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The Treasury Department is neglecting its Troubled Asset Relief Program initiatives to boost small business lending and provide viable loan modifications, the program's special inspector general says.
April 24 -
The U.S. Treasury was unprepared and disengaged in two rushed Troubled Asset Relief Program bankruptcy sales. It's a foreboding sign for the remaining $6.6 billion the government has tied up in Tarp.
March 26
More than 60% of the banks still remaining in the Troubled Asset Relief Program have been labeled "problem" institutions by the Federal Deposit Insurance Corp., casting doubt on their ability to repay the Treasury Department before the program is wound down.
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The FDIC's list, which is not made public, denotes banks that demonstrate weaknesses that threaten their financial viability.
Further illustrating the weakness of the remaining banks, 52% had missed their most recent scheduled dividend or interest payment as of Feb. 28.
"Institutions that remain in the CPP tend to be financially weaker than institutions that have exited the program and institutions that did not receive CPP capital," the GAO wrote. "Moreover, in the aggregate, the remaining institutions were noticeably less healthy than each of the groups of former CPP participants."
The Treasury established Tarp and the CPP in October 2008 to direct capital to banks during the financial crisis. Treasury disbursed a total of $205 billion to 707 institutions in the program, which closed in December 2009 to new investments.
Of the 534 banks that have left Tarp since then, 203 institutions bought back preferred shares or debt they issued to the government in return for funds, while 165 banks refinanced their investments through other federal programs, such as the Small Business Lending Fund.
The government has sold its stakes in 120 banks via auction, while another 46 institutions either declared bankruptcy, had their investments sold by Treasury or merged with another bank.
Banks that remained in Tarp as of March 31 accounted for $6.1 billion in outstanding investment, which was concentrated in a relatively small number of banks: 25 institutions accounted for 68% of funds, while the other $2 billion was spread among the remaining 148 institutions.
Among Tarp recipients that remained in the program as of March 31, Synovus Financial (SNV) in Columbus, Ga., owed roughly $968 million, or 15.8% of the government's outstanding investment, while Popular (BPOP) in San Juan, P.R., owed $935 million, or 15.2% of the total.
According to the GAO, banks that remain in Tarp had a median so-called Texas Ratio of 49.72, compared with 23.05 for institutions that left Tarp and 15.22 for those that never participated, as of Dec. 31. The ratio is defined as nonperforming assets plus loans 90 or more days past due, divided by tangible equity and reserves. The higher the ratio, the more troubled the institution.
Institutions that remained in Tarp at the end of last year had a median 3.21% of loans that were not current, compared with 1.76% for banks that left Tarp and 1.43% for the group that avoided Tarp entirely.
According to the GAO, the Treasury has recovered about $222 billion from its Tarp program for banks, or about $17 billion more than the public's investment in the CPP, as of March 31.
For its part, Treasury said it appreciated GAO report and reiterated plans to unwind its investment in banks that remain in Tarp. As for its remaining stakes, Treasury will wait for repayment from banks "who can repay in the near future," continue to auction stakes in banks that cannot repay and restructure some investments, Assistant Secretary Tim Massad wrote to the GAO, which had asked Treasury to review and comment on the GAO's findings.
Treasury also told GAO that nine more banks had exited Tarp since the GAO report was completed.
