By Andrew Frye
Feb. 9 (Bloomberg) -- Former Treasury Secretary Henry Paulson, responding to a question from billionaire Warren Buffett, said the U.S. government will be repaid in full for the funds it put into the country’s lenders.
“We will get every penny we put into the banks back” and turn a profit, Paulson said today at a meeting of the Greater Omaha Chamber in Omaha, Nebraska. “I think when you look at all the other programs, we may be surprised at what we get back.”
More than 700 U.S. banks, insurers and automakers applied to the U.S. for cash from the Treasury Department’s $700 billion Troubled Asset Relief Program. Borrowers including Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. have returned more than $180 billion in bailout funds, according to Bloomberg data, and the Obama administration has proposed a levy on financial firms to recoup the government’s costs.
Special Inspector General Neil Barofsky, the government watchdog monitoring the bailout, said last month that the entire TARP program, including the rescue of American International Group Inc., General Motors Co. and Chrysler Group LLC, will cost taxpayers less than previously predicted. An earlier Barofksy report to Congress said the final cost could be “substantial.”
Paulson in 2008 injected capital into banks in exchange for preferred shares paying 5 percent and warrants to buy common stock. He appeared on stage at a meeting of the chamber of commerce alongside Buffett, whose Berkshire Hathaway Inc. is based in Omaha. Buffett asked questions of Paulson about the events surrounding the government bailouts as the two promoted Paulson’s book, “On the Brink.”
“I think you’re right,” Buffett said when Paulson said the U.S. would recoup its investment. Buffett declined to comment after the event today.
President Barack Obama last month proposed a fee on as many as 50 financial companies to recover losses from TARP. The levy would apply to firms with more than $50 billion in assets, including Wells Fargo and Goldman Sachs Group Inc., two companies that Berkshire has investments in. Buffett has said he opposes the administration’s plan.Buffett’s Suggestion
Paulson wrote in the book, which was published last week, that a proposal from Buffett helped him hone the bailout to make it palatable to investors. During a private phone call late on Oct. 11, 2008, Buffett suggested charging banks 5 percent or 6 percent on the U.S. investments and raising the rate later, Paulson wrote. The Treasury team had been considering 7 percent or 8 percent.
“I was convinced Warren’s was the best way to make the capital purchase program attractive to banks while giving them an incentive to pay back the government,” Paulson wrote. “Warren had a vested interest in this idea. But the truth was I was looking for an approach just like his: an investor-friendly plan that would protect the taxpayer” and encourage private investment.
Lenders have bought back $121.9 billion in preferred stock from the TARP’s Capital Purchase Program, with almost $83 billion still outstanding, according to a Feb. 5 transaction report. The agency has collected about $4.03 billion from the sale of warrants in about 35 banks.Missed Payments
The $2.33 billion government bailout of CIT Group Inc., the commercial lender that emerged from bankruptcy in December, has been wiped out after the reorganization. American International Group Inc., with a bailout from TARP and other government efforts valued at $182.3 billion, missed dividend payments due the U.S. More than 50 other financial institutions didn’t pay dividends in November, according a report from Treasury.
Buffett’s Berkshire is the biggest investor in Goldman Sachs and Wells Fargo. His $5 billion investment in New York- based Goldman Sachs came on September 23, 2008, and Paulson wrote that that injection by Berkshire removed one of his worries.World’s Most Credible Investor
“They’d found the most credible investor in the world, Warren Buffett,” Paulson wrote of Goldman Sachs, the firm he ran as chief executive officer and chairman until his appointment to George W. Bush’s cabinet in 2006.
Berkshire earns a 10 percent dividend on the Goldman Sachs preferred shares and the right to buy $5 billion of the bank’s stock at $115 a share. The shares closed yesterday at $151.10 in New York.
Buffett, according to Paulson’s account, told CNBC the day after his Goldman Sachs purchase that he wouldn’t have made the investment if he didn’t think Treasury’s $700 billion Troubled Asset Relief Program would pass Congress. TARP, originally devised as a way for the government to relieve banks of their bad debts, later became the capital purchase plan that Buffett helped shape.
--With assistance from Peter Eichenbaum, Linda Shen, Michael J. Moore and Hugh Son in New York. Editors: Erik Holm, Gregory Mott
Share Investor Blog - Stockmarket & Business commentary
Share Investor New Zealand Business News- Get more business news
Discuss this topic @ Share Investor Forum - Register free
Share Investor's Daily Forex Updates
Recommended Amazon Reading
|The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham |
Buy new: $14.95 / Used from: $11.44
Usually ships in 24 hours
|The Warren Buffett Way, Second Edition by Robert G. Hagstrom|
Buy new: $9.72 / Used from: $4.67
Usually ships in 24 hours