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United States Government Accountability Office:
GAO:
Report to Congressional Committees:
November 2011:
Financial Audit:
Office of Financial Stability (Troubled Asset Relief Program) Fiscal
Years 2011 and 2010 Financial Statements:
GAO-12-169:
GAO Highlights:
Highlights of GAO-12-169, a report to congressional committees.
Why GAO Did This Study:
On October 3, 2008, the Emergency Economic Stabilization Act of 2008
(EESA) was signed into law. EESA authorized the Secretary of the
Treasury to implement the Troubled Asset Relief Program (TARP) and
established the Office of Financial Stability (OFS) within the
Department of the Treasury (Treasury) to do so. EESA requires the
annual preparation of financial statements for TARP, and further
requires GAO to audit these statements.
GAO audited OFS’s fiscal years 2011 and 2010 financial statements for
TARP to determine whether, in all material respects, (1) the financial
statements were fairly presented, and (2) OFS management maintained
effective internal control over financial reporting. GAO also tested
OFS’s compliance with selected provisions of laws and regulations.
What GAO Found:
In GAO’s opinion, OFS’s fiscal years 2011 and 2010 financial
statements for TARP are fairly presented in all material respects. GAO
also concluded that, although internal controls could be improved, OFS
maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2011. GAO found no reportable
noncompliance in fiscal year 2011 with the provisions of laws and
regulations it tested.
As of September 30, 2011 and 2010, net assets related to TARP direct
loans, equity investments, and the asset guarantee program had an
estimated value of about $80.8 billion and $145.5 billion,
respectively. In addition, for fiscal years 2011 and 2010, OFS
reported total net cost of operations of $9.5 billion (including
estimated subsidy cost of $7.2 billion) and total income from
operations of $23.1 billion (including estimated subsidy income of
$24.2 billion), respectively. The estimated net cost of TARP
transactions from inception through September 30, 2011, was $28.0
billion. In valuing TARP direct loans, equity investments, and asset
guarantee program, OFS management considered and selected assumptions
and data that it believed provided a reasonable basis for the
estimated subsidy costs (income) reported in the financial statements.
However, these assumptions and estimates are inherently subject to
substantial uncertainty arising from the likelihood of future changes
in general economic, regulatory, and market conditions. The estimates
have an added uncertainty arising from the unique nature of certain
TARP assets. As such, there will be differences between the net
estimated values of the direct loans, equity investments, and asset
guarantee program, and the amounts that OFS will ultimately realize
from these assets, and such differences may be material. These
differences will also affect TARP’s ultimate cost.
During fiscal year 2011, OFS addressed several of the internal control
issues related to the significant deficiency GAO reported for fiscal
year 2010 concerning its accounting and financial reporting processes.
However, the remaining control issues along with other control
deficiencies in this area that GAO identified in fiscal year 2011
collectively represent a continuing significant deficiency in OFS’s
internal control over its accounting and financial reporting
processes. While this deficiency is not considered a material
weakness, it merits the attention of those charged with governance of
OFS. GAO will be separately reporting to OFS on additional details
regarding this significant deficiency along with recommendations for
corrective actions.
What GAO Recommends:
GAO is not making recommendations in this report, but will be
reporting separately on the control issues identified during its audit.
In commenting on a draft of this report, OFS concurred with GAO’s
audit finding concerning a significant deficiency in its accounting
and financial reporting processes and expressed its commitment to
correcting the deficiency.
View [hyperlink, http://www.gao.gov/products/GAO-12-169]. For more
information, contact Gary T. Engel at (202) 512-3406 or engelg@gao.gov.
[End of section]
Contents:
Transmittal Letter:
Auditor's Report7:
Opinion on Financial Statements:
Opinion on Internal Control:
Compliance with Laws and Regulations:
Consistency of Other Information:
Objectives, Scope, and Methodology:
Agency Comments:
Management's Discussion and Analysis:
Financial Statements:
Balance Sheet 58:
Statement of Net Cost 59:
Statement of Changes in Net Position 60:
Statement of Budgetary Resources 61:
Notes to the Financial Statements 62:
Appendix I: Management's Report on Internal Control over Financial
Reporting:
Appendix II: Comments from the Office of Financial Stability:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
November 10, 2011:
Congressional Committees:
The accompanying auditor's report presents the results of our audit of
the fiscal years 2011 and 2010 financial statements of the Office of
Financial Stability (Troubled Asset Relief Program). The Emergency
Economic Stabilization Act (EESA) of 2008[Footnote 1] that authorized
the Troubled Asset Relief Program (TARP) on October 3, 2008, requires
that TARP, which is implemented by the Office of Financial Stability
(OFS),[Footnote 2] annually prepare and submit to Congress and the
public audited fiscal year financial statements that are prepared in
accordance with generally accepted accounting principles.[Footnote 3]
EESA further requires that GAO audit TARP's financial statements
annually.[Footnote 4] We are also required under EESA to report at
least every 60 days on the findings resulting from our oversight of
the actions taken under TARP.[Footnote 5] This report responds to both
of these requirements.
This report contains our (1) unqualified opinion on OFS's fiscal years
2011 and 2010 financial statements for TARP; (2) opinion that,
although certain controls could be improved, OFS maintained, in all
material respects, effective internal control over financial reporting
as of September 30, 2011; and (3) conclusion that our tests of OFS's
compliance with selected provisions of laws and regulations for fiscal
year 2011 disclosed no instances of noncompliance. The accompanying
report also provides an overview of a continuing significant
deficiency[Footnote 6] in OFS's internal control over financial
reporting that we believe merits the attention of those charged with
governance of OFS. We will be reporting separately to OFS on more
detailed information concerning this significant deficiency along with
recommended corrective actions.
Since its inception, OFS has initiated a broad range of activities
under TARP. Specific initiatives have included injecting capital into
key financial institutions, implementing programs to address problems
in securitization markets, providing assistance to the automobile
industry and American International Group, Inc. (AIG), and offering
incentives for modifying residential mortgages. These initiatives are
described in more detail in the footnotes to OFS's financial
statements and Management's Discussion and Analysis included in this
report.
On December 9, 2009, the Secretary of the Treasury extended the
authorities to purchase and guarantee troubled assets under EESA
through October 3, 2010.[Footnote 7] However, the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act), which was
signed into law on July 21, 2010, set a reduced limit on aggregate
TARP purchases and guarantees, and prohibited OFS from incurring any
obligations for TARP programs that were not initiated prior to June
25, 2010.[Footnote 8] During fiscal year 2011, as OFS continued to
wind down its activities, it focused principally on managing remaining
investments and helping homeowners avoid preventable foreclosures.
As of September 30, 2011 and 2010, OFS reported net assets related to
TARP direct loans, equity investments, and the asset guarantee program
of $80.8 billion and $145.5 billion, respectively, which is net of a
subsidy cost allowance of $42.3 billion and $36.7 billion,
respectively. The subsidy cost allowance represents the difference
between the amounts paid by OFS for the direct loans and equity
investments and the reported value of such assets. In addition, for
fiscal years 2011 and 2010, OFS reported total net cost of operations
of $9.5 billion (including estimated subsidy cost of $7.2 billion) and
total income from operations of $23.1 billion (including estimated
subsidy income of $24.2 billion), respectively.[Footnote 9] The
estimated net cost of TARP transactions from inception through
September 30, 2011, was $28.0 billion. This net cost primarily
consists of net subsidy costs on direct loans and/or equity
investments in automobile companies and AIG, partially offset by the
net subsidy income related to TARP's bank support and credit market
programs.
OFS management considered and selected assumptions and data that it
believed provided a reasonable basis for the estimated costs reported
in the financial statements. However, these assumptions and estimates
are inherently subject to substantial uncertainty arising from the
likelihood of future changes in general economic, regulatory, and
market conditions. The estimates have an added uncertainty arising
from the unique nature of certain TARP assets. As such, there will be
differences between the net estimated values of the direct loans,
equity investments, and asset guarantee program as of September 30,
2011 and 2010, and the amounts that OFS will ultimately realize from
these assets, and such differences may be material. These differences
will also affect TARP's ultimate cost. Further, TARP's ultimate cost
will change as OFS continues to incur costs relating to its Treasury
Housing Programs.
We are sending copies of this report to the Secretary of the Treasury;
Assistant Secretary for Financial Stability; Financial Stability
Oversight Board; Acting Special Inspector General for TARP; Director
of the Office of Management and Budget; interested congressional
committees and members; and others. In addition, the report is
available at no charge on the GAO website at [hyperlink,
http://www.gao.gov].
If you have questions about this report, please contact me at (202)
512-3406 or engelg@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report.
Signed by:
Gary T. Engel:
Director:
Financial Management and Assurance:
List of Committees:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Vice Chairman:
Committee on Appropriations:
United States Senate:
The Honorable Tim Johnson:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The Honorable Kent Conrad:
Chairman:
The Honorable Jeff Sessions:
Ranking Member:
Committee on the Budget:
United States Senate:
The Honorable Max Baucus:
Chairman:
The Honorable Orrin G. Hatch:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Harold Rogers:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Committee on Appropriations:
House of Representatives:
The Honorable Paul Ryan:
Chairman:
The Honorable Chris Van Hollen:
Ranking Member:
Committee on the Budget:
House of Representatives:
The Honorable Spencer Bachus:
Chairman:
The Honorable Barney Frank:
Ranking Member:
Committee on Financial Services:
House of Representatives:
The Honorable Dave Camp:
Chairman:
The Honorable Sander Levin:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
To the Assistant Secretary for Financial Stability:
In accordance with the Emergency Economic Stabilization Act of 2008
(EESA),[Footnote 10] we are required to audit the financial statements
of the Troubled Asset Relief Program (TARP), which is implemented by
the Office of Financial Stability (OFS).[Footnote 11] In our audit of
OFS's financial statements for TARP for fiscal years 2011 and 2010, we
found:
* the financial statements are presented fairly, in all material
respects, in conformity with U.S. generally accepted accounting
principles;
* although internal controls could be improved, OFS maintained, in all
material respects, effective internal control over financial reporting
as of September 30, 2011; and:
* no reportable noncompliance in fiscal year 2011 with provisions of
laws and regulations we tested.
The following sections discuss in more detail (1) these conclusions;
(2) our conclusion on OFS Management's Discussion and Analysis (MD&A)
and other required supplementary and other accompanying information;
(3) our audit objectives, scope, and methodology; and (4) OFS's
comments on a draft of this report. In addition to our responsibility
to audit OFS's annual financial statements for TARP, we also are
required under EESA to report at least every 60 days on the findings
resulting from our oversight of the actions taken under TARP.[Footnote
12] This report responds to both of these requirements. We have issued
numerous other reports on TARP in connection with this 60-day
reporting responsibility which can be found on GAO's website at
[hyperlink, http://www.gao.gov].
Opinion on Financial Statements:
OFS's financial statements for TARP, including the accompanying notes,
present fairly, in all material respects, in conformity with U.S.
generally accepted accounting principles, OFS's assets, liabilities,
and net position as of September 30, 2011 and 2010, and its net cost
of operations, changes in net position, and budgetary resources for
fiscal years 2011 and 2010.
As discussed in notes 2 and 6 to OFS's financial statements for TARP,
the valuation of TARP direct loans, equity investments, and the asset
guarantee program is based on estimates using economic and financial
credit subsidy models. The estimates use entity-specific as well as
relevant market data as the basis for assumptions about future
performance, and incorporate an adjustment for market risk to reflect
the variability around any unexpected losses. In valuing the direct
loans, equity investments, and the asset guarantee program, OFS
management considered and selected assumptions and data that it
believed provided a reasonable basis for the estimated subsidy
allowance and related subsidy cost or income reported in the financial
statements.[Footnote 13] However, there are a large number of factors
that affect these assumptions and estimates, which are inherently
subject to substantial uncertainty arising from the likelihood of
future changes in general economic, regulatory, and market conditions.
The estimates have an added uncertainty resulting from the unique
nature of certain TARP assets. As such, there will be differences
between the net estimated values of the direct loans, equity
investments, and asset guarantee program as of September 30, 2011 and
2010, that totaled $80.8 billion and $145.5 billion, respectively, and
the amounts that OFS will ultimately realize from these assets, and
such differences may be material. These differences will also affect
TARP's ultimate cost. Further, TARP's ultimate cost will change as OFS
continues to incur costs relating its Treasury Housing Programs.
[Footnote 14]
As discussed in note 1 to the financial statements, while OFS's
financial statements for TARP reflect activity of OFS in implementing
TARP, including providing resources to various entities to help
stabilize the financial markets, the statements do not include the
assets, liabilities, or results of operations of these entities in
which OFS has a significant equity interest. According to OFS
officials, OFS's investments were not made to engage in the business
activities of the respective entities, and OFS has determined that
none of these entities meet the criteria for a federal entity.
Opinion on Internal Control:
Although certain internal controls could be improved, OFS maintained,
in all material respects, effective internal control over financial
reporting as of September 30, 2011, that provided reasonable assurance
that misstatements, losses, or noncompliance material in relation to
the financial statements would be prevented or detected and corrected
on a timely basis. Our opinion on internal control is based on
criteria established under 31 U.S.C. § 3512 (c), (d), commonly known
as the Federal Managers' Financial Integrity Act (FMFIA).
During fiscal year 2011, OFS addressed several of the internal control
issues related to the significant deficiency[Footnote 15] we reported
for fiscal year 2010 concerning its accounting and financial reporting
processes. However, the remaining control issues along with additional
control deficiencies in this area that we identified in fiscal year
2011 collectively represent a continuing significant deficiency in
OFS's internal control over its accounting and financial reporting
processes. Specifically, while OFS improved its review and approval
process for preparing its financial statements, notes, and MD&A for
TARP for fiscal year 2011, we continued to identify incorrect amounts
and inconsistent disclosures in OFS's draft financial statements,
notes, and MD&A that were significant, but not material, and that were
not detected by OFS. For fiscal year 2011, we also continued to
identify instances where other OFS accounting and financial reporting
procedures were not complete or effectively implemented.
OFS had other controls over TARP transactions and activities that
reduced the risk of misstatements resulting from these deficiencies.
For significant errors and issues that were identified, OFS revised
the financial statements, notes, and MD&A, as appropriate. Properly
designed and implemented controls over the accounting and financial
reporting processes are key to providing reasonable assurance
regarding the reliability of the balances and disclosures reported in
the financial statements and related notes in conformity with
generally accepted accounting principles. Misstatements may occur in
other financial information reported by OFS and not be prevented or
detected by OFS because of this significant deficiency.
The significant deficiency identified in fiscal year 2011, although
not considered to be a material weakness, is important enough to merit
the attention of those charged with governance of OFS. We will be
reporting additional details concerning this significant deficiency
separately to OFS management, along with some recommendations for
corrective actions and an assessment of the status of OFS's actions to
implement our previous recommendations.[Footnote 16] During our fiscal
year 2011 audit, we also identified another deficiency in OFS's system
of internal control that we consider not to be a material weakness or
significant deficiency, and we will also report details on this matter
along with a recommendation for corrective action. We have
communicated these deficiencies to management and will follow up in
our fiscal year 2012 audit on OFS's progress in implementing our
recommendations.
Compliance with Laws and Regulations:
Our tests of OFS's compliance with selected provisions of laws and
regulations for fiscal year 2011 disclosed no instances of
noncompliance that would be reportable under U.S. generally accepted
government auditing standards. The objective of our audit was not to
provide an opinion on overall compliance with laws and regulations.
Accordingly, we do not express such an opinion.
Consistency of Other Information:
OFS's MD&A, other required supplementary information, and other
accompanying information contain a wide range of information, some of
which is not directly related to the financial statements. We did not
audit and we do not express an opinion on this information. However,
we compared this information for consistency with the financial
statements and discussed the methods of measurement and presentation
with OFS officials. On the basis of this limited work, we found no
material inconsistencies with the financial statements, U.S. generally
accepted accounting principles, or the form and content guidance in
Office of Management and Budget Circular No. A-136, Financial
Reporting Requirements.
Objectives, Scope, and Methodology:
OFS management is responsible for (1) preparing the financial
statements in conformity with U.S. generally accepted accounting
principles; (2) establishing and maintaining effective internal
control over financial reporting, and evaluating its effectiveness;
and (3) complying with applicable laws and regulations. OFS management
evaluated the effectiveness of OFS's internal control over financial
reporting as of September 30, 2011, based on the criteria established
under FMFIA. OFS management's assertion based on its evaluation is
included in appendix I.
We are responsible for planning and performing the audit to obtain
reasonable assurance and provide our opinion about whether (1) OFS's
financial statements are presented fairly, in all material respects,
in conformity with U.S. generally accepted accounting principles and
(2) OFS management maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2011. We
are also responsible for (1) testing compliance with selected
provisions of laws and regulations that have a direct and material
effect on the financial statements and (2) performing limited
procedures with respect to certain other information accompanying the
financial statements.
In order to fulfill these responsibilities, we:
* examined, on a test basis, evidence supporting the amounts and
disclosures in the financial statements;
* assessed the accounting principles used and significant estimates
made by management;
* evaluated the overall presentation of the financial statements;
* obtained an understanding of the entity and its operations,
including its internal control over financial reporting;
* considered OFS's process for evaluating and reporting on internal
control over financial reporting that OFS is required to perform by
FMFIA and Section 116(c) of EESA;
* assessed the risk that a material misstatement exists in the
financial statements and the risk that a material weakness exists in
internal control over financial reporting;
* evaluated the design and operating effectiveness of internal control
over financial reporting based on the assessed risk;
* tested relevant internal control over financial reporting;
* tested compliance with selected provisions of the following laws and
regulations: EESA, as amended; the Antideficiency Act; the Federal
Credit Reform Act of 1990; the Dodd-Frank Wall Street Reform and
Consumer Protection Act; and the Purpose Statute; and:
* performed such other procedures as we considered necessary in the
circumstances.
An entity's internal control over financial reporting is a process
effected by those charged with governance, management, and other
personnel, the objectives of which are to provide reasonable assurance
that (1) transactions are properly recorded, processed, and summarized
to permit the preparation of financial statements in conformity with
U.S. generally accepted accounting principles, and assets are
safeguarded against loss from unauthorized acquisition, use, or
disposition; and (2) transactions are executed in accordance with the
laws governing the use of budget authority and other laws and
regulations that could have a direct and material effect on the
financial statements.
We did not evaluate all internal controls relevant to operating
objectives as broadly established under FMFIA, such as those controls
relevant to preparing statistical reports and ensuring efficient
operations. We limited our internal control testing to testing
controls over financial reporting. Our internal control testing was
for the purpose of expressing an opinion on the effectiveness of
internal control over financial reporting and may not be sufficient
for other purposes. Consequently, our audit may not identify all
deficiencies in internal control over financial reporting that are
less severe than a material weakness. Because of inherent limitations,
internal control may not prevent or detect and correct misstatements
due to error or fraud, losses, or noncompliance. We also caution that
projecting any evaluation of effectiveness to future periods is
subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
We did not test compliance with all laws and regulations applicable to
OFS. We limited our tests of compliance to selected provisions of laws
and regulations that have a direct and material effect on the
financial statements for fiscal year 2011. We caution that
noncompliance may occur and not be detected by these tests and that
such testing may not be sufficient for other purposes.
We performed our audit in accordance with U.S. generally accepted
government auditing standards. We believe our audit provides a
reasonable basis for our opinions and other conclusions.
Agency Comments:
In commenting on a draft of this report, the Assistant Secretary,
Office of Financial Stability, stated that OFS concurred with GAO's
audit finding concerning a significant deficiency in its internal
control over financial reporting that GAO identified. He also stated
that OFS is committed to correcting the deficiency. The complete text
of OFS's comments is reprinted in its entirety in appendix II.
Signed by:
Gary T. Engel:
Director:
Financial Management and Assurance:
November 4, 2011:
[End of section]
Management's Discussion and Analysis:
Executive Summary:
Treasury's Office of Financial Stability (OFS) presents to the reader
the Fiscal Year 2011 Agency Financial Report for the Troubled Asset
Relief Program (TARP), established by the Department of the Treasury
pursuant to the Emergency Economic Stabilization Act of 2008 (EESA).
Three years after the establishment of the TARP, substantial progress
continues to be made in stabilizing the financial system and OFS is
unwinding the extraordinary assistance that was provided during the
crisis.
Three years ago, the U.S. financial system was at risk of collapse and
many major financial institutions were at risk of failure. Markets had
ceased to function. Without immediate and forceful government action,
our country faced the possibility of a second Great Depression, which
would have had profound consequences for all Americans.
In this environment of fear and panic, TARP was created as a central
part of a series of emergency measures. The goal of TARP, along with
other federal government actions, was to stop the panic and restore
stability to the U.S. financial system. TARP's initiatives were done
faster, and at a much lower cost, than many anticipated.
As of October 3, 2010, OFS' authority to make new commitments under
TARP expired. TARP, in conjunction with other federal government
actions, helped to unfreeze the markets for credit and capital,
bringing down the cost of borrowing for businesses, individuals, and
state and local governments, restoring confidence in the financial
system and restarting economic growth.
During fiscal year 2011, OFS focused principally on (i) exiting
remaining investments in a timely and orderly manner consistent with
the duty to promote financial stability and protect taxpayers'
interests that maximizes the return for taxpayers, and (ii) continuing
to help homeowners avoid preventable foreclosures.
In fiscal year 2011, OFS' progress included the following:
* The series of programs that OFS launched to help stabilize the
nation's banking institutions are now producing a profit to taxpayers.
A total of $245 billion was invested in banking institutions pursuant
to several TARP initiatives. Since its inception and through September
30, 2011, OFS has collected approximately $258 billion through
repayments, sales, dividends, interest, and other income --
approximately $13 billion more than disbursements -- under these
initiatives including collections for the Asset Guarantee Program for
which nothing was disbursed by OFS.
* OFS reduced its stake in General Motors Company by 50 percent
through General Motors' highly successful Initial Public Offering with
OFS receiving $13.5 billion from the sale of a portion of its General
Motors common stock holdings. OFS has exited its investment in
Chrysler Group, as Chrysler Group repaid its loans six years earlier
than the loan's maturity date. To date, OFS has collected more than
$40 billion (including repayments, sales, dividends, interest and
other income) of the $80 billion invested in companies related to the
auto industry.
* OFS, working with other federal entities, closed a major
restructuring plan for American International Group, Inc. (AIG),
marking a significant milestone in the company's turnaround and
putting OFS in a better position to recover its investment in AIG. In
May
2011, Treasury completed the sale of 200 million shares (132.0 million
shares were OFS' shares) of AIG common stock, reducing Treasury's
percentage ownership of AIG's outstanding shares from approximately 92
percent to 77 percent; and leaving OFS owning 960 million shares or
approximately 50.8 percent of AIG's common stock equity on a fully
diluted basis.
As a result of improved financial conditions of TARP participants,
earlier than expected asset repayments, lower utilization of the
program and careful stewardship, the estimated cost of TARP is
significantly below original projections. In the August 2009
Midsession Review of the President's 2010 Budget, the lifetime cost of
TARP, based on budget scoring conventions, was projected to be $341
billion (assuming the full $700 billion of TARP authority was
utilized). In the 2011 President's Budget (released in February 2010),
the lifetime cost of TARP had decreased to $116.8 billion (assuming
$546 billion of the $700 billion TARP authority was utilized). In the
2012 President's Budget (released in February 2011), the lifetime cost
of TARP had decreased to $48.5 billion (assuming $474.8 billion of the
TARP authority was utilized). The most recent estimates as of
September 30, 2011, reflect a lifetime cost included in the budget of
$70.2 billion, based on utilizing $470 billion of the TARP authority.
[Footnote 1]
The estimated lifetime cost of TARP reflects several factors,
including the cost of the initiatives to help homeowners stay in their
homes, for which $45.6 billion has been committed, of which $2.4
billion has been disbursed. OFS' housing program disbursements were
never intended to be recovered and OFS does not expect them to result
in any repayments. The estimated lifetime cost also reflects costs
related to investments in the auto companies and AIG. These costs
fluctuate in large part due to market prices of common stock, and
declines in market prices largely account for the increase in the
estimated lifetime cost of TARP from the estimates in the 2012
President's Budget. These costs are offset in part by income on TARP
investments in banks and other programs. Note that the lifetime cost
of TARP, based on budget scoring conventions, differs from the cost
included in the OFS financial statements. Estimates of lifetime costs
assume that all planned expenditures are made. By contrast, the TARP
financial statement costs are based on transactions through September
30, 2011.
The reported cost of TARP activities from inception, on October 3,
2008, through September 30, 2011, based on the OFS financial
statements, was $28.0 billion. Unlike the federal budget cost
estimate, this reflects only transactions through September 30, 2011.
Thus, it does not include the committed but undisbursed funds for
housing programs as well as other programs all of which are included
in the expected lifetime cost for budget purposes. The $28.0 billion
cost consists of $9.5 billion of reported TARP net cost in the OFS
financial statements for fiscal year 2011; $23.1 billion of reported
TARP net income for fiscal year 2010 and the $41.6 billion of reported
TARP net cost for the period from inception through September 30,
2009. The change of $9.5 billion since fiscal year 2010 is primarily
due to declines in the value of OFS's investments in GM, Ally
Financial, and AIG, and continued funding of the Treasury Housing
Programs Under TARP.
Since its inception, TARP has disbursed $413.4 billion in direct
loans, equity investments and for the Treasury Housing Programs Under
TARP, collected $276.9 billion from repayments and sales, and reported
$20.4 billion in dividends, interest and fees, $9.1 billion in warrant
sales, and $9.7 billion in net proceeds from the sale and repurchase
of assets in excess of costs. As of September 30, 2011, TARP had
$122.4 billion in gross outstanding direct loans and equity
investments, which are valued at $80.1 billion. In addition, from
inception through September 30, 2011, TARP incurred costs related to
Treasury housing programs of $2.8 billion and administrative costs of
$0.8 billion.
OFS continues to provide detailed information about TARP to ensure the
highest level of transparency. OFS published a Two-Year Retrospective
Report on the Troubled Asset Relief Program on October 5, 2010, and a
corresponding Three-Year Anniversary Report on October 3, 2011. These
reports include detailed information on TARP as well as the federal
government's additional emergency measures to address the 2008
financial crisis. OFS also publishes a monthly report on the program,
a monthly report on its housing initiatives and a variety of other
reports. Please refer to these documents at: [hyperlink,
http://www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/agency_reports/Pages/default.aspx].
Background, Mission, and OFS Organization Structure:
In order to appreciate the effects of the TARP and the concentrated
efforts of the Administration to combat the financial crisis, it is
useful to examine the origin and causes of the crisis.
In September 2008, the nation was in the midst of one of the worst
financial crises in our history. The financial institutions and
markets that Americans rely upon to protect their savings, help
finance their children's education, and help pay their bills, and that
businesses rely upon to make
payroll, build inventories, fund new investment, and create new jobs,
were threatened, unlike at any time since the Great Depression. Across
the country, people were rapidly losing confidence in our financial
system and in the federal government's ability to safeguard their
economic future.
The causes of the crisis will be studied for years, and this report is
not meant to provide a comprehensive analysis of why the crisis
occurred. But some reasons are clear. Over the two decades preceding
the crisis, the financial system had grown rapidly in an environment
of economic growth and stability. Risks grew in the system without
adequate transparency. Lax regulations and loopholes in supervision
let firms become highly leveraged and take on too much risk. Ample
credit around the world fueled an unsustainable housing boom in the
first half of the last decade. When the housing market inevitably
turned down, starting in 2006, the pace of mortgage defaults
accelerated at an unprecedented rate. By mid 2007, rising mortgage
defaults were undermining the performance of many investments held by
major financial institutions.
The crisis began in the summer of 2007 and gradually increased in
intensity and momentum over the course of the following year. A series
of major financial institutions, including Countrywide Financial, Bear
Stearns, and IndyMac, were purchased under duress or failed; and
Fannie Mae and Freddie Mac, the largest purchasers and guarantors of
home loans in the mortgage market, came under severe stress.
By September 2008, for the first time in 80 years, the U.S. financial
system was at risk of collapse. Using authority granted in July 2008,
the Federal Housing Finance Agency placed Fannie Mae and Freddie Mac
into conservatorship on September 7, 2008. A growing sense of panic
was producing the classic signs of a generalized run on the banks
People's trust and confidence in the stability of major institutions,
and the capacity of the federal government to contain the damage, were
vanishing.
The U.S. system of regulation and supervision had failed to constrain
the excessive use of leverage and the level of risk in the financial
system and the United States entered this crisis without adequate
tools to manage it. The Executive Branch did not have existing options
for managing failures of systemically important non-bank financial
institutions.
The Department of the Treasury, the Federal Reserve Board, the Federal
Deposit Insurance Corporation (FDIC), and other federal government
bodies undertook an array of emergency actions to prevent a collapse
and the dangers posed to consumers, businesses, and the broader economy.
However, the severe conditions our nation faced required additional
resources and authorities. Therefore, the Bush Administration proposed
the Emergency Economic Stabilization Act (EESA) to create the TARP in
late September, and with the support of Democrats and Republicans in
Congress, it was enacted into law on October 3, 2008.
EESA established the Office of Financial Stability (OFS) within the
Office of Domestic Finance of the Department of the Treasury
(Treasury) to implement the TARP. The mission of OFS is to carry out
the authorities given to the Secretary of the Treasury to implement
the TARP. Section 101 of EESA authorized the Secretary of the Treasury
to establish the TARP to "purchase, and to make and fund commitments
to purchase, troubled assets from any financial institution, on terms
and conditions as are determined by the Secretary". EESA defines the
terms "troubled assets" and "financial institution" and provides other
requirements that must be met for any such purchase. Section 102 of
EESA also provides authority for a guarantee program for troubled
assets. Section 109 of EESA provides authority to maximize assistance
for homeowners. The enactment of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the Dodd-Frank Act) in July 2010 reduced
total TARP purchase authority from $700 billion to a cumulative $475
billion.
Final purchase authority to make new commitments under TARP expired on
October 3, 2010. This means no new commitments can be made. There is,
however, still significant work to be done to implement commitments
made prior to the October 3 deadline but not yet fully funded. For
those assets already purchased, OFS will continue to wind down TARP
and manage the remaining TARP investments in order to recover as much
of taxpayers' funds as possible. OFS is headed by the Assistant
Secretary for Financial Stability, appointed by the President with
the advice and consent of the Senate. Reporting to the Assistant
Secretary for Financial Stability are six major organizations: the
Chief Investment Officer, the Chief Financial Officer, the Chief of
Operations, the Chief of Homeownership Preservation, the Chief of OFS
Internal Review and the Chief Reporting Officer. A Chief Counsel's
Office reports to the Assistant Secretary and to the Office of the
General Counsel in the Department of Treasury.
The OFS organization chart is shown below:
Assistant Secretary for Financial Stability:
Chief Counsel.
Reporting to Assistant Secretary for Financial Stability:
Chief Investment Officer;
Chief Financial Officer;
Chief of Operations;
Chief of Home Ownership Preservation;
Chief of OFS Internal Review;
Chief Reporting Officer.
The Office of the Chief Investment Officer (CIO) is responsible for
program development and the execution and management of all
investments made by either purchasing or insuring "troubled
assets" pursuant to EESA, other than TARP housing programs.
The Office of the Chief Financial Officer (CFO) has lead
responsibility within OFS for budget formulation and execution, cash
management, accounting, financial systems, financial reporting,
program and internal metrics analytics, modeling cash flows, and
internal controls.
The Office of the Chief of Operations is responsible for developing
the operating infrastructure and managing internal operations in OFS.
The Office of the Chief of Homeownership Preservation is responsible
for identifying opportunities to help homeowners and overseeing
homeownership programs while also protecting taxpayers.
The Office of Internal Review (OIR) is responsible for identifying the
most significant risks that the TARP faces, both internally and
externally. In addition, OIR is responsible for verifying that
internal controls are present and functioning correctly and for
monitoring TARP recipient and external entity compliance with various
statutory and regulatory requirements.
The Office of the Chief Reporting Officer is responsible for periodic
reports to the Congress as required by EESA.
The Office of the Chief Counsel reports functionally to the Office of
General Counsel at the Department of the Treasury and provides legal
advice to the Assistant Secretary. The Office is involved in the
structuring of OFS programs and activities to ensure compliance with
EESA and with other laws and regulations. The Office of the Chief
Counsel is also responsible for coordinating OFS' work with the
external oversight entities including the Government Accountability
Office (GAO), the Special Inspector General for TARP (SIGTARP), the
Financial Stability Oversight Board and the Congressional Oversight
Panel (COP) through the end of its existence on April 3, 2011.
OFS is not envisioned as a permanent organization, so to the maximum
extent possible when economically efficient and appropriate, OFS
utilizes private sector expertise in support of the execution of TARP
programs. Fannie Mae and Freddie Mac accounted for more than half of the
fiscal year 2011 administrative cost ($173 million of $315 million) to
assist in the administration and compliance oversight, respectively,
of the Making Home Affordable Program. Additionally, asset managers
were hired to serve as financial agents in assisting with managing the
assets associated with several TARP programs. Private sector firms
were also engaged to assist with the significant volume of work
associated with the TARP in the areas of custodial services,
accounting and internal controls, modeling, administrative support,
facilities, legal advisory, financial advisory, and information
technology.
Overview of TARP for Fiscal Year 2011:
OFS Operational Goals:
EESA provided the Secretary of the Treasury with the authorities and
facilities to help restore liquidity and stability to the U.S.
financial system. EESA also provided specific authority to take
certain actions to prevent avoidable foreclosures.
In light of this statutory direction, OFS established the following
operational goals for the TARP and developed a number of programs to
help stabilize the U.S. financial system and the housing market:
1. Ensure the overall stability and liquidity of the financial system:
a. Make capital available to viable institutions;
b. Provide targeted assistance as needed;
c. Increase liquidity and volume in securitization markets.
2. Prevent avoidable foreclosures and help preserve homeownership.
3. Protect taxpayer interests.
4. Promote transparency.
Details on programs developed in support of these Operational Goals
can be found later in this Management's Discussion and Analysis under
Operational Goals.
Fiscal Year 2011 Financial Summary and Cumulative Net Income:
EESA provided authority for the TARP to purchase or guarantee up to
$700 billion in troubled assets.[Footnote 2] EESA spending authority
would have terminated December 30, 2009; however, as authorized under
Section 120(b) of EESA, the Secretary of the Treasury certified the
extension of
TARP authority until October 3, 2010, with the submission of a written
certification to Congress.
The Dodd-Frank Act[Footnote 3] amended EESA by capping total purchase
and guarantee authority at a cumulative $475 billion and limiting any
new obligations only to programs or initiatives that were initiated
prior to June 25, 2010. OFS reduced the TARP program allocations to
conform to these limitations.
Based on operations for the year ended September 30, 2011, OFS reports
the following key results:
* Since its inception, TARP has disbursed $413.4 billion in direct
loans, equity investments and for the Treasury Housing Programs Under
TARP.
* In fiscal year 2011, OFS disbursed $23.8 billion for loans and
equity investments as well as $1.9 billion in payments for Treasury
Housing Programs Under TARP, and reported net cost of operations of
$9.5 billion.
* During fiscal year 2011, OFS received $72.8 billion from repayments
of loans and repurchases and sales of investments.
* As of September 30, 2011, OFS reported $80.8 billion for the value
of loans, equity investments, and the asset guarantee program.
Results of TARP Operations (Fiscal Year 2011 and Fiscal Year 2010):
OFS' fiscal year 2011 net cost of operations of $9.5 billion includes
the reported net cost related to loans, equity investments, and other
credit programs. For the fiscal year ended September 30, 2011,
OFS reported net subsidy income for five programs — the Capital
Purchase Program (CPP), the Targeted Investment Program (TIP), the
Community Development Capital Initiative (CDCI), the Term Asset-Backed
Securities Loan Facility (TALF), and the Public-Private Investment
Program (PPIP). These programs collectively reported net subsidy
income of $4.1 billion. Also, for the fiscal year ended September 30,
2011, OFS experienced net subsidy cost for four programs — the Asset
Guarantee Program (AGP), the American International Group, Inc.
Investment Program, the Automotive Industry Financing Program (AIFP),
and the Federal Housing Agency Refinance Program totaling $11.3
billion. Fiscal year 2011 expenses for the Treasury Housing Programs
Under TARP of $1.9 billion and administrative expenses of $0.3 billion
bring the total reported fiscal year net cost of operations to $9.5
billion, as shown in Table 1. For the fiscal year ended September 30,
2010, the net income from operations was $23.1 billion as reflected in
Table 1. These net income and net cost amounts reported in the
financial statements reflect only transactions through September
30, 2011 and September 30, 2010, respectively, and therefore are
different than lifetime cost estimates made for budgetary purposes.
