Geithner: Treasury Faces Losses From Autos, AIG


The Treasury Secretary says the government is unlikely to recoup investments in GM, Chrysler and AIG

By Rebecca Christie and Robert Schmidt

(Bloomberg)—Treasury Secretary Timothy Geithner said today the government is unlikely to recoup its investments in insurer American International Group Inc. or the automakers General Motors and Chrysler Group LLC.

Geithner also said he chose to extend the $700 billion Troubled Asset Relief Program to give the Obama administration more time to unwind its bank-rescue efforts. The economy still faces "significant headwinds," and housing markets remain dependent on government support even as they are stabilizing, he said.

U.S. financial and economic conditions have improved, Geithner said in prepared testimony for the Congressional Oversight Panel. The Treasury now expects to make money on its banking investments, if not on its efforts to stabilize the automobile and insurance industries.

"There is a significant likelihood we will not be repaid from our investments in AIG (AIG), GM and Chrysler," Geithner said.

The Government Accountability Office yesterday said that U.S. taxpayers will lose $30.4 billion from the auto-industry bailout, down from a prior estimate of $43.7 billion. The GAO report predicted a similar loss of $30.4 billion in AIG, down from a previous estimate of $31.5 billion.

Stocks rose today after government reports showed fewer Americans on average filed claims for jobless benefits over the past four weeks and the trade deficit unexpectedly narrowed in October. The Standard & Poor's 500 Index was up 0.7 percent to 1,103.35 at 11:10 a.m. in New York. The index has jumped 63 percent from its low for the year on March 9.

Growth Resumes

The world's largest economy expanded at a 2.8 percent annual rate in the fourth quarter after shrinking for a year. The economy will expand 2.6 percent in 2010, according to the median forecast of 58 economists surveyed by Bloomberg News this month. The jobless rate will average 10 percent next year.

"The economy would not be growing again without TARP," Geithner told the panel in response to a question.

The Treasury predicts a $19 billion profit on its banking investments, Geithner said. Long-term TARP costs will be no higher than $140 billion, Treasury forecasts. Geithner said the ultimate return will depend on how the economy fares.

Sale of Warrants

The Treasury expects "substantial income" from sales of TARP warrants, received as part of the government's investment in banks, in coming weeks, Geithner said. He said that auctions will often bring the highest returns for the government.

Banks that pay back their capital injections must also dispose of the warrants that the Treasury received, either by repurchasing them or allowing the department to sell them. Goldman Sachs Group Inc. (GS) redeemed its warrants for $1.1 billion, while JPMorgan Chase & Co. (JPM) opted to allow the government to auction its warrants after the Treasury rejected an appraisal as too low.

Geithner appears before the panel, led by Harvard law professor Elizabeth Warren, as it prepares for a personnel shift. Representative Jeb Hensarling, a Texas Republican, yesterday resigned, Warren said in an interview with Bloomberg Television.

"He said he wanted to concentrate his efforts elsewhere here in Congress," Warren said. Hensarling has been a vocal critic of TARP.

Geithner told the panel that the Treasury can't force small banks to participate in initiatives aimed at stimulating small- business lending. He said these programs have been less successful than hoped because banks have been wary of submitting to the extra regulation that comes with taking TARP aid.

Geithner said parts of the securitization markets are "still impaired," especially for securities backed by commercial mortgages. He also hailed improvements in the markets for asset-backed securities, which he said are no longer as dependent on publicly supported markets like the Federal Reserve's Term Asset-Backed Securities Lending Facility.

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net


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