By Ryan Tracy, Julie Steinberg and Telis Demos
WASHINGTON--The U.S. government closed a chapter in
financial-crisis history Friday when it sold its remaining shares
of Ally Financial Inc. and shuttered its auto-bailout program,
ending the last major pieces of a $426 billion rescue package that
saved a swath of U.S. companies but never won public support.
The Treasury Department said the 2008 Troubled Asset Relief
Program has netted a small profit, returning $441.7 billion on the
$426.4 billion invested in firms including Citigroup Inc., Bank of
America Corp., General Motors Co., Chrysler and American
International Group, Inc.
That profit, unexpected at the time of the bailout's inception,
has been nonetheless overshadowed by criticism that the rescue
program put Wall Street's interests ahead of Main Street's, a view
that prompted Congress to outlaw future taxpayer bailouts as part
of the 2010 Dodd-Frank law. About 35 smaller banks remain in the
program, down from about 700 financial firms at the height of the
program. Critics have also pointed to the possible costs of having
such a large amount of government funds tied up for so long and to
the risks assumed by the government with its bailouts.
While the U.S. is largely exiting from its ownership of TARP
companies, it still controls mortgage giants Fannie Mae and Freddie
Mac. Those firms, which were rescued by the Treasury Department
before Congress created TARP, have returned to profitability, but
lawmakers and the White House have yet to agree on what role the
companies should continue to play and how to unwind the
government's control.
For Corporate America, the program has been seen as a success.
The biggest companies rescued by TARP have emerged from the program
stronger and more nimble, with some receiving multiple infusions to
overcome crippling losses, then later taking themselves public.
In 2010, GM's $18 billion initial public offering was the
largest U.S. IPO that year, and Citigroup's $10.5 billion stock
sale was the largest non-IPO stock offering by a U.S. company,
according to Dealogic. In 2012, AIG made the biggest stock sale in
the U.S. that year, at $20.7 billion, topping Facebook's $16
billion IPO. Overall, the Treasury sold more than $80 billion worth
of stock and convertible warrants from 2010 to 2012, or more than
10% of total U.S. equity offerings over that period, according to
Dealogic.
Since its third bailout in late 2009, Ally--the former financing
arm of GM--has had just three losing quarters, has shed the
troubled subprime-mortgage business that was the main source of its
financial problems and has reported earnings totaling more than
$3.6 billion.
The Treasury said Friday it sold taxpayers' remaining shares as
the broader stock market rose during the past few days, bringing
its total income on the investment to $19.6 billion--a $2.4 billion
profit. Ally stock rose 51 cents, or 2.2%, to $23.26 during the
day's session.
On Friday, President Barack Obama declared the U.S. rescue of
the auto industry "officially over," adding, "we've now repaid
taxpayers every dime and more of what my administration committed,
and the American auto industry is on track for its strongest year
since 2005."
Mr. Obama and his predecessor, President George W. Bush, have
credited TARP with helping avert an even-more-severe recession
following the financial crisis. When it was proposed in 2008, the
government was desperate to stem an economic panic that was cutting
off credit for businesses across the country.
Six years later, the banking industry is "healthier than it was
precrisis," said Barclays PLC analyst Jason Goldberg. "We're beyond
where we were. You have more capital, more liquidity, more scrutiny
and more 'stress-testing.' " Mr. Goldberg said profitability
measures, such as return on equity and return on assets, are
approaching precrisis levels.
Banks across the country in the third quarter notched their
largest quarterly revenue increase since 2009, according to data
from the Federal Deposit Insurance Corp. Revenue at the 6,589 banks
the regulator insures rose 4.8% in the third quarter from a year
earlier, to $171.3 billion. Net income increased 7.3% from a year
ago to $38.7 billion, the fourth-highest figure on record.
"For other governments who are contemplating how to dispose of
the stakes they acquired during the financial crisis, it's a model
case of how to do it. They've done an exceptional job," said Mark
Hantho, global head of equity capital markets for Deutsche Bank AG.
"The key move by the government was to let the private sector and
people close to the companies run the process, as opposed to
assigning the work politically."
But criticism has persisted that TARP put Wall Street ahead of
troubled borrowers whose housing woes were at the root of the
crisis. Less than $15 billion of $75 billion promised for homeowner
assistance has been spent. Earlier this month, the Treasury
announced a plan to double payments to some borrowers in an effort
to keep homeowners enrolled in the program and spend some of the
unused money.
The Treasury's financial prowess has also been questioned, along
with whether it demanded enough from the companies taking billions
of taxpayer dollars. In February 2009, a congressional oversight
panel reviewed the top 10 TARP transactions by value, not including
the Ally bailout, and found, "every time Treasury spent $100, it
took back assets that were worth, on average, $66," meaning
taxpayers weren't adequately compensated for the risk they were
taking.
"As a way to stop a panic, [TARP] was absolutely needed and
basically successful," said Damon Silvers, director of policy for
the AFL-CIO federation of labor unions and a former member of the
oversight panel. "As a financial transaction, the public did not
get its money's worth."
The Treasury has posted a 3.6% return on its TARP investments
thus far. The S&P 500 on Friday was up 206% from its low on
March 9, 2009.
Christy Romero, the TARP special inspector general, has faulted
the Treasury for not getting concessions from banks taking funds.
"There were no strings on the money," she said.
The decision to save big Wall Street firms, rather than force
them to shrink and take heavy losses or file for bankruptcy
protection, sowed distrust of both Wall Street and the government's
ability to police it that continues today, as embodied in the
populist critiques of Sen. Elizabeth Warren's (D., Mass.), another
former TARP watchdog.
The program's defenders say imposing onerous terms on struggling
companies would have undermined the purpose of the rescue. TARP's
"benefits in stabilizing the financial system and the economy as a
whole were worth hundreds of billions of dollars, and yet it turned
out to be essentially free," said Doug Elliott, a fellow for
economic studies at the Brookings Institution. "I call it the best
large federal program ever to be despised by the public."
Ally, formerly known as GMAC, had been by far the largest
remaining company on the government dole. It tapped the bailout
program three times, receiving taxpayer help worth $17.2 billion as
the Bush and Obama administrations moved to backstop a crucial
source of financing for GM vehicles. The government owned a 74%
stake in the company as recently as November 2013.
Ally's initial public offering in April raised $2.38 billion for
the Treasury, which sold 95 million shares. That offering pared the
Treasury's stake in Ally to 17% from 37%.
Alan Zibel contributed to this article.
Write to Julie Steinberg at julie.steinberg@wsj.com and Ryan
Tracy at ryan.tracy@wsj.com
Access Investor Kit for Ally Financial, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US02005N1000
Access Investor Kit for American International Group, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0268747849
Access Investor Kit for Citigroup, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US1729674242
Access Investor Kit for General Motors Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US37045V1008
Subscribe to WSJ: http://online.wsj.com?mod=djnwires