According to Treasury officials, the nine financial institutions  agreed to participate in CPP in part to signal the program’s importance to  the stability of the financial system. Treasury Estimates a Lifetime Gain for CPP, but Concerns about Some Investments Remain

Repayments and income from dividends, interest, and warrants from CPP  investments have exceeded the amounts originally disbursed, but  concerns remain about the financial strength of the remaining institutions  and their ability to repay and exit the program. As we have reported,  Treasury disbursed $204.9 billion to 707 financial institutions nationwide  from October 2008 through December 2009. As of January 31, 2012,  Treasury had received $211.5 billion in repayments and income from its  CPP investments, exceeding the amount originally disbursed by $6.6  billion (see fig. Although this  $16.7 billion is still potentially at risk, Treasury estimated a lifetime gain of  $13.5 billion for CPP as of November 30, 2011. About two-thirds of the outstanding investments were concentrated in a  relatively small number of institutions (see fig. Specifically, 25  remaining CPP investments accounted for $11.2 billion, or 67 percent of  outstanding investments. Nearly half (341) of the 707 institutions that originally participated in CPP  had exited the program as of January 31, 2012. number of institutions missing dividend or interest payments due on their  CPP investments increased steadily from 8 in February 2009 to 158 in  November 2011, or about 42 percent of institutions still in the program  (see fig. The number of institutions missing payments has  stabilized since February 2011, but most of these institutions continued to  miss them. FDIC compiles a list of banks with  demonstrated financial, operational, or managerial weaknesses that  threaten their continued financial viability and publicly reports the number  of such institutions on a quarterly basis. Remaining CPP Institutions Are Financially Weaker than Former CPP and Non-CPP Institutions, but Treasury’s Analysis Does Not Show This Difference

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. First, remaining CPP institutions had a consistently higher percentage of  noncurrent loans than former CPP institutions and the non-CPP group  from March 2008 to December 2011 (see fig. Our analysis  found differences in the financial condition of remaining and former CPP  institutions, suggesting that the remaining CPP institutions could face  challenges in repaying CPP funds and exiting the program. In particular, our analysis  showed that institutions remaining in CPP were generally less profitable,  held riskier assets and less regulatory capital, and had lower reserves for  covering losses compared with institutions that repaid their CPP  investment and those that never participated in the program. Enhancing the quarterly CPP analysis by distinguishing between  remaining and former CPP participants will help Treasury provide  Congress and the public with a more transparent and comprehensive  understanding of the status of CPP and the institutions that participate   in it. Recommendation for Executive Action

To provide Congress and the public with more transparent and  comprehensive information on remaining CPP institutions and enhance  its reporting, the Secretary of the Treasury should consider analyzing and  reporting on remaining and former CPP participants separately. In its written comments, Treasury stated that it would carefully consider  our recommendation to further enhance transparency by analyzing and  reporting on remaining and former CPP participants separately. 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 to  date, restructuring of investments, and timeliness of dividend payments,  and (2) the financial condition of institutions that received investments  under CPP compared with institutions that exited CPP and those that did  not participate in the program. In particular, we  used Treasury’s January 2012 Monthly 105(a) Report to Congress to  determine the dollar amounts of outstanding investments, the number of  remaining and former participants, and the geographical distribution of  each as of January 31, 2012. We also used data from Treasury’s  Dividends and Interest reports from February 2009 through November  2011 to determine the extent to which participants had missed payments  throughout the life of the program.
Why GAO Did This Study

The Capital Purchase Program (CPP) was established as the primary means of restoring liquidity and stability to the financial system under the Troubled Asset Relief Program (TARP). Under CPP, the Department of the Treasury (Treasury) invested almost $205 billion in 707 eligible financial institutions between 2008 and December 2009. CPP recipients have made dividend and interest payments to Treasury on the investments. TARPs authorizing legislation requires GAO to report every 60 days on TARP activities, including those of CPP. This report examines (1) the status of CPP and (2) the financial condition of institutions receiving CPP investments.
GAO reviewed Treasury reports on the CPP program and participants and interviewed officials from Treasury and the financial regulators. Using financial and regulatory data, GAO compared the financial condition of institutions remaining in CPP with those that had exited the program and those that did not participate in CPP.

What GAO Found

While repayments, dividends, and interest from institutions participating in the Capital Purchase Program (CPP) have exceeded the programs original investment disbursements, the number of missed payments has increased over the life of the program. As of January 31, 2012, the Department of the Treasury (Treasury) had received $211.5 billion from its CPP investments, exceeding the $204.9 billion it had disbursed. Of that amount, $16.7 billion remains outstanding, and most of these investments were concentrated in a relatively small number of institutions. In particular, as of January 31, 2012, 25 institutions accounted for $11.2 billion, or 67 percent, of outstanding investments. As of November 30, 2011, Treasury estimated that CPP would have a lifetime income of $13.5 billion after all institutions exited the program. As of January 31, 2012, 341 institutions had exited CPP, almost half by repaying CPP with funds from other federal programs. Institutions continue to exit CPP, but the number of institutions missing scheduled dividend or interest payments has increased. For example, as of November 30, 2011, the number of institutions that had missed their quarterly payments rose to 158, a marked increase from 8 in February 2009, even though CPP had fewer participants. The number of CPP institutions designated as problem banksthat is, demonstrating financial, operational, or managerial weaknesses that threatened their continued financial viabilityalso rose from 47 in December 2009 to 130 in December 2011. Institutions that continue to miss payments and problem institutions may have difficulty ever fully repaying their CPP investments.
GAOs analysis showed that the remaining CPP institutions were financially weaker than institutions that had exited the program and institutions that did not receive CPP capital. In particular, the remaining CPP institutions tended to be less profitable and hold riskier assets than other institutions of similar asset size. Among other things, they had significantly lower returns on average assets and higher percentages of noncurrent loans than former CPP and non-CPP institutions. They also held less regulatory capital and reserves for covering losses. Although GAOs analysis found differences in the financial health of remaining and former CPP institutions, Treasurys quarterly financial analysis of CPP institutions did not distinguish between them. In prior work, GAO has noted the importance of providing clear information to Congress and the public about the performance of the assistance provided through the various programs within the Troubled Asset Relief Program. By distinguishing between remaining and former CPP participants, Treasury could provide greater transparency about the financial health of institutions remaining in CPP.

What GAO Recommends

To provide Congress and the public with more transparent and comprehensive information on institutions remaining in CPP and enhance its reporting, the Secretary of the Treasury should consider analyzing and reporting on remaining and former CPP participants separately. Treasury stated that it would carefully consider our recommendation.