchases. In the event there are insufficient funds to purchase the collateral, Treasury committed to invest up to $20.0 billion in non-recourse subordinate notes issued by the TALF, LLC. On July 19, 2010, the Treasury commitment was reduced to $4.3 billion. Treasury disbursed $0.1 billion upon creation of the TALF, LLC and the remainder can be drawn to purchase collateral in the event the accumulated fees are not sufficient to cover purchases. As of September 30, 2011 and 2010, approximately $11.3 billion and $29.7 billion of loans due to FRBNY remained outstanding, respectively.

The SBA 7(a) Securities Purchase Program was created to provide additional liquidity to the SBA 7(a) market so that banks are able to make more small business loans. Under this program, Treasury purchases 7(a) Securities collateralized with 7(a) loans (these loans are guaranteed by the full faith and credit of the United States Government) packaged on or after July 1, 2008. As of September 30, 2010, Treasury has entered into trades to purchase about $0.4 billion, of which about $0.2 billion had settled. The remaining trades settled by December 30, 2010. In May 2011, Treasury began selling its securities to bond market investors. As of September 30, 2011, Treasury held $0.1 billion of SBA 7(a) securities.

The CDCI Initiative was created to provide additional low-cost capital to small banks to encourage more lending to small businesses. Under the terms of the initiatives, Treasury purchases senior preferred stock (or subordinated debt) from eligible CDFI financial institutions. The senior preferred stock has an initial dividend rate of 2 percent. CDFIs may apply to receive capital up to 5 percent of risk-weighted assets. To encourage repayment while recognizing the unique circumstances facing CDFIs, the dividend rate will increase to 9 percent after 8 years. CDFIs participating in the CPP, subject to certain criteria, were eligible to exchange, through September 30, 2010, their current CPP preferred shares (subordinated debt) for CDCI preferred shares (subordinated debt). As of September 30, 2010, and 2011, Treasury had $0.6 billion invested under the CDCI Initiative.

Targeted Investment Program (TIP)

The TIP was designed to prevent a loss of confidence in financial institutions that could result in significant market disruptions, threatening the financial strength of similarly situated financial institutions, impairing broader financial markets, and undermining the overall economy.

In fiscal year 2009, Treasury invested $20.0 billion in each of Bank of America and Citigroup under TIP. In December 2009, both institutions repaid the invested amounts along with dividends through the date of repayment. In fiscal year 2010, Treasury received a total of $1.1 billion in dividends on the Bank of America and Citigroup investments and proceeds of $1.2 billion from the sale of Bank of America warrants. In fiscal year 2011, Treasury sold its warrants from Citigroup under TIP for $0.2 billion, and closed the program.

Asset Guarantee Program (AGP)

The AGP provided guarantees for assets held by systemically significant financial institutions that faced a risk of losing market confidence due in large part to a portfolio of distressed or illiquid assets. The AGP was applied with extreme discretion in order to improve market confidence in the systemically significant institution and in financial markets broadly.

In January 2009, Treasury finalized the terms of a guarantee agreement with Citigroup. Under the agreement, Treasury, FDIC, and the FRBNY provided protection against the possibility of large losses on an asset pool of approximately $301.0 billion of loans and securities which remained on Citigroup's balance sheet. Treasury's guarantee was limited to $5.0 billion. As a premium for the guarantee, Citigroup issued approximately $7.0 billion of cumulative preferred stock (subsequently converted to trust preferred securities with similar terms) with an 8.0 percent stated dividend rate and a warrant for the purchase of common stock; approximately $4.0 billion and the warrant was issued to Treasury and approximately $3.0 billion was issued to the FDIC. For fiscal year 2010, the AGP's subsidy income was $1.5 billion.

On December 23, 2009, the Treasury, Federal Reserve, Federal Deposit Insurance Corporation, and Citigroup terminated this program. The Government parties did not pay any losses under the program and kept $5.2 billion of $7 billion in trust preferred securities as well as warrants for common shares that were issued by Citigroup as consideration for such guarantee. On September 29, 2010, Treasury exchanged its remaining trust preferred securities for other Citigroup trust preferred securities containing market terms to facilitate a sale. On September 30, 2010, Treasury agreed to sell its trust preferred securities held for $2.2 billion. The sale was settled on October 5, 2010, and additional warrants were sold in January 2011 for $0.07 billion.

Housing Programs under TARP

The following housing programs under TARP provide stability for both housing market and homeowners. These programs assist homeowners who are experiencing financial hardships to remain in their homes while they get back on their feet or relocate to a more sustainable living situation. These programs fall into three initiatives:

As of September 30, 2011, and 2010, Treasury has committed up to $45.6 billion for these programs. Payments made under the housing program under TARP from inception through September 30, 2011, and 2010, amounted to $2.4 billion and 0.5 billion, respectively.

For more details on the TARP, please see the Treasury's Annual Financial Report.


Last Updated:  February 16, 2012