type: other

jurisdiction: US

text: b' SIGTARP: Quarterly Report to Congress | July 21, 2009\n CT\n INSPE OR GE\n AL N\n CI\n\n\n\n\n ER\n E\n SP\n\n\n\n\n A L\n TRO\n\n\n\n\n M\n RA\n UB\n\n\n\n\n OG\n LE\n D\n ASS PR\n E T R ELIEF\n\n\n\n\nSIGTARP\nSIG-QR-09-03\n Q3\n 2009\n SIGTARP Office of the Special Inspector General\n for the Troubled Asset Relief Program\n Advancing Economic Stability Through Transparency, Coordinated Oversight and Robust Enforcement\n\n\n202.622.1419\nHotline: 877.SIG.2009 Quarterly Report to Congress\nSIGTARP@do.treas.gov July 21, 2009\nwww.SIGTARP.gov\n\x0cMISSION\nSIGTARP\xe2\x80\x99s mission is to advance economic stability by promoting the\nefficiency and effectiveness of TARP management, through transparency,\nthrough coordinated oversight, and through robust enforcement against\nthose, whether inside or outside of government, who waste, steal or abuse\nTARP funds.\n\n\n\nSTATUTORY AUTHORITY\nSIGTARP was established by Section 121 of the Emergency Economic\nStabilization Act of 2008 (EESA). Under EESA, the Special Inspector General\nhas the duty, among other things, to conduct, supervise and coordinate audits\nand investigations of the purchase, management and sale of assets under the\nTroubled Asset Relief Program (TARP). In carrying out those duties, SIGTARP\nhas the authority set forth in Section 6 of the Inspector General Act of 1978,\nincluding the power to issue subpoenas.\n\n\n\n\nOffice of the Special Inspector General\nfor the Troubled Asset Relief Program\nGeneral Telephone: 202.622.1419\nHotline: 877.SIG.2009\nSIGTARP@do.treas.gov\nwww.SIGTARP.gov\n\x0cCONTENTS\n\n\nExecutive Summary 1\n TARP in Focus, and in Context 3\n Oversight Activities of SIGTARP 5\n SIGTARP\xe2\x80\x99s Recommendations on the Operations of TARP 7\n Report Organization 10\n\nSection 1\nTHE OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE\n TROUBLED ASSET RELIEF PROGRAM 11\n SIGTARP\xe2\x80\x99s Creation and Statutory Authority 13\n SIGTARP\xe2\x80\x99s Oversight Activities Since the April Quarterly Report 15\n Building SIGTARP\xe2\x80\x99s Organization 25\n\nSection 2\nTARP OVERVIEW 29\n Financial Overview of TARP 31\n Financial Institution Support Programs 45\n Asset Support Programs 72\n Automotive Industry Support Programs 93\n TARP Tutorial: Bankruptcy 97\n Homeowner Support Programs 114\n Executive Compensation 118\n\nSection 3\nTARP IN CONTEXT: FINANCIAL INSTITUTION SUPPORT\n AND POLICIES OUTSIDE OF TARP 127\n TARP Tutorial: The Federal Reserve System 130\n TARP in Context: Other Government Programs to Assist the\n Financial Sector 137\n\nSection 4\nTARP OPERATIONS AND ADMINISTRATION 159\n TARP Administrative and Program Expenditures 161\n Current Contractors and Financial Agents 162\n Conflicts of Interest 167\n\x0cSection 5\nSIGTARP RECOMMENDATIONS 169\n Recommendations Relating to the Public-Private Investment Program 171\n Continued Use of Ratings Agencies in TALF 184\n Requiring Recipients to Account for Use of TARP Funds 186\n Tracking the Implementation of Recommendations in Previous Reports 187\n\n Endnotes 193\n\nAPPENDICES\nA. Glossary* \xe2\x80\x93\nB. Acronyms and Abbreviations* \xe2\x80\x93\nC. Reporting Requirements 198\nD. Transaction Detail 202\nE. Public Announcement of Audits* \xe2\x80\x93\nF. Key Oversight Reports and Testimonies* \xe2\x80\x93\nG. Correspondence Regarding SIGTARP Recommendations 222\nH. Organizational Chart 257\n\n*Visit www.sigtarp.gov to view Appendix A: Glossary, Appendix B: Acronyms and Abbreviations,\nAppendix E: Public Announcement of Audits, Appendix F: Key Oversight Reports and Testimo-\nnies, and for further reference material.\n\x0c INVESTIGATIONS\nEXECUTIVE SUMMARY\n\x0c\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 3\n\n\n\n\nEXECUTIVE SUMMARY\nIn the nine months since the Emergency Economic Stabilization Act of 2008\n(\xe2\x80\x9cEESA\xe2\x80\x9d) authorized creation of the Troubled Asset Relief Program (\xe2\x80\x9cTARP\xe2\x80\x9d), the\nU.S. Department of the Treasury (\xe2\x80\x9cTreasury\xe2\x80\x9d) has created 12 separate programs\ninvolving Government and private funds of up to almost $3 trillion. From pro-\ngrams involving large capital infusions into hundreds of banks and other financial\ninstitutions, to a mortgage modification program designed to modify millions of\nmortgages, to public-private partnerships using tens of billions of taxpayer dol-\nlars to purchase \xe2\x80\x9ctoxic\xe2\x80\x9d assets from banks, TARP has evolved into a program of\nunprecedented scope, scale, and complexity. Moreover, TARP does not function\nin a vacuum but is rather part of the broader Government efforts to stabilize the\nfinancial system, an effort that includes dozens of inter-related programs operated\nby multiple Federal agencies. Thus, before the American people and their repre-\nsentatives in Congress can meaningfully evaluate the effectiveness of TARP, not\nonly must the TARP programs themselves be understood, but also TARP\xe2\x80\x99s scope\nand scale must be placed into proper context with the other Government programs\ndesigned to support the financial system. That is one of the ambitious goals of this\nreport.