Tarp Presentation

7/31/2019 Tarp Presentation

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WHAT IS TARP?

Emergency stabilization act , 3rd Oct 2008To bail out the economy from the financial crisis

Gave the US treasury USD 700 Billion purchasing power

USD 250+USD100 Bn immediately released totreasury

Next USD 350 Bn - Congress approval neededTo buy Mortgage Backed SecuritiesTo un seize the money marketTo create liquidity


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SUBPRIME CRISIS


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OBJECTIVE & OUTCOME

Purchase assets and equity from financialinstitutions to strengthen its financial sector

To address the instability caused by subprimemortgage crisis.

Allows the Treasury to purchase illiquid assetsfrom banks and other financial institutions

To purchase CDS, which were sold in a boomingmarket until 2007

Finance main street- Making Home affordableProgram- Help families stay in their homes

=TARP was eventually getting Wall Street back on itsfeet; it is not meeting its goal of getting Main Street

back on its feet

Result: 'Too-big-to-fail' banks grow even bigger


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TARP RECIPIENTS


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TARP FUNDS

TARP funds were issued through:

Purchase of preferred stock in banks which is redeemablePurchase of Warrants

Issue of guarantees


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TARP AND GOVERNMENT

TARP became an act under president G.W. BushPresident Barack Obama (Jan 09) said that heintended to "fundamentally change some of the

practices" in the bailout programHe said, "Many of us have been disappointed with

the absence of clarity, the failure to track how themoney's been spent.

In Feb 2010 he planned Congress to transfer TARPfunds that have been paid back from the Wall Street

banks to a new program "to provide capital for community banks on Main Street which deal moreclosely with the small businesses


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HENRY HANK PAULSON Served as the74th United States Treasury Secretary,

previously the Chairman and Chief ExecutiveOfficer of Goldman SachsInfluenced the decision to create a credit facility

of US$85 billion to AIG to avoid filing bankruptcy

Paulson's plan potentially had conflicts of interest

The Goldman Sachs benefit from AIG bailoutwas recently estimated as USD 12.9 billion andGoldman Sachs was the largest recipient of the

public funds from AIG

TARP- US TREASURY SECTRTARIES - GOLDMANSACHS


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TARP- US TREASURY SECTRTARIES -GOLDMAN SACHS

TIMOTHY GEITHNER

75th and current US TreasurySecretary

Directed the FederalGovernment's spending on

the financial crisis of 07 10,allocation of $350 billion TARPfunds

In Mar08,supporting roleto Henry Paulson, in decision to

bail out AIG2 days after deciding not to

rescue LehmanBrothers from bankruptcy.

contributed to worsening theglobal financial crisis

TARP- US TREASURY SECTRTARIES - GOLDMAN SACHSTARP- US TREASURY SECTRTARIES -GOLDMAN SACHS


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TROUBLED ASSETS RELIEF

PROGRAM


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TARP & AIG & GOLDMAN SACHS

AIG : USs largest insurance company and theworlds leading issuer of credit default swaps

Collapsed in September 2008-high leverage,high exposure to CDS

Received-USD 180 bn under TARP ininstallmentsGoldman got $4.8 billion from AIG's securities

lending unitAnd AIG posted $2.5 billion in collateral to

Goldman , which came directly from TARPaccording to AIG's own list of what it did with its bailout money


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TARP & AIG & GOLDMAN SACHS

It got twice as much as any other American bank, the Fed's "special purposevehicle" that it created to unwind AIG'scredit default swaps

AIG bailout turned out to be a scam.AIG executives - ($165 million) in

bonusesBillions of taxpayer dollars paid to the

counter- parties of AIGs financial deals It still owes a combined total of $62 billion to the Fed and the Treasury


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WHAT REALLY HAPPENED


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IS TARP ONLY A FAILURE? MAY BE NOT!

Failure to the purpose it was set for

Success: managed to lift the face of the economyTARP repayments had reached a total of $240 billion,

Net outstanding $110 billionTaxpayers have also received a further return on TARPinvestments of $23 billion through dividends, interest, andother incomeOverall combined TARP revenues totaled $217 billion

through the end of May 2010The US Fed has made huge profits through purchase of equity capital

80% of AIG is owned by the US Fed.


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BANKS PAYING UP

Tarp was suppose tostrengthen the balance sheet of the banks for long run stability

Banks paid up to get free fromrestrictions by fed govt on tarprecipientsTo free themselves of salarycaps

Paid by offering loans which beats the objective


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TARP PAYMENTS


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PROS CONSSignals strength andavoids competitivedisadvantages

Its relatively cheap capital

Reduces governmentinfluence on governance

and management

Replacement capital maybe more expensive and

dilutiveEliminates TARP-relatedcompensation restrictions

Continued economicweakness could result inunanticipated need toraise capital after TARPrepayment

It might be advisable to doit now before conditions torepayment are changed

Compensation practiceswill continue to bescrutinized and perhapsregulated even after TARPrepayment

TARP REPAYMENT SELECTED PROSAND CONSTARP REPAYMENS BY BANKS

PROS CONS

Signals strength and avoidscompetitive disadvantages

Its relatively cheap capital

Reduces government influenceon governance and management Replacement capital may bemore expensive and dilutive

Eliminates TARP-relatedcompensation restrictions

Continued economic weaknesscould result in unanticipatedneed to raise capital after TARPrepayment

It might be advisable to do itnow before conditions torepayment are changed

Compensation practices willcontinue to be scrutinized and

perhaps regulated even after TARP repayment


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PRESENTED BY:

Amol KulkarniAnupam ChauhanAmit AnandNikhil KhedkarSubodh DangeVivek Raju

Tarp Presentation

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