AP IMPACT: Some bailout holdings down $9 billion
Stock intended to eventually earn taxpayers a profit as part of the Bush administration’s massivehas lost a third of its value — about $9 billion — in barely one month, according to an Associated Press analysis. Shares in virtually every bank that received federal money have remained below the prices the government negotiated.
Most of the Treasury Department’s investments since late October have been in preferred bank stocks, more than $180 billion worth, with investments in giants like Citigroup and , and many small community banks. But the government also negotiated options to buy up to 1.2 billion shares of common bank stock that was valued at $27 billion.
The Treasury Department said it did not expect these to be profitable immediately and negotiated them so taxpayers could share in the wealth if the bank stocks recover.
Now, however, the value of that common stock is worth less than $18 billion. If the government exercised all its warrants to purchase the stock today, it would lose money on 51 of its 53 agreements. Taxpayers would be out $9.1 billion.
The markets are saying this plan isn’t going to work for the banks,” said Ross Levine, Tisch professor of economics at Brown University. “They’re asking where this plan is going.”
Potential losses among theseinclude more than $3 billion for the administration’s biggest deal, a $45 billion injection into . The government gave the New York-based giant $25 billion on Oct. 28. In addition to preferred stock worth $1,000 per share, the deal included warrants to pick up 210 million shares of common stock at $17.85. In late November, the White House put together a plan to give Citibank another $20 billion. The deal also included warrants to pick up 254 million shares, with the price set at $10.61.
Citigroup stock has since fallen below $8.
More companies would be in the black, but the government used a 20-day it willingly negotiated to pay roughly 25 percent more than the stock was worth on the day it signed the deals on behalf of taxpayers.average to set the warrant price, meaning
“It’s a complete mistake to think this is a good investment for us,” said Paola Sapienza, a finance associate professor at , who spearheaded a September protest of the bailout by more than 200 of the nation’s leading economists. “It’s a gamble. It’s like going to Las Vegas.”
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