\n In this report, the Office of the Special Inspector General for the Troubled\nAsset Relief Program (\xe2\x80\x9cSIGTARP\xe2\x80\x9d) endeavors to (i) explain the various TARP\nprograms and how Treasury has used those programs through June 30, 2009, (ii)\nprovide a brief explanation of the numerous other Government programs that have\nbeen implemented by Treasury and other Federal agencies to support the financial\nand mortgage markets; (iii) describe what SIGTARP has done to oversee the vari-\nous TARP programs since its April Quarterly Report to Congress, dated April 21,\n2009 (the \xe2\x80\x9cApril Quarterly Report\xe2\x80\x9d), and (iv) set forth a series of recommendations\nfor the operation of TARP.\n\nTARP IN FOCUS, AND IN CONTEXT\nTARP, as originally envisioned in the fall of 2008, would have involved the pur-\nchase, management, and sale of up to $700 billion of \xe2\x80\x9ctoxic\xe2\x80\x9d assets, primarily\ntroubled mortgages and mortgage-backed securities (\xe2\x80\x9cMBS\xe2\x80\x9d). That framework was\nsoon shelved, however, and TARP funds are being used, or have been announced\nto be used, in connection with 12 separate programs that, as set forth in Table 1\non the next page, involve a total (including TARP funds, loans and guarantees from\nother agencies, and private money) that could reach nearly $3 trillion. Through\nJune 30, 2009, Treasury has announced the parameters of how $643.1 billion of\nthe $700 billion would be spent through the 12 programs. Of the $643.1 billion\nthat Treasury has committed, $441 billion has actually been spent.\n As massive and as important as TARP is on its own, it is just one part of a much\nbroader Federal Government effort to stabilize and support the financial system.\nSince the onset of the financial crisis in 2007, the Federal Government, through\n\x0c4 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n many agencies, has implemented dozens of programs that are broadly designed to\n support the economy and financial system. As detailed in Section 3 of this report,\n the total potential Federal Government support could reach up to $23.7 trillion.\n Any assessment of the effectiveness or the cost of TARP should be made in the\n context of these broader efforts. Section 3 also provides a tutorial on the Federal\n Reserve System, which administers many of the non-TARP credit and liquidity\n facilities that are providing support to the financial system.\n\n\n\n\n TABLE 1\n\n TOTAL POTENTIAL FUNDS SUBJECT TO SIGTARP OVERSIGHT, AS OF 6/30/2009 ($ BILLIONS)\n\n Total Projected Projected TARP\n Program Brief Description or Participant Funding at Risk ($) Funding ($)\n Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d) Investments in 649 banks to date; 8 institutions $218.0 $218.0\n total $134 billion; received $70.1 billion in capital ($70.1) ($70.1)\n repayments\n Automotive Industry Financing Program GM, Chrysler, GMAC, Chrysler Financial; received 79.3 79.3\n (\xe2\x80\x9cAIFP\xe2\x80\x9d) $130.8 million in loan repayments (Chrysler\n Financial)\n Auto Supplier Support Program (\xe2\x80\x9cASSP\xe2\x80\x9d) Government-backed protection for auto parts 5.0 5.0\n suppliers\n Auto Warranty Commitment Program Government-backed protection for warranties of 0.6 0.6\n (\xe2\x80\x9cAWCP\xe2\x80\x9d) cars sold during the GM and Chrysler bankruptcy\n restructuring periods\n Unlocking Credit for Small Businesses Purchase of securities backed by SBA loans 15.0 15.0\n (\xe2\x80\x9cUCSB\xe2\x80\x9d)\n Systemically Significant Failing Institutions AIG investment 69.8 69.8\n (\xe2\x80\x9cSSFI\xe2\x80\x9d)\n Targeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d) Citigroup, Bank of America investments 40.0 40.0\n Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d) Citigroup, ring-fence asset guarantee 301.0 5.0\n Term Asset-Backed Securities Loan Facility FRBNY non-recourse loans for purchase of asset- 1,000.0 80.0\n (\xe2\x80\x9cTALF\xe2\x80\x9d) backed securities\n Making Home Affordable (\xe2\x80\x9cMHA\xe2\x80\x9d) Program Modification of mortgage loans 75.0 50.0\n Public-Private Investment Program (\xe2\x80\x9cPPIP\xe2\x80\x9d) Disposition of legacy assets; Legacy Loans 500.0 \xe2\x80\x93 1,000.0 75.0\n Program, Legacy Securities Program\n (expansion of TALF)\n Capital Assistance Program (\xe2\x80\x9cCAP\xe2\x80\x9d) Capital to qualified financial institutions; includes TBD TBD\n stress test\n New Programs, or Funds Remaining for Potential additional funding related to CAP; other 131.4 131.4\n Existing Programs programs\n Total $2,365.0 \xe2\x80\x93 $2,865.0 $699.0\n\n Note: See Table 2.1 in Section 2 for notes and sources related to the information contained in this table.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 5\n\n\n\n\nOVERSIGHT ACTIVITIES OF SIGTARP\n\nSince the April Quarterly Report, SIGTARP has been actively engaged in fulfill-\ning its vital investigative and audit functions as well as in building its staff and\norganization.\n SIGTARP\xe2\x80\x99s Investigations Division has developed rapidly and is quickly be-\ncoming a sophisticated white-collar investigative agency. Through June 30, 2009,\nSIGTARP has 35 ongoing criminal and civil investigations. These investigations\ninclude complex issues concerning suspected accounting fraud, securities fraud,\ninsider trading, mortgage servicer misconduct, mortgage fraud, public corruption,\nfalse statements, and tax investigations. Two of SIGTARP\xe2\x80\x99s investigations have\nrecently become public:\n\n\xe2\x80\xa2 Federal Felony Charges Against Gordon Grigg: On April 23, 2009, Federal\n felony charges were filed against Gordon B. Grigg in the U.S. District Court for\n the Middle District of Tennessee, charging him with four counts of mail fraud\n and four counts of wire fraud. The charges are based on Grigg\xe2\x80\x99s role in embez-\n zling approximately $11 million in client investment funds that he garnered\n through false claims, including that he had invested $5 million in pooled client\n funds toward the purchase of the TARP-guaranteed debt. Grigg pleaded guilty\n to all charges and is scheduled for sentencing on August 6, 2009.\n\xe2\x80\xa2 FTC Action Against Misleading Use of \xe2\x80\x9cMakingHomeAffordable.gov\xe2\x80\x9d: On\n May 15, 2009, based upon an action brought by the Federal Trade Commission\n (\xe2\x80\x9cFTC\xe2\x80\x9d), a Federal district court issued an order to stop an Internet-based opera-\n tion that pretended to operate \xe2\x80\x9cMakingHomeAffordable.gov,\xe2\x80\x9d the official website\n of the Federal Making Home Affordable program. According to the FTC\xe2\x80\x99s com-\n plaint, the defendants purchased sponsored links as advertising on the results\n pages of Internet search engines, and, when consumers searched for \xe2\x80\x9cmaking\n home affordable\xe2\x80\x9d or similar search terms, the defendants\xe2\x80\x99 ads prominently and\n conspicuously displayed \xe2\x80\x9cMakingHomeAffordable.gov.\xe2\x80\x9d Consumers who clicked\n on this link were not directed to the official website, but were diverted to sites\n that solicit applicants for paid loan modification services. The operators of these\n websites either purport to offer loan modification services themselves or sold\n the victims\xe2\x80\x99 personally identifying information to others. SIGTARP is providing\n assistance to FTC during the investigation.\n\n More than 50% of SIGTARP\xe2\x80\x99s ongoing investigations were developed in whole\nor in part through tips or leads provided on SIGTARP\xe2\x80\x99s Hotline (877-SIG-2009\nor accessible at www.SIGTARP.gov). Over the past quarter, the SIGTARP Hotline\nreceived and analyzed more than 3,200 tips, running the gamut from expressions of\nconcern over the economy to serious allegations of fraud.\n SIGTARP remains committed to being proactive in dealing with potential fraud\nin TARP. For example, the previously announced TALF Task Force, which was\n\x0c6 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n organized by SIGTARP to get out in front of any efforts to profit criminally from\n the Term Asset-Backed Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d), has been expanded to\n cover the Public-Private Investment Program (\xe2\x80\x9cPPIP\xe2\x80\x9d). In addition to SIGTARP,\n the TALF-PPIP Task Force consists of the Inspector General of the Board of\n Governors of the Federal Reserve System, the Federal Bureau of Investigation,\n Treasury\xe2\x80\x99s Financial Crimes Enforcement Network, U.S. Immigration and Customs\n Enforcement, the Internal Revenue Service Criminal Investigation Division, the\n Securities and Exchange Commission, and the U.S. Postal Inspection Service.