Table 1: Net Income (Cost) of TARP Operations (Dollars in billions)[A]:
Bank Support Programs:
TARP Program: Capital Purchase Program;
For the Year Ended September 30, 2011: $1.8
For the Year Ended September 30, 2010: ($3.9)
From TARP's Inception through September 30, 2011[B]: $13.0
TARP Program: Targeted Investment Program;
For the Year Ended September 30, 2011: $0.2
For the Year Ended September 30, 2010: $1.9
From TARP's Inception through September 30, 2011[B]: $4.0
TARP Program: Asset Guarantee Program;
For the Year Ended September 30, 2011: [Empty];
For the Year Ended September 30, 2010: $1.5
From TARP's Inception through September 30, 2011[B]: $3.7
TARP Program: Community Development Capital Initiative[C];
For the Year Ended September 30, 2011: $0.1
For the Year Ended September 30, 2010: ($0.3)
From TARP's Inception through September 30, 2011[B]: ($ 0.2)
Credit Market Programs:
TARP Program: Public-Private Investment Program;
For the Year Ended September 30, 2011: $1.8
For the Year Ended September 30, 2010: $0.7
From TARP's Inception through September 30, 2011[B]: $2.5
TARP Program: Term Asset-Backed Securities Loan Facility[C];
For the Year Ended September 30, 2011: $0.1
For the Year Ended September 30, 2010: [Empty];
From TARP's Inception through September 30, 2011[B]: $0.4
TARP Program: SBA 7(a) Securities Purchase Program[C];
For the Year Ended September 30, 2011: [Empty];
For the Year Ended September 30, 2010: [Empty];
From TARP's Inception through September 30, 2011[B]: [Empty].
Other Programs:
TARP Program: Automotive Industry Financing Program;
For the Year Ended September 30, 2011: ($9.7)
For the Year Ended September 30, 2010: $16.6
From TARP's Inception through September 30, 2011[B]: ($23.6)
TARP Program: American International Group Investment Program;
For the Year Ended September 30, 2011: ($1.6)
For the Year Ended September 30, 2010: $7.7
From TARP's Inception through September 30, 2011[B]: ($24.3)
TARP Program: FHA-Refinance Program;
For the Year Ended September 30, 2011: [Empty];
For the Year Ended September 30, 2010: N/A
From TARP's Inception through September 30, 2011[B]: [Empty].
Total Net Subsidy Income (Cost):
For the Year Ended September 30, 2011: ($7.3)
For the Year Ended September 30, 2010: $24.2
From TARP's Inception through September 30, 2011[B]: ($24.5)
Additional TARP (Costs):
Treasury Housing Programs Under TARP (excluding FHA-Refinance Program):
For the Year Ended September 30, 2011: ($1.9)
For the Year Ended September 30, 2010: ($0.8)
From TARP's Inception through September 30, 2011[B]: ($2.7)
Administrative Costs:
For the Year Ended September 30, 2011: ($0.3)
For the Year Ended September 30, 2010: ($0.3)
From TARP's Inception through September 30, 2011[B]: ($0.8)
Total Net Income (Cost) of TARP Operations:
For the Year Ended September 30, 2011: ($9.5)
For the Year Ended September 30, 2010: $23.1
From TARP's Inception through September 30, 2011[B]: ($28.0)
[A] Information presented in Table 1 is presented in billions of
dollars to ensure consistency with other tables in this Management's
Discussion and Analysis; similar information is presented in the
financial statements in millions of dollars.
[B] The Inception through September 30, 2011 column includes dollar
amounts related to the $41.6 billion net cost of operations for the
period from inception through September 30, 2009.
[C] The Term Asset-Backed Securities Loan Facility, the Community
Development Capital Initiative, and the SBA 7(a) Securities Purchase
Program are reported for financial statement purposes under the
Consumer and Business Lending Initiative.
[End of table]
Over time the cost of the TARP programs will change. As described
later in the MD&A, and in the OFS audited financial statements, these
estimates are based in part on currently projected economic factors.
These economic factors will likely change, either increasing or
decreasing the lifetime cost of the TARP.
TARP Program Summary:
Table 2 provides a financial summary for TARP programs since TARP
inception on October 3, 2008, through September 30, 2011. For each
program, the table provides utilized TARP authority (which includes
purchases made, legal commitments to make future purchases, and
offsets for guarantees made), the amount actually disbursed,
repayments to OFS from program participants or from sales of the
investments, write-offs and losses, net outstanding balance as of
September 30, 2011, and cash inflows on the investments in the form of
dividends, interest or other fees. As of fiscal year end 2011, $57
billion of the $470 billion in purchase and guarantee authority
remained unused.[Footnote 4]
Table 2: TARP Summary[A] From TARP Inception through September 30,
2011 (Dollars in billions):
Bank Support Programs:
Capital Purchase Program[D]:
Purchase Price or Guarantee Amounts: $204.9;
Total $ Disbursed: $204.9;
Investment Repayments: ($185.0)[E];
Write-offs and Losses[B]: ($2.6);
Outstanding Balance[C]: $17.3;
Received from Investments: $25.7.
Targeted Investment Program:
Purchase Price or Guarantee Amounts: $40.0;
Total $ Disbursed: 40.0;
Investment Repayments: ($40.0);
Write-offs and Losses[B]: [Empty];
Outstanding Balance[C]: [Empty];
Received from Investments: $4.4.
Asset Guarantee Program:
Purchase Price or Guarantee Amounts: $5.0;
Total $ Disbursed: [Empty];
Investment Repayments: [Empty];
Write-offs and Losses[B]: [Empty];
Outstanding Balance[C]: [Empty];
Received from Investments: $3.0.
Community Development Capital Initiative:
Purchase Price or Guarantee Amounts: $0.6;
Total $ Disbursed: $0.6;
Investment Repayments: [Empty];
Write-offs and Losses[B]: [Empty];
Outstanding Balance[C]: $0.6;
Received from Investments: [Empty].
Credit Market Programs:
Public Private Investment Program:
Purchase Price or Guarantee Amounts: $21.9;
Total $ Disbursed: $17.6;
Investment Repayments: ($1.7);
Write-offs and Losses[B]: [Empty];
Outstanding Balance[C]: $15.9;
Received from Investments: $0.7.
Term Asset-Backed Securities Loan Facility[F]:
Purchase Price or Guarantee Amounts: $4.3;
Total $ Disbursed: $0.1;
Investment Repayments: [Empty];
Write-offs and Losses[B]: [Empty];
Outstanding Balance[C]: $0.1;
Received from Investments: [Empty].
SBA 7(a) Securities Purchase Programs:
Purchase Price or Guarantee Amounts: $0.3;
Total $ Disbursed: $0.3;
Investment Repayments: ($0.2;)
Write-offs and Losses[B]: [Empty];
Outstanding Balance[C]: $0.1;
Received from Investments: [Empty].
Other Programs:
Automotive Industry Financing Program:
Purchase Price or Guarantee Amounts: $79.7;
Total $ Disbursed: $79.7;
Investment Repayments: ($35.0);
Write-offs and Losses[B]: ($7.4);
Outstanding Balance[C]: $37.3;
Received from Investments: $5.0.
American International Group Investment Program:
Purchase Price or Guarantee Amounts: $67.8;
Total $ Disbursed: $67.8;
Investment Repayments: ($15.0);
Write-offs and Losses[B]: ($1.9);
Outstanding Balance[C]: $51.1;
Received from Investments: $0.4.
Sub-total for Investment Programs:
Purchase Price or Guarantee Amounts: $424.5;
Total $ Disbursed: $411.0;
Investment Repayments: ($276.9);
Write-offs and Losses[B]: ($11.9);
Outstanding Balance[C]: $122.4;
Received from Investments: $39.2.
Treasury Housing Programs Under TARP:
Purchase Price or Guarantee Amounts: $45.6[G];
Total $ Disbursed: $2.4;
Investment Repayments: N/A;
Write-offs and Losses[B]: N/A;
Outstanding Balance[C]: N/A;
Received from Investments: N/A.
Total for TARP Program:
Purchase Price or Guarantee Amounts: $470.1;
Total $ Disbursed: $413.4;
Investment Repayments: ($276.9);
Write-offs and Losses[B]: ($11.9);
Outstanding Balance[C]: $122.4;
Received from Investments: $39.2.
[A] This table shows the TARP activity for the period from inception
through September 30, 2011, on a cash basis. Received from investments
includes dividends and interest income reported in the Statement of
Net Cost, and Proceeds from sale and repurchases of assets in excess
of costs.
[B] Losses represent proceeds less than cost on sales of assets which
are reflected in the financial statements within "net proceeds from
sales and repurchases of assets in excess of (less than) cost".
[C] Total disbursements less repayments, writeoffs and losses do not
equal the total outstanding balance primarily because the
disbursements for the Treasury Housing Programs Under TARP generally
do not require (and OFS does not expect) repayments, and because of
certain capitalized income relating to the AIG Investment Program.
[D] OFS received $31.9 billion in proceeds from sales of Citigroup
common stock, of which $25 billion is included at cost in investment
repayments, and $6.9 billion of net proceeds in excess of cost is
included in Received from Investments.
[E] Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI
exchanges from CPP of $363 million.
[F] The Term Asset-Backed Securities Loan Facility, the Community
Development Capital Initiative, and the SBA 7(a) Securities Purchase
Program are reported for financial statement purposes under the
Consumer and Business Lending Initiative.
[G] Individual obligation amounts are $29.9 billion for the Making
Home Affordable Program, $7.6 billion for the Hardest Hit Fund, and
$8.1 billion committed for the FHA-Refinance Program.
[End of table]
Most of the TARP funds have been used to make investments in preferred
stock or to make loans. OFS has generally received dividends on the
preferred stock and interest payments on the loans from the
institutions participating in TARP programs. These payments represent
a return on OFS' TARP investments. From inception through September
30, 2011, OFS received a total of $20.4 billion in dividends, interest
and fees. Table 3 shows the breakdown of receipts for the periods
ended September 30, 2011 and 2010 for all TARP programs combined as
well as totals for the period from inception through September 30,
2011.
Table 3: TARP Receipts and Repayments on Investments/Loans[A] (Dollars
in billions):
Dividends, Interest, Fees and Warrant Repurchases:
Dividends and Fees:
For the Year Ended September 30, 2011: $2.8;
For the Year Ended September 30, 2010: $5.9;
From TARP’s inception through September 30, 2011: $ 18.3.
Interest:
For the Year Ended September 30, 2011: $0.9;
For the Year Ended September 30, 2010: $1.0;
From TARP’s inception through September 30, 2011: $ 2.1.
Sales/Repurchases of Warrants and Warrant Preferred Stock and
Additional Notes:
For the Year Ended September 30, 2011: $1.5;
For the Year Ended September 30, 2010: $5.2;
From TARP’s inception through September 30, 2011: $ 9.6.
Proceeds from Sales of Citigroup Common Stock in Excess of Cost:
For the Year Ended September 30, 2011: $3.9;
For the Year Ended September 30, 2010: $3.0;
From TARP’s inception through September 30, 2011: $ 6.9.
Other Proceeds in Excess of Cost:
For the Year Ended September 30, 2011: $2.3;
For the Year Ended September 30, 2010: [Empty];
From TARP’s inception through September 30, 2011: $ 2.3.
Subtotal:
For the Year Ended September 30, 2011: $11.4;
For the Year Ended September 30, 2010: $15.1;
From TARP’s inception through September 30, 2011: $ 39.2.
Investment/Loan Repayments:
Sales/Repurchases/Repayments on Investments[C]:
For the Year Ended September 30, 2011: $66.5;
For the Year Ended September 30, 2010: $122.0;
From TARP’s inception through September 30, 2011: $ 259.2.
Loan Principal Repaid:
For the Year Ended September 30, 2011: $6.3;
For the Year Ended September 30, 2010: $9.3;
From TARP’s inception through September 30, 2011: $ 17.7.
Subtotal:
For the Year Ended September 30, 2011: $72.8;
For the Year Ended September 30, 2010: $131.3;
From TARP’s inception through September 30, 2011: $ 276.9.
Grand Total:
For the Year Ended September 30, 2011: $84.2;
For the Year Ended September 30, 2010: $146.4;
From TARP’s inception through September 30, 2011: $ 316.1.
[A] This table shows TARP activity on a cash basis.
[B] The total reported for the Inception through September 30, 2011
column includes the $85.5 billion in receipts and repayments related
to the period from inception through September 30, 2009.
[C] Includes $2.2 billion of SBLF refinancing outside of TARP and CDCI
exchanges from CPP of $363 million.
[End of table]
OFS also received warrants in connection with most of its investments,
which provides an opportunity for taxpayers to realize an upside on
investments. Since the program's inception, OFS has received $9.1
billion in gross proceeds from the disposition of warrants associated
with 93 CPP investments and both TIP investments, consisting of (i)
$3.7 billion from issuer repurchases at agreed upon values and (ii)
$5.4 billion from auctions. TARP's Warrant Disposition Report is
posted on the OFS website at the following link: [hyperlink,
http://www.financialstability.gov/latest/reportsanddocs.html].
Summary of TARP Direct Loans and Equity Investments:
Table 4 provides information on the estimated values of the TARP
direct loan and equity investments by program, as of the end of fiscal
years 2011 and 2010. (Treasury Housing Programs Under TARP are
excluded from the chart because no repayments are required). The
Outstanding Balance column represents the amounts disbursed by OFS
relating to the loans and equity investments that were outstanding as
of September 30, 2011 and 2010. The Estimated Value of the Investment
column represents the present value of net cash inflows that OFS
estimates it will receive from the loans and equity investments. For
equity securities, this amount represents fair value. The total
difference of $42.3 billion (2011) and $36.8 billion (2010) between
the two columns is considered the "subsidy cost allowance" under the
Federal Credit Reform Act methods OFS follows for budget and
accounting purposes (see Note 6 in the financial statements for
further discussion).[Footnote 5]
Table 4: Summary of TARP Direct Loans and Equity (Dollars in billions):
Bank Support Programs:
Program: Capital Purchase Program;
Outstanding Balance as of September 30, 2011: $17.3
Estimated Value of Investment as of September 30, 2011: $12.4
Outstanding Balance as of September 30, 2010[A]: $49.8
$ 48.2
Program: Community Development Capital Initiative[B];
Outstanding Balance as of September 30, 2011: $0.6
Estimated Value of Investment as of September 30, 2011: $0.4
Outstanding Balance as of September 30, 2010[A]: $0.6
Estimated Value of Investment as of September 30, 2010: $0.4
Credit Market Programs:
Program: Public-Private Investment Program;
Outstanding Balance as of September 30, 2011: $15.9
Estimated Value of Investment as of September 30, 2011: $18.4
Outstanding Balance as of September 30, 2010[A]: $13.7
Estimated Value of Investment as of September 30, 2010: $14.4
Program: Term Asset-Backed Securities Loan Facility[B];
Outstanding Balance as of September 30, 2011: $0.1
Estimated Value of Investment as of September 30, 2011: $0.6
Outstanding Balance as of September 30, 2010[A]: $0.1
Estimated Value of Investment as of September 30, 2010: $0.4
Program: SBA 7(a) Securities Purchase Program[B];
Outstanding Balance as of September 30, 2011: $0.1
Estimated Value of Investment as of September 30, 2011: $0.1
Outstanding Balance as of September 30, 2010[A]: $0.2
Estimated Value of Investment as of September 30, 2010: $0.2
Other Programs:
Program: Automotive Industry Financing Program;
Outstanding Balance as of September 30, 2011: $37.3;
Estimated Value of Investment as of September 30, 2011: $17.8;
Outstanding Balance as of September 30, 2010[A]: $67.2;
Estimated Value of Investment as of September 30, 2010: $52.7.
Program: American International Group Investment Program;
Outstanding Balance as of September 30, 2011: $51.1;
Estimated Value of Investment as of September 30, 2011: $30.4;
Outstanding Balance as of September 30, 2010[A]: $47.6;
Estimated Value of Investment as of September 30, 2010: $26.1.
Total:
Outstanding Balance as of September 30, 2011: $122.4;
Estimated Value of Investment as of September 30, 2011: $80.1;
Outstanding Balance as of September 30, 2010[A]: $179.2;
Estimated Value of Investment as of September 30, 2010: $142.4.
[A] Before subsidy cost allowance.
[B] The Term Asset-Backed Securities Loan Facility, the Community
Development Capital Initiative, and the SBA 7(a) Securities Purchase
Program are reported for financial statement purposes under the
Consumer and Business Lending Initiative.
[End of table]
The ultimate cost of the TARP will not be known for some time. The
financial performance of the programs will depend on many factors such
as future economic and financial conditions, and the business
prospects of specific institutions. The cost estimates are sensitive
to slight changes in model assumptions, such as general economic
conditions, specific stock price volatility of the entities in which
OFS has an equity interest, estimates of expected defaults, and
prepayments. If OFS receives repayments faster than expected and
incurs lower than expected defaults, TARP's ultimate cost on these
investments may be lower than estimated. Wherever possible, OFS uses
market prices of tradable securities to estimate the fair value of
TARP investments. Use of market prices was possible for TARP
investments that trade in public markets or are closely related to
tradable securities. For those TARP investments that do not have
direct analogs in private markets, OFS uses internal market-based
models to estimate the market value of these investments. All cash
flows are adjusted for market risk. Further details on asset valuation
can be found in Note 6 of the Financial Statements.
Comparison of Estimated Lifetime TARP Costs Over Time:
Market conditions and the performance of specific financial
institutions will be critical determinants of the TARP’s lifetime
cost. The changes in the OFS estimates since TARP’s inception through
September 30, 2011, provide a good illustration of this impact. Table
5 provides information on how OFS’ estimated lifetime cost of TARP has
changed over time. These costs fluctuate in large part due to changes
in the market prices of common stock for AIG and GM and the estimated
value of the Ally stock. This table assumes that all expected
investments (e.g. PPIP) and disbursements for Treasury Housing
Programs Under TARP are completed, and adhere to government budgeting
guidance. This table will not tie to the financial statements since it
includes investments and other disbursements expected to be made in
the future. Table 5 is consistent with the estimated lifetime cost
disclosures on the TARP web site at: [hyperlink,
http://www.financialstability.gov]. The cost amounts in Table 5 are
based on assumptions regarding future events, which are inherently
uncertain.
Table 5: Estimated Lifetime TARP Costs (Income)[A] (Dollars in
billions):
Bank Support Programs:
Program: Capital Purchase Program
Estimated Lifetime Cost (Income) on March 31, 2010: ($9.8);
Estimated Lifetime Cost (Income) on September 30, 2010: ($11.2);
Estimated Lifetime Cost (Income) on March 31, 2011: ($13.6);
Estimated Lifetime Cost (Income) on September 30, 2011: ($13.0).
Program: Targeted Investment Program
Estimated Lifetime Cost (Income) on March 31, 2010: ($3.8);
Estimated Lifetime Cost (Income) on September 30, 2010: ($3.8);
Estimated Lifetime Cost (Income) on March 31, 2011: ($4.0);
Estimated Lifetime Cost (Income) on September 30, 2011: ($4.0).
Program: Asset Guarantee Program[B];
Estimated Lifetime Cost (Income) on March 31, 2010: ($3.1);
Estimated Lifetime Cost (Income) on September 30, 2010: ($3.7);
Estimated Lifetime Cost (Income) on March 31, 2011: ($3.8);
Estimated Lifetime Cost (Income) on September 30, 2011: ($3.7).
Program: Community Development Capital Initiative[C];
Estimated Lifetime Cost (Income) on March 31, 2010: $0.4;
Estimated Lifetime Cost (Income) on September 30, 2010: $0.3;
Estimated Lifetime Cost (Income) on March 31, 2011: $0.2;
Estimated Lifetime Cost (Income) on September 30, 2011: $0.2.
Credit Market Programs:
Program: Public Private Investment Program
Estimated Lifetime Cost (Income) on March 31, 2010: $0.5;
Estimated Lifetime Cost (Income) on September 30, 2010: ($0.7);
Estimated Lifetime Cost (Income) on March 31, 2011: $0.4;
Estimated Lifetime Cost (Income) on September 30, 2011: ($2.4).
Program: Term Asset-Backed Securities Loan Facility[C];
Estimated Lifetime Cost (Income) on March 31, 2010: ($0.4);
Estimated Lifetime Cost (Income) on September 30, 2010: ($0.4);
Estimated Lifetime Cost (Income) on March 31, 2011: ($0.3);
Estimated Lifetime Cost (Income) on September 30, 2011: ($0.4).
Program: SBA 7(a) Securities Purchase Program[C];
Estimated Lifetime Cost (Income) on March 31, 2010: $0.0;
Estimated Lifetime Cost (Income) on September 30, 2010: $0.0;
Estimated Lifetime Cost (Income) on March 31, 2011: $0.0;
Estimated Lifetime Cost (Income) on September 30, 2011: ($0.0).
Program: Other Consumer Business Lending Initiative
Estimated Lifetime Cost (Income) on March 31, 2010: $3.0;
Estimated Lifetime Cost (Income) on September 30, 2010: N/A;
Estimated Lifetime Cost (Income) on March 31, 2011: N/A;
Estimated Lifetime Cost (Income) on September 30, 2011: N/A.
Other Programs:
Program: Automotive Industry Financing Program
Estimated Lifetime Cost (Income) on March 31, 2010: $24.6;
Estimated Lifetime Cost (Income) on September 30, 2010: $14.7;
Estimated Lifetime Cost (Income) on March 31, 2011: $13.9;
Estimated Lifetime Cost (Income) on September 30, 2011: $23.6.
Program: American International Group Investment Program;
Estimated Lifetime Cost (Income) on March 31, 2010: $45.2;
Estimated Lifetime Cost (Income) on September 30, 2010: $36.9;
Estimated Lifetime Cost (Income) on March 31, 2011: $10.9;
Estimated Lifetime Cost (Income) on September 30, 2011: $24.3.
Subtotal:
Estimated Lifetime Cost (Income) on March 31, 2010: $56.6;
Estimated Lifetime Cost (Income) on September 30, 2010: $32.1;
Estimated Lifetime Cost (Income) on March 31, 2011: $3.7;
Estimated Lifetime Cost (Income) on September 30, 2011: $24.5.
Treasury Housing Programs Under TARP[D]:
Estimated Lifetime Cost (Income) on March 31, 2010: $48.8;
Estimated Lifetime Cost (Income) on September 30, 2010: $45.6;
Estimated Lifetime Cost (Income) on March 31, 2011: $45.6;
Estimated Lifetime Cost (Income) on September 30, 2011: $45.6.
Total:
Estimated Lifetime Cost (Income) on March 31, 2010: $105.4;
Estimated Lifetime Cost (Income) on September 30, 2010: $77.7;
Estimated Lifetime Cost (Income) on March 31, 2011: $49.3;
Estimated Lifetime Cost (Income) on September 30, 2011: $70.2.
[A] Estimated program costs (+) or savings (in parentheses) over the
life of the program, including interest on re-estimates and excluding
administrative costs.
[B] Prior to the termination of the guarantee agreement, Treasury
guaranteed up to $5 billion of potential losses on a $301 billion
portfolio of loans.
[C] The Term Asset-Backed Securities Loan Facility, the Community
Development Capital Initiative and the SBA 7(a) Securities Purchase
Program are reported for financial statement purposes under the
Consumer and Business Lending Initiative.
[D] For fiscal year 2011, includes FHA-Refinance Program which is
accounted for under credit reform.
[End of table]
Key Trends/Factors Affecting TARP Future Activities and Ultimate Cost:
This section provides additional TARP analytic information and
enhanced sensitivity analysis focusing on the remaining TARP
dollars/continued taxpayer exposure and what is likely to affect the
expected future return. Four TARP programs --CPP, PPIP, AIFP, and the
AIG Investment Program -- have $10 billion or more still outstanding
and remain at risk of taxpayer loss. In addition, Treasury’s Housing
Programs Under TARP have about $43 billion committed but not yet
disbursed. Going forward, the recoveries or costs from CPP, PPIP,
AIFP, and AIG Investment Program and the expenditures for Treasury
Housing Programs Under TARP will most significantly affect the
lifetime cost of the TARP.
CPP and Banking Industry Information:
OFS had CPP investments remaining in 401 financial institutions with a
gross outstanding balance of $17.3 billion as of September 30, 2011.
As noted earlier in this report, the largest financial institutions in
the CPP have repaid their investments to OFS.
Table 6 below shows the outstanding investment face amount for the 10
largest remaining CPP investments held as of September 30, 2011.
Table 6: 10 Largest Remaining CPP Investments (Dollars in billions):
Institution: Regions Financial Corporation;
Outstanding Investment: $3.500.
Institution: Zions Bancorporation;
Outstanding Investment: $1.400.
Institution: Synovus Financial Corp.
Outstanding Investment: $0.968.
Institution: Popular, Inc.
Outstanding Investment: $0.935.
Institution: First Bancorp.
Outstanding Investment: $0.424.
Institution: M&T Bank Corporation;
Outstanding Investment: $0.382.
Institution: Sterling Financial Corporation;
Outstanding Investment: $0.303.
Institution: Citizens Republic Bancorp, Inc.
Outstanding Investment: $0.300.
Institution: First Banks, Inc.
Outstanding Investment: $0.295.
Institution: New York Private Bank & Trust Corporation;
Outstanding Investment: $0.267.
Institution: Total;
Outstanding Investment: $8.774.
[End of table]
OFS’ actual recoveries on the outstanding CPP investments will depend
on a number of factors, including the asset quality, loss reserve
ratios and capital positions of financial institutions participating
in CPP.
Throughout the life of the program, 181 CPP recipients have not
declared and paid one or more dividends to OFS. Of these recipients,
74 have missed at least six payments, which gives OFS the right to
place members on the institutions’ boards of directors. During fiscal
year 2011, OFS exercised its rights to elect 10 members in total to
boards of directors for 6 CPP institutions. Board members elected by
OFS cannot be government employees and all have the same fiduciary
duties and obligations to the shareholders of the financial
institutions as any other board members. Additional information on the
appointment of directors to CPP institutions is available at:
[hyperlink, http://www.treasury.gov/initiatives/financial-
stability/programs/investment-programs].
Since the initiation of the CPP, 13 institutions in which OFS had
invested $2.9 billion have entered bankruptcy or been placed in
receivership by their regulators. This includes eight CPP recipients
($190.3 million in funding) during fiscal year 2011; and five CPP
recipients ($2.7 billion in funding) during fiscal year 2010. During
fiscal year 2010 OFS wrote-off $2.3 billion relating to CIT Group and
another small institution, and made no CPP investment write-offs in
fiscal year 2011. As OFS does not anticipate any recovery from the
other 11 investments outstanding relating to institutions that entered
bankruptcy or receivership, the value of these investments is
reflected at zero as of September 30, 2011.
Public-Private Investment Program:
As of September 30, 2011, OFS had gross outstanding equity investments
in and loans to Public Private Investment Funds (PPIFs) amounting to
$5.5 billion and $10.4 billion, respectively, for a total of $15.9
billion. In addition, as of September 30, 2011, OFS had legal
commitments to disburse up to $4.3 billion in additional funds to the
PPIFs. The estimated value of OFS's investments and loans in the PPIFs
as of September 30, 2011, was approximately $18.4 billion. PPIFs have
the ability to invest in eligible assets over a three-year investment
period. They then have up to five additional years, which may be
extended for up to two more years, to manage these investments and
return the profits to OFS and the other PPIF investors. In addition,
OFS also received warrants from the PPIFs, which gives OFS the right
to receive a percentage of the profits that would otherwise be
distributed to the private partners that are in excess of their
contributed capital. The PPIFs are now more than halfway through their
three-year investment periods, which end in the fourth quarter of
fiscal year 2012.
Automotive Industry Financing Program:
As of September 30, 2011, OFS held $37.3 billion in AIFP investments,
with an estimated value of $17.8 billion. As of September 30, 2011,
OFS has received more than $40 billion from repayments, sales,
dividends, interest, and other income. The competitiveness of U.S.
manufacturers, both domestically and internationally will affect the
value of OFS' investment. In addition, the macroeconomic conditions
(unemployment, Gross Domestic Product growth, etc.) will affect the
overall trends in auto sales and thus OFS' recoveries.
The outlook for the American auto industry has improved significantly,
thanks in part to the emergency assistance provided by the federal
government. Detroit's Big Three have all reported profits and gains in
market share for the first time since 1995.
General Motors Company (New GM), reported second quarter net income of
$2.5 billion, its sixth consecutive profitable quarter. Since emerging
from bankruptcy, the company has added shifts at six of its plants to
address growing demand. New Chrysler has also significantly rebounded
after its bankruptcy filing. The company has lowered its structural
costs, become more efficient, adopted new technologies, rejuvenated
its product line, and rebuilt its brand value.
AIG Investment Program:
Following the government's emergency assistance to AIG, the company is
now experiencing a turnaround. AIG has completed a successful
restructuring, stabilized its operations, and as a result, OFS is in a
considerably stronger position to exit OFS' investment in AIG than was
thought possible during the height of the 2008 financial crisis.
As of September 30, 2011, OFS held $51.1 billion in the AIG Investment
Program, with an estimated value of $30.4 billion. As of September 30,
2011, OFS had received $15.4 billion from repayments and sales,
dividends and other income. OFS' investment in AIG was originally made
in the form of preferred stock, all of which was converted to common
stock or preferred interests in AIG Special Purpose Vehicles in the
restructuring that took place in January 2011.
Treasury Housing Programs Under TARP:
OFS has committed $45.6 billion to fund Treasury Housing Programs
Under TARP. From inception through September 30, 2011, $2.4 billion
has been disbursed under these programs. Based only on the permanent
modifications in place as of September 30, 2011, OFS estimates that
$7.6 billion in incentive fees will ultimately be disbursed in
association with all Making Home Affordable (MHA) modifications made
as of September 30, 2011, if all active modifications were to remain
current and receive incentives for 5 years. The program is continuing
to enter into new modifications. Separately, $7.6 billion has been
allocated for the Hardest Hit Fund and $8.1 billion for the FHA
Refinance Program.
Sensitivity Analysis:
The ultimate value of TARP investments will only be known in time.
Realized values will vary from current estimates in part because
economic and financial conditions will change. Many TARP investments
do not have readily observable values and their values can only be
estimated by OFS.
Sensitivity analysis is one way to get some feel for the degree of
uncertainty around the OFS estimates. In the analysis reported here,
OFS focuses on the largest components of the TARP, the assets held
under CPP, PPIP, AIFP and the AIG Investment Program.
CPP Analysis:
For CPP, the most important inputs to the valuation are the market
prices of publicly-traded preferred stock used to calibrate the model-
derived pricing of the preferred stock held in the TARP. The valuation
procedure entails observing the market price of publicly-traded
preferred stock and calibrating the model (in particular the risk
premium) to match those prices. The calibrated model is then used to
price the non-publicly traded preferred stock held by the TARP. The
benchmark preferred stock consists of a portfolio of claims issued by
some of the same institutions with TARP preferred stock investments.
It is generally the larger institutions that have issued preferred
stock. The TARP preferred stock for smaller institutions may not be
exactly comparable, but the bulk of TARP investments, as measured on a
dollar basis, are in the larger institutions. This calibration
influences the asset-to-liability ratio of the banks and consequently
the default and prepayment estimates predicted by the model.[Footnote
6] As a sensitivity analysis, OFS increased and decreased the value of
the benchmark preferred stock in the CPP by 10 percent. Table 7 shows
the impact on the value of OFS’ outstanding investment in CPP as a
result of a 10 percent increase and a 10 percent decrease in the value
of the calibration securities.
Table 7: Impact on CPP Valuation (Dollars in Billions):
CPP:
September 30, 2011 Reported Value for CPP: $12.44;
Effect of 10% Increase: $12.99;
Effect of 10% Decrease: $11.19.
Percent change from current:
September 30, 2011 Reported Value for CPP: N/A;
Effect of 10% Increase: 4.4%;
Effect of 10% Decrease: (10.1)%.
[End of table]
To put this sensitivity analysis in perspective, it is useful to
consider the range over which actual securities have moved over the
past year. Figure A shows the monthly average price of the benchmark
preferred as a percentage of par. (The CPP value as of September 30,
2011, represents approximately 74.6 percent of par, excluding the
warrants held by OFS). The dashed lines indicate the upper and lower
bound price used for the sensitivity analysis.
Figure A: Price Chart of Benchmark Preferred Stock:
[Refer to PDF for image: multiple line graph]
Lines depicting price as a percent of par are shown for:
Market value;
Increase 10%;
Decrease 10%.
Time period: September 2010-September 2011.
[End of figure]
PPIP Analysis:
To estimate the value of OFS’ outstanding investments under the PPIP,
OFS first estimates the cash flows of the portfolio held by the
various funds. OFS uses a stochastic process to generate 300 potential
cash flow outcomes, based on the characteristics of the loans
underlying the securities and their behavior under simulated macro
economic variables, such as unemployment, mortgage interest rates,
short-term rates and home price appreciation. The cash flows are then
applied to the waterfall established for the funds to estimate the
cash flows to OFS. The aggregate of these cash flows (each scenario is
equally weighted) is discounted to estimate the value of the program.
Table 8 shows the change in the value of the OFS’ outstanding PPIP
investment using the scenario which produces the minimum amount of
cash flows to OFS and the maximum amount of cash flows to OFS.
Table 8: Impact on PPIP Valuation (Dollars in Billions):
PPIP:
September 30, 2011 Reported Value for PPIP: $$18.38;
Maximum Cash Flows:$19.59;
Minimum Cash Flows: $18.28.
Percent change from current:
September 30, 2011 Reported Value for PPIP: N/A;
Maximum Cash Flows:4.6%;
Minimum Cash Flows: (2.4)%.
AIFP Analysis:
The most important inputs to the valuation of OFS’ outstanding
investments under the AIFP are the market price of New GM common stock
and the change in the estimated value of Ally Financial common stock,
which is driven by certain pricing metrics of comparable public
financial institutions. Table 9 shows the change in estimated value of
OFS outstanding AIFP investments based on a 10 percent separately
common range cost estimates.
Table 9: Impact on AIFP Valuation (Dollars in Billions):
Impact of GM on AIFP:
September 30, 2011 Reported Value for AIFP: $17.84;
Effect of 10% Increase: $18.85;
Effect of 10% Decrease: $16.83.
Percent change from current:
September 30, 2011 Reported Value for AIFP: N/A;
Effect of 10% Increase: 5.7%;
Effect of 10% Decrease: (5.7)%.
Impact of Ally (formerly GMAC) on AIFP:
September 30, 2011 Reported Value for AIFP: $17.84;
Effect of 10% Increase: $18.61;
Effect of 10% Decrease: $17.06.
Percent change from current:
September 30, 2011 Reported Value for AIFP: N/A;
Effect of 10% Increase: 4.3%;
Effect of 10% Decrease: (4.3)%.
[End of table]
Figure B shows the daily closing price of the New GM common stock
since the initial public offering in November 2010. The closing price
for September 30, 2011 was $20.18. The dashed lines represent the high
and low price used in the sensitivity analysis.
Figure B: Daily Price of GM Common Stock:
[Refer to PDF for image: multiple line graph]
Lines depicting price are shown for:
Daily closing price;
Increase 10%;
Decrease 10%.
Time period: November 2010-September 2011.
[End of figure]
AIG Investment Program Analysis:
The most important input to the valuation of OFS’ outstanding
investments under the AIG Investment Program is the market price of
AIG common stock. As a sensitivity analysis, OFS increased and
decreased the value of the AIG common stock by 10 percent. Table 10
shows the impact on the value of OFS’ outstanding investment in AIG as
a result of a 10 percent increase and a 10 percent decrease in the
value of the AIG common stock.
Table 10: Impact on AIG Investment Program Valuation (Dollars in
Billions):
AIG Investment Program:
September 30, 2011 Reported Value for AIG Investment: $30.37
Effect of 10% Increase: $32.48
Effect of 10% Decrease: $28.26
Percent change from current:
September 30, 2011 Reported Value for AIG Investment: N/A
Effect of 10% Increase: 6.9%
Effect of 10% Decrease: (6.9)%
[End of table]
Figure C shows the daily closing price of the AIG common stock
(closing price on September 30, 2011, was $21.95 per share) with the
dashed lines representing the prices used in the sensitivity analysis.
Figure C shows that the securities have been trading within the range
used in the analysis as well as outside of this range. This helps to
illustrate the uncertainty around the cost estimates.
