October 15, 2018
Authored by: Robert Klingler
Ten years ago, on October 13, 2008, the U.S. Treasury Secretary Henry Paulson effectively locked the CEO’s of the nine largest banks in the United States in a conference room and demanded that they accept an investment from the U.S. Government. Although we had front row seats for much of the activity over the ensuing years, reading the New York Times summary of that meeting from the following day still provides a sense of just how shocking all of this was.
While the U.S. Treasury simultaneously announced its intention to also provide the possibility of investments in other banks, it was a long wait for details, particularly for privately held and Subchapter S Banks. Ultimately, over the course of the next 15 months, the U.S. Treasury invested $199 billion in 707 financial institutions across 48 states. As of October 1, 2018, the Treasury has received over $226 billion back in dividends, repayments, auction proceeds, and warrant repurchases.
Of the $199 billion in investments in 707 institutions, as of October 1, 2018, only three investments, reflecting $24 million in original investments, remain in Treasury’s portfolio. 264 institutions repaid in full and another 165 refinanced into other government programs. (The SBLF and CDFI funds were similar to the TARP CPP program, but were ultimately done under different congressional mandates. While not necessarily representative of an ultimate cash return on the Treasury’s investment, each of these funds has also provided a strong return to the Treasury.)
As with any portfolio of investments, particularly a portfolio of investments made at the beginning of the great recession in an industry that was hit hard by said great recession, there were certainly less successful investments. Ultimately 34 institutions with TARP CPP investments either were placed into receivership or filed bankruptcy. In addition, the Treasury elected to monetize its investment in another 237 institutions by selling their position in negotiated transactions or via auction.