\n On the audit side, SIGTARP is in the process of completing its first round of\n audits. SIGTARP will be issuing, at about the time of this report, its first formal\n audit report concerning how recipients of Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d) funds\n reported their use of such funds. In February 2009, SIGTARP sent survey letters to\n more than 360 financial and other institutions that had completed TARP funding\n agreements through January 2009. Although most banks reported they did not seg-\n regate or track TARP fund usage on a dollar-for-dollar basis, most banks were able\n to provide insights into their actual or planned future use of TARP funds. For some\n respondents the infusion of TARP funds helped to avoid a \xe2\x80\x9cmanaged\xe2\x80\x9d reduction of\n their activities; others reported that their lending activities would have come to a\n standstill without TARP funds; and others explained that they used TARP funds to\n acquire other institutions, invest in securities, pay off debts, or that they retained\n the funds to serve as a cushion against future losses. Many survey responses also\n highlighted the importance of the TARP funds to the bank\xe2\x80\x99s capital base, and\n by extension, the impact of the funds on lending. In light of the audit findings,\n SIGTARP renews its recommendation that the Secretary of the Treasury require all\n TARP recipients to submit periodic reports to Treasury on their use of TARP funds.\n SIGTARP also has audits nearing completion examining the following issues:\n executive compensation restriction compliance, controls over external influences\n on the CPP application process, selection of the first nine participants for funds\n under CPP (with a particular emphasis on Bank of America), AIG bonuses, and\n AIG counterparty payments. In addition, SIGTARP is undertaking a series of new\n audits, as follows:\n\n \xe2\x80\xa2 CPP Warrant Valuation and Disposition Process: The audit will seek to\n determine (i) the extent to which financial institutions have repaid Treasury\xe2\x80\x99s\n investment under CPP and the extent to which the warrants associated with that\n process were repurchased or sold; and (ii) what process and procedures Treasury\n has established to ensure the Government receives fair market value for the war-\n rants and the extent to which Treasury follows a clear, consistent, and objective\n process in reaching decisions where differing valuations of warrants exist. This\n audit complements a July 10, 2009, report by the Congressional Oversight Panel\n examining the warrant valuation process.\n \xe2\x80\xa2 Follow-up Assessment of Use of Funds by TARP Recipients: This audit will\n examine use of funds by recipients receiving extraordinary assistance under the\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 7\n\n\n\n\n Systemically Significant Failing Institutions program, the Automotive Industry\n Financing Program, as well as insurance companies receiving assistance under\n CPP.\n\xe2\x80\xa2 Governance Issues Where U.S. Holds Large Ownership Interests: The audit,\n being conducted at the request of Senator Max Baucus, will examine governance\n issues when the U.S. Government has obtained a large ownership interest in a\n particular institution, including: (i) What is the extent of Government involve-\n ment in management of companies in which it has made sizeable investments,\n including direction and control over such elements as governance, compensa-\n tion, spending, and other corporate decision making? (ii) To what extent are\n effective risk management, internal controls, and monitoring in place to protect\n and balance the Government\xe2\x80\x99s interests and corporate needs? (iii) Are there per-\n formance measures in place that can be used to track progress against long-term\n goals and timeframes affecting the Government\xe2\x80\x99s ability to wind down its invest-\n ments and disengage from these companies? (iv) Is there adequate transparency\n to support decision making and to provide full disclosure to the Congress and the\n public?