Figure C: Daily Price of AIG Common Stock:
[Refer to PDF for image: multiple line graph]
Lines depicting price are shown for:
Daily closing price;
Increase 10%;
Decrease 10%.
Time period: September 2010-September 2011.
[End of figure]
Systems, Controls, and Legal Compliance:
Management Assurance Statement:
The Office of Financial Stability's (OFS) management is responsible
for establishing and maintaining effective internal control and
financial management systems that meet the objectives of the Federal
Managers' Financial Integrity Act (FMFIA), 31 U.S.C. 3512(c),(d). OFS
has evaluated its management controls, internal controls over
financial reporting, and compliance with the federal financial systems
standards. As part of the evaluation process, we considered the
results of extensive documentation, assessment and testing of controls
across OFS, as well as the results of independent audits. We conducted
our reviews of internal controls in accordance with FMFIA and
OMB Circular A-123.
As a result of our reviews, management concludes that the management
control objectives described below, taken as a whole, were achieved as
of September 30, 2011. Specifically, this assurance is provided
relative to Sections 2 (internal controls) and 4 (systems controls) of
FMFIA. OFS further assures that the financial management systems
relied upon by OFS are in substantial compliance with the requirements
imposed by the Federal Financial Management Improvement Act (FFMIA).
OFS' internal controls are designed to meet the management objectives
established by Treasury and listed below:
a. Programs achieve their intended results;
b. Resources are used consistent with the overall mission;
c. Program and resources are free from waste, fraud, and mismanagement;
d. Laws and regulations are followed;
e. Controls are sufficient to minimize any improper or erroneous
payments;
f. Performance information is reliable;
g. Systems security is in substantial compliance with all relevant
requirements;
h. Continuity of operations planning in critical areas is sufficient
to reduce risk to reasonable levels; and;
i. Financial management systems are in compliance with federal
financial systems standards, i.e., FMFIA Section 4/FFMIA.
Sincerely,
[Signed by]
Timothy G. Massad:
Assistant Secretary for Financial Stability:
In addition, OFS management conducted its assessment of the
effectiveness of internal control over financial reporting, which
includes safeguarding of assets and compliance with applicable laws
and regulations, in accordance with OMB Circular A-123, Management's
Responsibility for Internal Control, Appendix A, Internal Control over
Financial Reporting. Based on the results of this evaluation, OFS
provides unqualified assurance that internal control over financial
reporting is appropriately designed and operating effectively as of
September 30, 2011, with no related material weaknesses noted.
Internal Control Program:
OFS management remains committed to maintaining effective internal
controls in safeguarding taxpayer dollars while providing financial
stability through the TARP. OFS continues to have a high performing
internal control program in compliance with the Federal Managers'
Financial Integrity Act (FMFIA). OFS' Internal Control Program Office
(ICPO) works closely with program managers and support personnel to
maintain robust internal controls across business functions. ICPO also
coordinates with OFS' Office of Financial Agents (OFA) to ensure that
third party service providers whose work has a potential financial
reporting impact on OFS have well designed and effective internal
control environments supporting TARP. During fiscal year 2011, OFS
made significant progress in continuing to mature its internal control
environment as demonstrated below:
* Business processes supporting existing programs, including internal
control activities, matured through the use of increasingly well-
defined roles and responsibilities and policies and procedures. OFS
management regularly monitors activities to confirm that control
procedures are performed consistently and as designed.
* OFS made significant progress in addressing findings and areas for
improvement in the internal control environment identified through
OFS' self assessment processes (e.g., OMB Circular A-123 internal
controls over financial reporting assessment, annual assurance
statement process) and through work performed by the oversight bodies
(i.e., GAO, SIGTARP, and COP).
* OFS made investments in information technology (IT) in fiscal year
2011 to drive efficiencies through the increased automation of the
operational and accounting environment.
OFS has a Senior Assessment Team (SAT) to guide the office's efforts
to meet the statutory and regulatory requirements surrounding a sound
system of internal control. The SAT is chaired by the Deputy Chief
Financial Officer and includes representatives from all OFS functional
areas. Furthermore, OFS has an internal control framework in place
that is based on the principles of the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The SAT leverages
this framework in communicating control objectives across the
organization and to its third party service providers.
ICPO operates under the direction of the CFO and is guided by the SAT.
ICPO monitors the implementation of the internal control framework and
is responsible for assessing the achievement of management control
objectives by:
* Integrating management controls into OFS business processes through:
- Maintaining internal control documentation,
- Reviewing internal control responsibilities with business owners
before major program execution events, and,
- Real-time monitoring of control effectiveness during and after
significant program execution events;
* Conducting "lessons learned" sessions to identify and remediate
areas requiring improvement;
* Performing periodic sample-based testing of key controls across
mature business processes; and,
* Monitoring feedback from oversight bodies.
In addition, the internal control environment supporting TARP
undergoes continuous improvement to remain effective and is subject to
significant third party oversight by the GAO and the SIGTARP.
The Assistant Secretary for Financial Stability reports annually to
the Under Secretary for Domestic Finance on the adequacy of the
various internal controls throughout the OFS, to include financial
management systems compliance. This assurance statement covers OFS'
compliance with the FMFIA, the Federal Financial Management
Improvement Act (FFMIA), and OMB Circular A-123 Management's
Responsibility for Internal Control. In order to support the Assistant
Secretary's letter of assurance, the respective OFS functional areas
prepare individual statements of assurance. These individual
statements of assurance provide evidence supporting the achievement of
OFS' internal control objectives and disclose any noted internal
control weaknesses.
Information Technology Systems:
In fiscal year 2011, OFS continued to utilize and improve the Core
Investment Transaction Flow (CITF), TARP's system of record and
accounting translation engine. OFS added standardized management
reports to CITF to improve its usefulness to management decision-
making and added functionality to capture intradepartmental activity
to facilitate year-end financial reporting activity.
Other systems are supported by financial agents, which provide
services to OFS. The Financial Agency Agreements maintained by the
Treasury Office of the Fiscal Assistant Secretary in support of OFS
require financial agents to design and implement suitably robust
security plans and internal control programs, to be reviewed and
approved by OFS at least annually.
In addition, OFS utilizes financial systems maintained by Treasury
Departmental Offices and various Treasury bureaus. These systems are
in compliance with federal financial systems standards and undergo
regular independent audits.
Compliance with the Improper Payments Elimination and Recovery Act
(IPERA):
The elimination of improper payments is a major focus of OFS senior
management. Managers are held accountable for developing and
strengthening financial management controls to detect and prevent
improper payments, and thereby better safeguard taxpayer dollars.
OFS carried out its fiscal year 2011 IPERA review per Treasury-wide
guidance and did not assess any programs or activities as susceptible
to significant erroneous payments. OFS did not identify any payments
to incorrect payees or ineligible recipients. However, management did
identify a small number of Making Home Affordable (MHA) investor cost
share payments that were made in error due to unclear guidelines
related to escrow payments and data integrity issues from servicers
related to income. The overall impact of these improper payments was
immaterial, and OFS management is actively implementing corrective
actions at the servicer level to remedy this issue.
In coordination with OFS, Freddie Mac, one of Treasury's financial
agents, first performed a comprehensive analysis of potential Monthly
Investor Cost Share incentive overpayments and underpayments in August
and September 2010. Subsequent to that analysis, Freddie Mac provided
servicers with additional guidance for correctly calculating borrower
income and capturing the correct escrow data. As a result, the error
rates have dropped significantly in fiscal year 2011. OFS and Freddie
Mac expect this error rate to continue to decrease as servicers
address additional issues. OFS will continue to monitor this issue
closely.
Areas for Improvement:
Over the next year, OFS management will focus on maturing its internal
control environment in several key areas as follows:
* As programs continue to mature and continue winding down, there is a
continued need for OFS to maintain policies and procedures, which
includes updating or retiring documents as appropriate.
* OFS relies on financial agents to provide many of the business
processes and controls supporting its programs. The Treasury Housing
programs, in particular, have grown in scale and complexity over the
last year. OFS continues to assess the adequacy of internal controls
provided by third parties as they mature their program capabilities.
However, OFS will need to heighten its oversight practices to monitor
controls as these programs further mature.
* The large number and complexity of TARP programs and related
transactions pose challenges in the maintenance of the supporting
internal control documentation and policies and procedures. OFS needs
to enhance its ability to monitor and ensure consistency across
critical documents detailing the controls in place to mitigate the
risks identified.
* Over the past year, OFS developed information technology
capabilities to increase efficiency and automate manual processes.
Continuing this automation will enhance OFS' ability to reduce risks
associated with human error. In addition, OFS management will continue
to strengthen IT-related controls towards a more mature IT environment
supporting core business processes.
Limitations of the Financial Statements:
The principal financial statements have been prepared to report the
financial position and results of operations of the OFS' TARP program,
consistent with the requirements of 31 U.S.C. 3515(b). While the
statements have been prepared from the books and records of the Office
of Financial Stability and the Department of the Treasury in
accordance with section 116 of EESA and Generally Accepted
Accounting Principles (GAAP) for Federal entities and the formats
prescribed by the OMB, the statements are in addition to the financial
reports used to monitor and control budgetary resources which are
prepared from the same books and records.
The statements should be read with the realization that they are for a
component of the U.S. Government, a sovereign entity.
Operational Goals:
Operational Goal One: Ensure The Overall Stability And Liquidity Of The
Financial System:
The following discussion of OFS goals and the TARP programs focuses
largely on the significant events that occurred during fiscal year
2011. A more comprehensive discussion of each program, including its
development and prior years' performance can be found in the TARP Two-
Year Retrospective and The TARP Three Year Anniversary Report, which
are available at: [hyperlink,
http://www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/agency_reports/Pages/default.aspx].
The first and most significant goal of TARP is to restore stability to
the financial system. Despite recent volatility in the stock market
and shocks in the global economy, the U.S. financial system today is
more stable than it was during the midst of the 2008 crisis.
Financial markets and the economy continue to recover. Credit remains
available for consumers and businesses. Financial institutions hold
more capital relative to risk than they did before the crisis hit.
Most of the government's emergency responses to the crisis are being
wound down and 76 percent of TARP investments have been recovered
through repayments, sales, dividends, interest and other income.
Bank Support Programs (CPP, TIP, AGP, CDCI):
Capital Purchase Program:
OFS launched the Capital Purchase Program (CPP), the largest and most
significant program under EESA, on October 14, 2008. Through the CPP,
OFS provided capital infusions directly to banks and thrifts deemed
viable by their regulators to bolster the capital position of
institutions of all sizes and, in doing so, to build confidence in
these institutions and the financial system as a whole. With the
additional capital, CPP participants were better equipped to undertake
new lending and continue to provide other services to consumers and
businesses, even while absorbing write-downs and charge-offs on loans
that were not performing.
CPP investments were made available to qualifying financial
institutions (QFIs) of all sizes and types across the country,
including banks, savings and loan associations, bank holding companies
and savings and loan holding companies. QFIs interested in
participating in the program had to submit an application to their
primary federal banking regulator.
In the period following announcement of the CPP, OFS provided $205
billion in capital to 707 institutions in 48 states, including more
than 450 small and community banks and 22 certified community
development financial institutions (CDFIs) (see Table 11 below). The
largest investment was $25 billion and the smallest was $301,000. As
Table 11 illustrates, smaller financial institutions make up the vast
majority of participants in the CPP. Of the 707 applications approved
and funded by OFS through the CPP by the time it closed to new
institutions on December 31, 2009, 473 or 67 percent were institutions
with less than $1 billion in assets.
Table 11:CPP Initial Investment Profile (Dollars in billions):
Asset Range: Less than $1 billion;
CPP Participants:
Number: 473;
Percent: 66.9%;
TARP Investment:
Amount: $3.8;
Percent: 1.8%.
Asset Range: $1 billion - $10 billion;
CPP Participants:
Number: 177;
Percent: 25.0%;
TARP Investment:
Amount: $10.0;
Percent: 4.9%.
Asset Range: Greater than $10 billion;
CPP Participants:
Number: 57;
Percent: 8.1%;
TARP Investment:
Amount: $191.1;
Percent: 93.3%.
Asset Range: Total;
CPP Participants: 707;
Percent: 100%;
TARP Investment:
Amount: $204.9;
Percent: 100%.
[End of table]
OFS received preferred stock or debt securities in exchange for these
investments. Most financial institutions participating in the CPP pay
OFS a dividend rate of five percent per year, which will increase to
nine percent a year after the first five years. From inception of the
program through September 30, 2011, OFS has received approximately
$185 billion in CPP repayments, along with approximately $11.2 billion
in CPP dividends and interest and $6.9 billion in net proceeds
received from the sale of Citigroup common stock in excess of cost.
As part of a June 2009 Exchange Agreement between OFS and Citigroup,
OFS exchanged the $25 billion in preferred stock it received in
connection with Citigroup's participation in CPP for approximately 7.7
billion shares of common stock at a price of $3.25 per share. In
December 2010, OFS completed the sale of all remaining 2.4 million
shares of common stock in Citigroup. Proceeds were $10.5 billion, at a
price per share of $4.35. OFS had previously sold 5.3 billion shares
at an average price of $4.04 under four trading plans during the
period April to December, 2010. The average selling price for all 7.7
billion shares was $4.14 per share compared to a cost of $3.25 per
share. In January 2011, OFS completed a public auction of warrants to
purchase Citigroup common stock. Proceeds from the warrants associated
with the CPP, at an exercise price of $17.85, totaled $54.6 million.
[Footnote 7]
OFS also received warrants to purchase common shares or other
securities from the financial institutions at the time of the CPP
investment. The purpose of the additional securities is to provide
opportunities for taxpayers to reap additional returns on the
investments made by OFS as CPP participants recover. From inception of
the program through September 30, 2011, OFS has received nearly $7.6
billion in proceeds from the sale/repurchase of CPP warrants.
The CPP has already generated a positive return to taxpayers; however,
the ultimate return will depend on several factors, including market
conditions and performance of individual companies.
For additional information, please see the CPP Quarterly Report and
the Annual Use of Capital Survey which can be found at: [hyperlink,
http://www.treasury.gov/initiatives/financial-
stability/results/cpp/Pages/default.aspx].
Refinancing Through the Small Business Lending Fund:
As of September 30, 2011, 137 CPP institutions have refinanced their
CPP investments using the SBLF totaling more than $2 billion. The
refinancing of CPP institutions into the SBLF decreased projected
costs to OFS by fully repaying the total OFS investment in 137
institutions. These refinancing transactions moved the risk associated
with these institutions' repayments from OFS to SBLF. Enacted into law
as part of the Small Business Jobs Act of 2010, the SBLF was
established as a $30 billion fund administered by Treasury that
encourages lending to small businesses by providing capital to
qualified community banks with assets of less than $10 billion. SBLF
is not a TARP program and does not use TARP funds.
Targeted Investment Program:
OFS established the Targeted Investment Program (TIP) in December
2008. Through TIP, OFS sought to prevent a loss of confidence in
critical financial institutions, which could result in significant
financial market disruptions, threaten the financial strength of
similarly situated financial institutions, impair broader financial
markets, and undermine the overall economy. TIP was considered
"exceptional assistance" for purposes of executive compensation
requirements.
OFS invested $20 billion in preferred stock in each of two
institutions -- Bank of America (BofA) and Citigroup -- under TIP, in
addition to those funds that these financial institutions received
under the CPP. In December 2009, both participating institutions
repaid their TIP investments in full, with dividends. Total dividends
received from Targeted Investment Program investments were about $3
billion during the life of the program. OFS also received warrants
from each bank which provided the taxpayer with additional gain on the
investments when OFS sold the BofA warrant in fiscal year 2010 for
$1.2 billion and the Citigroup warrant in fiscal year 2011 for $190.4
million. TIP is closed and resulted in a positive return for taxpayers.
Asset Guarantee Program:
Under the AGP, OFS acted to support the value of certain assets held
by qualifying financial institutions, by agreeing to absorb a portion
of the losses on those assets. The program was conducted jointly by
Treasury, the Federal Reserve Bank of New York and the FDIC. Like TIP,
it was designed for financial institutions whose failure could harm
the financial system and reduce the potential for "spillover" to the
broader financial system and economy. The AGP was used to assist BofA
and Citigroup in conjunction with the TIP investments in those
institutions. The arrangement with BofA was terminated before it was
formally finalized, with BofA paying OFS a termination fee. Under the
terms of the guarantee agreement with Citigroup, OFS, the FDIC, and
the FRBNY received a premium for the guarantee of $7 billion in
Citigroup preferred stock and warrants. Additional information on the
two institutions under AGP can be found in the OFS' FY 2010 Agency
Financial Report available at: [hyperlink,
http://www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/agency_reports/Documents/2010%200FS%20AFR%20Nov%2015.pdf].
In connection with the termination of the Citigroup asset agreement in
December 2009, Citigroup canceled $1.8 billion in preferred stock
previously issued to OFS. The FDIC and OFS agreed that, subject to
certain conditions, the FDIC would transfer to OFS $800 million of
their Citigroup trust preferred stock holding plus dividends thereon
contingent on Citigroup repaying its previously-issued FDIC debt under
the FDIC's Temporary Liquidity Guarantee Program which expires on
December 31, 2012. OFS sold the trust preferred securities in October
2010 and the AGP warrants in January 2011, leaving only the $800
million of trust preferred stock receivable from the FDIC valued at
$739 million at September 30, 2011.
The AGP is now closed and resulted in a positive return for taxpayers.
No OFS payments were made under the program.
Community Development Capital Initiative:
The CDFIs focus on providing financial services to communities
underserved by traditional banks and financial services, such as low-
and moderate-income, minority, and other underserved communities. OFS
launched the Community Development Capital Initiative to help viable
certified CDFIs and the communities they serve cope with effects of
the financial crisis. Under this program, CDFI banks and thrifts
received investments of capital with an initial dividend or interest
rate of 2 percent, compared to the 5 percent rate generally offered
under CPP. CDFI banks and thrifts applied 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 eight years, compared to five years
under CPP.
OFS completed funding under this program in September 2010. The total
investment amount for the CDCI program under TARP is $570 million for
84 institutions, which remained outstanding as of September 30, 2011.
Of this amount, $363.3 million from 28 banks was exchanged from
investments under the CPP into the CDCI.
Credit Market Programs (PPIP, TALF, SBA 7(a)):
Public-Private Investment Program:
During the financial crisis, many institutions and investors were
under extreme pressure to reduce indebtedness. This de-leveraging
process pushed down the market prices for many financial assets,
including troubled legacy securities (i.e., non-agency residential
mortgage-backed securities (RMBS) and commercial mortgage-backed
securities (CMBS)) below their fundamental value. Institutions and
investors were trapped with these hard-to-value assets, marked at
distressed prices on their balance sheets, which constrained liquidity
and the availability of credit in these markets.
The PPIP was designed to purchase troubled legacy securities (i.e.,
non-agency RMBS and CMBS) by providing financing on attractive terms
as well as a matching equity investment made by OFS. By drawing new
private capital into the market for legacy RMBS and CMBS, PPIP was
designed to help restart the market for these securities, thereby
facilitating the removal of these assets from financial institutions'
balance sheets and allowing for more credit to become available for
consumers and small businesses.
OFS matches equity dollar-for-dollar and lends up to the amount of
equity raised by the PPIFs established by private sector fund managers
for the purpose of purchasing eligible RMBS and CMBS from eligible
financial institutions under EESA. During fiscal year 2011, OFS
disbursed $1.1 billion as equity investment and $2.3 billion as loans
to PPIFs. As of September 30, 2011, OFS had equity investments in
PPIFs outstanding of $5.5 billion and loans outstanding of $10.4
billion for a total of $15.9 billion. As of September 30, 2011, the
estimated value of these investments and loans was approximately $18.4
billion.
PPIFs have the ability to invest in eligible assets over a three-year
investment period. They then have up to five additional years, which
may be extended for up to two more years, to manage these investments
and return the proceeds to OFS and the other PPIF investors. PPIP fund
managers retain control of asset selection, purchasing, trading, and
disposition of investments. The profits generated by a PPIF, net of
expenses, will be distributed to the investors, including OFS, in
proportion to their equity capital investments. OFS also receives
warrants from the PPIFs, which gives OFS the right to receive a
percentage of the profits that would otherwise be distributed to the
private partners that are in excess of their contributed capital. The
program structure allows for risk to be spread between the private
investors and OFS and provides taxpayers with the opportunity for
positive returns.
For more information on these holdings and the performance of the
PPIFs, readers can refer to the most recent PPIP Quarterly Report
available at: [hyperlink,
http://www.treasury.gov/initiatives/financial-
stability/programs/Credit%20Market%20Programs/ppip/Documents/PPIP%20Repo
rt%2009-2011.pdf].
Term Asset-Backed Securities Loan Facility:
TALF was a joint Federal Reserve-OFS program that was designed to
restart the asset-backed securities (ABS) market that provide credit
to consumers and small businesses, which had ground to a virtual
standstill during the early months of the financial crisis.
Pursuant to its Federal Reserve Act Section 13(3) authority, the
Federal Reserve Board authorized the Federal Reserve Bank of New York
(FRBNY) to extend up to $200 billion in non-recourse loans to
borrowers to enable the purchase of newly issued asset-backed
(including newly issued CMBS and legacy CMBS) AAA-rated securities
including those backed by consumer loans, student loans, small
business loans, and commercial real estate loans. In return, the
borrowers pledged the eligible collateral with a risk premium
("haircut") as security for the loans. Should a borrower default upon
its TALF loan or voluntarily surrender the collateral, it would be
seized and sold to TALF LLC, a special purpose vehicle created by
FRBNY to purchase and hold seized or surrendered collateral. Through
September 30, 2011, TALF LLC has not purchased any collateral from the
FRBNY.
OFS originally committed to provide $20 billion in the form of a
subordinated loan commitment to TALF LLC. This commitment was later
reduced to $4.3 billion after the program closed to new lending in
June 2010, which represented 10 percent of the outstanding TALF loans
at the time. TALF LLC is able to use the funds to purchase the
underlying collateral associated with the FRBNY TALF loans in the
event a borrower surrendered the collateral or defaulted upon its loan.
From inception through September 30, 2011, OFS has loaned $100 million
of the $4.3 billion commitment. The maturity date on the OFS loan to
the TALF LLC is March 2019 with loans made by the FRBNY through TALF
maturing at the latest by March 2015. As of September 30, 2011, the
TALF program has experienced no losses and all outstanding TALF loans
are well collateralized OFS and FRBNY continue to see it as highly
likely that the accumulated excess interest spread will cover any loan
losses that may occur without recourse to the dedicated TARP funds.
Therefore, OFS does not expect any cost to the taxpayers from this
program.
Small Business Administration 7(a) Securities Purchase Program:
Small businesses play an important role in generating new jobs and
growth in our economy. The SBA's 7(a) Loan Guarantee Program assists
start-up and existing small businesses that face difficulty in
obtaining loans through traditional lending channels.
To help ensure that credit flows to entrepreneurs and small business
owners, OFS developed the SBA 7(a) Securities Purchase Program to
purchase SBA-guaranteed securities from pool assemblers. Purchasing
securities from participating "pool assemblers" enabled them to
purchase additional small business loans from loan originators. Since
OFS began purchasing SBA 7(a) securities, the SBA 7(a) market has
stabilized, as exhibited by new pool issuance volumes returning to pre-
crisis levels.
Under this program, OFS invested in total in 31 SBA 7(a) securities
with a value of approximately $368 million during fiscal year 2010.
Those securities were comprised of 1,001 loans from 17 different
industries, including retail, food services, manufacturing, scientific
and technical services, healthcare, educational services, and others.
OFS has now sold a total of 16 securities for approximately $213.2
million. OFS continues to hold 15 SBA 7(a) securities with a gross
outstanding balance as of September 30, 2011, of approximately $127.6
million.
Other Programs:
Automotive Industry Financing Program:
The Automotive Industry Financing Program (AIFP) was begun in December
2008 to help prevent a significant disruption of the U.S. automotive
industry, because the potential for such a disruption posed a systemic
risk to financial market stability and would have had a negative
effect on the economy.
Recognizing both General Motors Corporation (Old GM) and Chrysler
Holdings LLC (Old Chrysler) were on the verge of potentially
disorderly liquidations, OFS extended temporary loans to GM and
Chrysler in December 2008. After the Obama Administration took office,
it agreed to provide additional investments conditioned on each
company and its stakeholders participating in a fundamental
restructuring. Sacrifices were made by unions, dealers, creditors and
other stakeholders, and the restructurings were achieved through
bankruptcy court proceedings in a record time. As a result, General
Motors Company (New GM) and Chrysler Group LLC (New Chrysler) are more
competitive and viable companies, supporting American jobs and the
economy. Operating results have improved, the industry has added jobs
and the TARP investments have begun to be repaid.
Today, both companies have rebounded significantly. New GM's second
quarter 2011 profit was its sixth consecutive profitable quarter.
Since emerging from bankruptcy, New GM has added shifts at six of its
plants to address growing demand. A similar story is playing out at
New Chrysler as the company has lowered its structural costs, become
more efficient, adopted new technologies, rejuvenated its product
line, and rebuilt its brand value. Today, its market share continues
to recover.
In total, OFS provided approximately $80 billion in loans and equity
investments to GM, GMAC (now known as Ally Financial), Chrysler, and
Chrysler Financial. Please see Footnote 6 of financial statements for
further information on the AIFP subsidy cost.
General Motors:
OFS provided $50 billion under TARP to Old GM, beginning with a $13.4
billion loan in December 2008 to Old GM to fund working capital. Under
the loan agreement, Old GM was required to submit a viable
restructuring plan. The first plan Old GM submitted failed to
establish a credible path to viability, and the deadline was extended
to June 2009 for Old GM to develop an amended plan. OFS loaned an
additional $6 billion to fund Old GM as it worked to submit a viable
restructuring plan. To achieve an orderly restructuring, Old GM filed
for bankruptcy on June 1, 2009. OFS provided $30.1 billion under a
debtor-in-possession financing agreement to assist Old GM during the
restructuring. A newly formed entity, New GM purchased most of the
assets of Old GM under a sale pursuant to Section 363 of the
bankruptcy code (363 Sale). When the sale to New GM was completed on
July 10, 2009, OFS converted most of its loans to 60.8 percent of the
common equity in the New GM and $2.1 billion in preferred stock. At
that time, OFS held $6.7 billion in outstanding loans which were
repaid in full during fiscal year 2010. Approximately $986 million
remained with Old GM (now known as Motors Liquidation Company) for
wind-down costs associated with its liquidation.
Following the July 2009 restructuring and also as of September 30,
2010, New GM had the following ownership: OFS (60.8 percent), GM
Voluntary Employee Benefit Association (VEBA) (17.5 percent), the
Canadian Government (11.7 percent), and Old GM's unsecured bondholders
(10 percent). As part of the restructuring, New GM issued warrants to
acquire additional shares of common stock to VEBA and Old GM (for
distribution to the creditors of Old GM following confirmation of a
plan of liquidation by the bankruptcy court).
Several milestones were reached regarding OFS' investment in New GM
during fiscal year 2011.
* In October 2010, OFS accepted an offer from New GM to repurchase
$2.1 billion of the TARP preferred stock, conditioned on the closing
of the proposed initial public offering of New GM's common stock.
Under the agreement, New GM would purchase the preferred stock at a
price per share of $25.50, which was equal to 102 percent of the
liquidation preference. In December 2010, as announced in October
2010, New GM completed the repurchase of all New GM preferred stock
held by OFS for total proceeds of $2.14 billion.
* In November 2010, New GM completed its initial public offering (IPO)
with net proceeds to OFS of $13.5 billion. The price per share was
$32.7525, which represents the public sale price of $33 less
underwriting discounts and fees, with the sale resulting in net
proceeds less than cost of $4.4 billion. The IPO reduced OFS'
ownership of New GM's outstanding common stock by nearly half from
60.8 percent to 32 percent.
* In March 2011, the Plan of Liquidation for Old GM became effective
and OFS' $986 million loan to Old GM was converted to an
administrative claim. OFS retained the right to recover additional
proceeds; however, any additional recovery is dependent on actual
liquidation proceeds and pending litigation. During fiscal year 2011,
OFS received payments totaling $111 million from Motors Liquidation
Company.
Chrysler:
In January 2009, OFS loaned $4 billion to Old Chrysler. Under the loan
agreement, Old Chrysler was required to implement a viable
restructuring plan. In March 2009, the Administration determined that
the business plan submitted by Old Chrysler failed to demonstrate
viability and concluded that Old Chrysler was not viable as a stand-
alone company. In fiscal year 2010, Old Chrysler repaid $1.9 billion
while $500 million was assumed by New Chrysler (see below). OFS wrote
off the remaining $1.6 billion of this loan.
The Administration subsequently laid out a framework for Old Chrysler
to achieve viability by partnering with the international car company
Fiat. As part of the planned restructuring, in April 2009, Old
Chrysler filed for bankruptcy protection. In May 2009, OFS provided
$1.9 billion to Old Chrysler under a debtor-in-possession (DIP)
financing agreement for assistance during its bankruptcy proceeding.
The DIP loan was extinguished by the bankruptcy court in April 2010,
including collateral security attached to the loan, and transferred to
a liquidation trust. OFS retained the right to recover the proceeds
from the liquidation of the specified collateral and received
$40.2 million from the liquidation trust in fiscal year 2010 and $7.8
million in fiscal year 2011.
In June 2009, a newly formed entity, Chrysler Group LLC, (New
Chrysler) purchased most of the assets of Old Chrysler under a 363
sale. OFS provided a $6.6 billion loan commitment to New Chrysler (as
of September 30, 2010, $2.1 billion remained undrawn), and received a
9.9 percent equity ownership in New Chrysler. The agreement included
the ability of Fiat to meet specific performance related milestones
which would increase the ownership percentage of Fiat and lower the
ownership percentage of OFS. In January, April and May 2011, Fiat met
those performance milestones, lowering the OFS ownership percentage to
6.6 percent (6.0 percent on a fully diluted basis).
* In May 2011, New Chrysler repaid $5.1 billion in TARP loans and
terminated its ability to draw a remaining $2.1 billion TARP loan
commitment. Of the repayment, $500 million was to partially repay the
January 2009 loan of $4 billion. New Chrysler's repayment came six
years before the scheduled maturity of those loans in 2017.
* In July 2011, OFS received $560 million in proceeds from the sale of
its remaining stake in New Chrysler to Fiat. With the closing of this
transaction, OFS has fully exited its investment in New Chrysler. Fiat
paid $500 million to OFS for its 98,461 shares or 6 percent fully
diluted equity interest in New Chrysler. Fiat also paid $60 million to
OFS for its rights under an agreement with the UAW retirement trust
pertaining to the trust's shares in New Chrysler.
From inception through September 30, 2011, OFS has received more than
$11.1 billion of the $12.4 billion disbursed to Chrysler related
entities (primarily Old Chrysler and New Chrysler) through principal
repayments, sale of stock, interest, and other collections. While OFS
still holds an interest in a liquidation trust, no significant future
recoveries are expected. Accordingly, OFS is unlikely to fully recover
the difference of $1.3 billion.
Ally Financial (formerly GMAC):
In December 2008, OFS made an initial investment of $5 billion in
GMAC. OFS also lent $884 million of TARP funds to Old GM (one of
GMAC's owners) for the purchase of additional ownership interests in a
rights offering by GMAC. In May 2009, federal banking regulators
required GMAC to raise additional capital by November 2009 in
connection with the Supervisory Capital Assistance Program
(SCAP)/stress test. Also in May 2009, OFS exercised its option to
exchange the loan with Old GM for 35.4 percent of common membership
interests in GMAC. OFS also purchased $7.5 billion of convertible
preferred shares from GMAC in May 2009, which enabled GMAC to
partially meet the Supervisory Capital Assessment Program (SCAP)
requirements. In December 2009, OFS made additional investments of
$3.8 billion in GMAC to enable GMAC to satisfy the SCAP requirements
and exchanged certain preferred shares for common stock. OFS provided
the $3.8 billion in new capital in the form of $2.54 billion of Trust
Preferred Securities (TruPS), which are senior to all other capital
securities of the company, and $1.25 billion of Mandatory Convertible
Preferred Stock.
In May 2010, GMAC changed its corporate name to Ally Financial, Inc.
In December 2010, OFS converted additional preferred stock in Ally
Financial with a liquidation preference of $5.5 billion into common
stock — a move designed to accelerate OFS' ability to exit its
investment in the company. The conversion increased OFS' common equity
stake in Ally Financial from 56 percent to 74 percent of total common
shares outstanding. In connection with this conversion, OFS converted
its preferred stock at 1.0 times the book value of tangible common
equity balance as of September 30, 2010, subject to certain
adjustments. Ally Financial also agreed to assist OFS in the sale or
sales of its holdings of TruPS on terms acceptable to OFS and Ally
Financial as soon as practical subject to certain conditions.
In March 2011, OFS priced a secondary offering at par for all of its
Ally Financial trust preferred securities. Aggregate proceeds from the
offering (together with a distribution fee) totaled approximately $2.7
billion. With the proceeds from this sale, OFS has received
approximately $5.1 billion from Ally Financial from inception of the
program through September 30, 2011, including $2.4 billion in
dividends and interest. As of September 30, 2011, OFS holds $5.9
billion of convertible preferred stock and 74 percent of the
outstanding shares of common stock in Ally Financial as discussed in
footnote 6 to the OFS Financial Statements.
American International Group, Inc. (VG) Investment Program:
In September 2008, AIG was the largest provider of conventional
insurance in the world, with approximately 75 million individual and
corporate customers in over 130 countries. AIG's assets exceeded $1
trillion and insured 180,000 businesses and other entities employing
over 100 million people in the U.S. It was a large issuer of
commercial paper and the second largest holder of U.S. municipal bonds.
Then, the financial crisis hit in October of 2008. AIG's parent
holding company engaged in financial activities that were well beyond
the business of life insurance and property and casualty insurance.
Its financial products unit was a significant participant in some of
the newest, riskiest, and most complex transactions of the U.S.
financial system. In the chaotic environment of September 2008, the
Federal Reserve and Treasury concluded that AIG's failure could be
catastrophic. Among other things, if AIG had failed, the crisis would
have almost certainly spread to the entire insurance industry, and its
failure could have directly affected the savings of millions of
Americans. Therefore, the federal government took action to protect
the U.S. financial system.
During September, October, and November 2008, the Federal Reserve and
OFS took a series of steps to prevent AIG's disorderly failure and
mitigate systemic risks. The initial assistance to AIG was provided by
the FRBNY before the passage of EESA and the creation of TARP. After
EESA was enacted, the OFS and the Federal Reserve continued to work
together to address the challenges posed by AIG.
In November 2008, OFS invested $40 billion in senior preferred stock
of AIG and it also received warrants to purchase common shares in the
firm. The funds were used immediately to reduce the loans provided to
AIG by the FRBNY. The preferred stock was subsequently exchanged in
April 2009, for face value plus accrued dividends, into $41.6 billion
of a different series of preferred stock. Complete details on the AIG
investment are available in at the TARP Three Year Anniversary Report
and the TARP Two-Year Retrospective Report which are both available
at: [hyperlink, http://www.treasury.gov/initiatives/financial-
stability/briefing-room/reports/agency_reports/Pages/default.aspx].
AIG is now experiencing a turnaround. The company has completed a
successful restructuring. Having stabilized its operations, AIG is now
in a stronger position to repay the OFS' investments. As a result,
during fiscal year 2011, substantial progress has been made in
reducing OFS' exposure to AIG.
* In January 2011, Treasury, FRBNY, the trustees of the AIG Credit
Facility Trust (the Trust)[Footnote 8] and AIG completed the
Restructuring previously announced on September 30, 2010. This series
of integrated transactions and certain corporate actions was designed
to accelerate the repayment of U.S. taxpayer funds and to promote
AIG's transition from a majority government owned and supported entity
to a financially sound and independent entity. As part of the AIG
restructuring on January 14, 2011, AIG drew $20.3 billion from the
capital facility made available by OFS, for a total of $27.8 billion
drawn. In the Restructuring, AIG repaid FRBNY a total of $47 billion.
AIG no longer has any outstanding obligations to the FBRNY (although
the FRBNY has loans to two special purpose vehicles which acquired
assets from AIG). Following the Restructuring, OFS' total investment
in AIG was $68 billion, and as of January 31, 2011, Treasury's
investment consisted of approximately 1.655 billion shares of AIG
common stock (1.092 billion shares owned by OFS and 562.9 million
shares owned by the Department, which were received on the termination
of the Trust), representing ownership of 92 percent of the company (77
percent held by OFS and 15 percent held by the Treasury outside of
OFS) as well as $20.3 billion of Treasury OFS' preferred equity
interests in two AIG owned Special Purpose Vehicles (SPVs). The SPVs
are wholly owned by AIG and consolidated on the AIG financial
statements. The OFS owned 100 percent of the preferred share interest
in the two SPVs. Generally, the SPVs pay the Preferred Interest holder
(i.e., OFS) a return of 5 percent per annum.
