Treasury Cuts TARP Cost Estimate After GM, AIG Shares Rise

04/10/2012| 05:49pm US/Eastern

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   By Jeffrey Sparshott 
   Of  
 

The Treasury Department Tuesday trimmed its cost estimate for the financial bailout, reflecting rising share prices for two of the companies it rescued at the height of the crisis.

The Troubled Asset Relief Program, or TARP, will ultimately cost taxpayers $59.75 billion, Treasury said in a monthly report to Congress. That is down from the previous estimate of $67.82 billion.

The latest figures are based on General Motors Co. (>> General Motors Company) and American International Group Inc.'s (AIG) share prices from Feb. 29, while the earlier estimate reflected market values on Nov. 30. GM stock climbed by about 22% and AIG by almost 32% in the interim. That adds up to roughly $8 billion in market value that Treasury can count against TARP's long-term cost.

Of course, what goes up can just as easily come down. Share prices for AIG and GM have moved in opposite directions since Treasury made its latest calculation. AIG's shares are up about 9%, while GM is down nearly 7% as of Monday's close.

More than three year's after TARP's launch, the U.S. still has substantial investments in AIG, GM, Ally Financial Inc. and hundreds of smaller banks. The U.S. currently holds a 70% stake in AIG and a 26.5% stake in GM--the largest of the publicly traded companies.

Still, the program hasn't been as costly to taxpayers as originally feared. At one point, the plan's price tag was set at $700 billion. Ultimately, $431 billion was disbursed through a handful of programs and much of that has been recovered as companies paid back funds or the government sold off investments.

Indeed, some of TARP's components are expected to turn a profit.

In Treasury's latest estimate, the biggest chunk of costs are expected to arise from $46 billion set aside for housing--funds that some think will never be used.

The Congressional Budget Office, for example, expects only $13 billion will eventually be disbursed for mortgage programs. Because of the big difference, CBO last month forecast that TARP will end up costing taxpayers $32 billion.

The remaining costs stem largely from assistance to AIG and aid to the automotive industry.

 
   -By Jeffrey Sparshott; Dow Jones Newswires; 202-862-9291; jeffrey.sparshott@dowjones.com 
 

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