Monday, April 27, 2009

The 10 Biggest Recipients of Federal Bailout Money

Over the past year, the federal government has given out a lot of money to both struggling financial companies and American automobile makers. With huge executive bonuses in the news and more money being given out to huge corporations, the American taxpayers are beginning to become more skeptical of federal bailouts. To help the readers of my blog gain a better understanding of these “bailouts” I have put together the following list of the top 10 biggest recipients of federal bailout money.

#1 AIG

$170 to $240 billion

The American International Group (AIG) makes the top of my list because the insurance giant has received numerous bailouts, which many experts claim totals over $170,000,000,000. In addition, it is predicted that AIG could need as much as $75 billion more in federal funds over the next few years. This could put their total at upwards of a quarter of a billion dollars.

AIG got into trouble when their credit ratings were downgraded and the company ran out of liquid assets. The federal government first gave AIG a credit of $85 billion in exchange for a nearly 80% stake in the company. The company later received another bailout from the government, which sparked public outrage after it was learned that AIG had given out massive bonuses to a group of high paid executives. Many Americans felt that taxpayer money should not be going to companies rewarding executives

In spite of all the negative publicity, the government and President Barack Obama have stood behind AIG. They argue that the insurance giant is so deeply intertwined with the financial system that its failure could ruin the country’s already shaken economy. According to reports, AIG provides insurance to more than 30 million policyholders and 100,000 different entitles, including small businesses, government entities, pension funds, and multi national corporations.

#2 Citigroup

$55 to $351 billion

Citigroup is an American financial services company based out of New York. They are estimated to have the world's largest financial services network with over 12,000 offices across the globe. As of this date, they have received two TARP payments from the federal government totaling $50 billion. In addition, the government has also assured up to $301 billion of the company’s assets. Meaning the company could end up receiving over $300 billion dollars of taxpayer money.

So far, the government has had to issue one $5 billion payment to Citigroup because of the asset guarantee. When Citigroup reported huge losses earlier in the year they had to absorb losses totaling $29 billion, but received $5 billion from the Treasury and another $10 billion from the FDIC.

So far, Citigroup has avoided making headlines for executive bonuses. The company claims they are using their funding to expand the flow of credit in the economic crisis and to get loans out to eager borrowers. They even formed a committee to oversee the way their TARP money is being spent.

#3 Bank of America

$45 to $163 billion

According to the Charlotte Business Journal Bank of America Corporation is the world’s largest financial services company in the world. However, along with most of the country’s financial institutions they needed support from the federal government. They were given two payments for stock ($25,000 on October 28, 2008 and $20,000 in January 2009), and received a federal asset guarantee of up to $118 billion. However, it is also important to note that they were paid an estimated $6 billion by AIG during the financial crisis (AIG reportedly used TARP money to make this payment).

Bank of America did receive some lash-back for their decision to acquire Merrill Lynch with out citing their lack of immediate proper funding. However, the federal government had little choice but to offer Bank of America more assistance, as thousands of businesses and taxpayers depend on the bank.

#4 JPMorgan Chase

$25 billion

JPMorgan Chase & Co. is considered one of the oldest financial services firms in the world, but began having asset problems along with all the other banks in the country. On October 28, 2008 they were given $25 billion as part of the government’s initial TARP payments. The company has stayed relatively off the radar since receiving the funds, except for when it was learned that they had made tentative plans to purchase new corporate jets after receiving bail out money. However, they quickly put out a statement announcing that all of their federal debts would be repaid before any jets were purchased.

#5 Wells Fargo

$25 billion

Wells Fargo & Co. is widely considered the “The World's Safest US Bank” after they became the only US bank to be rated AAA by the S&P. Not surprisingly, the bank has had what many are calling one of the most successful bailout stories of the top 10. After receiving federal aid, Wells Fargo made a recent announce to its investors to expect a profit of $3 billion for the quarter. While at face value this seems like a great victory for the banks and economy, some skeptics point out they may not be out of danger. Wells Fargo bought out Wachovia, inheriting some mortgage loans and a lot of government regulation, not to mention missing information and unclear capital numbers. Only time will tell if the acquisition will hurt or help the giant financial institution.

#6 General Motors

$13.4 to $18.4 billion

General Motors Corporation (GM) and Ford have both been in the news about the money they received from the government. However, GM is the only of the automakers to make our top 10 list. So far, they have received an estimated $13.4 billion in bailout funds, and have already requested more help. It’s also important to note that the $13.4 billion does not include an estimated $5 billion that the federal government announced they would be GM and Ford for “for payments to suppliers from participating auto companies,” under a new Auto Supplier Support Program.

As I mentioned before, GM had requested additional funds from the government but President Obama’s administration rejected their proposal. They did agree to provide GM with working capital for the next 60 days, but said that during that time they would “be working closely with GM to produce a better business plan.”

#7 The Goldman Sachs Group, Inc.

$10 billion

The Goldman Sachs Group had managed to avoid controversy, until they recently began selling their stocks to help repay the $10 billion they received from the TARP program. While most onlookers would consider this a good thing, many financial experts are afraid this early repayment will overpressure other banks to repay their debt prematurely. The main concern is that if too many banks follow suit, it could “harm the recovery effort”. Of course, Goldman Sachs benefits from this early repayment by freeing themselves of government restrictions, including spending and bonus caps.

#8 Morgan Stanley

$10 billion

Morgan Stanley is a New York based financial services provider, and unlike many other TARP recipients, they have been very open about when and how their TARP money is being used. They claim to have used some of the money towards their capital account, while additional funds were lent to Verizon Wireless.

Another smart move by Morgan Stanley is their upfront admittance that their debt will not be paid back any time soon. CEO John Mack publicly stated that, “as much as we’d like to give the money back and just focus on not having government involvement, being totally a public entity, we think and I think that it’s the wrong time to do it now... The reason that money was put in the hands of these banks is to help get us through this very difficult time in financial markets and a very difficult time in the economy.”

#9 Merrill Lynch & Co.

$10 billion

Merrill Lynch was amongst the banks hit hardest by the market crash last year. The company received a TARP from the federal government in the amount of $10 billion before Bank of American bought them out at the end of 2008. The company was also received an estimated $6 billion from AIG, who claims to have used TARP money to make the payment.

In addition to the controversy around their Bank of America buy out, Merrill Lynch has also made headlines for huge bonuses paid to executives. Unlike AIG however, Merrill Lynch has not made the list of bonus recipients public, so the American taxpayers really have no idea of knowing if TARP money was used for the bonuses or not.

#10 PNC Financial Services Group

$7.5 billion

PNC is the country’s 5th largest bank, and they first made a big splash one the bailout scheme when they acquired the Cleveland bank National City (NCC) in October of 2008. PNC used some of the money given to them through the TARP program to make the acquisition, and many called this transaction the first real “test” of TARP funds since no one was quite sure how the deal would work out. As of January of 2009, PNC claims that they did see losses immediately after their purchase, but did not think they would need any more TARP money to pull through the recession.

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