* Assets of the SPV's included AIG equity interests in AIA, MetLife,
AIG Star Life Insurance, AIG Edison Life Insurance, Nan Shan Life
Insurance, ILFC (Aircraft Leasing entity) and Maiden Lane II and III.
AIG is to repay the SPV preferred interest owned by OFS from
monetization of the non-cash assets of the SPVs.
* In February 2011, AIG sold its subsidiaries, AIG Star Life Insurance
Co., Ltd. and AIG Edison Life Insurance Company and repaid $2.1
billion to OFS, which reduced the total outstanding amount of Treasury-
OFS' preferred equity interest in the SPVs from $20.3 billion to $18.2
billion.
* In March 2011, AIG repaid OFS $6.9 billion, which further reduced
the total outstanding amount of OFS' preferred equity interests in the
SPVs from $18.2 billion to $11.3 billion.
* In May 2011, Treasury completed the sale of 200 million shares of
AIG common stock at $29.00 per share for $5.8 billion, with $3.8
billion in proceeds to OFS, resulting in proceeds less than cost of
about $1.9 billion.[Footnote 9]
* In August 2011, AIG repaid OFS $2.2 billion, including $0.2 billion
in preferred interest returns recognized as dividends, which further
reduced OFS' preferred equity interest in the SPVs from $11.3 billion
to $9.3 billion. This repayment was funded through proceeds from the
sale of AIG's Nan Shan Life Insurance subsidiary.
As of September 30, 2011, OFS' remaining gross outstanding TARP AIG
related investments amounted to $51.1 billion, which consists of 960
million shares of AIG common stock[Footnote 10] (with a cost basis of
$43.53 per share and a market value of $21.1 billion or $21.95 per
share), and approximately $9.3 billion of preferred equity interests.
As of September 30, 2011, the aggregate value of the holdings of the
SPV greatly exceeds OFS' preferred interests. Therefore, OFS does not
currently anticipate incurring any loss from its SPV preferred
interests. Additional discussion of the AIG investment including
subsidy cost can be found in footnote 6 of the OFS Financial
Statements.
Operational Goal Two: Prevent Avoidable Foreclosures And Preserve
Homeownership:
OFS established several programs under TARP to combat the historic
housing crisis and important new reforms are being introduced in part
because of TARP's housing programs. While the housing market remains
depressed, TARP's initiatives to assist struggling homeowners have
helped provide more affordable permanent monthly mortgage payments to
over 850,000 homeowners and provided an additional 18,000 homeowners
(95 percent of these homeowners helped through non-GSE programs) with
alternative solutions to foreclosure. In addition, TARP's housing
programs have set new standard practices for mortgage providers that
have indirectly helped millions more.
Examples include:
* Establishing a single point of contact for homeowners seeking
assistance. This critical reform is helping to prevent homeowners from
receiving conflicting information about their options, while providing
them access to a single, knowledgeable case manager who can guide them
through the modification process.
* Limiting the practice of "dual tracking" – where service providers
begin the foreclosure
process while simultaneously evaluating homeowners for a modification.
* Requiring servicers to provide qualified unemployed homeowners with
a forbearance period during which their monthly payments are
temporarily reduced while they look for a new job.
* Assessing servicers to ensure that they are complying with OFS'
housing program guidelines and are meeting their obligations to
homeowners fairly.
By introducing these and other new concepts, OFS' housing programs are
serving as a national laboratory for helping the private and non-
profit sectors address a foreclosure challenge on this scale.
Using authority granted under EESA, OFS established housing programs
under TARP that fall into three initiatives: the MHA program, (which
includes the RAMP), the Hardest Hit Fund (HHF) and OFS' support for
the FHA Refinance Program. Together these programs make up a
comprehensive housing program, whose goal is to lower mortgage
payments for at-risk borrowers, support loan modifications aimed at
providing sustainable, affordable mortgage payments for borrowers,
prevent avoidable foreclosures and provide incentives to
investor/owners of loans, loan servicers, and homeowners to
participate in the program. To protect taxpayers, the MHA and HHF
housing initiatives generally have pay-for-success incentives: funds
are spent only when transactions are completed and thereafter only as
long as those contracts remain in place. Therefore, funds will be
disbursed over many years.
Rather than try and stop every foreclosure, OFS' housing programs have
focused on assisting families with home loans that would be
sustainable over the long term if modified. For borrowers whose
mortgages could not be saved, OFS's programs have helped them to make
a more graceful and orderly transition to a more sustainable living
situation.
The total cost of the TARP housing programs, excluding administrative
costs, cannot exceed-—and may be less than—$45.6 billion, which is the
amount committed to that purpose.
Home Affordable Modification Program (HAMP):
HAMP is a first lien mortgage modification program that provides
incentives to mortgage servicers, investors, and homeowners to reduce
eligible homeowners' monthly payments to affordable levels based on
the homeowner's current income. Under this program, OFS pays the
incentives for the modification of loans not held by government
sponsored enterprises (GSEs) while the GSEs bear the cost of
modifications of loans held by the GSEs. RAMP is the largest program
within MHA and includes several additional components to complement
first lien modifications.
HAMP provides eligible homeowners the opportunity to reduce their
monthly first lien mortgage payments to 31 percent of their gross (pre-
tax) income.
To qualify for RAMP, a borrower must:
* Own a one- to four-unit home that is a primary residence;
* Have received a mortgage on or before January 1, 2009;
* Have a mortgage payment (including principal, interest, taxes,
insurance, and homeowners association dues) that is more than 31
percent of the homeowner's gross monthly income; and;
* Owe not more than $729,750 on a first mortgage for a one—unit
property (there are higher limits for two— to four— unit properties).
Before a mortgage can be permanently modified, the homeowner must make
the new, reduced monthly mortgage payment on time and in full during a
trial period of three or four months.
Homeowners can earn up to $1,000 per year for five years to reduce the
amount of principal they owe up to $5,000 by making timely payments on
permanently modified loans.
Additional Components of Making Home Affordable:
* The FHA-HAMP Program provides the same incentives as HAMP for
Federal Housing Administration (FHA) guaranteed loans.
* The Second Lien Modification Program (2MP) provides incentives for
second-lien holders to modify or extinguish a second-lien mortgage
when a modification has been initiated on the first lien mortgage for
the same property under HAMP.
* The Treasury/FHA Second Lien Program (2LP) provides incentives to
servicers for extinguishment of second liens for borrowers who
refinance their first lien mortgages under the FHA-Refinance Program.
* The Rural Development (RD)-HAMP Program provides incentives for
modified United States Department of Agriculture (USDA) guaranteed
mortgages.
Housing Finance Agency Innovation Fund for the Hardest Hit Housing
Markets (HFA Hardest Hit Fund, or HHF):
In February 2010, the Obama Administration announced the HFA
Innovation Fund for the Hardest Hit Housing Markets (HFA Hardest Hit
Fund, or HHF), which allow state HFAs in the nation's hardest hit
housing markets and high unemployment markets to design innovative,
locally targeted foreclosure prevention programs. State HFAs design
the state programs, tailoring the housing assistance to their local
needs. Further information on the funded programs is available at:
[hyperlink,
http://www.FinancialStability.gov/roadtostability/hardesthitfund.html].
Support for the FHA Refinance Program:
In March 2010, the Administration announced enhancements to an
existing FHA program that will permit lenders to provide additional
refinancing options to homeowners who owe more than their homes are
worth because of large declines in home prices in their local markets.
This program, known as the FHA-Refinance program, will provide more
opportunities for qualifying mortgage loans to be restructured and
refinanced into FHA-insured loans.
Among other requirements:
* The homeowner must be current on the existing first lien mortgage;
* The homeowner must occupy the home as a primary residence and have a
qualifying credit score;
* The mortgage investor must reduce the amount owed on the original
loan by at least ten percent;
* The new FHA loan must have a balance less than the current value of
the home; and;
* Total mortgage debt for the borrower after the refinancing,
including both the first lien mortgage and any other junior liens,
cannot be greater than 115 percent of the current value of the home –
giving homeowners a path to regain equity in their homes and an
affordable monthly payment.
TARP funds have been made available up to approximately $8 billion in
the aggregate to provide additional coverage to lenders for a share of
potential losses on these loans and to provide incentives to support
the write-downs of second liens and encourage participation by
servicers.
OFS has entered into a letter of credit (L/C) to fund the FHA-
Refinance Program. Pursuant to this I/C, a reserve account has been
pre-funded with $50 million in funds for OFS' share of any future loss
claim payments. OFS will be reimbursed for all unused amounts from
this account. As of September 30, 2011, no disbursements for loss
claim payments under the FHA-Refinance Program have been made.
MHA Results:
The incentives offered under MHA are helping homeowners and assisting
in stabilizing the housing market. Through September 30, 2011, 112
active servicers have signed up for MHA. Between loans covered by
these servicers and loans owned or guaranteed by the GSEs, more than
85 percent of first-lien residential mortgage loans in the country are
now held by servicers participating in the program. Through September
30, 2011, OFS has made commitments to fund up to $29.9 billion in
MHA payments.
After 31 months, more than 1.7 million homeowners participating in the
OFS and GSE RAMP programs have entered into trial modifications that
reduced their mortgage payments to more affordable levels. Of these
homeowners, the OFS HAMP program has helped almost 800,000
participants. Over 850,000 homeowners participating in the HAMP
programs have had their mortgage terms modified permanently, with over
400,000 of those participants from the OFS HAMP program. Homeowners
participating in both the GSE and OFS HAMP programs collectively have
experienced a 37 percent median reduction in their mortgage payments—
more than $525 per month. MHA has also spurred the mortgage industry
to adopt similar programs that have helped millions more at no cost to
the taxpayer.
OFS now publishes quarterly assessments of servicer performance, which
contain data on compliance with program guidelines as well as program
results metrics. Going forward, OFS hopes these assessments will set
the standard for transparency about mortgage servicer efforts to
assist homeowners and encourage servicers to correct identified
instances of noncompliance. For the second quarter of calendar year
2011, two servicers had been determined to need substantial
improvement.
These servicers were also in need of substantial improvement in the
first quarter, and their servicer incentives have been withheld since
June 1, 2011.
MHA performance highlights for fiscal year 2011 can be found at:
[hyperlink,
http://www.treasury.gov/initiatives/financial-stability/results/MHA-
Reports/Pages/default.aspx].
Hardest Hit Fund Results:
The Hardest Hit Fund provides funding to 18 states and the District of
Columbia (DC) to provide assistance to struggling homeowners through
locally-tailored programs administered by each respective HFA. $7.6
billion has been allocated of the $45.6 billion committed for the
housing programs. From inception of the program through September 30,
2011, a total of $655 million has been drawn down from OFS by the 18
states and DC. Each state has its own timeline for implementation of
their programs and draws down funds as they are needed.
Housing Scorecard:
The U.S. Department of Housing and Urban Development (HUD) and OFS
also release a Monthly Housing Scorecard on the nation's housing
market. Each month the scorecard presents key housing market
indicators and highlights the impact of the Administration's housing
recovery efforts, including assistance to homeowners through the FHA
and the HAMP. The Housing Scorecard is available at: [hyperlink,
http://www.hud.gov/scorecard;.
Operational Goal Three: Protect Taxpayers' Interests:
OFS manages TARP investments to minimize costs to taxpayers and
receives income on its holdings of preferred equity and other TARP
investments in the form of interest, dividends and fees. OFS also
takes steps to ensure that TARP recipients comply with any TARP-
related statutory or contractual obligations such as executive
compensation requirements and restrictions on dividend payments.
Consistent with the statutory requirements, OFS' four overarching
portfolio management guiding principles are as follows:
* Protect taxpayer investments and maximize overall investment returns
within competing constraints,
* Promote stability for and prevent disruption of financial markets
and the economy,
* Bolster market confidence to increase private capital investment,
and,
* Dispose of investments as soon as practicable, in a timely and
orderly manner that minimizes financial market and economic impact.
OFS' asset management approach protects taxpayer investments and
promotes stability through evaluating systemic and individual risk
from standardized reporting, proactive monitoring and ensuring
adherence to EESA and compliance with contractual agreements. By
avoiding involvement in day to day company management decisions and
exercising its rights as a common shareholder only on core governance
issues, OFS seeks to bolster market confidence to increase private
capital investment.
OFS seeks to exit investments as soon as practicable to remove OFS as
a shareholder, eliminate or reduce OFS exposure, return TARP funds to
reduce the federal debt, and encourage private capital formation to
replace federal government investment. The desire to achieve such
objectives must be balanced against a variety of other objectives,
including maximizing taxpayer returns, avoiding further financial
market and/or economic disruption, and the potentially negative impact
to the issuer's health and/or capital raising plans from OFS'
disposition. An issuer typically needs the approval of its primary
federal regulator in order to repay OFS and therefore regulatory
approvals also affect how quickly an institution can repay.
In managing the TARP investments, OFS takes a disciplined portfolio
approach with a review down to the individual investment level. OFS
aims to monitor risk and performance at both the overall portfolio
level and the individual investment level. Given the nature and size
of the portfolio, risk and performance are linked to the overall U.S.
financial system and the economy. In conducting the portfolio
management activities, OFS employs a mix of dedicated professionals
and external asset managers. These external asset managers provide
market specific information such as market prices and valuations as
well as detailed credit analysis using public information on a
periodic basis.
Risk Assessment:
OFS has developed procedures to identify and mitigate investment risk.
These procedures are designed to identify TARP recipients that are in
a significantly challenged financial condition to ensure heightened
monitoring and additional diligence and to determine appropriate
responses by OFS to preserve the taxpayers' investment and minimize
loss as well as to maintain financial stability. Specifically, OFS'
external asset managers review publicly available information to
identify recipients for which pre-tax, pre-provision earnings and
capital may be insufficient to offset future losses and maintain
required capital. For certain institutions, OFS and its external asset
managers engage in heightened monitoring and due diligence that
reflects the severity and timing of the challenges.
Although OFS relied on the recommendations of federal banking
regulators in connection with reviewing and approving applications for
assistance, OFS generally does not have access to nonpublic
information collected by federal banking regulators on the financial
condition of TARP recipients. To the contrary, there is a separation
between the responsibilities of OFS as an investor and the duties of
the federal government as regulator.
The data gathered through this process is used by OFS in consultation
with its external managers and legal advisors to determine a proper
course of action. This may include making recommendations to
management or working with management and other security holders to
improve the financial condition of the company, including through
recapitalizations or other restructurings. These actions are similar
to those taken by large private investors in dealing with troubled
investments. OFS does not seek to influence the management of TARP
recipients for nonfinancial purposes.
Compliance:
OFS also takes steps to ensure that TARP recipients comply with their
TARP-related statutory and contractual obligations. Statutory
obligations include executive compensation restrictions. Contractual
obligations vary by investment type. For most of OFS' preferred stock
investments, TARP recipients must comply with restrictions on payment
of dividends and on repurchases of junior securities, so that funds
are not distributed to junior security holders prior to repayment of
the federal government. Recipients of exceptional assistance
(currently AIG, GM, and Ally) must comply with additional restrictions
on executive compensation, lobbying, corporate expenses and internal
controls and must provide quarterly compliance reports.
All servicers voluntarily participating in MHA have contractually
agreed to follow the MHA program guidelines, which require the
servicer to offer a MHA modification to all eligible borrowers and to
have systems that can process all MHA-eligible loans. Servicers are
subject to periodic, on-site compliance reviews performed by OFS'
compliance agent, Making Home Affordable-Compliance (MHA-C), a
separate, independent division of Freddie Mac, to ensure that
servicers satisfy their obligations under MHA requirements in order to
provide a well-controlled program that assists as many eligible
homeowners as possible to retain their homes while taking reasonable
steps to prevent waste, fraud and abuse. OFS works closely with MHA-C
to design and refine the compliance program and conducts quality
assessments of the activities performed by MHA-C. In fiscal year 2011,
OFS began publishing quarterly assessments of the ten largest
servicers.
Warrant Sales Results:
OFS adheres to a consistent process for evaluating bids from
institutions to repurchase their warrants. Upon receiving a bid for a
warrant repurchase, OFS utilizes (i) market quotes, (ii) independent,
third party valuations, and (iii) model valuations to assess the bid.
OFS began selling warrants back to banks that had repaid the TARP
investment in May 2009.
Since the program's inception, OFS has received more than $9.1 billion
in gross proceeds from the disposition of warrants associated with 93
CPP investments and both TIP investments, consisting of (i) $3.7
billion from issuer repurchases at agreed upon fair market values and
(ii) $5.4 billion from auctions. For the 93 fully repaid CPP
investments representing $180.1 billion in capital, OFS has received
an absolute return (i.e., not annualized) of 4.8 percent from
dividends and an added 4.2 percentage return from the sale of the
warrants for a total absolute return of 9.0 percent. For the $40
billion TIP investments in Bank of America and Citigroup, OFS received
an absolute return of 6.4 percent from dividends and an added 3.8
percent return from the sale of the warrants for a total absolute
return of 10.2 percent.[Footnote 11] These returns are not predictive
of the eventual returns on the entire CPP portfolios. For the complete
Warrant Disposition Report, please visit: [hyperlink,
http://www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/other/Pages/default.aspx].
Operational Goal Four: Promote Transparency:
To protect taxpayers and help ensure that every dollar is directed
toward promoting financial stability, OFS established comprehensive
accountability and transparency measures. OFS publishes hundreds of
reports and other information about TARP so that the public knows how
the money was spent, who received it and on what terms. This includes
all contracts governing any investment or expenditure of TARP funds
and countless reports over nearly three years of the TARP's existence.
All of these reports and information are posted on the OFS website,
[hyperlink, http://www.FinancialStability.gov], including:
* Lists of all the institutions participating in TARP programs, and
all of the investments OFS has made;
* All investment contracts defining the terms of those investments
within five to ten business days of a transaction's closing;
* All contracts with OFS service providers involved with TARP programs;
* A Daily TARP Update Report;
* A TARP Tracker;
* A report of each transaction within two business days of completing
the transaction;
* Monthly reports of dividend and interest received;
* Monthly reports detailing the progress of modifications under the
Making Home Affordable program;
* A monthly lending survey, and an annual use of capital survey, which
contains detailed information on the lending and other activities of
banks that have received TARP funds; and;
* Quarterly assessments of the ten largest mortgage servicers.
OFS has worked to maximize the transparency of the housing program to
borrowers and ensure that servicers are held accountable. For example,
every borrower is entitled to a clear explanation if he or she is
determined to be ineligible for a HAMP modification. OFS has
established denial codes that require servicers to report the reason
for modification denials in writing to OFS. Servicers are required to
use those denial codes as a uniform basis for sending letters to
borrowers who are evaluated for HAMP but denied a modification. In
those letters, borrowers will be provided with a phone number to
contact their servicers as well as the phone number of the Homeowners
HOPETM Hotline, a counseling service provided by the Homeownership
Preservation Foundation which has counselors who are trained to work
with borrowers to help them understand reasons they may have been
denied modifications and explain other modification or foreclosure
prevention options that may be available to them.
OFS increased transparency and public access to the NPV model -- a key
component of the eligibility test for HAMP — in releasing the NPV
white paper, which explains the methodology used in the NPV model. To
ensure accuracy and reliability, Freddie Mac, acting as OFS'
compliance agent, conducts periodic audits of servicers'
implementation of the model and requires servicers to use models which
meet OFS' NPV specifications or to revert back to OFS' NPV
application. As required by the Dodd-Frank Act, OFS established a web
portal that borrowers can access to run a NPV analysis on their own
mortgages, and that borrowers who are turned down for a HAMP
modification can use.
In a continued commitment to enhanced reporting and transparency, in
January 2011, the Obama Administration released the MHA Data File
which includes characteristics of program participants to date,
including financial information, mortgage loan information before and
after entering HAMP, performance in a RAMP modification, and
race/ethnicity data. The MHA Data File offers mortgage loan-level data
and is intended to allow for better understanding of the impact of the
program.
OFS applied the recommendations of an independent non-profit, non-
partisan policy institute in preparing the MHA Data File to ensure the
privacy of participating homeowners. The release of the data file
fulfills a requirement within the Dodd-Frank Act to make available
loan-level data about the program. OFS will update the file monthly
and will expand reporting to include newer initiatives that are part
of Making Home Affordable. Researchers interested in using the MHA
Data File can access the file and user guide at: [hyperlink,
http://www.Treasury.gov/initiatives/financialstability/results/Pages/mha
_publicfile.aspx].
A. Audited Financial Statements:
OFS prepares separate financial statements for TARP on an annual
basis. This is the third OFS Agency Financial Report (AFR), and
includes the audited financial statements for the fiscal years ended
September 30, 2011 and September 30, 2010. Additional reports for
prior periods are available at: [hyperlink,
http://www.FinancialStability.gov].
In its first two years of operation, TARP's financial statements
received unqualified ("clean") audit opinions from its auditors, the
GAO. OFS also received a Certificate of Excellence in Accountability
Reporting (CEAR) from the Association of Government Accountants for
both fiscal year 2010 and the period ending September 30, 2009.
B. TARP Retrospective Reports:
In October 2011, OFS published the TARP Three-Year Anniversary Report.
This serves as an update to OFS' comprehensive TARP Two-Year
Retrospective report issued in October 2010. These reports include
information on TARP programs and the effects of TARP and additional
emergency measures taken by the federal government to stabilize the
financial system following the 2008 crisis. Readers are invited to
refer to these documents at: [hyperlink,
http://www.treasury.gov/initiatives/financial-stability/briefing-
room/reports/agency_reports/Pages/default.aspx].
C. Oversight by Four Separate Agencies:
Congress also established four avenues of oversight for TARP:
* The Financial Stability Oversight Board, established by EESA Section
104;
* Specific responsibilities for the GAO as set out in EESA Section 116;
* The Special Inspector General for TARP, established by EESA Section
121; and;
* The Congressional Oversight Panel (COP), established by EESA
Section125. COP concluded its operations in accordance with EESA on
April 3, 2011.
OFS has productive working relationships with all of these bodies, and
cooperates with each oversight agency's effort to produce periodic
audits and reports that focus on the many aspects of TARP.
Individually and collectively, the oversight bodies' audits and
reports have made and continue to make important contributions to the
development, strengthening, and transparency of TARP programs.
D. Congressional Hearings and Testimony:
OFS officials have testified in numerous Congressional hearings since
TARP was created. Copies of the written testimony are available at:
[hyperlink,
http://www.FinancialStability.gov/latest/pressreleases.html].
Managements Discussion And Analysis Footnotes:
[1] The Dodd-Frank Wall Street Reform and Consumer Protection Act
(P.L. 111-203) amended EESA Section 115 authority to cap total
purchase and guarantee authority at a cumulative $475 billion.
[2] The Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-
22, Div. A, amended the act and reduced the maximum allowable amount
of outstanding troubled assets under the act by almost $1.3 billion,
from $700 billion to $698.7 billion.
[3] Pub. L. 111-203.
[4] OFS tracks costs in accordance with Federal budget procedures.
First, OFS enters into legally binding “obligations” to invest or
spend the funds for TARP programs. Then, funds are disbursed over time
pursuant to the obligations. In any given case, it is possible that
the full amount obligated will not be disbursed.
[5] The subsidy cost in Table 1 and on the Statement of Net Cost, is
composed of (1) the change in the subsidy cost allowance, net of write-
offs, (2) net intragovernmental interest cost, (3) certain inflows
from the direct loans and equity investments (e.g., dividends,
interest, net proceeds from sales and repurchases of assets in excess
of cost, and other realized fees), and (4) the change in the estimated
discounted net cash flows related to the asset guarantee program and
FHA-Refinance Program.
[6] See discussion of valuation methodology in Note 6 of the
Financial Statements.
[7] As of September 30, 2011, OFS had exited from all TARP investments
(including CPP, TIP and AGP) in Citigroup with proceeds greater than
cost in the amount of $12.3 billion on the $45 billion invested in the
institution. In addition to CPP proceeds reported above, proceeds from
the warrants associated with TIP and AGP, with an exercise price of
$10.61, totaled $257.6 million.
[8] The independent trust established to manage the Department of
Treasury's beneficial interest in Series C preferred AIG shares.
[9] The sale consisted of 131,981,246 TARP shares and 68,018,754 non-
TARP shares based upon the Treasury's pro-rata holding of those
shares. The non-TARP shares are those received from the trust
established by the FRBNY for the benefit of the U.S. government.
Proceeds for non-TARP common stock totaled $1.97 billion and are not
reported in OFS receipts.
[10] OFS' 960 million shares of AIG common stock represent 50.8
percent of AIG's total shares outstanding as of September 30, 2011.
Treasury, outside of TARP, owns an additional 495 million shares of
AIG common stock which represent an additional 26.1 percent of AIG's
total shares on a fully diluted basis.
[11] Since some of the OFS' warrant repurchases were made in OFS'
first year, OFS has consistently reported absolute returns for all
warrant sales, rather than annualizing for some sales and not others.
[End of Managements Discussion And Analysis]
Message From The Chief Financial Officer:
The Office of Financial Stability’s (OFS) Agency Financial Report for
fiscal year 2011 provides readers information on financial results
relating to the Troubled Asset Relief Program (TARP) as required by
the Emergency Economic Stabilization Act (EESA) of 2008 and other
laws. It is a critical part of our efforts to ensure the highest level
of transparency and accountability to the American people.
For fiscal year 2011, the Government Accountability Office (GAO)
provided OFS unqualified – “clean” -- audit opinions on the fair
presentation of our financial statements and the effectiveness of our
internal control over financial reporting. In addition, the auditors
determined that we had no material weaknesses. However, GAO continued
to report one significant deficiency in internal control over our
accounting and financial reporting processes.
I would like to acknowledge senior management’s commitment to good
governance as well as the discipline, transparency, and care exhibited
by OFS employees in creating and executing our organization’s policies
and procedures. We were honored to have received the Certificate of
Excellence in Accountability Reporting (CEAR) award from the
Association of Government Accountants for both fiscal year 2010 and
the period ending September 30, 2009.
For fiscal year 2011, net cost of operations was $9.5 billion,
resulting in a cumulative net cost of operations of $28.0 billion
since inception. The fiscal year 2011 net cost of operations primarily
results from a decline in the value of Ally Financial, reductions in
the share prices of common stock holdings in General Motors and
American International Group, Inc. (AIG) and continued costs of the
Treasury Housing Programs Under TARP. The cumulative net cost of
operations primarily consists of net subsidy cost on direct loans
and/or equity investments in AIG and automobile companies partially
offset by net subsidy income related to TARP’s bank support and credit
market programs. During the past year, OFS focused on further
strengthening its rigorous internal control processes around
obligations, transaction processing, disbursements, collections, and
financial reporting. While our processes continue to mature, the
audit opinions evidence successes surrounding internal controls over
financial reporting implementation across the organization. In fiscal
year 2011, OFS enhanced its subsidiary ledger for tracking TARP equity
investments and loans and the supporting accounting data. This
strengthened system of record provides automated controls over reporting
financial information with appropriate system controls.
On October 3, 2010, the government’s authority to make new financial
commitments to purchase troubled assets expired under the EESA. While
new obligations are prohibited, funding under our existing commitments
for housing and other programs will continue to be disbursed and many
assets in our investment program are currently outstanding. As a
result, our primary focus is on managing current investment assets and
implementing the housing programs.
I feel fortunate to play a role in the continuing tradition of sound
fiscal stewardship at OFS. This organization recognizes the importance
of a proper control environment and will continue to uphold the
highest standards of integrity as we carry out our fiduciary
responsibilities to the American people. Moving forward, we will
continue to strengthen our financial management capacity. In
particular, we will continue to enhance our procedures, documentation,
and controls over our systems and processes to protect taxpayer
interests and ensure the highest levels of transparency in our
activities.
Sincerely,
[Signed by:
Lorenzo Rasetti:
Chief Financial Officer:
[End of section]
Financial Statements:
The Office of Financial Stability (OFS) prepares financial statements
for the Troubled Asset Relief Program (TARP) as a critical aspect of
ensuring the accountability and stewardship for the public resources
entrusted to it and as required by Section 116 of the Emergency
Economic Stabilization Act of 2008 (EESA). Preparation of these
statements is also an important part of the OFS’ financial management
goal of providing accurate and reliable information that may be used
to assess performance and allocate resources. The OFS management is
responsible for the accuracy and propriety of the information
contained in the financial statements and the quality of internal
controls. The statements are, in addition to other financial reports,
used to monitor and control budgetary resources. The OFS prepares
these financial statements from its books and records in conformity
with the accounting principles generally accepted in the United States
for federal entities and the formats prescribed by the Office of
Management and Budget (OMB).
While these financial statements reflect activity of the OFS in
executing its programs, including providing resources to various
entities to help stabilize the financial markets, they do not include,
as more fully discussed in Note 1, the assets, liabilities, or results
of operations of commercial entities in which the OFS has a
significant equity interest.
The Balance Sheet summarizes the OFS assets, liabilities and net
position as of September 30, 2011 and 2010. Intragovernmental assets
and liabilities resulting from transactions between federal agencies
are presented separately from assets and liabilities from transactions
with the public.
The Statement of Net Cost shows the net cost of operations for the
years ended September 30, 2011 and 2010.
The Statement of Changes in Net Position presents the OFS ending net
position by two components - Cumulative Results of Operations and
Unexpended Appropriations as of September 30, 2011 and 2010. It
summarizes the changes in net position. The ending balances of both
components of net position are also reported on the Balance Sheet.
The Statement of Budgetary Resources provides information about
funding and availability of budgetary resources and the status of
those resources for the years ended September 30, 2011 and 2010.
Office of Financial Stability (Troubled Asset Relief Program):
Balance Sheet:
As of September 30, 2011 and 2010 (Dollars in Millions:
Assets:
Intragovernmental Assets:
Fund Balance with Treasury (Note 3);
2011: $83,342;
2010: $98,664.
Asset Guarantee Program (Note 6);
2011: $739;
2010: $815.
Total Intragovernmental Assets;
2011: $84,081;
2010: $99,479.
Cash on Deposit for Housing Program (Note 4):
2011: $50;
2010: 0.
Accounts Receivable;
2011: 0;
2010: $4.
Troubled Asset Relief Program:
Direct Loans and Equity Investments, Net (Note 6);
2011: $80,104;
2010: $142,452.
Asset Guarantee Program (Note 6);
2011: 0;
2010: $2,240.
Total Assets
2011: $164,235;
2010: $244,175.
Liabilities:
Intragovernmental Liabilities:
Accounts Payable and Other Liabilities;
2011: $2;
2010: $5.
Due to the General Fund (Note 7);
2011: $4,591;
2010: $25,112.
Principal Payable to the Bureau of the Public Debt (Note 8);
2011: $129,497;
2010: $140,404.
Total Intragovernmental Liabilities;
2011: $134,090;
2010: $165,521.
Accounts Payable and Other Liabilities;
2011: $93;
2010: $134.
Liability for Treasury Housing Programs Under TARP (Notes 5 and 6);
2011: $344;
2010: $283.
Total Liabilities;
2011: $134,527;
2010: $165,938.
Commitments and Contingencies (Note 9):
Net Position:
Unexpended Appropriations;
2011: $57,544;
2010: $79,783.
Cumulative Results of Operations;
2011: ($27,836);
2010: ($1,546).
Total Net Position;
2011: $29,708;
2010: $78,237.
Total Liabilities and Net Position;
2011: $164,235;
2010: $244,175.
[End of table]
The accompanying notes are an integral part of these financial
statements.
Statement Of Net Cost:
For the Years Ended September 30, 2011 and 2010 (Dollars in Millions):
Strategic Goal: To Ensure The Overall Stability And Liquidity Of The
Financial System, Prevent Avoidable Foreclosures And Preserve
Homeownership:
Gross Cost (Income):
Subsidy Cost (Income) (Note 6):
Direct Loan and Equity Investment Programs;
2011: $7,208;
2010: ($22,698).
Other Credit Programs;
2011: $31;
2010: ($1,505).
Total Program Subsidy Cost (Income);
2011: $7,239;
2010: ($24,203).
Interest Expense on Borrowings from the Bureau of the Public Debt
(Note 10);
2011: $3,827;
2010: $5,913.
Treasury Housing Programs Under TARP (Note 5);
2011: $1,943;
2010: $825.
Administrative Cost;
2011: $315;
2010: $296.
Total Gross Cost (Income);
2011: $13,324;
2010: ($17,169).
Earned Revenue:
Dividend and Interest Income - Programs (Note 6);
2011: ($3,476);
2010: ($7,242).
Interest Income on Financing Account (Note 10);
2011: ($781);
2010: ($1,173).
Subsidy Allowance Amortization (Note 10);
2011: $430;
2010: $2,502.
Total Earned Revenue;
2011: ($3,827);
2010: ($5,913).
Total Net Cost of (Income from) Operations;
2011: $9,497;
2010: (($3,082).
[End of table]
Statement Of Changes In Net Position:
For the Years Ended September 30, 2011 and 2010 (Dollars in Millions):
Beginning Balances:
2011 Unexpended Appropriations: $79,783;
2011 Cumulative Results of Operations: ($1,546);
2010 Unexpended Appropriations: $84,229;
2010 Cumulative Results of Operations: ($1).
Budgetary Financing Sources:
Appropriations Received:
2011 Unexpended Appropriations: $2,278;
2011 Cumulative Results of Operations: 0;
2010 Unexpended Appropriations: $5,151;
2010 Cumulative Results of Operations: 0.
Appropriations Used
2011 Unexpended Appropriations: $($24,517);
2011 Cumulative Results of Operations: $24,517;
2010 Unexpended Appropriations: ($9,597);
2010 Cumulative Results of Operations: $9,597.
Other Financing Sources:
2011 Unexpended Appropriations: 0;
2011 Cumulative Results of Operations: ($41,310);
2010 Unexpended Appropriations: 0;
2010 Cumulative Results of Operations: ($34,224).
Total Financing Sources:
2011 Unexpended Appropriations: ($$22,239);
2011 Cumulative Results of Operations: ($16,793);
2010 Unexpended Appropriations: ($$4,446);
2010 Cumulative Results of Operations: ($24,627).
Net (Cost of) Income from Operations Net Change;
2011 Unexpended Appropriations: 0;
2011 Cumulative Results of Operations: ($9,497);
2010 Unexpended Appropriations: 0;
2010 Cumulative Results of Operations: $23,082.
Net Change:
2011 Unexpended Appropriations: ($22,239);
2011 Cumulative Results of Operations: ($16,793);
2010 Unexpended Appropriations: ($4,446);
2010 Cumulative Results of Operations: ($1,545).
Ending Balances:
2011 Unexpended Appropriations: $57,544;
2011 Cumulative Results of Operations: ($27,836);
2010 Unexpended Appropriations: $79,783;
2010 Cumulative Results of Operations: ($1,546).
[End of table]
Statement Of Budgetary Resources:
For the Years Ended September 30, 2011 and 2010 (Dollars in Millions):
Budgetary Resources:
Unobligated Balances Brought Forward:
2011:
Budgetary Accounts: $11,075;
Nonbudgetary Financing Accounts: $10,548;
2010:
Budgetary Accounts: $$ 28,156;
Nonbudgetary Financing Accounts: $8,945.
Recoveries of Prior Year Unpaid Obligations;
2011:
Budgetary Accounts: $3,057;
Nonbudgetary Financing Accounts: $4,664;
2010:
Budgetary Accounts: $1,173;
Nonbudgetary Financing Accounts: $39,364.
Budget Authority:
Appropriations:
2011:
Budgetary Accounts: $2,278;
Nonbudgetary Financing Accounts: 0;
2010:
Budgetary Accounts: $5,151;
Nonbudgetary Financing Accounts: 0.
Borrowing Authority:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: $77,914;
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: $69,440.
Spending Authority from Offsetting Collections Earned: Collected:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: $107,307;
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: $156,112.
Change in Unfilled Orders Without Advance:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: 0;
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($$5,111).
Total Budget Authority:
2011:
Budgetary Accounts: $16,410;
Nonbudgetary Financing Accounts: $177,113;
2010:
Budgetary Accounts: $34,480;
Nonbudgetary Financing Accounts: 268,750.
Permanently Not Available:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($90,568);
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($$107,976).
