Troubled Asset Relief Program:

Winding Down the Capital Purchase Program

GAO-15-367R: Published: Mar 6, 2015. Publicly Released: Mar 6, 2015.

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What GAO Found

The Department of the Treasury (Treasury) continues to make progress in winding down the Capital Purchase Program (CPP), and returns have surpassed original CPP investments. As of December 31, 2014, Treasury had received $226.4 billion in repayments, sales, dividends, and interest from its CPP investments, exceeding the amount originally disbursed by $21.5 billion. After accounting for write-offs and realized losses from sales totaling $5.0 billion, CPP had outstanding investments of $470.3 million (0.23 percent of original disbursements) as of December 31, 2014. As of the same date, 34 of the 707 institutions that originally participated in CPP remained in the program.

Treasury does not know when it will completely exit the CPP program and continues to utilize the three-pronged exit strategy it first announced in 2012. The strategy includes repayments, which allow firms to redeem their shares in full; restructuring, which involves exchanging cash or other securities--often at a discount--for preferred stock; and auctions. Over the past 5 years, repayments and auctions were the primary means by which institutions exited CPP. However, Treasury officials indicated that more remaining institutions may use restructurings as an exit strategy, since few remaining CPP participants may be able to make full repayments, and the use of auctions as an exit option depends largely on investor demand for the CPP securities and the quality of the underlying financial institutions.

As of December 31, 2014, the 34 remaining CPP institutions have shown some improvements in their financial condition, as measured by various key financial condition metrics. However, many firms continued to miss dividend and interest payments and maintained low capital levels.

Why GAO Did This Study

CPP was established as the primary means of restoring stability to the financial system under the Troubled Asset Relief Program (TARP). Under CPP, Treasury invested almost $205 billion CPP was established as the primary means of restoring stability to the financial system under the Troubled Asset Relief Program (TARP). Under CPP, Treasury invested almost $205 billion in 707 eligible financial institutions between October 2008 and December 2009. CPP recipients have made dividend and interest payments to Treasury on the investments. TARP's authorizing legislation requires GAO to report every 60 days on TARP activities. This report examines (1) the status of CPP, including repayments and other proceeds, as well as investments outstanding; (2) Treasury's strategy for winding down the program; and (3) the financial condition of institutions remaining in CPP.

To assess the status of CPP, GAO analyzed Treasury reports on outstanding CPP investments, dividends paid, and the number of institutions that had made full repayments and leveraged GAO's past reports on CPP. GAO also interviewed Treasury officials about their strategy to exit CPP. To assess the financial condition of the 34 institutions that remained in CPP as of December 31, 2014, GAO analyzed financial and regulatory data from SNL Financial, which provides comprehensive regulatory financial data on financial institutions. GAO had assessed the reliability of SNL Financial data as part of previous studies by performing manual testing of required data elements, reviewing existing information about the data and the system that produced them, and interviewing SNL officials. GAO determined that the financial information used remains sufficiently reliable for the purposes of this report. GAO also leveraged its past reporting on TARP to construct and inform its assessments of the financial institutions. GAO provided a draft of this report to Treasury for its review and comment. In comments, Treasury generally concurred with our findings.

For more information, contact A. Nicole Clowers at (202) 512-8678 or clowersa@gao.gov .

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