\n\xe2\x80\xa2 Status of the Government\xe2\x80\x99s Asset Guarantee Program with Citigroup: The\n audit examining the Government\xe2\x80\x99s Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d) with\n Citigroup, based upon a request by Representative Alan Grayson, will address a\n series of questions about the Government\xe2\x80\x99s guarantee of certain Citigroup assets\n through the AGP such as: (i) How was the program for Citigroup developed? (ii)\n What are the current cash flows from the affected assets? and (iii) What are the\n potential for losses to Treasury, the Federal Deposit Insurance Corporation, and\n the Federal Reserve under the program?\n\xe2\x80\xa2 Making Home Affordable Mortgage Modification Program: This audit will\n examine the Making Home Affordable mortgage modification program to assess\n the status of the program, the effectiveness of outreach efforts, capabilities of\n loan servicers to provide services to eligible recipients, and challenges confront-\n ing the program as it goes forward.\n\nSIGTARP\xe2\x80\x99S RECOMMENDATIONS ON THE OPERATION OF TARP\nOne of SIGTARP\xe2\x80\x99s oversight responsibilities is to provide recommendations to\nTreasury so that TARP programs can be designed or modified to facilitate effective\noversight and transparency and to prevent fraud, waste, and abuse. In Section 5 of\nthis report, SIGTARP details ongoing recommendations concerning PPIP, TALF,\nand tracking use of funds and provides an update on the implementation of recom-\nmendations made in previous reports. Two categories of recommendation are worth\nhighlighting at the outset:\n\nTransparency in TARP Programs\nAlthough Treasury has taken some steps towards improving transparency in TARP\nprograms, it has repeatedly failed to adopt recommendations that SIGTARP\n\x0c8 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n believes are essential to providing basic transparency and fulfill Treasury\xe2\x80\x99s stated\n commitment to implement TARP \xe2\x80\x9cwith the highest degree of accountability and\n transparency possible.\xe2\x80\x9d With one new recommendation made in this report, there\n are at least four such unadopted recommendations:\n\n \xe2\x80\xa2 Use of Funds Generally: One of SIGTARP\xe2\x80\x99s first recommendations was\n that Treasury require all TARP recipients to report on the actual use of TARP\n funds. Other than in a few agreements (with Citigroup, Bank of America, and\n AIG), Treasury has declined to adopt this recommendation, calling any such\n reporting \xe2\x80\x9cmeaningless\xe2\x80\x9d in light of the inherent fungibility of money. SIGTARP\n continues to believe that banks can provide meaningful information about\n what they are doing with TARP funds \xe2\x80\x94 in particular what activities they\n would not have been able to do but for the infusion of TARP funds. That belief\n has been supported by SIGTARP\xe2\x80\x99s first audit, in which nearly all banks were\n able to provide such information.\n \xe2\x80\xa2 Valuation of the TARP Portfolio: SIGTARP has recommended that Treasury\n begin reporting on the values of its TARP portfolio so that taxpayers can get\n regular updates on the financial performance of their TARP investments.\n Notwithstanding that Treasury has now retained asset managers and is receiv-\n ing such valuation data on a monthly basis, Treasury has not committed to\n providing such information except on the statutorily required annual basis.\n \xe2\x80\xa2 Disclosure of TALF Borrowers Upon Surrender of Collateral: In TALF,\n the loans are non-recourse, that is, the lender (Federal Reserve Bank of New\n York) will have no recourse against the borrower beyond taking possession of\n the posted collateral (consisting of asset-backed securities (\xe2\x80\x9cABS\xe2\x80\x9d)). Under the\n program, should such a collateral surrender occur, TARP funds will be used\n to purchase the surrendered collateral. In light of this use of TARP funds,\n SIGTARP has recommended that Treasury and the Federal Reserve disclose\n the identity of any TALF borrowers that fail to repay the TALF loan and must\n surrender the ABS collateral.\n \xe2\x80\xa2 Regular Disclosure of PPIF Activity, Holdings, and Valuation: In the PPIP\n Legacy Securities Program, the taxpayer will be providing a substantial portion\n of the funds (contributing both equity and lending) that will be used to pur-\n chase toxic assets in the Public-Private Investment Funds (\xe2\x80\x9cPPIFs\xe2\x80\x9d). SIGTARP\n is recommending that all trading activity, holdings, and valuations of assets of\n the PPIFs be disclosed on a timely basis. Not only should this disclosure be re-\n quired as a matter of basic transparency in light of the billions of taxpayer dol-\n lars at stake, but such disclosure would also serve well one of Treasury\xe2\x80\x99s stated\n reasons for the program in the first instance: the promotion of \xe2\x80\x9cprice discovery\xe2\x80\x9d\n in the illiquid market for MBS. Treasury has indicated that it will not require\n such disclosure.