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Special Inspector General Barofsky Criticizes TARP Loans to Large Insurers

Source: AP


Posted on 11 Dec 2009

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The participation of two big insurers in the $700 billion financial rescue contradicted the goals of the government program, a bailout watchdog said Thursday.

The inclusion of Hartford Financial Services Group Inc. and Lincoln National Corp. "was incongruous with the spirit and intent" of the bailout program, according to the report by Special Inspector General Neil Barofsky. The taxpayer investments in the two companies went to support their insurance businesses, not the small thrift institutions they acquired in order to qualify for the bailout.

The amount of money they received from the government — $3.4 billion for Hartford, which is based in Hartford, Conn., and $950 million for Philadelphia-based Lincoln — was based on the assets of their parent insurance companies and "dwarfed" the size of the thrifts they acquired, the report said.

"Treasury fit the enormous investments in these insurance companies, huge proverbial pegs, into the small round holes" of eligibility for the bailout program, it said.

Barofsky's report details how six companies used $81 billion in taxpayer money they received and whether they kept it separate from other company funds. General Motors and Chrysler, for example, used large portions of the money to cover daily operating expenses like paying suppliers and meeting payroll.

The report said the disclosures by the six show that companies that received money under the Treasury Department's Troubled Asset Relief Program "can provide meaningful information about their use" of the money. That refutes Treasury's previous statements that recipients reporting on their use of the money would have little value.

GM, which received $49.5 billion from TARP, was among the largest recipients in the financial rescue program. The biggest bank participants, Bank of America Corp. and Citigroup Inc., each received $45 billion. Bank of America repaid it earlier this month and Citigroup is in negotiations with the government to repay and exit the program.

The report said GM has $13.7 billion remaining in unused bailout funds, raising the possibility the Detroit automaker could repay a remaining $6.7 billion government loan in one lump sum. GM Chairman and CEO Ed Whitacre Jr. said earlier this week the company may repay its government loans in one payment instead of in quarterly installments.

GM has said it will repay the $6.7 billion by 2011, four years ahead of schedule, but that still leaves more than $40 billion the government lent the automaker in exchange for an equity stake.

GM is planning to make its first quarterly payment of $1.2 billion to the U.S. and Canadian governments by the end of December. GM spokeswoman Renee Rashid-Merem said "if business conditions are stronger than expected or the economy and global vehicle market is more robust, we may consider the possibility of earlier repayment."

Treasury has recently agreed to collect and publish the information from TARP companies on their use of funds, the IG report says, and the department "should be given substantial credit for its willingness ... to change course."

Another watchdog of the bailout, a bipartisan panel appointed by Congress, on Wednesday said the program helped prevent an all-out panic last fall but hasn't met many of the targets set out by lawmakers. The programs funded by the bailout — including bank capital injections, foreclosure relief and automaker rescues — were uneven in their success, the panel said.

The Obama administration decided this week to extend the politically unpopular rescue program, due to expire this month, through Oct. 3 as the original legislation allowed.

Treasury said Wednesday that the government lost $30 billion on the auto company bailouts in the fiscal year ended Sept. 30.

The new report says GM used about $32 billion of the $49.5 billion it received to pay operating expenses. Another $986 million was provided to GM for the winding down of the old company, some of it will be set aside for environmental cleanup at plants being shut down.

In addition, GM used about $2.8 billion to resolve the bankruptcy of Delphi, a major parts supplier.

Chrysler reported it used around $10.5 billion of the $12.5 billion it received for day-to-day expenses, according to the report.

-Auto lender GMAC reported using the full $13.4 billion it received to bolster its capital reserves so that it can keep making auto loans, provide financing to dealers and modify home loans.

-Chrysler Financial said it used the $1.5 billion it got to make about 85,000 auto loans from last February to June. The company has repaid Treasury mostly using funds from another government financial relief program.

-Hartford Financial said it used $3.2 billion of the $3.4 billion it received in short-term investments and money-market funds, allowing it to issue additional policies.

-Lincoln National invested about $608 million of the $950 million it received in mortgage-backed securities and corporate bonds.

Treasury spokesmen didn't immediately respond to a request for comment on the report Thursday afternoon.


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