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US may recover most TARP loans

By Jackie Calmes
New York Times / December 7, 2009

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WASHINGTON - The Treasury Department expects to recover all but $42 billion of the $370 billion it loaned to ailing companies during the financial crisis last year, with the portion loaned to banks showing a slight profit, according to a Treasury report.

The latest assessment of the bailout program, provided by two Treasury officials yesterday ahead of a report to Congress today, is vastly improved from the Obama administration’s estimates last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That estimate anticipated more bank crises.

The officials said the government could ultimately lose another $100 billion from the bailout program, if big banks need more loans or if the $700 billion TARP fund is extended to help small businesses or to avert home foreclosures.

Still, the new estimates could lower the administration’s deficit forecast for the current fiscal year, which began in October, to about $1.3 trillion, from $1.5 trillion.

The new estimates could make it easier for those in Congress who hope to use some of the TARP money to reduce joblessness and home foreclosures. They could tamp down some of the public anger that is roiling both parties as the midterm election approaches.

The improved picture is the result of higher-than-expected returns on the loans and the fact that, as the financial sector has recovered from last year’s freefall, the government has not had to use much more of its $700 billion in lending authority this year, according to the Treasury officials, who declined to be identified.

Last week, Bank of America became the latest big bank to say it was raising private capital and would soon repay its $45 billion bailout loan. Once that payment is made, Citigroup will be the last big bank tethered to the state.

The estimated $42 billion in TARP losses is a net figure that accounts for some profits to offset the losses. The Treasury officials said the government had lost about $60 billion, roughly half to Chrysler and General Motors and the other half to the insurance giant American International Group.

But the government is projecting a $19 billion profit and perhaps more on the $245 billion loaned to banks, through interest, dividends and the sale of warrants the government received as collateral.

Of course, the government’s potential losses extend beyond the Treasury’s bailout program. The Federal Reserve, for example, still holds a trillion-dollar portfolio of mortgage-backed securities whose market value is unknown.