It has taken analysts and FT a long time to catch up with the reality that Governments will be making substantial profits from bank bail-outs (or bale-outs). I've been playing that saw (or beating the drum) on that for nearly 2 years. Yet, only now have mainstream media published estimates that the US government has made over $10bn profit on banks’ repayments of TARP funds, which is only the tip of the state's profits. But, since TARP is on-budget, it is easier to state that "taxpayers might turn a profit on the unprecedented help extended to the financial sector during the crisis" -FT 8,April 2010. This is based on rates paid by Goldman Sachs and American Express for warrants received in return for the aid (annualised return of 8.5%). There is, of course, a difference between paper profits and money in the treasury coffers, between forecasting and realising profits. 
But, 8% plus fat fees plus insurance premia and much else is the international government standard rate and 5-8% is coupon paid by sequestered and swapped ABS. This $10bn is merely profits on $250bn of TARP (one third)and not all of it. Why now? There is a political backlash (however long-running) against the use of taxpayers’ funds to help companies like Citigroup, Bank of America, Goldman and Morgan Stanley. But, as in the UK, the bulk of the balance sheet aid funding has been off-budget and off-balance sheet of the Federal Reserve as too the Bank of England. Even just what is on balance sheet bodes a massive return. 
There is, of course, some insoucience here. Governemnts do not want to admit to the general public the precise methods of their remedies for fear of accusations of "funny money" and because general voters don't understand that not everything governments do is with taxpayers' money, and because they do not want the accusation that government bailed the banks to make a profit but to provide stability to the financial system. This is because, supposedly, that the government’s job is not to make money off the private sector. Ha Ha! I don't see what is wrong with that at all in the circumstances. If Government replaces private funding sources and reaps either the same returns, or higher returns by taking advantage of the distressed circumstances that is surely great either in paying down the national debt or recovering much of the budget deficit. More critical of course is what the impact on the general economy is of bank bailing if banks continue to shrink their balance sheets?
The government profit-raking news coincides with a legislators' commission into the causes of the crisis that is due to three-degree Alan Greenspan, former chairman of the Federal Reserve, and Citi executives this week (week beginning 7th April). perhaps they really need a commission to publicly examine how well the general economy is being served. We know the economy blew a tyre and stopped moving up the hill. The tyre may now be fixed, but before raking over what went wrong and why, again, it is surely more vital to understand if the economy is moving again or if something else is wrong?
US Treasury says it still expects to lose $117bn on TARP, which I think is absurdly pessimistic, except that it includes investments in the motorcar industry, FM&FM and AIG. On banks the Treasury forecasts a possible loss of $76bn, but I believe that will prove profitable, as will the total.49 firms have repaid Tarp funds plus dividends on government’s preferred stock plus deposit insurance and either repurchased or let Treasury auction the warrants that alone have yielded a profit of $10.5bn. Goldman Sachs and American Express delivered annualised returns of 20% and 23% respectively after repurchasing warrants in July 2009. Goldman, under intense political pressure over its bonuses and its behaviour during AIG’s collapse offered Treasury a good price to buy back the securities, no doubt not least to protect its bonuses.
Of course, there is also the profit from resurgence in banks' share prices.
Bank bailouts with government as disposal facilitator, guarantor, undertaker, zombie bank owner, or back-to-health nurse, is a profitable business over time.US Federal Reserve for US Treasury, will sell the government's preferred stock in Citibank group worth 27% stake that grew in value to $33bn worth an $8bn 'taxpayer' profit. Private shareholders have gained $2bn as a result of the government having saved the bank.
Should the government wait another year and get maybe a $16 billions profit? On Friday, the stock closed at $4.31. At end October 2007, the stock was $38.89 paying over 5% dividend. It is surely likely to reach $10 sometime fairly soon?GS, JPM, Citi and Merril-Lynch (now part of Bank of America) got $97bn help. After the sale of the Citi stake plus earlier repayments $49bn will have been returned in the current tax year (to September) leaving at least $65bn yet to be repaid.
Other big returns will come later from AIG (nationalised for $182bn), Freddy Mac and Fannie Mae.
FDIC seized $41 billion in assets seized from failed banks as of the end of January 2010, of which $15.6bn are real estate loans of which about 4% involve participations by other lenders. It sold $6bn in 4Q'09 for 40% ($2bn) while retaining 60%. A 31% discount is possible on the next $2bn sales of property loans where 70% are delinquent - when FDIC has to provide insurance compensation to failed banks that it underwrote (after banks' premiums to pay for this and whatever 3rd party insurance underwriters pay up). FDIC earlier sold $1.66bn book value for $1.16bn, at 61.6% of book value.
FDIC is trying to encourage public sector pension funds with over $2tn to buy all or part of failed lenders, according to insiders.
A few hundred small banks have failed so far. The FDIC had 552 banks with $345.9bn in assets on its confidential problem list, of which 23 are teetering on insolvency. There were 3,400 banks supervised by The Federal Reserve before the credit crunch. The FDIC insures more than 7,000 banks.
26 banks failed in 2008 with about $400bn assets, of which the largest was WaMu with $307bn in assets (sold to Bank of America for $2bn). The second biggest was IndyMac with $31bn (sold to IMBMH for $13.9bn). Roughly 140 banks failed in 2009 with about $110bn in assets, and so far in 2010 141 banks failed, but with only $23bn assets in early 2010. By contrast, during the last banking crisis, 381 banks were seized in 1990, 268 in 1991, and 179 in 1992. 307 banks is the total so far this crisis.
By September last year, bank shares were up 141% since the boom in early March '09. The banks index was still down 56% on two years earlier, and by late 2009 it seemed worth buying bank shares again, and by March '10 banks gained only 7% to today's level of 52% below September 2007.
It is this levelling off of bank share rises that possibly prompts the Federal Reserve and FDIC to consider that selling share in banks and their seized collateral assets may help reinvigorate positive interest in the banks i.e. by selling to hedge funds perhaps who should know how to trade up the value of bank shares as effectively as they traded them down?
Maybe there is another $16-20bn in Federal profit from doing so with small banks, and then another $70bn profit from selling AIG (bought 80% for $85bn) plus other holdings, leaving FM&FM (bought for $182bn topped up to $200bn) with $5tn in assets and $1.6tn debt that together reduced retained assets to $1.9tn and may now be combined into a single entity. There may be another $30bn of profit to be gained here.
The grand total is $582bn returns to The Fed of which $70-80bn is net revenue for the Federal Budget perhaps. And then from various places another $300bn or so must return with maybe another $30bn profit?
In total something like 15% profit is returned from the $700bn TARP funds - very reasonable.
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