Total Budgetary Resources (Note 11):
2011:
Budgetary Accounts: $16,410;
Nonbudgetary Financing Accounts: $86,545;
2010:
Budgetary Accounts: $34,480;
Nonbudgetary Financing Accounts: $160,774.
Status Of Budgetary Resources:
Obligations Incurred - Direct:
2011:
Budgetary Accounts: $2,244;
Nonbudgetary Financing Accounts: $65,402;
2010:
Budgetary Accounts: $23,405;
Nonbudgetary Financing Accounts: $150,226.
Unobligated Balance:
Apportioned and Available:
2011:
Budgetary Accounts: $36;
Nonbudgetary Financing Accounts: $511;
2010:
Budgetary Accounts: $142;
Nonbudgetary Financing Accounts: $7,692.
Not Available:
2011:
Budgetary Accounts: $14,130;
Nonbudgetary Financing Accounts: $20,632;
2010:
Budgetary Accounts: $10,933;
Nonbudgetary Financing Accounts: $2,856.
Total Status Of Budgetary Resources:
2011:
Budgetary Accounts: $16,410;
Nonbudgetary Financing Accounts: $86,545;
2010:
Budgetary Accounts: $34,480;
Nonbudgetary Financing Accounts: $160,774.
Change In Obligated Balances:
Obligated Balance Brought Forward:
Unpaid Obligations:
2011:
Budgetary Accounts: $69,128;
Nonbudgetary Financing Accounts: $41,918;
2010:
Budgetary Accounts: $56,151;
Nonbudgetary Financing Accounts: $79,202.
Uncollected Customer Payments from Federal Sources:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($23,816);
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($28,927).
Obligated Balance, Net, Brought Forward:
2011:
Budgetary Accounts: $69,128;
Nonbudgetary Financing Accounts: $18,102;
2010:
Budgetary Accounts: $56,151;
Nonbudgetary Financing Accounts: $50,275.
Obligations Incurred:
2011:
Budgetary Accounts: $2,244;
Nonbudgetary Financing Accounts: $65,402;
Budgetary Accounts: $23,405;
Nonbudgetary Financing Accounts: $150,226.
Gross Outlays:
2011:
Budgetary Accounts: ($24,501);
Nonbudgetary Financing Accounts: ($89,498);
2010:
Budgetary Accounts: ($9,255);
Nonbudgetary Financing Accounts: ($148,146).
Recoveries of Prior Year Unpaid Obligations:
2011:
Budgetary Accounts: ($$3,057);
Nonbudgetary Financing Accounts: ($4,664);
2010:
Budgetary Accounts: ($1,173);
Nonbudgetary Financing Accounts: ($39,364).
Change in Uncollected Customer Payments from Federal Sources:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: $23,320;
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: $5,111.
Obligated Balance, Net, End of Period:
Unpaid Obligations:
2011:
Budgetary Accounts: $43,814;
Nonbudgetary Financing Accounts: $13,158;
2010:
Budgetary Accounts: $69,128;
Nonbudgetary Financing Accounts: $41,918.
Uncollected Customer Payments from Federal Sources:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($496);
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($23,816).
Obligated Balance, Net, End of Period:
2011:
Budgetary Accounts: $43,814;
Nonbudgetary Financing Accounts: $12,662;
2010:
Budgetary Accounts: $69,128;
Nonbudgetary Financing Accounts: $18,102.
Net Outlays:
Gross Outlays:
2011:
Budgetary Accounts: $24,501;
Nonbudgetary Financing Accounts: $89,498;
2010:
Budgetary Accounts: $9,255;
Nonbudgetary Financing Accounts: $148,146.
Offsetting Collections:
2011:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($107,307);
2010:
Budgetary Accounts: 0;
Nonbudgetary Financing Accounts: ($156,112).
Distributed Offsetting Receipts:
2011:
Budgetary Accounts: ($61,832);
Nonbudgetary Financing Accounts: 0;
2010:
Budgetary Accounts: ($118,860);
Nonbudgetary Financing Accounts: 0.
Net Outlays:
2011:
Budgetary Accounts: ($37,331);
Nonbudgetary Financing Accounts: ($17,809);
2010:
Budgetary Accounts: ($109,605);
Nonbudgetary Financing Accounts: ($7,966).
[End of table]
Notes To The Financial Statements:
Note 1. Reporting Entity:
The Troubled Asset Relief Program (TARP) was authorized by the
Emergency Economic Stabilization Act of 2008 (EESA or “the Act”). The
Act gave the Secretary of the Treasury (the Secretary) broad and
flexible authority to establish the TARP to purchase and insure
mortgages and other troubled assets, which permitted the Secretary to
inject capital into banks and other commercial companies by taking
equity positions in those entities to help stabilize the financial
markets.
The EESA established certain criteria under which the TARP would
operate, including provisions that impact the budgeting, accounting,
and reporting of troubled assets acquired under the Act. Section
101(a) of the EESA provided the authority for the Secretary to
purchase troubled assets, and Section 101(a)(3) of the EESA
established the Office of Financial Stability (OFS) to implement the
TARP. Section 102 of the EESA required the Secretary to establish a
program to guarantee troubled assets originated or issued prior to
March 14, 2008, including mortgage-backed securities. Section 115 of
the EESA limited the authority of the Secretary to purchase troubled
assets up to $700.0 billion outstanding at any one time, calculated at
the aggregate purchase prices of all troubled assets held. Amendments
to Section 115 of EESA during the period ended September 30, 2009,
reduced that authority by $1.3 billion, from $700 billion to $698.7
billion. Section 120 of the EESA established that the authorities
under Sections 101(a), excluding Section 101(a)(3), and Section 102
of the EESA would terminate December 31, 2009, unless extended upon
submission of a written certification to Congress by the Secretary of
the Treasury. On December 9, 2009, the Secretary extended the program
authorities through October 3, 2010. In July 2010, the Dodd-Frank Wall
Street Reform and Consumer Protection Act amended Section 115 of EESA,
limiting the TARP’s authority to a total of $475 billion cumulative
obligations (i.e. purchases and guarantees) and prohibiting any new
obligations for programs or initiatives that had not been publicly
announced prior to June 25, 2010. Of the maximum $475 billion
authority under EESA, as amended, OFS had utilized (including
purchases made, legal commitments to make purchases and offsets for
guarantees made) $470.1 billion as of September 30, 2011 and $474.8
billion as of September 30, 2010.
The TARP developed the following programs: the Capital Purchase
Program (CPP); American International Group, Inc. (AIG) Investment
Program (formerly known as the Systemically Significant Failing
Institutions Program); the Targeted Investment Program (TIP); the
Automotive Industry Financing Program (AIFP); the Consumer and
Business Lending Initiative (CBLI); the Public-Private Investment
Program (PPIP); and the Asset Guarantee Program (AGP) (see Note 6 for
details regarding all of these programs); as well as the Treasury
Housing Programs Under the TARP (see Notes 5 and 6).
While these financial statements reflect the activity of the OFS in
executing its programs, including providing resources to various
entities to help stabilize the financial markets, they do not include
the assets, liabilities, or results of operations of commercial
entities in which the OFS has a significant equity interest. Through
the purchase of troubled assets, the OFS has entered into several
different types of direct loan, equity investment, and other credit
programs (which consist of the AGP and the Federal Housing
Administration (FHA) Refinance Program) with private entities. These
direct loans, equity investments, and other credit programs were
entered into with the intent of helping to stabilize the financial
markets and mitigating, as best as possible, any adverse impact on the
economy. These direct loans, equity investments, and other credit
programs were not entered into to engage in the business activities of
the respective private entities. Based on this intent, the OFS
concluded that such direct loans, equity investments, and other credit
programs are considered “bail outs”, under the provisions of paragraph
50 of Statement of Federal Financial Accounting Concepts (SFFAC) No.
2, Entity and Display. In addition, these entities are not included in
the Federal budget, and therefore, do not meet the conclusive criteria
in SFFAC No. 2. As such, the OFS determined that none of these
entities meet the criteria to be classified as a federal entity.
Consequently, their assets, liabilities, and results of operations
were not consolidated in these OFS financial statements, but the value
of OFS’ investments in such entities was recorded in OFS’ financial
statements.
In addition, the OFS has made loans and investments in certain Special
Purpose Vehicles[Footnote 1] (SPV). SFFAC No. 2, paragraphs 43 and 44,
reference indicative criteria such as ownership and control to carry
out government powers and missions, as criteria in the determination
about whether an entity should be classified as a federal entity. The
OFS has concluded that none of the SPVs meet the conclusive or
indicative criteria to be classified as a federal entity. As a result,
the assets, liabilities and results of operations of the SPVs are not
included in these OFS financial statements. The OFS has recorded the
loans and investments in private entities and investments in SPVs in
accordance with Credit Reform Accounting, as discussed below.
Additional disclosures regarding certain SPV investments are included
in Note 6, see Term Asset-Backed Securities Loan Facility (TALF), AIG
Investment Program and the PPIP.
The EESA established the OFS within the Office of Domestic Finance of
the Department of the Treasury (Treasury). The OFS prepares stand-
alone financial statements to satisfy EESA’s requirement for the TARP
to prepare annual financial statements. Additionally, as an office of
the Treasury, its financial statements are consolidated into the
Department of the Treasury’s Agency Financial Report.
Footnote:
[1] The OFS invested in SPVs under the TALF, the Automotive Industry
Financing Program and the Public-Private Investment Program.
Additionally, in fiscal year 2011, part of the investment in AIG was
exchanged for preferred interests in SPVs.
Note 2. Summary Of Significant Accounting Policies:
Basis of Accounting and Presentation:
The accompanying financial statements include the operations of the
OFS and have been prepared from the accounting records of the OFS in
conformity with accounting principles generally accepted in the United
States for federal entities (Federal GAAP), and the OMB Circular A-
136, Financial Reporting Requirements, as amended. Federal GAAP
includes the standards issued by the Federal Accounting Standards
Advisory Board (FASAB). The FASAB is recognized by the American
Institute of Certified Public Accountants (AICPA) as the official
accounting standards-setting body for the U.S. Government. As such,
the FASAB is responsible for establishing Federal GAAP for Federal
reporting entities.
The FASAB issued the Statement of Federal Financial Accounting
Standards (SFFAS) No. 34, The Hierarchy of Generally Accepted
Accounting Principles, Including the Application of Standards Issued by
the Financial Accounting Standards Board in July 2009. SFFAS No. 34
identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of general purpose
financial reports of federal reporting entities that are presented in
conformity with Federal GAAP.
In addition to the above, Section 123(a) of the EESA requires that the
budgetary cost of purchases of troubled assets and guarantees of
troubled assets, and any cash flows associated with authorized
activities, be determined in accordance with the Federal Credit Reform
Act of 1990 (FCRA). Section 123(b) (1) of the EESA requires that the
budgetary costs of troubled assets and guarantees of troubled assets
be calculated by adjusting the discount rate for market risks. As a
result of this requirement, the OFS considered market risk in its
calculation and determination of the estimated net present value of
its direct loans, equity investments and other credit programs for
budgetary purposes. Similarly, market risk is considered in the
valuations for financial reporting purposes (see Note 6 for further
discussion).
Consistent with its accounting policy for equity investments in
private entities, the OFS accounts for its equity investments at fair
value, defined as the estimated amount of proceeds the OFS would
receive if the equity investments were sold to a market participant in
an orderly transaction. The OFS uses the present value accounting
concepts embedded in SFFAS No. 2, Accounting for Direct Loans and Loan
Guarantees, as amended (SFFAS No. 2), to derive fair value
measurements. The OFS concluded that the equity investments were
similar to direct loans in that there is a stated rate and a
redemption feature which, if elected, requires repayment of the amount
invested. Furthermore, consideration of market risk provides a basis
to arrive at a fair value measurement. Therefore, the OFS uses SFFAS
No. 2 (as more fully discussed below) for reporting and disclosure
requirements of its equity investments.
Federal loans and loan guarantees are governed by FCRA for budgetary
accounting and the associated FASAB accounting standard SFFAS No. 2
for financial reporting. The OFS applies the provisions of the SFFAS
No. 2 when accounting and reporting for direct loans, equity
investments and other credit programs. Direct loans and equity
investments disbursed and outstanding are recognized as assets at the
net present value of their estimated future cash flows. Outstanding
asset guarantees are recognized as liabilities or assets at the net
present value of their estimated future cash flows. Liabilities under
the FHA-Refinance Program are recognized at the net present value of
their estimated future cash flows when the FHA guarantees loans. For
direct loans and equity investments, the subsidy allowance account
represents the difference between the face value of the outstanding
direct loan and equity investment balance and the net present value of
the expected future cash flows, and is reported as an adjustment to
the face value of the direct loan or equity investment.
The OFS recognizes dividend income associated with equity investments
when declared by the entity in which the OFS has invested and when
received in relation to any repurchases, exchanges and restructurings.
The OFS recognizes interest income when earned on performing loans;
interest income is not accrued on non-performing loans. The OFS
reflects changes, referred to as reestimates, in the value of direct
loans, equity investments, and other credit programs in the subsidy
cost on the Statement of Net Cost annually. The OFS has received
common stock warrants, additional preferred stock (referred to as
warrant preferred stock) or additional notes as additional
consideration for providing direct loans and equity investments made
and the Asset Guarantee Program. The OFS accounts for the warrants and
warrant preferred stock received under Section 113 of EESA as fees
under SFFAS No. 2, and, as such, the proceeds received when the
warrants, warrant preferred stock or additional notes are sold are
credited to the subsidy allowance rather than to income.
Use of Estimates:
The OFS has made certain estimates and assumptions relating to the
reporting of assets, liabilities, revenues, and cost to prepare these
financial statements. Actual results could significantly differ from
these estimates. Major financial statement lines that include
estimates are TARP Direct Loans and Equity Investments, Net, the Asset
Guarantee Program and the Liability for Treasury Housing Programs under
TARP on the Balance Sheet, and related Subsidy Cost on the Statement
of Net Cost (see Note 6).
The most significant differences between actual results and estimates
may occur in the valuation of direct loans, equity investments, and
other credit programs. The forecasted future cash flows used to
determine these amounts as of fiscal year end are sensitive to slight
changes in model assumptions, such as general economic conditions,
specific stock price volatility of the entities in which the OFS has
an equity interest, estimates of expected default, and prepayment
rates. Forecasts of future financial results have inherent uncertainty
and the OFS’ TARP Direct Loans and Equity Investments, Net and Asset
Guarantee Program line items as of fiscal year end are reflective of
relatively illiquid assets whose values could be sensitive to
future economic conditions and other assumptions. Estimates are also
prepared for the FHA-Refinance Program to determine the liability for
losses. Additional discussion related to sensitivity analysis of factors
affecting estimates can be found in the Management Discussion and
Analysis section of the Agency Financial Report.
Credit Reform Accounting:
The FCRA provides for the use of program, financing, and general fund
receipt accounts to separately account for activity related to direct
loans, equity investments and other credit programs. These accounts
are classified as either budgetary or non-budgetary in the Statement
of Budgetary Resources. The budgetary accounts include the program and
general fund receipt accounts, and the non-budgetary accounts consist of
the credit reform financing accounts.
As discussed previously, the OFS accounts for the cost of direct
loans, equity investments and other credit programs in accordance with
Section 123(a) of the EESA and the FCRA for budgetary accounting and
SFFAS No. 2 for financial reporting.
The authoritative guidance for financial reporting is primarily
contained in the SFFAS No. 2, as amended by the SFFAS No. 18,
Amendments to Accounting Standards for Direct Loans and Loan
Guarantees, and the SFFAS No. 19, Technical Amendments to Accounting
Standards for Direct Loans and Loan Guarantees.
In accordance with SFFAS No. 2, the OFS maintains program accounts
which receive appropriations and obligate funds to cover the subsidy
cost of direct loans, equity investments and other credit programs and
disburses the subsidy cost to the OFS financing accounts. The
financing accounts are non-budgetary accounts that are used to record
all of the cash flows resulting from the OFS direct loans, equity
investments and other credit programs. Cash flows include
disbursements, repayments, repurchases, fees, recoveries, interest,
dividends, proceeds from the sale of stock and warrants, borrowings
from Treasury, negative subsidy and the subsidy cost received from the
program accounts, as well as subsidy reestimates and modifications.
The financing arrangements specifically for the TARP activities are
provided for in the EESA as follows: (1) Borrowing for program funds
under Section 118 that constitute appropriations when obligated or
spent, which are reported as “appropriations” in these financial
statements; (2) borrowing by financing accounts for non-subsidy cost
under the FCRA and Section 123; and (3) establishment of the Troubled
Assets Insurance Financing Fund (TAIFF) for the Asset Guarantee
Program under Section 102(d).
The OFS uses general fund receipt accounts to record the receipt of
amounts paid from the financing accounts when there is a negative
subsidy or negative modification (a reduction in subsidy cost due to
changes in program policy or terms that change estimated future cash
flows) from the original estimate or a downward reestimate. Amounts in
the general fund receipt accounts are available for appropriations
only in the sense that all general fund receipts are available for
appropriations. Any assets in these accounts are non-entity assets and
are offset by intragovernmental liabilities. At the end of the fiscal
year, the fund balance transferred to the U.S. Treasury through the
general fund receipt account is no longer included in the OFS’ fund
balance reporting.
The SFFAS No. 2 requires that the actual and expected costs of federal
credit programs be fully recognized in financial reporting. The OFS
calculated and recorded initial estimates of the future performance of
direct loans, equity investments, and other credit programs. The data
used for these estimates were reestimated at the fiscal year-end to
reflect adjustments for market risk, asset performance, and other key
variables and economic factors. The reestimate data was then used to
estimate and report the “Subsidy Cost” in the Statement of Net Cost. A
detailed discussion of the OFS subsidy calculation and reestimate
assumptions, process and results is provided in Note 6.
Fund Balance with Treasury:
The Fund Balance with Treasury includes general, financing and other
funds available to pay current liabilities and finance authorized
purchases. Cash receipts and disbursements are processed by the
Treasury, and the OFS’ records are reconciled with those of the
Treasury on a regular basis.
Available unobligated balances represent amounts that are apportioned
for obligation in the current fiscal year. Unavailable unobligated
balances represent unanticipated collections in excess of the amounts
apportioned which are unavailable. Obligated balances not yet
disbursed include undelivered orders and unpaid expended authority.
Troubled Asset Relief Program Direct Loans and Equity Investments, Net:
Troubled Asset Relief Program Direct Loans and Equity Investments, Net
represents the estimated net outstanding amount of the OFS direct
loans and equity investments. The direct loan and equity investment
balances have been determined in accordance with the provisions of
SFFAS No. 2 (see Note 6). Write-offs of gross direct loan and equity
investment balances (presented in Note 6 table) are recorded when a
legal event occurs, such as a bankruptcy with no further chance of
recovery or extinguishment of a debt instrument by agreement. Under
SFFAS 2, write-offs do not affect the Statement of Net Cost because
the written-off asset is fully reserved. Therefore, the write-off
removes the asset balance and the associated subsidy allowance.
Asset Guarantee Program:
During fiscal year 2010, the OFS and the Federal Deposit Insurance
Corporation (FDIC) entered into a termination agreement with the Asset
Guarantee Program’s sole participant, Citigroup. As a result, the
Asset Guarantee Program line item (non-intragovernmental asset) at
September 30, 2010, represented the net present value of the estimated
cash inflows from Citigroup trust preferred securities and additional
warrants that OFS held after the guarantee was terminated. These
securities and warrants were sold by the OFS in fiscal year 2011. The
intragovernmental Asset Guarantee Program line item is the estimated
value of certain Citigroup trust preferred securities currently held
by the FDIC for the benefit of OFS. Under the termination agreement,
the FDIC has agreed to transfer these securities to the OFS, less any
losses on FDIC’s guarantee of Citigroup debt, by December 31, 2012.
See Note 6.
General Property and Equipment:
Equipment with a cost of $50,000 or more per unit and a useful life of
two years or more is capitalized at full cost and depreciated using
the straight-line method over the equipment’s useful life. Other
equipment not meeting the capitalization criteria is expensed when
purchased. Software developed for internal use is capitalized and
amortized over the estimated useful life of the software if the cost
per project is greater than $250,000. However, OFS may expense such
software if management concludes that total period costs would
not be materially distorted and the cost of capitalization is not
economically prudent. Based upon these criteria, the OFS reports no
capitalized property, equipment or software on its Balance Sheet as of
September 30, 2011 and 2010.
Accounts Payable and Other Liabilities:
Accounts Payable and Other Liabilities are amounts due to
intragovernmental or public entities that will generally be liquidated
during the next operating cycle (within one year from the balance
sheet date).
Principal Payable to the Bureau of the Public Debt:
Principal Payable to the Bureau of the Public Debt (BPD) represents
the net amount due for equity investments, direct loans and other
credit programs funded by borrowings from the BPD as of the end of the
fiscal year. Additionally, OFS borrows from the BPD for payment of
intragovernmental interest and payment of negative subsidy cost to the
general fund, as necessary. See Note 8.
Due to the General Fund:
Due to the General Fund represents the amount of accrued downward
reestimates and, for fiscal year 2010, one downward modification not
yet funded, related to direct loans, equity investments and other credit
programs as of September 30, 2011 and 2010. See Notes 6 and 7.
Liabilities for the Treasury Housing Programs Under TARP:
There are three initiatives in the Treasury Housing Programs: the
Making Home Affordable Program, the Housing Finance Agency Hardest-Hit
Fund and the FHA-Refinance Program. The OFS has determined that credit
reform accounting is not applicable to the Treasury Housing Programs
Under TARP except for the FHA-Refinance Program. Therefore,
liabilities for the Making Home Affordable Program and Housing Finance
Agency Hardest-Hit Fund payments to servicers and investors, including
principal balance reduction payments for the accounts of borrowers are
accounted for in accordance with SFFAS No. 5, Accounting for
Liabilities of the Federal Government. In accordance with this
standard, a liability is recognized for any unpaid amounts due as of
the reporting date. The liability estimate is based on information
about loan modifications reported by participating servicers for the
Making Home Affordable Program and participating states for the
Housing Finance Agency Hardest Hit Fund. See Note 5.
At the end of fiscal year 2010, the OFS entered into a loss-sharing
agreement with the FHA to support a program in which FHA would
guarantee refinancing for borrowers whose homes are worth less than the
remaining amounts owed under their mortgage loans. The liability for
OFS’ share of losses was determined under credit reform accounting and
is included in the Liability for Treasury Housing Programs under TARP
on the Balance Sheet. See Notes 4, 5 and 6 for additional disclosures
regarding the FHA-Refinance Program.
Unexpended Appropriations:
Unexpended Appropriations represents the OFS undelivered orders and
unobligated balances in budgetary appropriated funds as of September
30, 2011 and 2010.
Cumulative Results of Operations:
Cumulative Results of Operations, presented on the Balance Sheet and
on the Statement of Changes in Net Position, represents the net
results of the OFS operations not funded by appropriations or some
other source, such as borrowing authority, from inception through
fiscal year end. At September 30, 2011 and 2010, OFS had $27.9 billion
and $1.5 billion, respectively, of unfunded upward reestimates that
resulted in OFS reporting negative Cumulative Results of Operations.
The fiscal year 2010 upward reestimates were funded in fiscal year
2011. The fiscal year 2011 unfunded reestimates will be funded in
fiscal year 2012. Cumulative Results of Operations in 2011 also
included $50 million reported as Cash on Deposit for Housing Program
on the Balance Sheet, see Note 4.
Other Financing sources:
The Other Financing Sources line in the Statement of Changes in Net
Position for each year consists primarily of downward reestimates.
Each program's reestimates, upward and downward, are recorded
separately, not netted together.
Leave:
A liability for OFS employees' annual leave is accrued as it is earned
and reduced as leave is taken. Each year the balance of accrued annual
leave is adjusted to reflect current pay rates as well as forfeited
"use or lose" leave. Amounts are unfunded to the extent current or
prior year appropriations are not available to fund annual leave
earned but not taken. Sick leave and other types of non-vested leave
are expensed as taken.
Employee Health and Life Insurance and Workers' Compensation Benefits:
The OFS employees may choose to participate in the contributory
Federal Employees Health Benefit and the Federal Employees Group Life
Insurance Programs. The OFS matches a portion of the employee
contributions to each program. Matching contributions are recognized
as current operating expenses.
The Federal Employees' Compensation Act (FECA) provides income and
medical cost protection to covered Federal civilian employees injured
on the job, and employees who have incurred a work-related injury or
occupational disease. Future workers' compensation estimates are
generated from an application of actuarial procedures developed to
estimate the liability for FECA benefits. The actuarial liability
estimates for FECA benefits include the expected liability for death,
disability, medical, and miscellaneous costs for approved compensation
cases.
Employee Pension Benefits:
The OFS employees participate in either the Civil Service Retirement
System (CSRS) or the Federal Employees' Retirement System (FERS) and
Social Security. These systems provide benefits upon retirement and in
the event of death, disability or other termination of employment and
may also provide pre-retirement benefits. They may also include
benefits to survivors and their dependents, and may contain early
retirement or other special features. The OFS contributions to
retirement plans and Social Security, as well as imputed costs for
pension and other retirement benefit costs administered by the Office
of Personnel Management, are recognized on the Statement of Net Cost
as Administrative Costs. Federal employee benefits also include the
Thrift Savings Plan (TSP). For FERS employees, a TSP account is
automatically established and the OFS matches employee contributions
to the plan, subject to limitations. The matching contributions are
recognized as Administrative Costs on the Statement of Net Cost.
Related Parties:
The nature of related parties and descriptions of related party
transactions are discussed within Notes 1 and 6.
Note 3. Fund Balances With Treasury:
Fund Balances with Treasury, by fund type and status, are presented in
the following table. (Dollars in Millions)
Fund Balances:
General Funds:
As of September 30, 2011: $43,542;
As of September 30, 2010: $45,438.
Program Funds:
As of September 30, 2011: $14,438;
As of September 30, 2010: $34,766.
Financing Funds:
As of September 30, 2011: $25,362;
As of September 30, 2010: $18,460.
Total Fund Balances:
As of September 30, 2011: $83,342;
As of September 30, 2010: $98,664.
Status of Fund Balances:
Unobligated Balances:
Available:
As of September 30, 2011: $547;
As of September 30, 2010: $7,834.
Unavailable:
As of September 30, 2011: $34,762;
As of September 30, 2010: $13,790.
Obligated Balances Not Yet Disbursed:
As of September 30, 2011: $48,033;
As of September 30, 2010: $77,040.
Total Status of Fund Balances:
As of September 30, 2011: $83,342;
As of September 30, 2010: $98,664.
[End of table]
Collections relating to the AGP are deposited in the Troubled Assets
Insurance Financing Fund (which is within OFS Financing Funds balance)
as required by the EESA Section 102(d). The TAIFF balance was reduced
for AGP-related downward reestimates and repayments of AGP-related
debt due to the Bureau of the Public Debt (see Note 6).
Note 4. Cash On Deposit For Housing Program:
As of September 30, 2011, the OFS had $50 million on deposit with a
commercial bank to facilitate its payments of claims under the FHA-
Refinance Program as OFS' agent. Under terms of its agreement, the
OFS is required to maintain a minimum amount of funds on deposit,
depending upon the size of the program and potential claims. Unused
funds will be returned to the OFS upon the termination of the program
and agreement.
Note 5. The Treasury Housing Programs Under Tarp:
Fiscal year 2011 saw a continued advancement of programs designed to
provide stability for both the housing market and homeowners. These
programs assist homeowners who are experiencing financial hardships to
remain in their homes until their financial position improves or they
relocate to a more sustainable living situation. These programs fall
into three initiatives:
1) Making Home Affordable Program (MHA);
2) Housing Finance Agency (HFA) Hardest-Hit Fund; and;
3) FHA-Refinance Program.
MHA includes HAMP, FHA-HAMP, Second Lien Program (2MP), Treasury/FHA
Second Lien Program (FHA 2LP), and the Rural Development Program (RD-
HAMP). The HAMP includes first lien modifications, the HPDP, the
Principal Reduction Alternative Waterfall Program (PRA), the
Unemployment Program (UP), and the Home Affordable Foreclosure
Alternatives Program (HAFA). The HAMP first lien modification program
provides for one-time, monthly and annual incentives to servicers,
borrowers, and investors who participate in the program, whereby the
investor and OFS share the costs of modifying qualified first liens.
The HPDP provides incentives to investors to partially offset losses
from home price declines. In fiscal year 2010, additional programs
were introduced under HAMP to complement the first lien modification
program and HPDP. The PRA offers mortgage relief to eligible
homeowners whose homes are worth significantly less than the remaining
amounts outstanding under their first lien mortgage. The UP offers
assistance to unemployed homeowners through temporary forbearance of a
portion of their mortgage payments. The UP will not have a financial
impact on the OFS because no incentives are paid by OFS. Finally, the
HAFA is designed to assist eligible borrowers unable to retain their
homes through a HAMP modification by simplifying and streamlining the
short sale and deed in lieu of foreclosure processes and providing
incentives to borrowers, servicers and investors to pursue short sales
and deeds in lieu.
Fiscal year 2010 also saw the introduction of additional programs
under MHA. These programs include the FHA-HAMP which provides the same
incentives as RAMP for FHA guaranteed loans. The 2MP provides
additional incentives to servicers to extinguish second liens on first
lien loans modified under HAMP. The FHA 2LP provides for incentives to
servicers for extinguishment of second liens for borrowers who
refinance their first lien mortgages under the FHA-Refinance Program.
The RD-RAMP provides HAMP incentives for mortgages guaranteed by the
U. S. Department of Agriculture.
All MHA disbursements are made to servicers either for themselves or
for the benefit of borrowers and investors. Furthermore, all payments
are contingent on borrowers remaining current on their mortgage
payments. Servicers have until December 31, 2012, to enter into
mortgage modifications with borrowers.
Included in administrative costs are fees paid to Fannie Mae and
Freddie Mac. Fannie Mae provides direct programmatic support as a
third party agent on behalf of the OFS. Freddie Mac provides
compliance oversight of servicers as a third party agent on behalf of
the OFS, and the servicers work directly with the borrowers to modify
and service the borrowers' loans.
The Housing Finance Agency (HFA) Hardest-Hit Fund was implemented in
fiscal year 2010, and provides targeted aid to families in the states
hit hardest by the housing market downturn and unemployment.
States that meet the criteria for this program consist of Alabama,
Arizona, California, Florida, Georgia, Illinois, Indiana, Kentucky,
Michigan, Mississippi, Nevada, New Jersey, North Carolina, Ohio, Oregon,
Rhode Island, South Carolina, Tennessee, and Washington D.C. Approved
states develop and roll out their own programs with timing and types
of programs offered targeted to address the specific needs and
economic conditions of their state. States have until December 31,
2017 to enter into agreements with borrowers.
The FHA-Refinance Program is a joint initiative with the Department of
Housing and Urban Development (HUD) which is intended to encourage
refinancing of existing underwater (i.e. the borrower owes more than
the home is worth) mortgage loans not currently insured by FHA into
FHA-insured mortgages. HUD will pay a portion of the amount refinanced
to the investor and OFS will pay incentives to encourage the
extinguishment of second liens associated with the refinanced
mortgages. OFS established a letter of credit that obligated the OFS
portion of any claims associated with the FHA-guaranteed mortgages.
The OMB determined that for budgetary purposes, the FHA-Refinance
Program cost is calculated under the FCRA, and accordingly OFS
determined that it was appropriate to follow SFFAS No. 2 for financial
reporting. Therefore, the liability is calculated at the net present
value of estimated future cash flows. Homeowners can refinance into
FHA-guaranteed mortgages through December 31, 2012, and OFS will honor
its share of claims against the letter of credit through 2020. As of
September 30, 2011, 334 loans had been refinanced and no claim
payments have been made under this program. As of September 30, 2010,
no loans had been refinanced under this program as the joint
initiative was entered into late in the fiscal year. However, in
fiscal year 2011, OFS paid $2.0 million to maintain the letter of
credit; in fiscal year 2010, OFS paid $3.0 million to establish the
letter of credit. OFS was required to deposit $50.0 million with a
commercial bank as its agent to administer payment of claims under the
program. See Notes 4 and 6.
The table below recaps housing program commitments as of September 30,
2011, and payments and accruals as of September 30, 2011 and 2010. As
noted above, the UP is structured so that there is no financial impact
on the OFS.
Treasury Housing Programs Under TARP (Dollars in Millions):
MHA:
Commitments as of September 30, 2011: $29,884;
Fiscal Year Payments through September 30, 2011: 0;
Fiscal Year Payments through September 30, 2010: 0;
Accruals as of September 30, 2011: 0;
Accruals as of September 30, 2010: 0.
HAMP (1st Lien):
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: $1,035;
Fiscal Year Payments through September 30, 2010: $473;
Accruals as of September 30, 2011: $236;
Accruals as of September 30, 2010: $175.
HPDP:
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: $126;
Fiscal Year Payments through September 30, 2010: $9;
Accruals as of September 30, 2011: $95;
Accruals as of September 30, 2010: $108.
PRA[A]:
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: 0;
Fiscal Year Payments through September 30, 2010: 0;
Accruals as of September 30, 2011: 0;
Accruals as of September 30, 2010: 0.
UP[B]:
Commitments as of September 30, 2011: N/A;
Fiscal Year Payments through September 30, 2011: N/A;
Fiscal Year Payments through September 30, 2010: N/A;
Accruals as of September 30, 2011: N/A;
Accruals as of September 30, 2010: N/A.
HAFA:
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: $67;
Fiscal Year Payments through September 30, 2010: $2;
Accruals as of September 30, 2011: $7;
Accruals as of September 30, 2010: 0;
FHA HAMP:
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: $4;
Fiscal Year Payments through September 30, 2010: 0;
Accruals as of September 30, 2011: $1;
Accruals as of September 30, 2010: 0;
2MP:
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: $50;
Fiscal Year Payments through September 30, 2010: 0;
Accruals as of September 30, 2011: $4;
Accruals as of September 30, 2010: 0.
2LP[A]:
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: 0;
Fiscal Year Payments through September 30, 2010: 0;
Accruals as of September 30, 2011: 0;
Accruals as of September 30, 2010: 0.
RD-HAMP[A]:
Commitments as of September 30, 2011: 0;
Fiscal Year Payments through September 30, 2011: 0;
Fiscal Year Payments through September 30, 2010: 0;
Accruals as of September 30, 2011: 0;
Accruals as of September 30, 2010: 0.
HFA Hardest Hit Fund:
Commitments as of September 30, 2011: $7,600;
Fiscal Year Payments through September 30, 2011: $599;
Fiscal Year Payments through September 30, 2010: $56;
Accruals as of September 30, 2011: 0;
Accruals as of September 30, 2010: 0.
FHA - Refinance[C]:
Commitments as of September 30, 2011: $8,117;
Fiscal Year Payments through September 30, 2011: $2;
Fiscal Year Payments through September 30, 2010: $3;
Accruals as of September 30, 2011: $1;
Accruals as of September 30, 2010: 0.
Totals:
Commitments as of September 30, 2011: $45,601;
Fiscal Year Payments through September 30, 2011: $1,883;
Fiscal Year Payments through September 30, 2010: $543;
Accruals as of September 30, 2011: $344;
Accruals as of September 30, 2010: $283.
[A] No financial activity to date.
[B] No financial impact.
[C] Payments do not include $50 million to establish reserve, shown on
Balance Sheet as Cash on Deposit for Housing Program. Also see Note 6.
[End of table]
Note 6. Troubled Asset Relief Program Direct Loans And Equity
Investments, Net And Other Credit Programs:
The OFS administers a number of programs designed to help stabilize
the financial system and restore the flow of credit to consumers and
businesses. The OFS made direct loans and equity investments under
TARP. The OFS also entered into other credit programs, which consist
of an asset guarantee program and a loss-sharing program under the
TARP. The table below recaps OFS programs by title and type:
Direct Loans and Equity Investments:
Program: Capital Purchase Program;
Program Type: Equity Investment/Subordinated Debentures.
Program: American International Group, Inc. Investment Program;
Program Type: Equity Investment.
Program: Targeted Investment Program;
Program Type: Equity Investment.
Program: Automotive Industry Financing Program;
Program Type: Equity Investment and Direct Loan.
Consumer and Business Lending Initiative:
Program: Term Asset-Backed Securities Loan Facility;
Program Type: Subordinated Debentures.
Program: SBA 7(a) Security Purchase Program;
Program Type: Direct Loan.
Program: Community Development Capital Initiative;
Program Type: Equity Investment/Subordinated Debentures.
Program: Public-Private Investment Program;
Program Type: Equity Investment and Direct Loan.
