Treasury Continues to Make Progress in Winding Down the CPP Program

As of January 31, 2014, a total of 624 of the 707 institutions that originally  participated in CPP, about 88 percent, had exited the program. As of January 31, 2014, Treasury  had received $225 billion in repayments and income from its CPP  investments, exceeding the amount originally disbursed by $20.1 billion  (see fig. Treasury estimated a  lifetime gain of $16.1 billion for CPP as of November 30, 2013. Remaining Capital Purchase Program Investment Concentrated in a Few Institutions

As of January 31, 2014, the 83 remaining institutions accounted for the  $2.1 billion in outstanding investments or about 1 percent of the original  investment. The outstanding investments were concentrated in a  relatively small number of institutions. As of January 31, 2014,  Treasury has sold all or part of its investments in 162 institutions, through  the auction process, including the rights to approximately $207 million in  missed dividends and interest payments. Remaining CPP Institutions Are Generally Less Financially Healthy Than Those That Have Exited

Institutions that remain in CPP tend to be financially weaker than  institutions that have exited the program and institutions that did not  receive CPP capital. Almost 84 percent, or 75 of the 89 financial  institutions remaining in CPP as of November 30, 2013, have missed a  dividend payment. The Number of Remaining CPP Institutions on FDIC’s Problem Bank List Has Declined

Showing a similar trend to missed dividend or interest payments, the  number of CPP institutions on the Federal Deposit Insurance  Corporation’s (FDIC) “problem bank list” has decreased in recent months  after months of steady increases. This list is a compilation of banks with  demonstrated financial, operational, or managerial weaknesses that  threaten their continued financial viability and is publicly reported on a  quarterly basis. Federal and state bank regulators may not allow  institutions on the problem bank list to make dividend payments in an  effort to preserve their capital and promote safety and soundness. Agency Comments

We provided a draft of this report to Treasury for its review and comment. In its written comments, Treasury generally concurred with our findings. Appendix I: Objectives, Scope, and Methodology

The objectives of our report were to examine (1) the status of the Capital  Purchase Program (CPP), including repayments and other proceeds, as  well as investments outstanding; and (2) the financial condition of  institutions remaining in CPP. To assess the status of CPP at the  program level, we analyzed data from the Department of the Treasury  (Treasury). To assess the financial condition of institutions that received investments  under CPP, we used data from Treasury’s Dividends and Interest reports  from February 2009 through November 2013 to determine the extent to  which participants had missed payments throughout the life of the  program. We  identified those CPP participants that raised capital in calendar year 2013  using the SNL database. We analyzed financial data on the 83 institutions remaining in CPP as of  January 31, 2014, and 482 former CPP institutions that exited CPP  through full repayments, conversion to the Small Business Lending Fund,  or Treasury’s sale of its investments through an auction, accounting for  565 of the 707 CPP participants.
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 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 and (2) the financial condition of institutions remaining in the program.
To assess the program's status, GAO reviewed Treasury reports on the status of CPP. GAO also used financial and regulatory data to compare the financial condition of institutions remaining in CPP with those that had exited the program and those that did not participate. GAO also obtained information through a questionnaire from CPP participants as of November 20, 2013, and former CPP participants that raised capital in calendar year 2013. GAO received completed questionnaires from 72 of the 104 institutions.
GAO provided a draft of this report to Treasury for its review and comment. Treasury generally concurred with GAO's findings.

What GAO Found

The Department of Treasury (Treasury) continues to make progress in winding down the Capital Purchase Program (CPP). As of January 31, 2014, Treasury's data showed that 624 of the original 707 institutions, or about 88 percent, had exited CPP. Treasury had received about $225 billion from its CPP investments, exceeding the approximately $205 billion it had disbursed. Most institutions exited by repurchasing their preferred shares in full or by refinancing their investments through other federal programs. Treasury also continues to sell its investments in the institutions through auctions; a strategy first implemented in March 2012 to expedite the exit of a number of CPP participants. As of January 31, 2014, Treasury has sold all or part of its CPP investment in 162 institutions through auctions, receiving a total of about 80 percent of the principal amount. A relatively small number of the remaining 83 institutions accounted for most of the outstanding investments. Specifically, 10 institutions accounted for $1.5 billion or about 73 percent of the $2.1 billion in outstanding investments. Treasury estimated a lifetime gain of $16.1 billion for CPP as of November 30, 2013.
GAO's analysis of financial data found that the institutions remaining in CPP were generally less financially healthy than those that have exited or that never participated. In particular, the remaining CPP institutions tended to be less profitable, hold riskier assets, and have lower capital levels and reserves. Most remaining participants also have missed scheduled dividend or interest payments, with 60 missing their November 2013 payment. Further, 47 of the remaining CPP institutions were on the Federal Deposit Insurance Corporation's problem bank list in December 2013—that is, they demonstrated financial, operational, or managerial weaknesses that threatened their continued financial viability. Institutions that continue to miss dividend payments or find themselves on the problem bank list may have difficulty fully repaying their CPP investments because federal and state bank regulators may not allow these institutions to make dividend payments or repurchase outstanding CPP shares in an effort to preserve their capital and promote safety and soundness.