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 9\n\n\n\n\n Although SIGTARP understands Treasury\xe2\x80\x99s need to balance the public\xe2\x80\x99s trans-\nparency interests, on one hand, with the interests of the participants and the desire\nto have wide participation in the programs, on the other, Treasury\xe2\x80\x99s default position\nshould always be to require more disclosure rather than less and to provide the\ninvestors in TARP \xe2\x80\x94 the American taxpayers \xe2\x80\x94 as much information about what\nis being done with their money as possible. Unfortunately, in rejecting SIGTARP\xe2\x80\x99s\nbasic transparency recommendations, TARP has become a program in which\ntaxpayers (i) are not being told what most of the TARP recipients are doing with\ntheir money, (ii) have still not been told how much their substantial investments are\nworth, and (iii) will not be told the full details of how their money is being invested.\nIn SIGTARP\xe2\x80\x99s view, the very credibility of TARP (and thus in large measure its\nchance of success) depends on whether Treasury will commit, in deed as in word,\nto operate TARP with the highest degree of transparency possible.\n\nImposition of Information Barriers, or \xe2\x80\x9cWalls,\xe2\x80\x9d in PPIP\nIn the April Quarterly Report, SIGTARP noted that conflicts of interest and col-\nlusion vulnerabilities were inherent in the design of PPIP stemming from the fact\nthat the PPIF managers will have significant power to set prices in a largely illiquid\nmarket. These vulnerabilities could result in PPIF managers having an incentive\nto overpay significantly for assets or otherwise using the valuable, proprietary PPIF\ntrading information to benefit not the PPIF, but rather the manager\xe2\x80\x99s non-PPIF\nbusiness interests. As a result, SIGTARP made a series of recommendations in the\nApril Quarterly Report, including that Treasury should impose strict conflicts of\ninterest rules.\n Since the April Quarterly Report, Treasury has worked with SIGTARP to address\nthe vulnerabilities in PPIP, and SIGTARP made a series of specific recommenda-\ntions, suggestions, and comments concerning the design of the program. Treasury\nadopted many of SIGTARP\xe2\x80\x99s suggestions and has developed numerous provisions\nthat make PPIP far better from a compliance and anti-fraud standpoint than when\nthe program was initially announced.\n However, Treasury has declined to adopt one of SIGTARP\xe2\x80\x99s most fundamental\nrecommendations \xe2\x80\x94 that Treasury should require imposition of an informational\nbarrier or \xe2\x80\x9cwall\xe2\x80\x9d between the PPIF fund managers making investment decisions on\nbehalf of the PPIF and those employees of the fund management company who\nmanage non-PPIF funds. Treasury has decided not to impose such a wall in this\ninstance, despite the fact that such walls have been imposed upon asset manag-\ners in similar contexts in other Government bailout-related programs, including by\nTreasury itself in other TARP-related activities, and despite the fact that three of\nthe nine PPIF managers already must abide by similar walls in their work for those\nother programs.\n If nothing else, the reputational risk that Treasury and the program could face\nif a PPIF manager should generate massive profits in its non-PPIF funds as a result\n\x0c10 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n of an unfair advantage, even if that advantage is not strictly against the rules, justi-\n fies the imposition of a wall. Failure to impose a wall, on the other hand, will leave\n Treasury vulnerable to an accusation that has already been leveled against it \xe2\x80\x94 that\n Treasury is using TARP to pick winners and losers and that, by granting certain firms\n the PPIF manager status, it is benefitting a chosen few at the expense of the dozens\n of firms that were rejected, of the market as a whole, and of the American taxpayer.\n This reputational risk is not one that can be readily measured in dollars and cents,\n but is rather a risk that could put in jeopardy the fragile trust the American people\n have in TARP and, by extension, their Government.\n In addition to these recommendations, SIGTARP also makes additional recom-\n mendations, described in more detail in Section 5, concerning other aspects of PPIP\n and concerning the use of ratings agencies in TALF.