Other Credit Programs:
Program: Asset Guarantee Program;
Program Type: Asset Guarantee.
Program: FHA-Refinance Program;
Program Type: Loss-sharing Program with FHA.
[End of table]
Valuation Methodology:
The OFS applies the provisions of SFFAS No. 2 to account for direct
loans, equity investments and other credit programs. This standard
requires measurement of the asset or liability at the net present
value of the estimated future cash flows. The cash flow estimates for
each transaction reflect the actual structure of the instruments. For
each of these instruments, analytical cash flow models generate
estimated cash flows to and from the OFS over the estimated term of
the instrument. Further, each cash flow model reflects the specific
terms and conditions of the program, technical assumptions regarding
the underlying assets, risk of default or other losses, and other
factors as appropriate. The models also incorporate an adjustment for
market risk to reflect the additional return required by the market to
compensate for variability around the expected losses reflected in the
cash flows (the "unexpected loss").
The adjustment for market risk requires the OFS to determine the
return that would be required by market participants to enter into
similar transactions or to purchase the assets held by OFS.
Accordingly, the measurement of the assets attempts to represent the
proceeds expected to be received if the assets were sold to a market
participant in an orderly transaction. The methodology employed for
determining market risk for equity investments generally involves a
calibration to market prices of similar securities that results in
measuring equity investments at fair value. The adjustment for market
risk for loans is intended to capture the risk of unexpected losses,
but not intended to represent fair value, i.e. the proceeds that would
be expected to be received if the loans were sold to a market
participant. The OFS uses market observable inputs, when available, in
developing cash flows and incorporating the adjustment required for
market risk. For purposes of this disclosure, the OFS has classified
the various investments as follows, based on the observability of
inputs that are significant to the measurement of the asset:
Quoted prices for Identical Assets: The measurement of assets in this
classification is based on direct market quotes for the specific
asset, e.g. quoted prices of common stock.
Significant Observable Inputs: The measurement of assets in this
classification is primarily derived from market observable data,
other than a direct market quote, for the asset. This data could be
market quotes for similar assets for the same entity.
Significant Unobservable Inputs: The measurement of assets in this
classification is primarily derived from inputs which generally
represent management's best estimate of how a market participant would
assess the risk inherent in the asset. These unobservable inputs are
used because there is little to no direct market activity.
The table below displays the assets held by the observability of
inputs significant to the measurement of each value (Dollars in
Millions):
As of September 30, 2011:
Program: Capital Purchase Program
Quoted Prices for Identical Assets: $202;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $12,240;
Total: $12,442.
Program: American International Group Inc. Investment Program;
Quoted Prices for Identical Assets: $21,076;
Significant Observable Inputs: $9,294;
Significant Unobservable Inputs: 0;
Total: $30,370.
Program: Targeted Investment Program;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: 0;
Total: $0.
Program: Automotive Industry Financing Program;
Quoted Prices for Identical Assets: $10,091;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $7,747;
Total: $17,838.
Program: Consumer and Business Lending Initiative, which includes TALF,
SBA 7(a) Securities and CDCI;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: $126;
Significant . Unobservable Inputs: $951;
Total: $1,077
Program: Public-Private Investment Program;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $18,377;
Total: $18,377.
Program: Asset Guarantee Program;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: $739;
Significant Unobservable Inputs: 0;
Total: $739.
Total TARP Programs:
Quoted Prices for Identical Assets: $31,369;
Significant Observable Inputs: $10,159;
Significant Unobservable Inputs: $39,315;
Total: $80,843.
As of September 30, 2010:
Program: Capital Purchase Program;
Quoted Prices for Identical Assets: $14,899;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $33,334;
Total: $48,233.
Program: American International Group Inc. Investment Program;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $26,138;
Total: $26,138.
Program: Targeted Investment Program;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $1;
Total: $1.
Program: Automotive Industry Financing Program;
Quoted Prices for Identical Assets: $10,091;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $7,747;
Total: $17,838.
Program: Consumer and Business Lending Initiative, which includes TALF,
SBA 7(a) Securities and CDCI;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $966;
Total: $966.
Program: Public-Private Investment Program;
Quoted Prices for Identical Assets: 0;
Significant Observable Inputs: 0;
Significant Unobservable Inputs: $14,405;
Total: $14,405.
Program: Asset Guarantee Program;
Quoted Prices for Identical Assets: $2,240;
Significant Observable Inputs: $815;
Significant Unobservable Inputs: 0;
Total: $3,055.
Total TARP Programs:
Quoted Prices for Identical Assets: $17,139;
Significant Observable Inputs: $815;
Significant Unobservable Inputs: $127,553;
Total: $145,507.
[End of table]
The following provides a description of the methodology used to
develop the cash flows and incorporate the market risk into the
measurement of the OFS assets.
Financial Institution Equity Investments[Footnote 2]:
The estimated values of preferred equity investments are the net
present values of the expected dividend payments and repurchases. The
model assumes that the key decisions affecting whether or not
institutions pay their preferred dividends are made by each
institution based on the strength of their balance sheet. The model
assumes a probabilistic evolution of each institution's asset-to-
liability ratio (the asset-to-liability ratio is based on the
estimated fair value of the institution's assets against its
liabilities). Each institution's assets are subject to uncertain
returns and institutions are assumed to manage their asset-to-
liability ratio in such a way that it reverts over time to a target
level. Historical volatility is used to scale the likely evolution of
each institution's asset-to-liability ratio.
[Footnote:
[2] This consists of equity investments made under CPP, TIP and CDCI.
In the model, when equity decreases, i.e. the asset-to-liability ratio
falls, institutions are increasingly likely to default, either because
they enter bankruptcy or are closed by regulators. The probability of
default is estimated based on the performance of a large sample of US
banks over the period 1990-2010. At the other end of the spectrum,
institutions call their preferred shares when the present value of
expected future dividends exceeds the call price; this occurs when
equity is high and interest rates are low. Inputs to the model include
institution specific accounting data obtained from regulatory filings,
an institution's stock price volatility, historical bank failure
information, as well as market prices of comparable securities trading
in the market. The market risk adjustment is obtained through a
calibration process to the market value of certain trading securities
of financial institutions within the TARP programs. The OFS estimates
the values and projects the cash flows of warrants using an option-
pricing approach based on the current stock price and its volatility.
Investments in common stock which are exchange traded are valued at
the quoted market price as of year end.
American International Group, Inc. (AIG) Investment Program:
As of September 30, 2011, the OFS held 960 million shares of MG common
stock. Investments in AIG common stock were valued at the quoted
market price as of September 30, 2011. The OFS also held interests in
certain MG SPVs. To estimate the value of the assets underlying the
preferred interests in the SPVs, OFS sums the value of the common
equity shares held by the SPVs, any cash held in escrow from previous
asset sales, and the weighted average value of the remaining assets
under different scenarios. Because the resulting value greatly exceeds
the liquidation preference of the investments in the SPVs, the
SPVs were valued at the liquidation preference.
For fiscal year 2010, the method used to measure MG preferred shares
was broadly analogous to the approach used to measure financial
institution preferred shares. However, the size of OFS' holding of
preferred shares relative to AIG's total balance sheet made the
valuation extremely sensitive to assumptions about the recovery ratio
for preferred shares should MG default. Also, no market prices for
comparable preferred shares existed. Therefore, OFS based the MG
investment valuation on the observed market values of publicly traded
junior subordinated debt, adjusted for OFS' position in the capital
structure. Additionally, an external asset manager provided estimated
fair value amounts, premised on public information, which were
considered by the OFS in its measurements.
Auto Industry Financing Program (AIFP) Investments and Loans:
As of September 30, 2011, the OFS held 500 million shares of common
stock in General Motors Company (New GM) that were valued by
multiplying the publicly traded share price by the number of shares
held.
As of September 30, 2010, OFS held a 60.8% stake in the common stock
of New GM. As New GM common stock was not publicly traded as of
September 30, 2010, and because the unsecured bond holders in General
Motors Corporation (Old GM) received 10 percent of the common equity
ownership and warrants in New GM, the expected recovery rate implied
by the trading prices of the Old GM bonds provided the implied value
of the New GM equity. OFS used this implied equity value to account
for its common stock ownership in New GM as of September 30, 2010. As
of September 30, 2010, investments in GM preferred shares were valued
in a manner broadly analogous to the methodology used for financial
institution equity investments.
As of September 30, 2010, OFS held a 9.9% stake in the common stock of
Chrysler. As Chrysler common stock was not publicly traded as of
September 30, 2010, OFS created a pro forma balance sheet for post-
bankruptcy Chrysler and used the estimated book value to account for
its common stock ownership in Chrysler.
As of September 30, 2010, OFS valued direct loans to GM and Chrysler
using an analytical model that estimates the net present value of the
expected principal, interest, and other scheduled payments taking
into account potential defaults. In the event of an institution's
default, these models include estimates of recoveries, incorporating
the effects of any collateral provided by the contract. The
probability of default and losses given default are estimated by using
historical data when available, or publicly available proxy data,
including credit rating agencies historical performance data. The
models also incorporate an adjustment for market risk to reflect the
additional return on capital that would be required by a market
participant.
As of September 30, 2011 and 2010, for investments in Ally Financial's
(Ally, formerly known as GMAC, Inc.) common equity and mandatorily
convertible preferred stock, which is valued on an "if-converted"
basis, the OFS used certain valuation multiples such as price-to-
earnings, price-to-tangible book value, and asset manager valuations
to estimate the value of the shares. The multiples were based on those
of comparable publicly-traded entities. As of September 30, 2010, OFS
estimated the value of Ally's trust preferred equity instruments based
on comparable publicly traded securities adjusted for factors specific
to Ally, such as credit rating. The adjustment for market risk is
incorporated in the data points the OFS uses to determine the
measurement for Ally as all points rely on market data.
Investments in Special Purpose Vehicles:
In addition to the preferred interests in MG SPVs discussed previously
in this section, the OFS made certain investments in other financial
instruments issued by SPVs. Generally, the OFS estimates the cash
flows of these SPVs and then applies those cash flows to the waterfall
governing the priority of payments out of the SPV.
For the loan associated with the Term Asset-Backed Securities Loan
Facility (TALF), the OFS model derives the cash flows to the SPV, and
ultimately the OFS, by simulating the performance of underlying
collateral. Loss probabilities on the underlying collateral are
calculated based on analysis of historical loan loss and charge-off
experience by credit sector and subsector. Historical mean loss rates
and volatilities are significantly stressed to reflect recent and
projected performance. Simulated losses are run through cash flow
models to project impairment to the TALF-eligible securities. Impaired
securities are projected to be purchased by the SPV, which would
require additional OFS funding. Simulation outcomes consisting of a
range of loss scenarios are probability-weighted to generate the
expected net present value of future cash flows.
For the PPIP investments and loans made in the Public Private
Investment Funds (PPIF), the OFS model derives estimated cash flows to
the SPV by simulating the performance of the collateral supporting the
residential mortgage-backed securities (RMBS) and commercial mortgage-
backed securities (CMBS) held by the PPIF (i.e. performance of the
residential and commercial mortgages). Inputs used to simulate the
cash flows, which consider market risks, include unemployment
forecasts, home price appreciation/depreciation forecasts, the current
term structure of interest rates and historical pool performance as
well as estimates of the net income and value of commercial real
estate supporting the CMBS.
The simulated cash flows are then run through the waterfall of the
RMBS/CMBS to determine the estimated cash flows to the SPV. Once
determined, these cash flows are run through the waterfall of the PPIF
to determine the expected cash flows to the OFS through both the
equity investments and loans.
SBA 7(a) Securities:
The valuation of SBA 7(a) securities is based on the discounted
estimated cash flows of the securities.
Asset Guarantee Program (AGP):
During fiscal year 2010, an agreement was entered into to terminate
the guarantee of OFS to pay for any defaults on certain loans and
securities held by Citibank. After the termination, the OFS still held
some of the trust preferred securities (initially received as the
guarantee fee) and warrants issued by Citigroup and the potential to
receive $800 million (liquidation preference) of additional Citigroup
trust preferred securities from the FDIC (see further discussion of
the Asset Guarantee Program later in this note). As of September 30,
2011 and 2010, the instruments within the AGP were valued in a manner
broadly analogous to the methodology used for financial institution
equity investments.
Direct Loan and Equity Investment Programs:
The following table recaps gross direct loan or equity investment,
subsidy allowance, and net direct loan or equity investment by TARP
program. Detailed tables providing the net composition, subsidy cost
for new disbursements, modifications and reestimates, along with a
reconciliation of subsidy cost allowances as of and for the years
ended September 30, 2011 and 2010, are provided at the end of this
Note for Direct Loans and Equity Investments, detailed by program, and
for the other credit programs separately.
Descriptions and chronology of significant events by program are after
the summary table (Dollars in Millions):
As of September 30, 2011:
Program: Capital Purchase Program;
Gross Direct Loan or Equity Investment: $17,299;
Subsidy Allowance: ($4,857);
Net Direct Loan or Equity Investment: $12,442.
Program: American International Group Inc. Investment Program;
Gross Direct Loan or Equity Investment: $51,087;
Subsidy Allowance: ($20,717);
Net Direct Loan or Equity Investment: $30,370.
Program: Targeted Investment Program;
Gross Direct Loan or Equity Investment: 0;
Subsidy Allowance: 0;
Net Direct Loan or Equity Investment: 0.
Program: Automotive Industry Financing Program;
Gross Direct Loan or Equity Investment: $37,278;
Subsidy Allowance: ($19,440);
Net Direct Loan or Equity Investment: $17,838.
Program: Consumer and Business Lending Initiative, which includes TALF,
SBA 7(a) Securities and CDCI;
Gross Direct Loan or Equity Investment: $798;
Subsidy Allowance: $279;
Net Direct Loan or Equity Investment: $1,077.
Program: Public-Private Investment Program;
Gross Direct Loan or Equity Investment: $15,943;
Subsidy Allowance: $2,434;
Net Direct Loan or Equity Investment: $18,377.
Program: Total Direct Loan and Equity Investment Programs;
Gross Direct Loan or Equity Investment: $122,405;
Subsidy Allowance: ($42,301);
Net Direct Loan or Equity Investment: $80,104.
As of September 30, 2010:
Program: Capital Purchase Program;
Gross Direct Loan or Equity Investment: $49,779;
Subsidy Allowance: ($1,546);
Net Direct Loan or Equity Investment: $48,233.
Program: American International Group Inc. Investment Program;
Gross Direct Loan or Equity Investment: $47,543;
Subsidy Allowance: ($21,405);
Net Direct Loan or Equity Investment: $26,138.
Program: Targeted Investment Program;
Gross Direct Loan or Equity Investment: 0;
Subsidy Allowance: $1;
Net Direct Loan or Equity Investment: $1.
Program: Automotive Industry Financing Program;
Gross Direct Loan or Equity Investment: $67,238;
Subsidy Allowance: ($14,529);
Net Direct Loan or Equity Investment: $52,709.
Program: Consumer and Business Lending Initiative, which includes TALF,
SBA 7(a) Securities and CDCI;
Gross Direct Loan or Equity Investment: $908;
Subsidy Allowance: $676;
Net Direct Loan or Equity Investment: $14,405.
Program: Public-Private Investment Program;
Gross Direct Loan or Equity Investment: $13,729;
Subsidy Allowance: $2,434;
Net Direct Loan or Equity Investment: $18,377.
Program: Total Direct Loan and Equity Investment Programs;
Gross Direct Loan or Equity Investment: $179,197;
Subsidy Allowance: ($36,745);
Net Direct Loan or Equity Investment: $142,452.
[End of table]
Capital Purchase Program:
In October 2008, the OFS 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, the OFS purchased senior perpetual
preferred stock from qualifying U.S. controlled banks, savings
associations, and certain bank and savings and loan holding companies
(Qualified Financial Institution or QFI). The senior preferred stock
has a stated dividend rate of 5.0% through year five, increasing to
9.0% in subsequent years. 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% for
the first 5 years and 13.8% for the remaining years. QFIs, subject to
regulator approval, may repay the OFS' investment at any time.
In addition to the senior preferred stock, the OFS received warrants,
as required by section 113(d) of EESA, from public QFIs to purchase a
number of shares of common stock. The warrants have an aggregate
exercise price equal to 15.0% of the total senior preferred stock
investment. Prior to December 31, 2009, in the event a public QFI
completed one or more qualified equity offerings with aggregate gross
proceeds of not less than 100.0% of the senior perpetual preferred
stock investment, the number of shares subject to the warrants was
reduced by 50.0%. As of December 31, 2009, a total of 38 QFIs reduced
the number of shares available under the warrants as a result of this
provision. The warrants have a 10 year term. Subsequent to December
31, 2009, the OFS may exercise any warrants held in whole or in part
at any time.
The OFS received warrants from non-public QFIs for the purchase of
additional senior preferred stock (or subordinated debentures if
appropriate) with a stated dividend rate of 9.0% (13.8% interest rate
for subordinate debentures) and a liquidation preference equal to 5.0%
of the total senior preferred stock (additional subordinate debenture)
investment. These warrants were immediately exercised and resulted in
the OFS holding additional senior preferred stock (subordinated
debentures) (collectively referred to as "warrant preferred stock") of
non-public QFIs. The OFS did not receive warrants from financial
institutions considered Community Development Financial Institutions
(CDFIs). A total of 7 and 35 institutions considered CDFIs were in the
CPP portfolio as of September 30, 2011 and 2010, respectively.
The Secretary may liquidate the warrants associated with repurchased
senior preferred stock at the market price.
A QFI, upon the repurchase of its senior preferred stock, also has the
contractual right to repurchase the common stock warrants at the
market price.
The task of managing the investments in CPP banks may require that the
OFS enter into certain agreements to exchange and/or convert existing
investments in order to achieve the best possible return for taxpayers.
In fiscal year 2009, the OFS entered into an exchange agreement with
Citigroup under which the OFS exchanged $25.0 billion of its
investment in senior preferred stock for 7.7 billion common shares of
Citigroup stock, at $3.25 per share. In April 2010, the OFS began a
process of selling the Citigroup common stock. As of September 30,
2010, the OFS had sold approximately 4.0 billion shares for total
proceeds of $16.1 billion resulting in proceeds from sales in excess
of cost of $3.0 billion. The OFS continued to hold approximately
3.7 billion shares of Citigroup common stock with an estimated fair
value of $14.3 billion, based on the September 30, 2010, closing price
of $3.91 per share.
During fiscal year 2011, OFS received proceeds of $15.8 billion from
the sale of Citigroup common stock, resulting in proceeds from sales
in excess of cost of $3.9 billion. By December 2010, the OFS had sold
all of its remaining Citigroup common stock. Total gross proceeds from
Citigroup stock sales between April and December 2010, were $31.9
billion. Also in January 2011, OFS sold its Citigroup warrants held
under CPP, for a total of $54.6 million.
In addition to the above transactions, the OFS has entered into other
transactions with various financial institutions including, exchanging
existing preferred shares for a like amount of non tax-deductible Trust
Preferred Securities, exchanging preferred shares for shares of
mandatorily convertible preferred securities and selling preferred
shares to financial institutions that were acquiring the QFIs that had
issued the preferred shares. Generally the transactions are entered
into with financial institutions in poor financial condition with a
high likelihood of failure. As such, in accordance with SFFAS No. 2,
these transactions are considered workouts and not modifications. The
changes in cost associated with these transactions are captured in the
year-end reestimates.
During fiscal year 2011, certain financial institutions participating
in CPP became eligible to exchange their OFS-held stock investments to
preferred stock in the Small Business Lending Fund (SBLF), a separate
Department of the Treasury program not a part of the TARP. Because
this refinance was not considered in the formulation estimate for the
CPP program, a modification was recorded in May 2011, resulting in a
subsidy cost reduction of $1.0 billion.
During fiscal year 2010, certain financial institutions participating
in CPP which are in good standing became eligible to refinance their
OFS-held stock investments to preferred stock under the Community
Development Capital Initiative (CDCI) of the Consumer and Business
Lending Initiative Program (CBLI). This was not considered in the
formulation estimate for the CPP program. As a result, OFS recorded a
modification subsidy cost reduction of $31 9 million in the CPP
program for this option during fiscal year 2010.
In fiscal year 2011, OFS made no write off of CPP investments. In
fiscal year 2010, as a result of the culmination of Chapter 11
bankruptcy proceedings, the OFS wrote off its $2.3 billion investment
in CIT Group and will not recover any amounts associated with it. In
addition, during fiscal year 2011, eight institutions, in which OFS
had invested $190.3 million, were closed by their regulators. During
fiscal year 2010, four financial institutions, in which OFS had
invested $396.3 million, either filed for bankruptcy or were closed by
their regulators. The OFS does not anticipate recovery on these
investments and therefore the value of these shares are reflected at
zero as of September 30, 2011 and 2010. The ultimate amount received,
if any, from the investments in institutions that filed for bankruptcy
and institutions closed by regulators will depend primarily on the
outcome of the bankruptcy proceedings and of each institution's
receivership.
Table:
CPP Participating Institutions:
Cumulative Number of Institutions Participating:
At September 30, 2011: 707;
At September 30, 2010: 707.
Cumulative Institutions Paid in Full, Merged or Investments Sold:
At September 30, 2011: (139);
At September 30, 2010: (80).
Institutions Transferred to CDCI:
At September 30, 2011: (28);
At September 30, 2010: (28).
Institutions Refinanced to SBLF:
At September 30, 2011: (137);
At September 30, 2010: 0.
Institutions Written Off:
At September 30, 2011: (2);
At September 30, 2010: (2).
Number of Institutions with Outstanding OFS Investments:
At September 30, 2011: 401;
At September 30, 2010: 597
Institutions in Bankruptcy or Receivership:
At September 30, 2011: (11);
At September 30, 2010: (3).
Number of CPP Institutions Valued at Year-End:
At September 30, 2011: 390;
At September 30, 2010: 594.
Cumulative Number of Institutions that Have Missed One or More
Dividend Payments:
At September 30, 2011: 181;
At September 30, 2010: 132.
[End of table]
Table:
CPP Investments (Dollars in Millions):
Outstanding Beginning Balance, Investment in CPP Institutions, Gross:
Fiscal Year 2011: $49,779;
Fiscal Year 2010: $133,901.
Purchase Price, Current Year Investments:
Fiscal Year 2011: 0;
Fiscal Year 2010: $277.
Repayments and Sales of Investments:
Fiscal Year 2011: ($30,188);
Fiscal Year 2010: ($81,467).
Writeoffs:
Fiscal Year 2011: 0;
Fiscal Year 2010: ($2,334).
Losses from Sales and Repurchases of Assets in Excess of Cost:
Fiscal Year 2011: ($85);
Fiscal Year 2010: ($242).
Transfers to CDCI
Fiscal Year 2011: 0;
Fiscal Year 2010: ($356).
Refinanced to SBLF
Fiscal Year 2011: ($2,207);
Fiscal Year 2010: 0.
Outstanding Balance, Investment in CPP Institutions, Gross:
Fiscal Year 2011: $17,299;
Fiscal Year 2010: $49,779.
Interest and Dividend Collections
Fiscal Year 2011: $1,283;
Fiscal Year 2010: $3,131.
Net Proceeds from Sales and Repurchases of Assets in Excess of Cost:
Fiscal Year 2011: $4,540;
Fiscal Year 2010: $6,676.
[End of table]
American International Group, Inc. (AIG) Investment Program:
The OFS provided assistance to systemically significant financial
institutions on a case by case basis in order to help provide
stability to institutions that are critical to a functioning financial
system and are at substantial risk of failure as well as to help
prevent broader disruption to financial markets. OFS invested in one
institution (MG) under the program.
In November 2008, the OFS invested $40.0 billion in AIG's cumulative
Series D perpetual cumulative preferred stock with a dividend rate of
10.0%, compounded quarterly. The OFS also received a warrant for the
purchase of approximately 53.8 million shares (adjusted to 2.7 million
shares after a 20:1 reverse stock split) of MG common stock. On April
17, 2009, MG and the OFS restructured their November 2008 agreement.
Under the restructuring, the OFS exchanged $40.0 billion of cumulative
Series D preferred stock for $41.6 billion of non-cumulative 10.0%
Series E preferred stock. Additionally, the OFS agreed to make
available a $29.8 billion capital facility from which MG could draw
funds if needed to assist in its restructuring.
The OFS investment related to the capital facility consisted of Series
F non-cumulative perpetual preferred stock with no initial liquidation
preference, and a warrant for the purchase of 3,000 shares (adjusted
to 150 shares after a 20:1 reverse stock split of MG common stock).
This liquidation preference increased with any draw down by MG on the
facility. The dividend rate applicable to these shares was 10.0%,
payable quarterly, if declared, on the outstanding liquidation
preference. As of September 30, 2010, MG had drawn $7.5 billion from
the facility. Under this capital facility, consistent with SFFAS No.
2, neither a subsidy cost nor an asset was recognized on the undrawn
portion of $22.3 billion at September 30, 2010. In fiscal year 2011,
MG drew $20.3 billion from the capital facility, for a total of $27.8
billion drawn.
On September 30, 2010, the Treasury, Federal Reserve Bank of New York
and MG announced plans for a restructuring of the Federal Government's
investments in AIG. The restructuring, which occurred January
14, 2011, converted OFS' $27.8 billion investment in Series F
preferred stock into $20.3 billion of interests in MG SPVs and 167.6
million shares of MG common stock. The remaining $2.0 billion of
undrawn Series F capital facility shares were exchanged for 20,000
shares of Series G Cumulative Mandatory Convertible Preferred Stock
equity capital facility under which MG had the right to draw up to $2
billion. OFS' initial $40 billion investment previously exchanged for
$41.6 billion of Series E preferred stock was converted into 924.6
million shares of MG common stock.[Footnote 3] On May 27, 2011,
pursuant to agreement between the OFS and MG, and as a result of AIG's
primary public offering of its common stock, the Series G equity
capital facility was canceled. In May 2011, the OFS sold 132.0 million
shares of its AIG common stock for $3.8 billion. These proceeds were
less than OFS' cost by $1.9 billion.
In fiscal year 2011, OFS received $11.5 billion in distributions from
the MG SPVs, reduced its outstanding balance relating to the MG SPVs
by $11.2 billion and received dividends of $246 million OFS also
capitalized dividend income of $204 million Additionally, OFS received
fees of $165.0 million from MG. The OFS received no payments from MG
in fiscal year 2010.
At September 30, 2011, the OFS owned 960 million shares of MG common
stock, approximately 50.8% of AIG's common stock equity on a fully
diluted basis.[Footnote 4] Market value of the common stock shares was
$21.1 billion. OFS also owned preferred units in an MG SPV with an
outstanding balance of $9.3 billion.
According to the terms of the preferred stock, if MG missed four
dividend payments, the OFS could appoint to the MG board of directors,
the greater of two members or 20.0% of the total number of directors
of the Company. On April 1, 2010, the OFS 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 twelve. The two additional OFS-appointed directors remained on the
board as of September 30, 2011.
Targeted Investment Program:
The Targeted Investment Program (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. The OFS considered
institutions as candidates for the TIP on a case-by-case basis, based
on a number of factors including the threats posed by destabilization
of the institution, the risks caused by a loss of confidence in the
institution, and the institution's importance to the nation's economy.
Under TIP, the OFS invested $20 billion in Citigroup in December, 2008
and $20 billion in Bank of America in January, 2009. In December 2009,
both institutions repaid the amounts invested along with dividends
through the date of repayment. In fiscal year 2010, OFS 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, OFS sold its warrant
from Citigroup under TIP for $190.4 million and closed the program.
Footnotes:
[3] Additionally, the AIG Credit Facility Trust between the Federal
Reserve Bank of New York and AIG was terminated and the Department of
the Treasury separately, not the OFS, received 562.9 million shares of
AIG common stock from it as part of the restructuring transaction. At
the completion of the restructuring per the agreement, the Department
of the Treasury, including OFS, held 92.1% of AIG's common stock on a
fully diluted basis. See the Agency Financial Report for the
Department of the Treasury for its separate presentation and valuation
of its shares of AIG common stock.
[4] The Department of the Treasury, not OFS, owned 494.9 million
shares of AIG common stock, approximately 26.1% of AIG's common stock
equity, fully diluted, at September 30, 2011.
Automotive Industry Financing Program:
The Automotive Industry Financing Program (AIFP) 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.
General Motors Company (New GM) and General Motors Corporation (Old
GM):
In the period ended September 30, 2009, the OFS provided $49.5 billion
to General Motors Corporation (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. The OFS assigned its rights in these various
loans (with the exception of $986.0 million 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,
General Motors Company (New GM). New GM used the assigned loans and
warrants to credit bid for substantially all of the assets of Old GM
in a sale pursuant to Section 363 of the Bankruptcy Code. During
fiscal year 2009, upon closing of the Section 363 sale, the credit bid
loans and warrants were extinguished and the OFS received $2.1 billion
in 9.0% cumulative perpetual preferred stock and 60.8% of the common
equity in New GM. In addition, New GM assumed $7.1 billion of the DIP
loan, simultaneously paying $360.6 million (return of warranty program
funds), resulting in a net balance of $6.7 billion. The assets
received by the OFS as a result of the assignment and Section 363 sale
were considered recoveries of the original loans for subsidy cost
estimation purposes.
During fiscal year 2010, the OFS received the remaining $6.7 billion
as full repayment of the DIP loan assumed. In addition as of September
30, 2010, the OFS had received $188.8 million in dividends and $343.1
million in interest on New GM preferred stock and the loan prior to
repayment, respectively. At September 30, 2010, the OFS held 60.8% of
the common stock of New GM and $2.1 billion in preferred stock.
During fiscal year 2011, pursuant to a letter agreement, New GM
repurchased its preferred stock for 102% of its liquidation amount,
$2.1 billion. As part of an initial public offering by New GM in
fiscal year 2011, the OFS sold 412.3 million shares of its common
stock for $13.5 billion, at a price of $32.75 per share (net of fees).
The sale resulted in net proceeds less than cost of $4.4 billion. At
September 30, 2011, the OFS held 500 million shares of the common
stock of New GM, which represents approximately 32.0% of the common
stock of New GM outstanding. Market value of the shares as of
September 30, 2011 was $10.1 billion.
On March 31, 2011, the Plan of Liquidation for Old GM became effective
and OFS' $986 million loan was converted to an administrative claim.
OFS retains the right to recover additional proceeds but recoveries
are dependent on actual liquidation proceeds and pending litigation.
OFS recovered $110.9 million in fiscal year 2011 on the administrative
claim. OFS does not expect to recover any significant additional
proceeds from this claim.
GMAC LLC Rights Offering:
In December 2008, the OFS agreed, in principal, to lend up to $1.0
billion to Old GM for participation in a rights offering by GMAC LLC
(now known as Ally Financial, Inc.) in support of GMAC LLC's
reorganization as a bank holding company. The loan was secured by the
GMAC LLC common interest acquired in the rights offering. The loan was
funded for $884.0 million. In May 2009, the OFS exercised its exchange
option under the loan and received 190,921 membership interests,
representing approximately 35.36% of the voting interest at the time,
in GMAC LLC in full satisfaction of the loan. As of September 30, 2011
and 2010, the OFS continued to hold the ownership interests obtained
in this transaction (see further discussion of OFS' GMAC holdings
under Ally Financial Inc. in this note).
Chrysler Group LLC (New Chrysler) and Chrysler Holding LLC (Old
Chrysler):
In the period ended September 30, 2009, the OFS invested $5.9 billion
in Chrysler Holding LLC (Old Chrysler), consisting of $4.0 billion for
general and working capital purposes (the general purpose loan) and
$1.9 billion for debtor in possession (DIP) financing while Old
Chrysler was in bankruptcy. Upon entering bankruptcy, a portion of Old
Chrysler was sold to a newly created entity, Chrysler Group LLC (New
Chrysler). Under the terms of the bankruptcy agreement, $500 million
of the general purpose loan was assumed by New Chrysler. In fiscal
year 2010, the OFS received $1.9 billion on the general purpose loan
and wrote off the remaining $1.6 billion. Recovery of the $1.9 billion
DIP loan was subject to the liquidation of collateral remaining with
Old Chrysler. In fiscal year 2010, as part of a liquidation plan, OFS'
DIP loan to Old Chrysler was extinguished, and OFS retained a right to
receive proceeds from a liquidation trust. OFS received $7.8 million
and $40.2 million from the liquidation trust during fiscal years 2011
and 2010, respectively.
Under the terms of the bankruptcy agreement, the OFS committed to make
a $7.1 billion loan to New Chrysler, consisting of up to $6.6 billion
of new funding and $500 million of assumed debt from the general
purpose loan with Old Chrysler. The loan was secured by a first
priority lien on the assets of New Chrysler. Funding of the loan was
available in two installments or tranches (B and C), each with varying
availability and terms. Tranche B provided an additional $2.0 billion
loan funded at closing. Tranche C included the $500 million assumed
from the general purpose loan and provided $2.6 billion funded at
closing. Interest on both Tranches was payable in kind through
December 2009 and added to the principal balance of the respective
Tranche. Interest was paid quarterly beginning March 31, 2010.
Additional in kind interest was accrued at $17.0 million a quarter and
added to the Tranche C loan balance subject to interest at the
appropriate rate. In fiscal year 2010, the OFS recognized $344.4
million of paid-in-kind interest capitalized to these loans and
received $381.8 million of interest.
The OFS also obtained other consideration including a 9.9% equity
interest in New Chrysler and additional notes with principal balances
of $284 million and $100 million. Fiat SpA (the Italian automaker), the
Canadian government and the United Auto Workers (UAW) retiree
healthcare trust were the other shareholders in New Chrysler.
In May 2011, New Chrysler repaid both Tranche B and C principal
balances of $5.1 billion, the additional notes totaling $384 million
and all interest due. New Chrysler's ability to draw the remaining
$2.1 billion loan commitment was terminated. In July 2011, Fiat SpA
paid the OFS $560 million for its remaining equity interest in New
Chrysler and for OFS' rights under an agreement with the UAW retiree
healthcare trust pertaining to the trust's shares in New Chrysler.
As a result of the fiscal year 2011 transactions, OFS has no remaining
interest in New Chrysler as of September 30, 2011. Total net proceeds
received relating to these 2011 transactions were $896 million less
than OFS' cost. OFS continues to hold a right to receive proceeds from
a bankruptcy liquidation trust but no significant cash flows are
expected.
Auto Supplier Support Program:
In fiscal year 2009, the OFS provided approximately $413.1 million of
funding to this program, which was not affected by the bankruptcy of
Old Chrysler and Old GM, as both companies were allowed to continue
paying suppliers while in bankruptcy. The $413.1 million was repaid in
fiscal year 2010, along with $9.0 million in interest and $101.1
million in fees and other income, and the program was closed.
Ally Financial Inc. (formerly known as GMAC Inc.):
The OFS invested a total of $16.3 billion in GMAC Inc. between
December 2008 and December 2009, to help support its ability to
originate new loans to GM and Chrysler dealers and consumers and to
help address GMAC's capital needs. In May, 2010, GMAC changed its
corporate name to Ally Financial, Inc. (Ally). As a result of original
investments, exchanges, conversions and warrant exercises, at
September 30, 2010, the OFS held 450,121 shares of Ally common stock
(representing 56.3% of the company's outstanding common stock
including ownership interests from the GMAC LLC Rights Offering
previously discussed), 2.7 million shares of 8% cumulative Trust
Preferred Securities (TRuPS) with a $1,000 per share liquidation
preference and 228.8 million shares of Ally's Series F-2 Mandatorily
Convertible Preferred Securities. The Series F-2, with a $50 per share
liquidation preference and a stated dividend rate of 9%, is
convertible into Ally common stock at Ally's option, subject to the
approval of the Federal Reserve and consent by the OFS or pursuant to
an order by the Federal Reserve compelling such conversion. The Series
F-2 security is also convertible at the option of the OFS upon certain
specified corporate events. Absent an optional conversion, any Series
F-2 remaining will automatically convert to common stock after 7 years
from the issuance date. The applicable conversion rate is the greater
of the (i) initial conversion rate (0.00432) or (ii) adjusted
conversion rate (i.e., the liquidation amount per share of the Series
F-2 divided by the weighted average price at which the shares of
common equity securities were sold or the price implied by the
conversion of securities into common equity securities, subject to
antidilution provisions).
In December 2010, 110 million shares of the Series F-2 preferred were
converted into 531,850 shares of Ally common stock, resulting in the
OFS holdings of Series F-2 preferred decreasing to 118.8 million
shares, and OFS holdings in common stock of Ally increasing to 981,971
shares, representing 73.8% of Ally's outstanding common stock.
