Treasury ultimately  disbursed about $205 billion to 707 financial institutions through  December 2009. Under this option, Treasury’s ability to exit the  program largely depends on the ability of institutions to repay their  investments. As of May 31, 2013, Treasury had received $222.6 billion in repayments  and income, exceeding the $204.9 billion originally disbursed by almost  $18 billion (see fig. Further, 556 institutions had exited CPP as of  May 31, 2013, including 212 institutions that exited by fully repaying their  CPP investments, 128 that participated in auctions, and 165 that  refinanced their investments through other federal programs. Treasury Has Increasingly Used Auctions to Wind Down CPP

Treasury has increasingly used the auction option after the first sale of  CPP securities in March 2012 received investor interest. Each auction involved the sale of an institution’s outstanding CPP  investment, also known as the par amount. In most cases, the final sales  price for an institution’s shares was below the par amount. In particular,  the $2.4 billion in total proceeds from the 16 auctions to date—from  March 2012 through April 2013— represents 84 percent of the $2.9 billion  principal investment in the institutions. Treasury Structured Auctions to Maximize Taxpayer Return, but Some Auction Participants Have Raised Concerns about the Process

Treasury began planning its auctions in November 2011 by hiring a  contractor to help assess its exit strategy for CPP. After selecting the institutions, Treasury notified them that they would be  part of an upcoming auction, and the institutions then had to assemble  and submit documentation to Treasury. Documentation requirements  were based on the nature of the offering. Representatives from  many of the 13 financial institutions with whom we spoke—particularly  those that had participated in some of the earlier auctions—thought  that the process of preparing for the auction was rushed, was not well  organized, and did not have clear instructions. According to some of these representatives, this amount of time was  not sufficient to get regulatory approval to bid on their own shares. In contrast, while  representatives from a few institutions that participated in later  auctions felt the process was rushed, others told us that they had  much more time to prepare for their auctions—up to 10 months in  some cases. Although Treasury did not  begin discussing specific documentation requirements until it notified  a financial institution that it was scheduled for a particular upcoming  auction, Treasury officials said that they would have been willing to  move an institution that need more time to prepare to a later. Finally,  Treasury officials said that any changes to the process that benefit the  financial institution would make the process less competitive for other  bidders at the expense of taxpayers. A number of financial institutions told us that they  would have preferred the option of matching the winning bid to be  able to retain ownership of their shares. Appendix I: Objectives, Scope, and Methodology

The objectives of our report were to assess (1) the extent to which  Treasury had sold Capital Purchase Program (CPP) investments through  auctions and the returns on those investments; and (2) the CPP auction  process and institutions’ views on the process. We also interviewed individuals  knowledgeable about the CPP auction process, representatives from  trade associations for financial institutions, and officials from the  Securities and Exchange Commission.
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. As of May 31, 2013, 151 institutions remained in the program with under $6 billion in outstanding investments. TARP's authorizing legislation requires GAO to report every 60 days on TARP activities. This report examines (1) the extent to which Treasury has sold CPP investments through auctions and the returns on those investments and (2) the CPP auction process and institutions' views on the process.
To conduct its work, GAO reviewed Treasury documents and financial data on auction participants. GAO also interviewed officials from Treasury and the Securities and Exchange Commission, representatives from auction participants, and others.

What GAO Found

The U.S. Department of the Treasury (Treasury) has increasingly used auctions to sell its Capital Purchase Program (CPP) investments. Initially, Treasury relied primarily on financial institutions redeeming their shares to wind down the program. However, in March 2012 Treasury began using auctions to exit CPP, and more institutions have exited the program through auctions than through any other method since then. As of May 2013, Treasury has held 16 auctions, selling 128 investments for total proceeds of about $2.4 billion. Each auction has involved the sale of an institution's outstanding investment, also known as the par amount. In most cases, the final sales price was below the par amount, and in total Treasury received 84 percent of par in the first 16 auctions. Through these auctions, repurchases, and other mechanisms, 556 institutions had exited CPP as of May 31, 2013, accounting for almost $223 billion in repayments and income and exceeding the original investment amount by about $18 billion.
Treasury has structured the auctions to maximize taxpayer returns, but representatives from some of the 13 financial institutions that participated in the auctions told GAO that they had concerns about the process. Treasury selected institutions for auctions based on, among other things, the size of the institution's CPP investment and its dividend payment record. Treasury then notified the institutions that their securities were going to be auctioned, and the institutions were required to submit certain documentation to Treasury. Representatives of some institutions, mostly from earlier auctions, told GAO that the process was rushed and left them with limited notice to prepare the required documentation and insufficient time to obtain regulatory approval to bid on their own shares. Treasury officials said they would have been willing to move an institution to a later auction if it needed more time to prepare, and while representatives of a few institutions that participated in later auctions felt the process was rushed, other institutions said they had more time to prepare. Representatives of some institutions expressed frustration that they did not have the option to match the winning bid to retain ownership of their shares. Treasury officials said that any changes to the process that benefitted the financial institution would make the process less competitive for other bidders at the expense of taxpayers and would contradict Treasury's goal of structuring the process to increase competition and maximize returns for taxpayers.