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Massive TARP Repayments Defy Critics

Monday, 14 Jun 2010 | 3:55 PM ET
US Capitol Building with cash
US Capitol Building with cash

With another recipient of TARP funds raising money in the public markets in order to pay the Treasury back, the program continues to defy the critics who scoffed at the notion that the U.S. taxpayer would ever see their money again.

Today, it’s the insurer Lincoln National, which is selling $335 million worth of stock (I’m hearing the deal is in “good shape”) and $750 million in notes to pay back the $950 million it received from TARP.

The Treasury has made a nice paper profit on its investment in Lincoln. The 13 million warrants it received as part of the deal give it the right to purchase shares at $10.92 a piece.

Based on the models that value such things (and with LNC trading at $27.58), the Treasury looks like it’s in the money to the tune of close to $300 million on the warrants alone.

Soon to follow will be yet another update from Treasury reiterating just how well it has gone and how the cost to the taxpayer has been minimized. It’s true. Through the end of the May, TARP repayments had reached a total of $194 billion, which exceeded the total amount of TARP funds outstanding ($190 billion) by $4 billion.

But when it comes to the true cost of saving the financial system, while I’m happy with the performance of TARP, the true cost to the taxpayer, in the form of zero percent interest rates, can never be quantified. Those rates, are the lack of them, have resuscitated the balance sheets of banks, but crushed the savings of the average American.

How many retirements have been put off or delayed because returns on fixed income assets are so low? How many Americans have found themselves looking at after tax returns on low risk assets that bring them little more than their principal?

Now that’s a cost I would like to know.

Related Links:

"The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

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