\n\n REPORT ORGANIZATION\n The report is organized as follows:\n\n \xe2\x80\xa2 Section 1 describes the activities of SIGTARP.\n \xe2\x80\xa2 Section 2 describes how Treasury has spent TARP funds thus far and contains\n an explanation or update of each program, both implemented and recently\n announced.\n \xe2\x80\xa2 Section 3 places TARP in the context of the broader bailout efforts by sum-\n marizing multiple other Government programs that support the financial system\n and the economy.\n \xe2\x80\xa2 Section 4 describes the operations and administration of the Office of Financial\n Stability (\xe2\x80\x9cOFS\xe2\x80\x9d), the office within Treasury that manages TARP.\n \xe2\x80\xa2 Section 5 lays out SIGTARP\xe2\x80\x99s recommendations to Treasury with respect to the\n operation of TARP.\n \xe2\x80\xa2 The report also includes numerous appendices containing, among other things,\n figures and tables detailing all TARP investments through June 30, 2009.\n\n The goal is to make this report a ready reference on what TARP is and how it\n has been used to date. In the interest of making this report as understandable as\n possible, and thereby furthering general transparency of the program itself, certain\n technical terms are highlighted in the text and defined in the adjacent margin. In ad-\n dition, portions of Sections 2 and 3 are devoted to tutorials explaining the financial\n terms and concepts necessary to obtain a basic understanding of the programs\xe2\x80\x99\n operations.\n\x0c THE OFFICE OF THE SPECIAL\nSECTION 1\n INVESTIGATIONS\n INSPECTOR GENERAL FOR THE\n TROUBLED ASSET RELIEF PROGRAM\n\x0c12 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 13\n\n\n\n\nSIGTARP\xe2\x80\x99S CREATION AND STATUTORY AUTHORITY\nEmergency Economic Stabilization Act\nThe Office of the Special Inspector General for the Troubled Asset Relief\nProgram (\xe2\x80\x9cSIGTARP\xe2\x80\x9d) was created by Section 121 of the Emergency Economic\nStabilization Act of 2008 (\xe2\x80\x9cEESA\xe2\x80\x9d). Under EESA, SIGTARP has the responsibility,\namong other things, to conduct, supervise, and coordinate audits and investiga-\ntions of the purchase, management, and sale of assets under the Troubled Asset\nRelief Program (\xe2\x80\x9cTARP\xe2\x80\x9d). SIGTARP is required to report quarterly to Congress to\ndescribe SIGTARP\xe2\x80\x99s activities and to provide certain information about TARP over\nthat preceding quarter. EESA gives SIGTARP the authorities listed in Section 6 of\nthe Inspector General Act of 1978, including the power to obtain documents and\nother information from Federal agencies and to subpoena reports, documents, and\nother information from persons or entities outside of Government. EESA provided\nSIGTARP with an initial allocation of $50 million to fund its operations.\n The Special Inspector General, Neil M. Barofsky, was confirmed by the Senate\non December 8, 2008, and sworn into office on December 15, 2008.\n\nSIGTARP Act\nOn April 24, 2009, the President signed into law the Special Inspector General for\nthe Troubled Asset Relief Program Act of 2009 (the \xe2\x80\x9cSIGTARP Act\xe2\x80\x9d or the \xe2\x80\x9cAct\xe2\x80\x9d),\nwhich amends EESA as follows:\n\n\xe2\x80\xa2 provides SIGTARP the authority, with limited exceptions, to conduct, supervise,\n and coordinate audits and investigations into any actions taken under EESA\n\xe2\x80\xa2 makes clear that SIGTARP can undertake law enforcement functions without\n first obtaining Attorney General approval\n\xe2\x80\xa2 gives SIGTARP the responsibility to coordinate and cooperate with other in-\n spectors general on oversight of TARP-related activities\n\xe2\x80\xa2 clarifies that SIGTARP\xe2\x80\x99s quarterly reports are due 30 days after the end of a fis-\n cal quarter\n\xe2\x80\xa2 provides SIGTARP with the ability to hire up to 25 Federal retirees, without off-\n set of their pension, and, for six months, the authority to hire Federal employees\n under 5 U.S.C. \xc2\xa7 3161, which gives employees a right to return to their original\n agencies once SIGTARP no longer exists\n\xe2\x80\xa2 requires the Treasury Secretary to take steps to address deficiencies identified by\n SIGTARP or certify to Congress that no action is necessary or appropriate\n\xe2\x80\xa2 mandates that SIGTARP shall provide a report to Congress, by September 1,\n 2009, on how TARP recipients have used TARP funds\n\xe2\x80\xa2 releases SIGTARP\xe2\x80\x99s $50 million allocation for immediate use\n\x0c14 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n SIGTARP believes that the Act makes clear that it has the authorities it needs\n to fulfill its mission and will significantly improve its ability to attract and hire expe-\n rienced Government auditors and investigators.