NEW YORK — Bank bailouts are turning out to be great for the government. Unfortunately for taxpayers, other federal rescues will almost certainly wind up in the red.
The Treasury Department said Monday it will begin selling its stake in Citigroup Inc. at a potential profit of about $7.5 billion — not bad for an 18-month investment.
The move is a major step in the government’s effort to unravel investments it made in banks under the $700 billion Troubled Asset Relief Program at the height of the financial crisis.
Yet a year and a half after Congress passed the big bailout, other parts of it — particularly troubled automakers General Motors and Chrysler and insurer American International Group — show no signs of being profitable.
“Overall, TARP may cost taxpayers money. But the banking part of it is going to be a moneymaker,” banking analyst Bert Ely said.
Despite the returns from Citi and other banks, analysts and the Treasury Department predict the bailout will cost taxpayers at least $100 billion. The bailouts of mortgage giants Fannie Mae and Freddie Mac will add billions more.
But the money the government makes off banks helps offset the damage. With the sale of the Citi shares, the eight major banks that got bailout funds will have repaid the government in full. Those investments have netted the government $15.4 billion from dividends, interest and the sale of bank stock warrants, which gave the government the right to buy stock in the future at a fixed price.
Based on Monday’s share price, selling its 27 percent stake in Citi would add about $7.5 billion in profits. The stock fell 3 percent to $4.18 a share Monday after news of the planned Treasury sales. The government paid $3.25 a share. The government also still holds Citi stock warrants, which will add to its profits down the road.
Overall, it’s a 14 percent rate of return on the $165 billion invested in the biggest banks. Hundreds of smaller banks also received money and have been paying the government a steady stream of dividends and interest.
By comparison, someone who invested in the Standard & Poor’s 500 in early October 2008, when the bailout was passed, would have lost about 3 percent.
