Bailout assessment looking up, says Treasury

Bailout assessment

According to reports yesterday, the US Treasury Department expects to recover all but $42 billion of the $370 billion it has lent to struggling financial services companies since the economic crisis began last year.

The New York Times reports that the latest assessment of the $700 billion bail-out program, which was provided by two Treasury officials on Sunday ahead of a report to Congress due later today, shows a vast improvement from the Obama administration’s estimates last summer.

While officials did report that the government could ultimately lose $100 billion more from the bail-out program in new loans to banks, aid to troubled homeowners and credit to small businesses, the new estimates would lower the administration's deficit forecast for this fiscal year, which began in October, to about $1.3 trillion, from $1.5 trillion.

Reports also highlight, however, that the government's potential losses obviously permeate beyond the boundaries of the Treasury program. The Federal Reserve, for example, still holds a trillion-dollar portfolio of mortgage-backed securities whose market value is unknown, the New York Times reported yesterday.

Higher-than-expected

An improved forecast is linked to impressive gains by those banks that had been bailed out last year. Many of the firms have now made moves to pay back the loans they had received and this, combined with the fact that as the financial services sector recovered from its free fall last year the government has not had to use much more of its $700 billion in lending authority, has lead to a brighter outlook.

Bank of America, for instance, became the latest big bank to say that it was raising private capital and would soon repay its $45 billion bail-out loan. This leaves Citigroup as the last of Wall Street's banking behemoths to be tethered to the state.

Treasury secretary, Timothy Geithner, testified last week to a Senate committee that "nothing would make me happier than to end this as quickly as possible." Before adding, "but we're not quite there yet."

Nonetheless, when including Bank of America’s promised repayment, banks have now repaid $116 billion according to Treasury officials. Getihner is hopeful that banks will repay $175 billion by the end of next year.

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BoA repay bail-out loans | AIG reduces government stake | Wall Street drops overdraft fees

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