Asset Guarantee Program

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The Asset Guarantee Program

The U.S. Treasury, FDIC and Federal Reserve together signed agreements with Citigroup and Bank of America to guarantee the losses on toxic asset-backed securities they held. The government guaranteed $235 billion of the losses to Citigroup’s assets in an agreement terminated in December 2009 without any payouts for losses. Citigroup paid the government with $2.2 billion in securities. The government guaranteed $97 billion of the $118 billion losses to Bank of America’s assets in an agreement that was signed in January 2009, but was never implemented. The program was cancelled September 2009 and BofA paid the government $425 million for the benefit of the perceived stability in the eyes of the market.

Wall Street Bailout Accounting
(back to main table)
ASSET GUARANTEE PROGRAM
Balance Sheet
Disbursed*: $0[1]
Current outstanding: $0
Public Funds
Maximum at-risk: Citigroup deal: $235.3B across Fed, Treasury & FDIC.[2] Bank of America deal: $97.2B across Fed, Treasury & FDIC.[3] for a total of $332.5B across Fed, Treasury & FDIC.[4]
Current at-risk:

* See the methodology and glossary for definitions of "disbursed," etc.

Background

SIGTARP:[5]

“Asset Guarantee Program (“AGP”). Through AGP, Treasury’s stated goal is to use insurance-like protections to help stabilize at-risk financial institutions. AGP provides certain loss protections on a select pool of mortgage-related or similar assets held by participants whose portfolios of distressed or illiquid assets pose a risk to market confidence.

Citigroup

SIGTARP:

“Treasury, FDIC, and the Federal Reserve agreed to provide certain loss protections with respect to $301 billion in troubled assets held by Citigroup. Should Citigroup’s losses rise above $39.5 billion, Treasury is obligated to pay up to $5 billion in protection toward additional losses; as of September 30, 2009, Citigroup had not received any funds from AGP.”[6] “In consideration for this commitment, Treasury received $4.03 billion of preferred stock.”[7]

NOTE: SIGTARP’s figure for total projected funds at-risk was $301B, but in more detailed section of April 2009 report, total was given as 235.3B = $5B UST + $10B FDIC + $220.4 Fed (non-recourse loan).[8]

SIGTARP: On December 22, 2009, the Treasury announced that it was terminating the program without Citibank drawing on any funds. As a fee for the guarantee, the Fed, Treasury and FDIC would keep $5.2B of $7.0B in trust preferred securities in addition to warrants for common shares.[9] SIGTARP now estimates that Treasury will keep $2.2B of the trust preferred securities issued by Citigroup under the program. The FDIC will also transfer $800 million of trust preferred securities to Treasury when Citigroup leaves the FDIC’s Temporary Liquidity Guarantee Program.[10]

Bank of America

FDIC:[11]

“Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $118 billion of loans, securities backed by residential and commercial real estate loans, and other such assets, all of which have been marked to current market value. The large majority of these assets were assumed by Bank of America as a result of its acquisition of Merrill Lynch. The assets will remain on Bank of America's balance sheet. As a fee for this arrangement, Bank of America will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.”

NOTE: After a $10B deductable, the USG would share all future losses up to $10B further, with BofA paying 10% and USG paying 90%. SIGTARP put estimated total potential losses at $118B, with $97.2B from USG = $7.5B UST + $2.5B FDIC + $87.2 Fed (non-recourse loan).[12]

SIGTARP: The Bank of America deal was announced with basic terms on January 16, 2009, but BofA later backed out of the deal. On Sept. 21, 2009, BofA agreed to pay the government $425M for benefit it received while the market believed it was in effect. This was split: $276M Treasury (deposited into the Treasury’s general fund to reduce the debt; not for recycling into TARP), $92M to FDIC and $57M to the Fed.[13]

History

  • Nov. 23, 2008: Citigroup enters into loss sharing program. [14]
  • Jan. 15, 2009: Citigroup enters into definitive loss protection [15]
  • Jan.16, 2009: Bank of America enters into guarantees agreement.[16]
  • July 30, 2009: "Treasury exchanges $25 billion preferred shares in Citigroup for common stock. As a result, the treasury owns $7.7 billion shares of Citigroup's common stock, a 34% stake in the company." [17]
  • Sept. 21 2009: "Bank of America agree[s] to compensate the Government $425 million for the economic benefit it received while the market believed that the Government would be backing its assets." [18]
  • Dec. 22, 2009: AGP terminated [19]

Who benefits

Citigroup and Bank of America shareholders.

Notes

Articles and resources

Related SourceWatch articles

References

  1. ↑ US Treasury Department News Release, “Treasury Receives $45 Billion in Repayments from Wells Fargo and Citigroup”, December 22, 2009.
  2. ↑ Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress - April 212009”, p. 75.
  3. ↑ Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), “Quarterly Report to Congress - April 212009”, p. 77.
  4. ↑ Sum of figures from Citigroup deal ($235.3 billion) and Bank of America deal ($97.2 billion). See footnotes for individual deals for full sourcing
  5. ↑ SIGTARP October 2009 report, p. 42.
  6. ↑ SIGTARP October 2009 report, p. 42.
  7. ↑ SIGTARP October 2009 report, p. 66.
  8. ↑ Summary of AGP by Citigroup: http://www.citigroup.com/citi/press/2009/090116b.pdf See SIGTARP April 2009 report, p. 75 for more detailed breakdown.
  9. ↑ Treasury press release, December 22, 2009. http://www.financialstability.gov/latest/pr_12232009b.html
  10. ↑ SIGTARP Jan. 2010 report, p. 73.
  11. ↑ FDIC press release, January 16, 2009: http://www.fdic.gov/news/news/press/2009/pr09004.html
  12. ↑ SIGTARP April 2009 report, p. 77. See also Federal Reserve (http://www.federalreserve.gov/newsevents/press/bcreg/20090116a.htm ) and FDIC (http://www.fdic.gov/news/news/press/2009/pr09004a.html & http://www.fdic.gov/news/news/press/2009/pr09004.html )
  13. ↑ SIGTARP October 2009 report, p. 70.
  14. ↑ Summary of AGP by Citigroup: [1]
  15. ↑ Summary of AGP by Citigroup: [2]
  16. ↑ FDIC press release, January 16, 2009:[3]
  17. ↑ Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP),[4] “Quarterly Report to Congress October 21, 2009”, p. 67.
  18. ↑ SIGTARP October 2009 report, p. 42.
  19. ↑ US Treasury Department News Release, [5]“Treasury Receives $45 Billion in Repayments from Wells Fargo and Citigroup”, December 22, 2009.

External resources

External articles

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