During fiscal year 2011, the agreement between Ally and OFS regarding
its TRuPS was amended to facilitate OFS' sale of its TRuPS in the open
market. Because this amendment to agreement terms was not considered
in the formulation subsidy cost estimate for the AIFP program, the OFS
recorded a modification resulting in a subsidy cost reduction of $174
million.
In March 2011, the OFS sold its TRuPS for $2.7 billion, resulting in
proceeds in excess of cost of $127.0 million.
On March 31, 2011, the OFS 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; there has been no public
offering.
At September 30, 2011, the OFS held 981,971 shares of common stock
(73.8% of Ally's outstanding common stock) and 118.8 million shares of
the Series F-2 preferred securities. The Series F-2 are convertible
into at least 513,000 shares of common stock, which, if combined with
the common stock currently owned, would represent 81% ownership of
Ally common stock by the OFS. In fiscal year 2011, the OFS received
$838.6 million in dividends from Ally. In fiscal year 2010, the OFS
received $1.2 billion in dividends.
Consumer and Business Lending Initiative (CBLI):
The Consumer and Business Lending Initiative was intended to help
unlock the flow of credit to consumers and small businesses. Three
programs were established to help accomplish this. The Term Asset-Backed
Securities Loan Facility was created to help jump start the market for
securitized consumer and small business loans. 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. The Community Development Capital Initiative was created to
provide additional low cost capital to small banks to encourage more
lending to small businesses. Each program is discussed in more detail
below.
Term Asset-Backed Securities Loan Facility:
The Term Asset-Backed Securities Loan Facility (TALF) was created by
the Federal Reserve Board (FRB) to provide low cost funding to
investors in certain classes of Asset-Backed Securities (ABS). The OFS
agreed to participate in the program by providing liquidity and credit
protection to the FRB.
Under the TALF, the Federal Reserve Bank of New York (FRBNY), as
implementer of the TALF program, originated loans on a non-recourse
basis to purchasers of certain AAA rated ABS secured by consumer and
commercial loans and commercial mortgage backed securities (CMBS).
Interest rates charged on the TALF loans depend on the weighted
average maturity of the pledged collateral, the collateral type and
whether the collateral pays fixed or variable interest. The program
ceased issuing new loans on June 30, 2010. As of September 30, 2011,
approximately $11.3 billion of loans due to the FRBNY remained
outstanding compared to September 30, 2010, when approximately $29.7
billion of loans due to the FRBNY remained outstanding.
As part of the program, the FRBNY created the TALF, LLC, a special
purpose vehicle that agreed to purchase from the FRBNY any collateral
it has seized due to borrower default. The TALF, LLC would fund
purchases from the accumulation of monthly fees paid by the FRBNY as
compensation for the agreement. Only if the TALF, LLC had insufficient
funds to purchase the collateral did the OFS commit to invest up to
$20.0 billion in non-recourse subordinated notes issued by the TALF,
LLC. In July 2010, the OFS' commitment was reduced to $4.3 billion.
The OFS disbursed $100.0 million upon creation of the TALF, LLC and
the remainder can be drawn to purchase collateral in the event the
fees are not sufficient to cover purchases. The subordinated notes
bear interest at 1 Month LIBOR plus 3.0% and mature 10 years from the
closing date, subject to extension. Any amounts needed in excess of
the OFS commitment and the fees would be provided through a loan from
the FRBNY. Upon wind-down of the TALF, LLC (collateral defaults,
reaches final maturity or is sold), available cash will be disbursed
first to FRBNY and then to the OFS principal balances, secondly to
FRBNY and then to the OFS interest balances and finally any remaining
cash 10% to the FRBNY and 90% to the OFS.
The TALF, LLC is owned, controlled and consolidated by the FRBNY. The
credit agreement between the OFS and the TALF, LLC provides the OFS
with certain rights consistent with a creditor but does not constitute
control. As such, TALF, LLC is not a federal entity and the assets,
liabilities, revenue and cost of TALF, LLC are not included in the OFS
financial statements.
As of September 30, 2011 and 2010, no TALF loans were in default and
consequently no collateral was purchased by the TALF, LLC.
SBA 7(a) Security Purchase Program:
In March 2010, the OFS began the purchase of securities backed by
Small Business Administration 7(a) loans (7(a) Securities) as part of
the Unlocking Credit for Small Business Initiative. Under this program
OFS purchased 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, OFS had entered into trades to purchase $356.3 million of these
securities (excluding purchased accrued interest), of which $240.7
million had been disbursed. Investments totaled $367 1 million
(excluding purchased accrued interest) by December 2010 when OFS
disbursements under the program were completed. In May 2011, OFS began
selling its securities to bond market investors. During fiscal year
2011, the OFS received $10.7 million in interest and $235 8 million in
principal payments on the securities including returns from sales to
other investors. During fiscal year 2010, the OFS received $1.0
million in interest and $2.5 million in principal payments on these
securities. As of September 30, 2011, OFS held $127 6 million of SBA
7(a) securities.
Community Development Capital Initiative:
In February 2010, the OFS announced the Community Development Capital
Initiative (CDCI) to invest lower cost capital in Community
Development Financial Institutions (CDFIs). Under the terms of the
program, The OFS purchased senior preferred stock (or subordinated
debt) from eligible CDFIs. The senior preferred stock has an initial
dividend rate of 2 percent. CDFIs could 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 eight years.
For CDFI credit unions, the OFS purchased subordinated debt at rates
equivalent to those offered to CDFIs and with similar terms. These
institutions could apply for up to 3.5 percent of total assets - an
amount approximately equivalent to the 5 percent of risk-weighted
assets available to banks and thrifts.
CDFIs participating in the CPP, subject to certain criteria, were
eligible to exchange, through September 30, 2010, their CPP preferred
shares (subordinated debt) then held by OFS for CDCI preferred shares
(subordinated debt). These exchanges were treated as disbursements
from CDCI and repayments to CPP. As of September 30, 2010, the OFS had
invested $570.1 million ($363.3 million as a result of exchanges from
CPP) in 84 institutions under the CDCI. No additional disbursements
were made in fiscal year 2011. No repayments were received in fiscal
years 2011 or 2010. During fiscal year 2011, OFS received $10.5
million in dividends and interest from its CDCI investments.
Public-Private Investment Program:
The PPIP is part of the OFS' efforts to help restart the financial
securities market and provide liquidity for legacy assets. Under this
program, the OFS (as a limited partner) made equity investments in and
loans to nine investment vehicles (referred to as Public Private
Investment Funds or "PPIFs") established by private investment
managers between September and December, 2009. The equity investment
was used to match private capital and equaled approximately 50.0% of
the total equity invested. Each PPIF could elect to receive a loan
commitment from the OFS equal to either 50% or 100% of partnership
equity at differing costs; all chose 100%. The loans bear interest at
1 Month LIBOR, plus 1.0%, payable monthly. The maturity date of each
loan is the earlier of 10 years or the termination of the PPIF. The
loan can be prepaid without penalty. Each PPIF terminates in 8 years
from its commencement. The governing documents of the funds allow for
2 one year extensions, subject to approval of the OFS. The loan
agreements also require cash flows from purchased securities received
by the PPIFs to be distributed in accordance with a priority of
payments schedule (waterfall) designed to help protect the interests
of secured parties. Security cash flows collected are disbursed 1) to
pay administrative expenses; 2) to pay margin interest on permitted
hedges; 3) to pay current period interest to OFS; 4) to maintain a
required interest reserve account; 5) to pay principal on the OFS loan
when the minimum Asset Coverage Ratio Test is not satisfied; 6) to pay
other amounts on interest rate hedges if not paid under step 2 ; 7)
for additional temporary investments or to prepay loans (both at the
discretion of the PPIF); 8) for distributions to equity partners up to
the lesser of 12 months' net interest collected or 8% of the funded
capital commitments; 9) for loan prepayments to OFS and 10) for
distribution to equity partners.
Each loan carries a financial covenant, the Asset Coverage Ratio Test.
The Asset Coverage Ratio Test generally requires the PPIF to maintain
an Asset Coverage Ratio equal to or greater than 150%. The Asset
Coverage Ratio is a percentage obtained by dividing total assets of
the PPIF by the principal amount of the loan and accrued and unpaid
interest on the loan. Failure to comply with the test could require
accelerated repayment of loan principal and prohibit the PPIF from
borrowing additional funds under the loan agreement.
As a condition of its investment, the OFS also received a warrant from
each of the PPIFs entitling the OFS to 2.5% of investment proceeds
(excluding those from temporary investments) otherwise allocable to
the non-OFS partners after the PPIFs return of 100% of the non-OFS
partners' capital contributions. Distributions relating to the
warrants would occur generally upon the final distribution of each
partnership.
The PPIFs are allowed to purchase commercial and non-agency
residential mortgage-backed securities (CMBS and RMBS, respectively)
issued prior to January 1, 2009, that were originally rated AAA or an
equivalent rating by two or more nationally recognized statistical
rating organizations without external credit enhancement and that are
secured directly by the actual mortgage loans, leases or other assets
(eligible assets) and not other securities. The PPIFs may invest in
the aforementioned securities for a period of 3 years using proceeds
from capital contribution, loans and amounts generated by previously
purchased investments (subject to the requirements of the waterfall).
The PPIFs are also permitted to invest in certain temporary
securities, including bank deposits, U.S. Treasury securities, and
certain money market mutual funds. At least 90 percent of the assets
underlying any eligible asset must be situated in the United
States. As of September 30, 2011, the approximate split between RMBS
and CMBS was 79% RMBS and 21% CMBS. As of September 30, 2010, the
approximate split between RMBS and CMBS was 82% RMBS and 18% CMBS.
The PPIFs pay a management fee to the fund manager from the OFS' share
of investment proceeds. During the Investment Period, the management
fee is equal to 0.2% per annum of the OFS' capital commitment as
of the last day of the applicable quarter. Thereafter, the management
fee will be equal to 0.2% per annum of the lesser of (a) the OFS'
capital commitment as of the last day of the applicable quarter or (b)
the OFS Interest Value as of the last day of the quarter.
During fiscal year 2011, the OFS disbursed $1.1 billion as equity
investments and $2.3 billion as loans to PPIFs. During fiscal year
2010, OFS disbursed $4.9 billion as equity investments and $9.2
billion as loans to PPIFs. At September 30, 2011, OFS had equity
investments in PPIFs outstanding of $5.5 billion and loans outstanding
of $10.4 billion for a total of $15.9 billion. At September 30, 2010,
OFS had equity investments of $4.8 billion and loans outstanding of
$8.9 billion for a total of $13.7 billion. In addition, as of
September 30, 2011, OFS had legal commitments to disburse up to $4.3
billion for additional investments and loans to the eight remaining
PPIFs.
During fiscal year 2011, the OFS received $122.7 million in interest
on loans and $867.7 million in loan principal repayments from the
PPIFs. Also, during fiscal year 2011, OFS received $735.0 million in
equity distributions, of which $305.7 million was recognized as
dividend income, $90.8 million of proceeds in excess of cost and
$338.5 million as a reduction of the gross investment outstanding.
During fiscal year 2010, the OFS received $56.0 million in interest on
loans, $72.0 million in loan principal repayments and $151.8 million
of income on the equity investments.
On January 4, 2010, the OFS entered into a Winding-up and Liquidation
Agreement with one of the PPIFs. Prior to the signing of the
agreement, the OFS had invested $356.3 million ($156.3 million equity
investment and $200.0 million loan) in the fund. Upon final
liquidation, the OFS received $377.4 million representing return of
the original investment, interest on the loan and return on the equity
investment and warrant.
Other Credit Programs:
Asset Guarantee Program:
The Asset Guarantee Program 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.
Section 102 of the EESA required the Secretary to establish the AGP to
guarantee troubled assets originated or issued prior to March 14,
2008, including mortgage-backed securities, and established the Troubled
Assets Insurance Financing Fund (TAIFF). In accordance with Section
102(c) and (d) of the EESA, premiums from financial institutions are
collected and all fees are recorded by the OFS in the TAIFF. In
addition, Section 102(c) (3) of the EESA requires that the original
premiums assessed are "set" at a minimum level necessary to create
reserves sufficient to meet anticipated claims.
The OFS completed its first transaction under the AGP in January 2009,
when it finalized the terms of a guarantee agreement with Citigroup.
Under the agreement, the OFS, the Federal Deposit Insurance
Corporation (FDIC), and the Federal Reserve Bank of New York (FRBNY)
(collectively the USG Parties) provided protection against the
possibility of large losses on an asset pool of approximately $301.0
billion of loans and securities backed by residential and commercial
real estate and other such assets, which remained on Citigroup's
balance sheet. The OFS' guarantee was limited to $5.0 billion.
As a premium for the guarantee, Citigroup issued $7.0 billion of
cumulative perpetual preferred stock (subsequently converted to Trust
Preferred Securities with similar terms) with an 8.0 % stated dividend
rate and a warrant for the purchase of common stock; $4.0 billion and
the warrant were issued to the OFS, and $3.0 billion was issued to the
FDIC. The OFS received $14.9 million and $265.2 million during the
years ended September 30, 2011 and 2010, respectively, in dividends on
the preferred stock received as compensation for this arrangement.
These dividends have been deposited into the TAIFF. The OFS had also
invested in Citigroup through CPP and the TIP.
In December 2009, the USG Parties and Citigroup agreed to terminate
the guarantee agreement. Under the terms of the termination agreement
Citigroup canceled $1.8 billion of the preferred stock previously
issued to OFS. In addition, the FDIC agreed to transfer to the OFS
$800 million of their trust preferred stock holding plus dividends.
The amount OFS will receive would be reduced by any losses FDIC incurs
on its Citigroup guaranteed debt. The additional preferred shares from
the FDIC are included in the subsidy calculation for AGP, based on the
net present value of expected future cash inflows. Termination of the
agreement was not considered in the formulation estimates of the
guarantee and therefore a modification that resulted in a subsidy cost
reduction of $1.4 billion was recorded in fiscal year 2010. On
September 29, 2010, the OFS exchanged its existing Trust Preferred
Securities for securities containing market terms to facilitate a
sale. On September 30, 2010, the OFS agreed to sell its Trust
Preferred Securities for $2.2 billion. The Trust Preferred Securities
are valued at the sales price in the 2010 financial statements. The
sale settled on October 5, 2010, and additional warrants were sold in
January 2011 for $67.2 million, leaving only the $800.0 million of
trust preferred stock related receivable from the FDIC valued at $739
million on the OFS Balance Sheet at September 30, 2011. This
receivable was valued at $815 million as of September 30, 2010.
FHA-Refinance Program:
At the end of fiscal year 2010, the OFS entered into a loss-sharing
agreement with the Federal Housing Administration (FHA) to support a
program in which FHA guarantees refinancing of borrowers whose homes
were worth less than the remaining amounts owed under their mortgage
loans. No loans were refinanced in fiscal year 2010. In fiscal year
2011, the OFS established a $50.0 million account, held by a
commercial bank, serving as its agent, from which any required
reimbursements for losses will be paid. At September 30, 2011, 334
loans that FHA had guaranteed, with a total value of $73 million, had
been refinanced under the program. OFS' maximum exposure related to
FHA's guarantee totaled $5.7 million. After considering FHA's
estimated default rates, this resulted in OFS incurring a $1.0 million
liability. The liability has been calculated, using credit reform
accounting, as the present value of the estimated future cash outflows
for the OFS' share of losses incurred on any defaults of the disbursed
loans. See Note 6 table, following and Note 5 above for further
details.
Subsidy Cost and Reestimates:
The recorded subsidy cost of a direct loan, equity investment or other
credit program is based upon the calculated net present value of
expected future cash flows. The OFS' actions, as well as changes in
legislation that change these estimated future cash flows change
subsidy cost, and are recorded as modifications. The cost or reduction
in cost of a modification is recognized when it occurs.
During fiscal year 2011, modifications occurred in the AIFP (see Ally
Financial Inc.) and CPP, reducing subsidy cost by $1.2 billion. During
fiscal year 2010, modifications occurred within AIFP, CPP and the AGP,
increasing subsidy cost by $47.9 million.
The purpose of reestimates is to update original program subsidy cost
estimates to reflect actual cash flow experience as well as changes in
forecasts of future cash flows. Forecasts of future cash flows are
updated based on actual program performance to date, additional
information about the portfolio, additional publicly available
relevant historical market data on securities performance, revised
expectations for future economic conditions, and enhancements to cash
flow projection methods.
Financial statement reestimates for all programs were performed using
actual financial transaction data through September 30, 2011 and 2010.
For 2011, a mix of market and security specific data publicly
available as of August 31 and September 30, 2011, was used for the
CPP, MG Investment, AIFP, SBA, CDCI and AGP programs. Security
specific data through June 30, 2011, with market prices through August
31 and September 30, 2011, was used for the PPIP and TALF programs.
For 2010, a mix of market and security specific data publicly
available as of August 31 and September 30, 2010, was used for all
programs except PPIP and TALF, which used security specific data
through June 30 and market prices through August 31 and September 30,
2010.
The OFS assessed PPIP and TALF programs using security specific data
available as of September 30, 2011 and 2010 and, in its determination,
there were no significant changes to the portfolio characteristics or
performance that would require a revision to the reestimates for the
fiscal years.
Net downward reestimates for the fiscal years ended September 30, 2011
and 2010, totaled $11.6 billion and $30.2 billion, respectively.
Descriptions of the reestimates, by OFS Program, are as follows:
CPP:
The downward reestimate for CPP of $816 million for the year ended
September 30, 2011, is the net result of receipts significantly
greater than cost on the sale of Citigroup common stock offset by a
decline in the estimated market values of the remaining outstanding
investments due to market conditions at September 30, 2011.
The net upward reestimate for the CPP of $3.9 billion for the year
ended September 30, 2010, is the net result of a decrease in the price
of Citigroup common stock that was partially offset by an increase in
the estimated value of the other investments within the CPP, due to
improved market conditions during the period.
AIG Investment Program:
The $18.5 billion in downward reestimates for the year ended September
30, 2011 for the MG Investment Program was due primarily to subsidy
cost estimates recorded for $20.3 billion of new disbursements during
the fiscal year. Under budget rules, the subsidy cost estimate for
these new disbursements was determined based upon subsidy rates
formulated in April 2009, the period in which OFS originally agreed to
make the funding available to MG. At that time, OFS calculated a
subsidy rate of 98.98%, which resulted in an estimated subsidy cost of
$20.1 billion associated with the $20.3 billion disbursed in fiscal
year 2011. OFS calculated a $16.7 billion downward reestimate relating
to these fiscal year 2011 disbursements that reflects improvements in
AIG's financial condition since the original subsidy rate was
formulated. The remainder of the downward reestimate was due to the
restructuring of the MG investment to common stock offset by
AIG's financial condition at September 30, 2011. At year end, the
subsidy allowance represented about 41% of the gross outstanding MG
Investment Program balance.
The $12.0 billion in downward reestimate for the MG Investment Program
for the year ended September 30, 2010, was due to an increase in the
estimated value of MG assets and subordinated debt and improvements in
market conditions over the period.
TIP:
The TIP program was closed in fiscal year 2011, with a final downward
reestimate of $192 million, primarily due to a better than projected
return on warrant sales. OFS received cumulative receipts of $4.0
billion on total investments of $40.0 billion.
The $1.9 billion in net downward reestimate in the TIP in fiscal year
2010 included $2.2 billion in downward reestimate due to the
repurchase of the program's investments by the two institutions
participating in the program. That downward reestimate amount was
partially offset by a $277.4 million upward reestimate from a slight
reduction in the estimated value of outstanding warrants.
AIFP:
The $9.9 billion in upward reestimates for the AIFP for the year ended
September 30, 2011, was due to a decline of over $7.0 billion due to
changes in the common stock price of New GM since its IPO and a
decline in the estimated value of Ally investments due to market
conditions.
The $19.3 billion in downward reestimates for the AIFP direct loan and
equity investments for the year ended September 30, 2010, was due to
$1.8 billion in payments exceeding projections, a reduction in
estimated defaults due to improvements in the domestic automotive
industry, and an increase in the bond prices and valuations used to
estimate the cost of the remaining AIFP investments.
CBLI:
The CBLI programs had a downward reestimate of $210 million for the
year ended September 30, 2011. The TALF program showed improved market
conditions, resulting in a $105 million downward reestimate. The SBA
and CDCI programs reported improved investment performance, resulting
in $6 million and $99 million downward reestimates, respectively.
The TALF and SBA 7(a) Securities Purchase programs within the CBLI had
a total upward reestimate of $23.7 million for the year ended
September 30, 2010.
The TALF program had a $23.3 million upward reestimate mostly due to a
projected reduction in the size of the portfolio and higher than
projected repayments. The SBA program had an upward reestimate of less
than $1 million due to an increase in projected interest rates and a
reduction in market risk. The CDCI program had a $7.3 million upward
reestimate for the period.
PPIP:
The $1.8 billion downward reestimates for the PPIP for the year ended
September 30, 2011, was due primarily to a decline in market risk
projections, program repayments, and changes in projected performance
of the PPIP portfolio.
The $1.0 billion in downward reestimates for the PPIP debt and equity
programs for the year ended September 30, 2010, was the net of a $1.2
billion upward reestimate in the PPIP debt program and $2.2 billion in
downward reestimates for the PPIP equity programs, mostly due to the
use of actual portfolio data for reestimates rather than the proxy
data used in developing the baseline estimates and changes in market
risks.
AGP:
The AGP Citigroup TRuPS held by the FDIC recorded an upward reestimate
of $29.8 million for the year ended September 30, 2011, due to a
decline in market conditions.
The AGP had a net $87.3 million downward reestimate for the year ended
September 30, 2010. The reestimate amount excludes an estimated cost
savings of $1.4 billion that resulted from the cancellation of the
$5.0 billion guarantee because this transaction was reflected in the
subsidy modifications during fiscal year 2010.
Summary Tables:
The following detailed tables provide the net composition, subsidy
cost, modifications and reestimates, a reconciliation of the subsidy
cost allowance and budget subsidy rates and subsidy by component for
each TARP direct loan, equity investment or other credit programs for
the years ended September 30, 2011 and 2010. There were no budget
subsidy rates for fiscal year 2011, except for the FHA-Refinance
Program, and all disbursements were from loans or investments
obligated in prior years.
Troubled Asset Relief Program Loans and Equity Investments (Dollars in
Millions):
As of September 30, 2011:
Direct Loans and Equity Investment Programs:
Direct Loans and Equity Investments Outstanding, Gross;
Total: $122,405;
CPP: $17,299;
AIG: $51,087;
TIP: $0;
AIFP: $37,278;
CBLI: $798;
PPIP: $15,943.
Subsidy Cost Allowance;
Total: ($42,301);
CPP: ($4,857);
AIG: ($20,717);
TIP: $0;
AIFP: ($19,440);
CBLI: $279;
PPIP: $2,434.
Direct Loans and Equity Investments Outstanding, Net;
Total: $80,104;
CPP: $12,442;
AIG: $30,370;
TIP: $0;
AIFP: $17,838;
CBLI: $1,077;
PPIP: $18,377.
New Loans or Investments Disbursed;
Total: $23,839;
CPP: $0;
AIG: $20,292;
TIP: $0;
AIFP: $0;
CBLI: $126;
PPIP: $3,421.
Obligations for Loans and Investments not yet Disbursed;
Total: $8,479;
CPP: $0;
AIG: $0;
TIP: $0;
AIFP: $0;
CBLI: $4,200;
PPIP: $4,279.
Reconciliation of Subsidy Cost Allowance:
Balance, Beginning of Period;
Total: $36,745;
CPP: $1,546;
AIG: $21,405;
TIP: ($1);
AIFP: $14,529;
CBLI: ($58);
PPIP: ($676);
Subsidy Cost (Income) for Disbursements and Modifications;
Total: $18,887;
CPP: ($1,010);
AIG: $20,085;
TIP: $0;
AIFP: ($174);
CBLI: $1;
PPIP: ($15).
Interest and Dividend Revenue;
Total: $3,461;
CPP: $1,283;
AIG: $450;
TIP: $0;
AIFP: $1,280;
CBLI: $20;
PPIP: $428.
Fee Income;
Total: $165;
CPP: $0;
AIG: $165;
TIP: $0;
AIFP: $0;
CBLI: $0;
PPIP: $0.
Net Proceeds from Sales and Repurchases of Assets in Excess of (Less
than) Cost;
Total: ($2,262);
CPP: $4,540;
AIG: ($1,918);
TIP: $190;
AIFP: ($5,165);
CBLI: $0;
PPIP: $91.
Net Interest Income (Expense) on Borrowings from BPD and Financing
Account Balance;
Total: ($3,016);
CPP: ($686);
AIG: ($938);
TIP: $3;
AIFP: ($945);
CBLI: ($32);
PPIP: ($418).
Balance, End of Period, Before Reestimates;
Total: $53,980;
CPP: $5,673;
AIG: $39,249;
TIP: $192;
AIFP: $9,525;
CBLI: ($69);
PPIP: ($590).
Subsidy Reestimates;
Total: ($11,679);
CPP: ($816);
AIG: ($18,532);
TIP: ($192);
AIFP: $9,915;
CBLI: ($210);
PPIP: ($1,844).
Balance, End of Period;
Total: $42,301;
CPP: $4,857;
AIG: $20,717;
TIP: $0;
AIFP: $19,440;
CBLI: ($279);
PPIP: ($2,434).
Reconciliation of Subsidy Cost (Income):
Subsidy Cost (Income) for Disbursements;
Total: $20,071;
CPP: $0;
AIG: $20,085;
TIP: $0;
AIFP: $0;
CBLI: $1;
PPIP: ($15).
Subsidy Cost (Income) for Modifications;
Total: ($1,184);
CPP: ($1,010);
AIG: $0;
TIP: $0;
AIFP: ($174);
CBLI: $0;
PPIP: $0.
Subsidy Reestimates;
Total: ($11,679);
CPP: ($816);
AIG: ($18,532);
TIP: ($192);
AIFP: $9,915;
CBLI: ($210);
PPIP: ($1,844).
Total Direct Loan and Equity Investment Programs Subsidy Cost (Income);
Total: $7,208;
CPP: ($1,826);
AIG: $1,553;
TIP: ($192);
AIFP: $9,741;
CBLI: ($209);
PPIP: ($1,859).
Note: There are no budget execution rates for FY 2011; the OFS
authority expired October 3, 2010 with no additional commitments made
alter September 30, 2010.
[End of table]
Troubled Asset Relief Program Loans and Equity Investments (Dollars in
Millions):
As of September 30, 2010:
Direct Loans and Equity Investment Programs:
Direct Loans and Equity Investments Outstanding, Gross;
Total: $179,197;
CPP: $49,779;
AIG: $47,543;
TIP: $0;
AIFP: $67,238;
CBLI: $908;
PPIP: $13,729.
Subsidy Cost Allowance;
Total: ($36,745);
CPP: ($1,546);
AIG: ($21,405);
TIP: $1;
AIFP: ($14,529);
CBLI: $58;
PPIP: $676.
Direct Loans and Equity Investments Outstanding, Net;
Total: $142,452;
CPP: $48,233;
AIG: $26,138;
TIP: $1;
AIFP: $52,709;
CBLI: $966;
PPIP: $14,405.
New Loans or Investments Disbursed;
Total: $23,373;
CPP: $277;
AIG: $4,338;
TIP: $0;
AIFP: $3,790;
CBLI: $811;
PPIP: $14,157;
Obligations for Loans and Investments not yet Disbursed;
Total: $36,947;
CPP: $0;
AIG: $22,292;
TIP: $0;
AIFP: $2,066;
CBLI: $4,339;
PPIP: $8,250.
Reconciliation of Subsidy Cost Allowance:
Balance, Beginning of Period;
Total: $53,077;
CPP: ($7,770);
AIG: $30,054;
TIP: ($341);
AIFP: $31,478;
CBLI: ($344);
PPIP: $0.
Subsidy Cost (Income) for Disbursements and Modifications;
Total: $7,533;
CPP: ($16);
AIG: $4,293;
TIP: $0;
AIFP: $2,644;
CBLI: $275;
PPIP: $337.
Interest and Dividend Revenue;
Total: $6,977;
CPP: $3,131;
AIG: $0;
TIP: $1,143;
AIFP: $2,475;
CBLI: $0;
PPIP: $228.
Net Proceeds from Sales and Repurchases of Assets in Excess of Cost;
Total: $8,013;
CPP: $6,676;
AIG: $0;
TIP: $1,237;
AIFP: $99;
CBLI: $0;
PPIP: $1.
Net Interest Expense on Borrowings from BPD and Financing Account
Balance;
Total: ($4,690);
CPP: ($2,018);
AIG: ($981);
TIP: ($161);
AIFP: ($1,309);
CBLI: ($20);
PPIP: ($201).
Writeoffs;
Total: ($3,934);
CPP: ($2,334);
AIG: $0;
TIP: $0;
AIFP: ($1,600);
CBLI: $0;
PPIP: $0.
Balance, End of Period, Before Reestimates;
Total: $66,976;
CPP: ($2,331);
AIG: $33,366;
TIP: $1,878;
AIFP: $33,787;
CBLI: ($89);
PPIP: $365.
Subsidy Reestimates;
Total: ($30,231);
CPP: $3,877;
AIG: ($11,961);
TIP: ($1,879);
AIFP: ($19,258);
CBLI: $31;
PPIP: ($1,041).
Balance, End of Period;
Total: $36,745;
CPP: $1,546;
AIG: $21,405;
TIP: ($1);
AIFP: $14,529;
CBLI: ($58);
PPIP: ($676).
Reconciliation of Subsidy Cost (Income):
Subsidy Cost for Disbursements;
Total: $6,067;
CPP: $16;
AIG: $4,293;
TIP: $0;
AIFP: $1,146;
CBLI: $275;
PPIP: $337.
Subsidy Cost (Income) for Modifications;
Total: $1,466;
CPP: ($32);
AIG: $0;
TIP: $0;
CBLI: $1,498;
AIFP: $0;
PPIP: $0.
Subsidy Reestimates;
Total: ($30,231);
CPP: $3,877;
AIG: ($11,961);
TIP: ($1,879);
AIFP: ($19,258);
CBLI: $31;
PPIP: ($1,041).
Total Direct Loan and Equity Investment Programs:
Subsidy Cost (Income);
Total: ($22,698);
CPP: $3,861;
AIG: ($7,668);
TIP: ($1,879);
AIFP: ($16,614);
CBLI: $306;
PPIP: ($704).
Troubled Asset Relief Program Loans, Equity Investments and Asset
Guarantee Program Budget Subsidy Rates (Dollars in Millions):
Budget Subsidy Rate, Excluding Modifications and Reestimates (see Note
below): As of September 30, 2010:
Interest Differential;
AGP: 0;
CPP: 25.62%;
AIG: 0;
TIP: 0;
AIFP: 37.70%;
CBLI: 30.39%;
PPIP: 11.72%.
Defaults;
AGP: 0;
CPP: 16.36%;
AIG: 0;
TIP: 0;
AIFP: 13.78%;
CBLI: 3.93%;
PPIP: 0.00%.
Fees and Other Collections;
AGP: 0;
CPP: 3.00%;
AIG: 0;
TIP: 0.38%;
AIFP: 0.00%;
CBLI: 0;
PPIP: 0.41%.
Other;
AGP: 18.03%;
CPP: 0;
AIG: 20.85%;
TIP: 0;
AIFP: 0.41%;
CBLI: 0;
PPIP: 10.34%.
Total Budget Subsidy Rate (See Note below):
AGP: N/A;
CPP: 5.77%;
AIG: N/A;
TIP: N/A;
AIFP: 30.25%;
CBLI: 33.91%;
PPIP: 0.97%.
Subsidy Cost by Component:
Interest Differential
AGP: 0;
CPP: ($71);
AIG: $1,415;
TIP: 0;
AIFP: $1,429;
CBLI: $246;
PPIP: $1,880.
Defaults;
AGP: 0;
CPP: $45;
AIG: $2,907;
TIP: $522;
AIFP: $32;
CBLI: 0;
PPIP: 0;.
Fees and Other Collections;
AGP: 0;
CPP: ($8)
AIG: 0;
TIP: 0;
AIFP: ($15);
CBLI: 0;
PPIP: ($55).
Other;
AGP: 0;
CPP: $50;
AIG: ($29);
TIP: 0;
AIFP: ($790);
CBLI: ($3);
PPIP: ($1,488);
Total Subsidy Cost, Excluding Modifications and Reestimates
AGP: N/A;
CPP: $16;
AIG: $4,293;
TIP: N/A;
AIFP: $1,146;
CBLI: $275;
PPIP: $337.
Note: The rates reflected in the table above are FY 2010 budget
execution rates by program. The subsidy rates disclosed pertain only
to the FY 2010 cohorts. These rates cannot be applied to the direct
loans disbursed during FY 2010 to yield the subsidy expense. The
subsidy cost (income) fix new loans reported in FY 2010 could result
from disbursements of loans from both F Y2010 cohorts and prior year
cohorts The subsidy cost (income) reported in FY 2010 also includes
modifications and re-estimates. Therefore, the Total Subsidy Cost
Excluding Modifications and Reestimates will not equal the New Loans
or Investments Disbursal multiplied by the Budget Subsidy Rate.
[End of table]
Troubled Asset Relief Program - Other Credit Programs (Dollars in
Millions):
Asset Guarantee Program:
Intragovernmental Portion (See Note below);
Asset Guarantee Program As Of September 30, 2011: $739;
Asset Guarantee Program As Of September 30, 2010: $815;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Portion held by OFS, net;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: $2,240;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Total Asset Guarantee Program;
Asset Guarantee Program As Of September 30, 2011: $739;
Asset Guarantee Program As Of September 30, 2010: $3,055;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0;.
Guaranteed Loans Outstanding:
Maximum OFS Exposure on FHA Guaranteed Loans Outstanding, Related to
Loss Sharing Agreement;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: $6;
RHA-Refinance Program As Of September 30, 2010: 0;
Total Liability for Losses;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: ($1);
RHA-Refinance Program As Of September 30, 2010: 0;
Reconciliation of Asset Guarantee Program/Liability for Losses:
Balance, Beginning of Period;
Asset Guarantee Program As Of September 30, 2011: ($3,055);
Asset Guarantee Program As Of September 30, 2010: ($1,765);
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Subsidy Cost (Income) for Disbursements and Modifications;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: ($1,418);
ARHA-Refinance Program As Of September 30, 2011: $1;
RHA-Refinance Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2010: 0;
Dividend Revenue;
Asset Guarantee Program As Of September 30, 2011: $15;
Asset Guarantee Program As Of September 30, 2010: $265;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Net Proceeds from Sales of Assets in Excess of Cost;
Asset Guarantee Program As Of September 30, 2011: $2,301;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Net Interest Expense on Borrowings from BPD and Financing Account
Balance;
Asset Guarantee Program As Of September 30, 2011: ($30);
Asset Guarantee Program As Of September 30, 2010: ($50);
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Balance, End of Period, Before Reestimates;
Asset Guarantee Program As Of September 30, 2011: ($769);
Asset Guarantee Program As Of September 30, 2010: ($2,968);
RHA-Refinance Program As Of September 30, 2011: $1;
RHA-Refinance Program As Of September 30, 2010: 0.
Subsidy Reestimates;
Asset Guarantee Program As Of September 30, 2011: $30;
Asset Guarantee Program As Of September 30, 2010: ($87);
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Balance, End of Period;
Asset Guarantee Program As Of September 30, 2011: ($739);
Asset Guarantee Program As Of September 30, 2010: ($3,055);
RHA-Refinance Program As Of September 30, 2011: $1;
RHA-Refinance Program As Of September 30, 2010: 0.
Reconciliation of Subsidy Cost (Income):
Subsidy Cost for Guarantees/Losses;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: $1;
RHA-Refinance Program As Of September 30, 2010: 0.
Subsidy Cost (Income) for Modifications;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: ($1,418)'
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0;
Subsidy Reestimates;
Asset Guarantee Program As Of September 30, 2011: $30;
Asset Guarantee Program As Of September 30, 2010: ($87);
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Total Subsidy Cost (Income);
Asset Guarantee Program As Of September 30, 2011: $30;
Asset Guarantee Program As Of September 30, 2010: ($1,505);
RHA-Refinance Program As Of September 30, 2011: $$1
RHA-Refinance Program As Of September 30, 2010: 0.
Budget Subsidy Rate, Excluding Modifications and Reestimates: As of
September 30, 2011:
Interest Differential;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: $0.00%;
RHA-Refinance Program As Of September 30, 2010: 0.
