Troubled Asset Relief Program:

Status of Participants' Dividend Payments and Repurchases of Preferred Stock and Warrants

GAO-09-889T: Published: Jul 9, 2009. Publicly Released: Jul 9, 2009.

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This testimony is based primarily on certain information in our June 17, 2009, report--our fifth report under the act's mandate--which covers TARP activities as of June 12, 2009. Specifically, this statement includes information on (1) terms and rates for dividend payments from participants, (2) the dividend payments received through June 30, 2009, from participants, and (3) repurchases of preferred stock and warrants4 by participants. To do this work, we reviewed documents provided by OFS and conducted interviews with officials from OFS.

According to Treasury, as of June 30, 2009, Treasury had disbursed about $339 billion in TARP funds. Although most of the disbursements have been for the Capital Purchase Program (CPP), Treasury has utilized other programs as well. The agreements entered into under the various programs for the purchase of preferred stock entitled Treasury to receive dividends on varying terms and at varying rates. For example, according to the CPP terms for publicly held institutions, participating institutions pay Treasury quarterly dividends at a rate of 5 percent per year for the first 5 years on the preferred stock acquired by Treasury. According to Treasury, from TARP's inception through June 30, 2009, Treasury received approximately $6.7 billion in dividend payments on preferred stock acquired through the CPP, Targeted Investment Program (TIP), Automotive Industry Financing Program (AIFP), and Asset Guarantee Program (AGP). The dividend payments received are generally deposited into the General Fund of the U.S. Treasury and are not to be used to reduce the outstanding balance under the almost $700 billion TARP limit. According to Treasury records, as of June 30, 2009, 32 institutions, including 10 of the largest bank holding companies participating in TARP, had repurchased their preferred stock from Treasury for a total of about $70.1 billion. Also, as of June 30, 2009, 11 financial institutions had repurchased their warrants and 3 institutions had repurchased their warrant preferred stock from Treasury at an aggregate cost of about $20.3 million. Funds received from the repurchases of initial preferred stock are deposited into the General Fund of the U.S. Treasury and reduce the outstanding balance under the almost $700 billion TARP limit. Treasury may then issue new debt to purchase new financial instruments if it so chooses until December 31, 2009, or a later date determined by the Secretary of the Treasury under the sunset provision of the act. However, like the dividend payments, any amounts received from the repurchases of warrants and warrant preferred stock are deposited in the General Fund of the U.S. Treasury and are not to be used to reduce the outstanding balance under the almost $700 billion TARP limit. As of June 30, 2009, Treasury had disbursed approximately $339 billion in TARP funds, had approximately $102 billion outstanding in additional obligations to purchase or insure troubled assets, and had received approximately $70 billion from preferred stock repurchased by CPP participants.8 As a result, Treasury has approximately $328 billion remaining under the almost $700 billion limit on the amount of purchased or insured troubled assets that Treasury may have outstanding at any time (the almost $700 billion TARP limit reduced for $339 billion in disbursements and $102 billion in obligations, and increased by $70 billion in preferred stock repurchases).

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