Defaults;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: $1.26%;
RHA-Refinance Program As Of September 30, 2010: 0.
Fees and Other Collections;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: $0.00%;
RHA-Refinance Program As Of September 30, 2010: 0.
Other;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: $0.00%;
RHA-Refinance Program As Of September 30, 2010: 0.
Total Budget Subsidy Rate;
Asset Guarantee Program As Of September 30, 2011: N/A;
Asset Guarantee Program As Of September 30, 2010: N/A;
RHA-Refinance Program As Of September 30, 2011: $1.26%;
RHA-Refinance Program As Of September 30, 2010: N/A.
Subsidy Cost by Component:
Interest Differential;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Defaults;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: $1;
RHA-Refinance Program As Of September 30, 2010: 0.
Fees and Other Collections;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Other;
Asset Guarantee Program As Of September 30, 2011: 0;
Asset Guarantee Program As Of September 30, 2010: 0;
RHA-Refinance Program As Of September 30, 2011: 0;
RHA-Refinance Program As Of September 30, 2010: 0.
Total Subsidy Cost, Excluding Modifications and Reestimates;
Asset Guarantee Program As Of September 30, 2011: N/A;
Asset Guarantee Program As Of September 30, 2010: N/A;
RHA-Refinance Program As Of September 30, 2011: $1;
RHA-Refinance Program As Of September 30, 2010: N/A.
Note: At September 30, 2010, the net present value of the fixture cash
flows for the Asset Guarantee Program consisted of (i) $800 million of
Citigroup trust preferred securities, plus dividends thereon, that the
FDIC agreed to transfer to OFS contingent on Citigroup repaying
previously issued FDIC guaranteed debt and (ii) additional Citigroup
trust preferred securities valued at $2,240 million, for a total of
$3,055 million. M September 30, 2011, only the contingent payment from
the FDIC remained outstanding. The other securities were sold during
fiscal year 2011.
[End of table]
Note 7. Due To The General Fund:
As of September 30, 2011, the OFS accrued $4.6 billion of downward
reestimates payable to the General Fund. As of September 30, 2010, the
OFS accrued $25.1 billion of downward reestimates and one downward
modification payable to the General Fund (See Note 6). Due to the
General Fund is a Non-Entity liability on the Balance Sheet.
Note 8. Principal Payable To The Bureau Of The Public Debt (BPD):
Equity investments, direct loans and other credit programs accounted
for under credit reform accounting are funded by subsidy
appropriations and borrowings from the BPD. The OFS also borrows funds
to pay the Treasury General Fund for negative subsidy costs and
downward reestimates in advance of receiving the expected cash flows
that cause the negative subsidy or downward reestimate. The OFS makes
periodic principal repayments to the BPD based on the analysis of its
cash balances and future disbursement needs. All debt is
intragovernmental and covered by budgetary resources. See additional
details on borrowing authority in Note 11, Statement of Budgetary
Resources.
Debt transactions for the fiscal years ended September 30, 2011 and
2010, were as follows: (Dollars in Millions)
Beginning Balance, Principal Payable to the BPD;
As of September 30, 2011: $140,404;
As of September 30, 2010: $143,335.
New Borrowings;
As of September 30, 2011: $35,974;
As of September 30, 2010: $49,025.
Repayments;
As of September 30, 2011: ($46,881);
As of September 30, 2010: ($51,956).
Ending Balance, Principal Payable to the BPD;
As of September 30, 2011: $129,497;
As of September 30, 2010: $140,404.
[End of table]
Borrowings from the BPD by the TARP program, outstanding as of
September 30, 2011 and 2010, were as follows: (Dollars in Millions)
Capital Purchase Program;
As of September 30, 2011: $19,003;
As of September 30, 2010: $49,503.
American International Group, Inc. Investment Program;
As of September 30, 2011: $52,285;
As of September 30, 2010: $23,061.
Targeted Investment Program;
As of September 30, 2011: 0;
As of September 30, 2010: $710.
Automotive Industry Financing Program;
As of September 30, 2011: $32,419;
As of September 30, 2010: $45,706.
Consumer & Business Lending Initiative;
As of September 30, 2011: $1,165;
As of September 30, 2010: $1,073.
Public-Private Investment Program;
As of September 30, 2011: $23,792;
As of September 30, 2010: $17,918.
Asset Guarantee Program;
As of September 30, 2011: $833;
As of September 30, 2010: $2,433.
Total Borrowings Outstanding;
As of September 30, 2011: $129,497;
As of September 30, 2010: $140,404.
[End of table]
Borrowings are paid to the BPD as collections are available. As of
September 30, 2011, borrowings carried remaining terms ranging from 3
to 30 years, with interest rates from 1.0% to 4.7%. As of September
30, 2010, borrowings carried terms ranging from 5 to 31 years.
Interest rates on borrowings ranged from 2.2% to 4.7%.
Note 9. Commitments And Contingencies:
The OFS is party to various legal actions and claims brought by or
against it. In the opinion of management and the Chief Counsel, the
ultimate resolution of these legal actions and claims will not have a
material effect on the OFS financial statements. The OFS has not
incurred any loss contingencies that would be considered probable or
reasonably possible for these cases. Refer to Note 6 for additional
commitments relating to the TARP's Direct Loan, Equity Investments and
Other Credit Programs.
Note 10. Statement Of Net Cost:
The Statement of Net Cost (SNC) presents the net cost of (income from)
operations for the OFS under the strategic goal of ensuring the
overall stability and liquidity of the financial system, preventing
avoidable foreclosures and preserving homeownership. The OFS has
determined that all initiatives and programs under the TARP fall
within this strategic goal.
The OFS SNC reports the annual accumulated full cost of the TARP's
output, including both direct and indirect costs of the program
services and output identifiable to TARP, in accordance with SFFAS No.
4, Managerial Cost Accounting Concepts and Standards.
The OFS SNC for fiscal year 2011 includes $3.8 billion of
intragovernmental costs relating to interest expense on borrowings
from the BPD and $781.5 million in intragovernmental revenues relating
to interest income on financing account balances. The OFS SNC for
fiscal year 2010 includes $5.9 billion of intragovernmental costs
relating to interest expense on borrowings from the BPD and $1.2
billion in intragovernmental revenues relating to interest income on
financing account balances.
Subsidy allowance amortization on the SNC is the difference between
interest income on financing fund account balances, dividends and
interest income on direct loans, equity investments and other credit
programs from TARP participants, and interest expense on borrowings
from the BPD. Credit reform accounting requires that only subsidy
cost, not the net of other costs (interest expense and dividend and
interest income), be reflected in the SNC. The subsidy allowance
account is used to present the loan or equity investment at the
estimated net present value of future cash flows.
Note 11. Statement Of Budgetary Resources:
The Statement of Budgetary Resources (SBR) presents information about
total budgetary resources available to the OFS and the status of those
resources. For the year ended September 30, 2011, the OFS' total
resources in budgetary accounts were $16.4 billion and resources in
non-budgetary financing accounts, including borrowing authority and
spending authority from collections of loan principal, liquidation of
equity investments, interest, dividends and fees were $86.5 billion.
For the year ended September 30, 2010, the OFS' total resources in
budgetary accounts were $34.5 billion and resources in non-budgetary
financing accounts were $160.8 billion.
Permanent Indefinite Appropriations:
The OFS receives permanent indefinite appropriations annually, if
necessary, to fund increases in the projected subsidy costs of direct
loans, equity investment and other credit programs as determined by
the reestimation process required by the FCRA.
Additionally, Section 118 of the EESA states that the Secretary may
issue public debt securities and use the resulting funds to carry out
the Act and that any such funds expended or obligated by the Secretary
for actions authorized by this Act, including the payment of
administrative expenses, shall be deemed appropriated at the time of
such expenditure or obligation.
Borrowing Authority:
The OFS is authorized to borrow from the BPD whenever funds needed to
disburse direct loans and equity investments, and to enter into asset
guarantee and loss-sharing arrangements, exceed subsidy costs and
collections in the non-budgetary financing accounts. For the year
ended September 30, 2011, the OFS had borrowing authority available of
$8.4 billion. For the year ended September 30, 2010, the OFS had
borrowing authority available of $10.2 billion.
The OFS uses dividends and interest received as well as principal
repayments on direct loans and liquidation of equity investments to
repay debt in the non-budgetary direct loan, equity investment and
other credit program financing accounts. These receipts are not
available for any other use per credit reform accounting guidance.
Apportionment Categories of Obligations Incurred: Direct versus
Reimbursable Obligations:
All of the OFS apportionments are Direct and are Category B. Category
B apportionments typically distribute budgetary resources on a basis
other than calendar quarters, such as by activities, projects, objects
or a combination of these categories. The OFS obligations incurred are
direct obligations (obligations not financed from intragovernmental
reimbursable agreements).
Undelivered Orders:
Undelivered orders as of September 30, 2011, were $43.4 billion in
budgetary accounts and $13.2 billion in non-budgetary financing
accounts. Undelivered orders as of September 30, 2010, were $68.7
billion in budgetary accounts and $41.9 billion in non-budgetary
financing accounts.
Explanation of Differences Between the Statement of Budgetary
Resources and the Budget of the United States Government:
Federal agencies and entities are required to explain material
differences between amounts reported in the SBR and the actual amounts
reported in the Budget of the U.S. Government (the President's Budget).
The President's Budget for 2013, with the "Actual" column completed
for fiscal year 2011, has not yet been published as of the date of
these financial statements. The Budget is currently expected to be
published and delivered to Congress in early February 2012. The Budget
will be available from the Government Printing Office.
The 2012 Budget of the U. S. Government, with the "Actual" column
completed for the period ended September 30, 2010, was published in
February 2011, and reconciled to the SBR. The only differences between
the two documents were due to:
* Rounding;
* Expired funds that are not shown in the Actual column of the budget;
and;
* A $32.1 million downward modification transferred to the general
fund shown in the "Actual" column as an outlay at September 30, 2010,
that was not recorded in the SBR until 2011.
Note 12. Reconciliation Of Obligations Incurred To Net Cost Of (Income
From) Operations:
The OFS presents the SNC using the accrual basis of accounting. This
differs from the obligation-based measurement of total resources
supplied, both budgetary and from other sources, on the SBR. The
reconciliation of obligations incurred to net cost of operations shown
below categorizes the differences between the two, and illustrates
that the OFS maintains reconcilable consistency between the two types
of reporting.
The Reconciliation of Obligations Incurred to Net Cost of (Income
from) Operations for the fiscal years ended September 30, 2011 and
2010 is as follows:
Reconciliation Of Obligations Incurred To Net Cost Of (Income From)
Operations (Dollars in Millions):
Resources Used to Finance Activities:
Budgetary Resources Obligated:
Obligations Incurred;
2011: $67,646;
2010: $173,631.
Spending Authority from Offsetting Collections and Recoveries;
2011: ($91,708);
2010: ($191,538.
Offsetting Receipts;
2011: ($61,832);
2010: ($118,860).
Net Obligations;
2011: ($85,894);
2010: ($136,767).
Other Resources;
2011: $1;
2010: $1.
Total Resources Used to Finance Activities;
2011: ($85,893);
2010: ($136,766).
Resources Used to Finance Items Not Part of Net Cost of (Income from)
Operations:
Net Obligations in Direct Loan, Equity Investment and Asset Guarantee
Financing Funds;
2011: $23,249;
2010: $40,139.
Change in Resources Obligated for Goods, Services and Benefits Ordered
but not yet Provided;
2011: $25,330;
2010: ($12,639).
Resources that Fund the Acquisition of Assets;
2011: ($50);
2010: 0.
Resources that Fund Prior Period Expenses and Net Downward
Reestimates;
2011: $23,562;
2010: $109,747.
Total Resources Used to Finance Items Not Part of Net Cost of (Income
from) Operations;
2011: $72,091;
2010: $137,247.
Total Resources Used to Finance the Net Cost of (Income from)
Operations;
2011: ($13,802);
2010: $481.
Components of Net Cost of (Income from) Operations that Will Not
Require or Generate Resources in the Current Period:
Accrued Upward (Downward) Reestimates at Year-End;
2011: $23,293;
2010: ($23,563).
Other;
2011: $6;
2010: 0.
Total Components of Net Cost of (Income from) Operations that Will Not
Require or Generate Resources in the Current Period;
2011: $23,299;
2010: ($23,563).
Net Cost of (Income from) Operations;
2011: $9,497;
2010: ($23,082).
[End of table]
Office Of Financial Stability (Troubled Asset Relief Program):
Required Supplementary Information Combined Statement Of Budgetary
Resources For the Year Ended September 30, 2011 (Unaudited):
Dollars in Millions:
Budgetary Resources:
Unobligated Balances Brought Forward;
2011 Combined Budgetary Accounts: $11,075;
2011 Combined Nonbudgetary Financing Accounts: $10,548;
2011 TARP Programs Budgetary Accounts: $10,949;
2011 TARP Programs Nonbudgetary Financing Accounts: $10,548;
2011 TARP Administrative Budgetary Accounts: $126;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Recoveries of Prior Year Unpaid Obligations;
2011 Combined Budgetary Accounts: $3,057;
2011 Combined Nonbudgetary Financing Accounts: $4,664;
2011 TARP Programs Budgetary Accounts: $3,018;
2011 TARP Programs Nonbudgetary Financing Accounts: $4,664;
2011 TARP Administrative Budgetary Accounts: $39;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Budget Authority:
Appropriations;
2011 Combined Budgetary Accounts: $2,278;
2011 Combined Nonbudgetary Financing Accounts: 0;
2011 TARP Programs Budgetary Accounts: $1,886;
2011 TARP Programs Nonbudgetary Financing Accounts: 0;
2011 TARP Administrative Budgetary Accounts: $392;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Borrowing Authority;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: $77,914;
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: $77,914;
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Spending Authority from Offsetting Collections Earned: Collected;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: $107,307;
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: $107,307;
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Change in Unfilled Orders Without Advance;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: ($23,320);
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: ($23,320);
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Anticipated for Rest of Year w/o Advances;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: 0;
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: 0;
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Total Budget Authority;
2011 Combined Budgetary Accounts: $16,410;
2011 Combined Nonbudgetary Financing Accounts: $177,113;
2011 TARP Programs Budgetary Accounts: $15,853;
2011 TARP Programs Nonbudgetary Financing Accounts: $177,113;
2011 TARP Administrative Budgetary Accounts: $557;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Permanently Not Available;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: ($90,568);
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: ($90,568);
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Total Budgetary Resources (Note 10);
2011 Combined Budgetary Accounts: $16,410;
2011 Combined Nonbudgetary Financing Accounts: $86,545;
2011 TARP Programs Budgetary Accounts: $15,853;
2011 TARP Programs Nonbudgetary Financing Accounts: $86,545;
2011 TARP Administrative Budgetary Accounts: $557;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Status Of Budgetary Resources:
Obligations Incurred - Direct;
2011 Combined Budgetary Accounts: $2,244;
2011 Combined Nonbudgetary Financing Accounts: $65,402;
2011 TARP Programs Budgetary Accounts: $1,886;
2011 TARP Programs Nonbudgetary Financing Accounts: $65,402;
2011 TARP Administrative Budgetary Accounts: $358;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Unobligated Balance: Apportioned and Available;
2011 Combined Budgetary Accounts: $36;
2011 Combined Nonbudgetary Financing Accounts: $511;
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: $511;
2011 TARP Administrative Budgetary Accounts: $36;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Not Available;
2011 Combined Budgetary Accounts: $14,130;
2011 Combined Nonbudgetary Financing Accounts: $20,632;
2011 TARP Programs Budgetary Accounts: $13,967;
2011 TARP Programs Nonbudgetary Financing Accounts: $20,632;
2011 TARP Administrative Budgetary Accounts: $163;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Total Status Of Budgetary Resources;
2011 Combined Budgetary Accounts: $16,410;
2011 Combined Nonbudgetary Financing Accounts: $86,545;
2011 TARP Programs Budgetary Accounts: $15,853;
2011 TARP Programs Nonbudgetary Financing Accounts: $86,545;
2011 TARP Administrative Budgetary Accounts: $557;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Change In Obligated Balances:
Obligated Balance Brought Forward:
Unpaid Obligations;
2011 Combined Budgetary Accounts: $69,128;
2011 Combined Nonbudgetary Financing Accounts: $41,918;
2011 TARP Programs Budgetary Accounts: $68,898;
2011 TARP Programs Nonbudgetary Financing Accounts: $41,918;
2011 TARP Administrative Budgetary Accounts: $230;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Uncollected Customer Payments from Federal Sources;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: ($23,816);
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: ($23,816);
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligated Balance, Net, Brought Forward;
2011 Combined Budgetary Accounts: $69,128;
2011 Combined Nonbudgetary Financing Accounts: $18,102;
2011 TARP Programs Budgetary Accounts: $68,898;
2011 TARP Programs Nonbudgetary Financing Accounts: $18,102;
2011 TARP Administrative Budgetary Accounts: $230;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligations Incurred;
2011 Combined Budgetary Accounts: $2,244;
2011 Combined Nonbudgetary Financing Accounts: $65,402;
2011 TARP Programs Budgetary Accounts: $1,886;
2011 TARP Programs Nonbudgetary Financing Accounts: $65,402;
2011 TARP Administrative Budgetary Accounts: $358;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Gross Outlays;
2011 Combined Budgetary Accounts: ($24,501);
2011 Combined Nonbudgetary Financing Accounts: ($89,498);
2011 TARP Programs Budgetary Accounts: ($24,148);
2011 TARP Programs Nonbudgetary Financing Accounts: ($89,498);
2011 TARP Administrative Budgetary Accounts: ($353);
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Recoveries of Prior Year Unpaid Obligations;
2011 Combined Budgetary Accounts: ($3,057);
2011 Combined Nonbudgetary Financing Accounts: ($4,664);
2011 TARP Programs Budgetary Accounts: ($3,018);
2011 TARP Programs Nonbudgetary Financing Accounts: ($4,664);
2011 TARP Administrative Budgetary Accounts: ($39);
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Change in Uncollected Customer Payments from Federal Sources;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: $23,320
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: $23,320
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligated Balance, Net, End of Period:
Unpaid Obligations;
2011 Combined Budgetary Accounts: $43,814;
2011 Combined Nonbudgetary Financing Accounts: $13,158;
2011 TARP Programs Budgetary Accounts: $43,618;
2011 TARP Programs Nonbudgetary Financing Accounts: $13,158;
2011 TARP Administrative Budgetary Accounts: $196;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Uncollected Customer Payments from Federal Sources;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: ($496);
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: ($496);
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligated Balance, Net, End of Period;
2011 Combined Budgetary Accounts: $43,814;
2011 Combined Nonbudgetary Financing Accounts: $12,662;
2011 TARP Programs Budgetary Accounts: $43,618;
2011 TARP Programs Nonbudgetary Financing Accounts: $12,662;
2011 TARP Administrative Budgetary Accounts: $196;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Net Outlays:
Gross Outlays;
2011 Combined Budgetary Accounts: $24,501;
2011 Combined Nonbudgetary Financing Accounts: $89,498;
2011 TARP Programs Budgetary Accounts: $24,148;
2011 TARP Programs Nonbudgetary Financing Accounts: $89,498;
2011 TARP Administrative Budgetary Accounts: $353;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Offsetting Collections;
2011 Combined Budgetary Accounts: 0;
2011 Combined Nonbudgetary Financing Accounts: ($107,307);
2011 TARP Programs Budgetary Accounts: 0;
2011 TARP Programs Nonbudgetary Financing Accounts: ($107,307);
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Distributed Offsetting Receipts;
2011 Combined Budgetary Accounts: ($61,832);
2011 Combined Nonbudgetary Financing Accounts: 0;
2011 TARP Programs Budgetary Accounts: ($61,832);
2011 TARP Programs Nonbudgetary Financing Accounts: 0;
2011 TARP Administrative Budgetary Accounts: 0;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
Net Outlays:
2011 Combined Budgetary Accounts: ($37,331);
2011 Combined Nonbudgetary Financing Accounts: ($17,809);
2011 TARP Programs Budgetary Accounts: ($37,684);
2011 TARP Programs Nonbudgetary Financing Accounts: ($17,809);
2011 TARP Administrative Budgetary Accounts: $353;
2011 TARP Administrative Nonbudgetary Financing Accounts: 0.
[End of table]
Office Of Financial Stability (Troubled Asset Relief Program):
Required Supplementary Information:
Combined Statement Of Budgetary Resources For the Year Ended September
30, 2010 (Unaudited) Dollars in Millions:
Budgetary Resources:
Unobligated Balances Brought Forward;
2010 Combined Budgetary Accounts: $28,156;
2010 Combined Nonbudgetary Financing Accounts: $8,945;
2010 TARP Programs Budgetary Accounts: $28,126;
2010 TARP Programs Nonbudgetary Financing Accounts: $8,945;
2010 TARP Administrative Budgetary Accounts: $30;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Recoveries of Prior Year Unpaid Obligations;
2010 Combined Budgetary Accounts: $1,173;
2010 Combined Nonbudgetary Financing Accounts: $39,364;
2010 TARP Programs Budgetary Accounts: $1,118;
2010 TARP Programs Nonbudgetary Financing Accounts: $39,364;
2010 TARP Administrative Budgetary Accounts: $55;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Budget Authority:
Appropriations;
2010 Combined Budgetary Accounts: $5,151;
2010 Combined Nonbudgetary Financing Accounts: 0;
2010 TARP Programs Budgetary Accounts: $4,745;
2010 TARP Programs Nonbudgetary Financing Accounts: 0;
2010 TARP Administrative Budgetary Accounts: $406;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Borrowing Authority;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: $69,440;
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: $69,440;
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Spending Authority from Offsetting Collections Earned: Collected;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: $156,112;
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: $156,112;
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Change in Unfilled Orders Without Advance;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: ($5,111);
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: ($5,111);
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Total Budget Authority;
2010 Combined Budgetary Accounts: $34,480;
2010 Combined Nonbudgetary Financing Accounts: $268,750;
2010 TARP Programs Budgetary Accounts: $33,989;
2010 TARP Programs Nonbudgetary Financing Accounts: $268,750;
2010 TARP Administrative Budgetary Accounts: $491;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Permanently Not Available;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: ($107,976);
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: ($107,976);
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Total Budgetary Resources (Note 10);
2010 Combined Budgetary Accounts: $34,480;
2010 Combined Nonbudgetary Financing Accounts: $160,774;
2010 TARP Programs Budgetary Accounts: $33,989;
2010 TARP Programs Nonbudgetary Financing Accounts: $160,774;
2010 TARP Administrative Budgetary Accounts: $491;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Status Of Budgetary Resources:
Obligations Incurred - Direct;
2010 Combined Budgetary Accounts: $23,405;
2010 Combined Nonbudgetary Financing Accounts: $150,226;
2010 TARP Programs Budgetary Accounts: $23,040;
2010 TARP Programs Nonbudgetary Financing Accounts: $150,226;
2010 TARP Administrative Budgetary Accounts: $365;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Unobligated Balance: Apportioned and Available;
2010 Combined Budgetary Accounts: $142;
2010 Combined Nonbudgetary Financing Accounts: $7,692;
2010 TARP Programs Budgetary Accounts: $101;
2010 TARP Programs Nonbudgetary Financing Accounts: $7,692;
2010 TARP Administrative Budgetary Accounts: $41;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Unobligated Balance: Not Available;
2010 Combined Budgetary Accounts: $10,933;
2010 Combined Nonbudgetary Financing Accounts: $2,856;
2010 TARP Programs Budgetary Accounts: $10,848;
2010 TARP Programs Nonbudgetary Financing Accounts: $2,856;
2010 TARP Administrative Budgetary Accounts: $85;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Total Status Of Budgetary Resources;
2010 Combined Budgetary Accounts: $34,480;
2010 Combined Nonbudgetary Financing Accounts: $160,774;
2010 TARP Programs Budgetary Accounts: $33,989;
2010 TARP Programs Nonbudgetary Financing Accounts: $160,774;
2010 TARP Administrative Budgetary Accounts: $491;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Change In Obligated Balances:
Obligated Balance Brought Forward:
Unpaid Obligations;
2010 Combined Budgetary Accounts: $56,151;
2010 Combined Nonbudgetary Financing Accounts: $79,202;
2010 TARP Programs Budgetary Accounts: $55,992;
2010 TARP Programs Nonbudgetary Financing Accounts: $79,202;
2010 TARP Administrative Budgetary Accounts: $159;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Uncollected Customer Payments from Federal Sources;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: ($28,927);
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: (28,927);
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligated Balance, Net, Brought Forward;
2010 Combined Budgetary Accounts: $56,151;
2010 Combined Nonbudgetary Financing Accounts: $50,275;
2010 TARP Programs Budgetary Accounts: $55,992;
2010 TARP Programs Nonbudgetary Financing Accounts: $50,275;
2010 TARP Administrative Budgetary Accounts: $159;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligations Incurred;
2010 Combined Budgetary Accounts: $23,405;
2010 Combined Nonbudgetary Financing Accounts: $150,226;
2010 TARP Programs Budgetary Accounts: $23,040;
2010 TARP Programs Nonbudgetary Financing Accounts: $150,226;
2010 TARP Administrative Budgetary Accounts: $365;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Gross Outlays;
2010 Combined Budgetary Accounts: ($9,255);
2010 Combined Nonbudgetary Financing Accounts: ($148,146);
2010 TARP Programs Budgetary Accounts: ($9,016);
2010 TARP Programs Nonbudgetary Financing Accounts: ($148,146);
2010 TARP Administrative Budgetary Accounts: ($239);
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Recoveries of Prior Year Unpaid Obligations;
2010 Combined Budgetary Accounts: ($1,173);
2010 Combined Nonbudgetary Financing Accounts: ($39,364);
2010 TARP Programs Budgetary Accounts: ($1,118);
2010 TARP Programs Nonbudgetary Financing Accounts: ($39,364);
2010 TARP Administrative Budgetary Accounts: ($55);
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Change in Uncollected Customer Payments from Federal Sources;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: $5,111;
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: $5,111;
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligated Balance, Net, End of Period:
Unpaid Obligations;
2010 Combined Budgetary Accounts: $69,128;
2010 Combined Nonbudgetary Financing Accounts: $41,918;
2010 TARP Programs Budgetary Accounts: $68,898;
2010 TARP Programs Nonbudgetary Financing Accounts: $41,918;
2010 TARP Administrative Budgetary Accounts: $230;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Uncollected Customer Payments from Federal Sources;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: ($23,816);
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: ($23,816);
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Obligated Balance, Net, End of Period;
2010 Combined Budgetary Accounts: $69,128;
2010 Combined Nonbudgetary Financing Accounts: $18,102;
2010 TARP Programs Budgetary Accounts: $68,898;
2010 TARP Programs Nonbudgetary Financing Accounts: $18,102;
2010 TARP Administrative Budgetary Accounts: $230
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Net Outlays:
Gross Outlays;
2010 Combined Budgetary Accounts: $9,255;
2010 Combined Nonbudgetary Financing Accounts: $148,146;
2010 TARP Programs Budgetary Accounts: $9,016;
2010 TARP Programs Nonbudgetary Financing Accounts: $148,146;
2010 TARP Administrative Budgetary Accounts: $239;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Offsetting Collections;
2010 Combined Budgetary Accounts: 0;
2010 Combined Nonbudgetary Financing Accounts: ($156,112);
2010 TARP Programs Budgetary Accounts: 0;
2010 TARP Programs Nonbudgetary Financing Accounts: ($156,112);
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Distributed Offsetting Receipts;
2010 Combined Budgetary Accounts: ($118,860);
2010 Combined Nonbudgetary Financing Accounts: 0;
2010 TARP Programs Budgetary Accounts: ($118,860)
2010 TARP Programs Nonbudgetary Financing Accounts: 0;
2010 TARP Administrative Budgetary Accounts: 0;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
Net Outlays:
2010 Combined Budgetary Accounts: ($109,605);
2010 Combined Nonbudgetary Financing Accounts: ($7,966);
2010 TARP Programs Budgetary Accounts: ($109,844);
2010 TARP Programs Nonbudgetary Financing Accounts: ($7,966);
2010 TARP Administrative Budgetary Accounts: $239;
2010 TARP Administrative Nonbudgetary Financing Accounts: 0.
[End of table]
[End of section]
Appendix I: Management's Report on Internal Control over Financial
Reporting:
Department Of The Treasury:
Washington, D.C. 20220:
Management's Report on Internal Control over Financial Reporting:
The Office of Financial Stability's (OFS) internal control over
financial reporting is a process affected by those charged with
governance, management, and other personnel, the objectives of which
are to provide reasonable assurance that (1) transactions are properly
recorded, processed, and summarized to permit the preparation of
financial statements in accordance with U.S. generally accepted
accounting principles, and assets are safeguarded against loss
from unauthorized acquisition, use, or disposition; and (2)
transactions are executed in accordance with the laws governing the
use of budget authority and other laws and regulations that could have
a direct and material effect on the financial statements.
OFS management is responsible for establishing and maintaining
effective internal control over financial reporting. OFS management
evaluated the effectiveness of OFS' internal control over financial
reporting as of September 30, 2011, based on the criteria established
under 31 U.S.C. 3512(c), (d) (commonly known as the Federal Managers'
Financial Integrity Act).
Based on that evaluation, we conclude that, as of September 30, 2011,
OFS' internal control over financial reporting was effective.
Office of Financial Stability:
Signed by:
Timothy G. Massad:
Assistant Secretary for Financial Stability:
Signed by:
Lorenzo Rasetti:
Chief Financial Officer:
November 4, 2011:
[End of section]
Appendix II: Comments from the Office of Financial Stability:
Department Of The Treasury:
Assistant Secretary:
Washington, D.C. 20220:
November 8, 2011:
Mr. Gary T. Engel:
Director, Financial Management and Assurance:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Engel:
We have reviewed the Independent Auditor's Report concerning your
audit of the Office of Financial Stability's (OFS) fiscal year 2011
financial statements. OFS is proud to receive an unqualified opinion
on its financial statements and an unqualified opinion that our
internal controls were operating effectively.
Your audit report did identify one significant deficiency in internal
controls surrounding accounting and financial reporting processes
although the report notes improvements in this area relative to fiscal
year 2010. We concur with this finding and are committed to pursuing
remediation until the deficiency is corrected.
We appreciate the professionalism and commitment demonstrated by your
staff throughout the audit process. The process was valuable for us
and resulted in concrete improvements in our operations and financial
management efforts.
OFS is committed to maintaining the high standards and transparency
reflected in these audit results as we carry out our responsibilities
for managing the Troubled Asset Relief Program.
Sincerely,
Signed by:
Timothy G. Massad:
Assistant Secretary for Financial Stability:
[End of section]
Footnotes:
[1] Pub. L. No. 110-343, Div. A, 122 Stat 3765 (Oct. 3, 2008),
codified in part, as amended, at 12 U.S.C. §§ 5201-5261.
[2] Section 101 of EESA, 12 U.S.C. § 5211, established OFS within the
Department of the Treasury (Treasury) to implement TARP.
[3] Section 116(b) of EESA, 12 U.S.C. § 5226(b).
[4] Section 116(b) of EESA, 12 U.S.C. § 5226(b).
[5] Section 116 of EESA, 12 U.S.C. § 5226, requires the Comptroller
General to report at least every 60 days, as appropriate, on findings
resulting from oversight of TARP, including its performance in meeting
the act's purposes; the financial condition and internal controls of
TARP, its representatives, and agents; the characteristics of asset
purchases and the disposition of acquired assets, including any
related commitments entered into; TARP's efficiency in using the funds
appropriated for its operations; its compliance with applicable laws
and regulations; its efforts to prevent, identify, and minimize
conflicts of interest among those involved in its operations; and the
efficacy of its contracting procedures.
[6] A significant deficiency is a deficiency, or combination of
deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged
with governance. A material weakness is a deficiency, or combination
of deficiencies, in internal control such that there is a reasonable
possibility that a material misstatement of the entity's financial
statements will not be prevented, or detected and corrected, on a
timely basis. A deficiency in internal control exists when the design
or operation of a control does not allow management or employees, in
the normal course of performing their assigned functions, to prevent,
or detect and correct, misstatements on a timely basis.
[7] Section 120 of EESA, 12 U.S.C. § 5230, established that the
authorities to purchase troubled assets under Section 101(a)(1)-(2)
and to guarantee troubled assets under Section 102 shall terminate on
December 31, 2009. Section 120 of EESA further established that the
Secretary of the Treasury, upon submission of a written certification
to Congress, may extend the authority provided under these sections of
EESA to expire no later than 2 years from the date of the enactment of
EESA (October 3, 2008). On December, 9, 2009, the Secretary provided
written certification to extend these EESA authorities to October 3,
2010.
[8] Under EESA, OFS was authorized to purchase troubled assets with an
aggregate purchase price of up to $700 billion outstanding at any one
time, less offsets for outstanding asset guarantees. The Dodd-Frank
Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203,
title XIII, § 1302, 124 Stat. 1376, 2133 (July 21, 2010), (1) limited
Treasury's authority to purchase or guarantee troubled assets to a
maximum of $475 billion; (2) changed this limit to a cap on all
purchases and guarantees made without regard to subsequent sale,
repayment, or cancellation of assets or guarantees; and (3) prohibited
Treasury, under EESA, from incurring any obligations for a program or
initiative unless the program or initiative had already been initiated
prior to June 25, 2010.
[9] The subsidy cost/income is composed of (1) the change in the
subsidy cost allowance, net of write-offs; (2) net intragovernmental
interest cost; (3) certain inflows from the direct loans and equity
investments (e.g., dividends, interest, net proceeds from sales and
repurchases of assets in excess of cost, and other realized fees); and
(4) the change in the estimated discounted net cash flows related to
other credit programs (asset guarantee program and Federal Housing
Administration refinance program).
[10] Section 116(b) of EESA, 12 U.S.C. § 5226(b), requires that the
Department of the Treasury (Treasury) annually prepare and submit to
Congress and the public audited fiscal year financial statements for
TARP that are prepared in accordance with generally accepted
accounting principles. Section 116(b) further requires that GAO audit
TARP's financial statements annually in accordance with generally
accepted auditing standards.
[11] Section 101 of EESA, 12 U.S.C. § 5211, established OFS within
Treasury to implement TARP.
[12] Section 116 of EESA, 12 U.S.C. § 5226, requires the Comptroller
General to report at least every 60 days, as appropriate, on findings
resulting from oversight of TARP, including its performance in meeting
the act's purposes; the financial condition and internal controls of
TARP, its representatives, and agents; the characteristics of asset
purchases and the disposition of acquired assets, including any
related commitments entered into; TARP's efficiency in using the funds
appropriated for its operations; its compliance with applicable laws
and regulations; its efforts to prevent, identify, and minimize
conflicts of interest among those involved in its operations; and the
efficacy of its contracting procedures.
[13] The subsidy cost or income is composed of (1) the change in the
subsidy cost allowance, net of write-offs; (2) net intragovernmental
interest cost; (3) certain inflows from the direct loans and equity
investments (e.g., dividends, interest, net proceeds from sales and
repurchases of assets in excess of cost, and other realized fees); and
(4) the change in the estimated discounted net cash flows related to
other credit programs (asset guarantee program and Federal Housing
Administration refinance program).
[14] The Dodd-Frank Wall Street Reform and Consumer Protection Act,
Pub. L. No. 111-203, title XIII, § 1302, 124 Stat. 1376, 2133 (July
21,2010), (1) limited Treasury's authority to purchase or guarantee
troubled assets to a maximum of $475 billion; (2) changed this limit
to a cap on all purchases and guarantees made without regard to
subsequent sale, repayment, or cancellation of assets or guarantees;
and (3) prohibited Treasury, under EESA, from incurring any
obligations for a program or initiative unless the program or
initiative had already been initiated prior to June 25, 2010.
[15] A significant deficiency is a deficiency, or a combination of
deficiencies, in internal control that is less severe than a material
weakness, yet important enough to merit attention by those charged
with governance. A material weakness is a deficiency, or a combination
of deficiencies, in internal controls such that there is a reasonable
possibility that a material misstatement of the entity's financial
statements will not be prevented, or detected and corrected, on a
timely basis. A deficiency in internal control exists when the design
or operation of a control does not allow management or employees, in
the normal course of performing their assigned functions, to prevent
or detect and correct, misstatements on a timely basis.
[16] GAO, Management Report: Improvements Are Needed in Internal
Control Over Financial Reporting for the Troubled Asset Relief
Program, [hyperlink, http://www.gao.gov/products/GAO-11-434R]
(Washington, D.C.: Apr. 18, 2011).
[End of section]
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