\n\n Ensign-Boxer Amendment\n On May 20, 2009, the President signed into law the Helping Families Save Their\n Homes Act of 2009, Public Law No. 111-22. Section 402 of this legislation (the\n \xe2\x80\x9cEnsign-Boxer Amendment\xe2\x80\x9d) is named after two of its co-sponsors, Senators John\n Ensign and Barbara Boxer. The Ensign-Boxer Amendment, consistent with recom-\n mendations made in SIGTARP\xe2\x80\x99s Quarterly Report to Congress, dated April 21,\n 2009 (the \xe2\x80\x9cApril Quarterly Report\xe2\x80\x9d), requires the U.S. Department of the Treasury\n (\xe2\x80\x9cTreasury\xe2\x80\x9d), in implementing its Public-Private Investment Program (\xe2\x80\x9cPPIP\xe2\x80\x9d), to:\n\n \xe2\x80\xa2 impose, in consultation with SIGTARP, strict conflicts-of-interest rules on\n Public-Private Investment Fund (\xe2\x80\x9cPPIF\xe2\x80\x9d) managers to ensure arm\xe2\x80\x99s-length\n transactions, compliance with fiduciary duties, and full disclosure of relevant\n facts and financial interests\n \xe2\x80\xa2 require PPIF managers to file quarterly reports, disclosing the 10 largest posi-\n tions of the fund\n \xe2\x80\xa2 provide for SIGTARP access to PPIF manager books and records\n \xe2\x80\xa2 compel PPIF managers to retain all of their books and records\n \xe2\x80\xa2 require PPIF managers to acknowledge, in writing, that they owe fiduciary du-\n ties to the public and private investors in the fund\n \xe2\x80\xa2 provide that PPIF managers must develop robust ethics policies and ensure\n compliance with the same\n \xe2\x80\xa2 compel PPIF managers to develop and implement strict investor screening\n procedures\n \xe2\x80\xa2 require PPIF managers periodically to identify each investor that directly or\n indirectly owns 10% or more of the fund\n \xe2\x80\xa2 consult with SIGTARP and issue regulations governing the interaction of PPIP\n with the Term Asset-Backed Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d) and other similar\n public-private investment programs\n\n As discussed later in this section and in detail in Section 5 of this report,\n SIGTARP has, consistent with this statute, engaged in a series of discussions with\n Treasury concerning the design of PPIP. For more detail on PPIP operations,\n see the \xe2\x80\x9cPublic-Private Investment Program\xe2\x80\x9d discussion in Section 2: \xe2\x80\x9cTARP\n Overview.\xe2\x80\x9d\n The Ensign-Boxer Amendment also made available to SIGTARP an additional\n $15 million, but directed that SIGTARP, in expending such funds, prioritize per-\n formance audits and investigations of recipients of non-recourse loans made under\n any program that is funded by EESA. SIGTARP believes that the Ensign-Boxer\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 15\n\n\n\n\nAmendment will assist SIGTARP to fulfill its mission under EESA and that it will\nsubstantially improve the controls of PPIP and make it less susceptible to fraud,\nwaste, and abuse.\n\nFraud Enforcement Recovery Act\nAlso on May 20, 2009, the President signed into law the Fraud Enforcement\nRecovery Act of 2009, Public Law No. 111-21 (\xe2\x80\x9cFERA\xe2\x80\x9d). Section 2(d) of FERA\namends 18 U.S.C. \xc2\xa7 1031, entitled \xe2\x80\x9cMajor Fraud Against the United States,\xe2\x80\x9d by\nclarifying that any fraud related to efforts to obtain Federal financial assistance or Fraud Enforcement Recovery Act of\neconomic stimulus made available pursuant to EESA invokes the application of 2009, Public Law No. 111-21 (\xe2\x80\x9cFERA\xe2\x80\x9d):\ncriminal remedies under that section. SIGTARP believes that section 2(d) of FERA A law enacted to expand the Depart-\nwill thus enhance deterrence and assist in the prosecution of persons who are ment of Justice\xe2\x80\x99s authority to prose-\ninclined or attempt to defraud the programs implemented under EESA. cute crimes related to mortgage fraud,\n commodities fraud, and fraud associat-\n ed with Government assistance related\nSIGTARP\xe2\x80\x99S OVERSIGHT ACTIVITIES SINCE THE to the economic crisis.\nAPRIL QUARTERLY REPORT\nSIGTARP has continued to fulfill its oversight role in multiple parallel tracks: from\nmaking recommendations relating to preventing fraud and abuse prospectively; to\nauditing aspects of TARP both inside and outside of Government; to investigating\nallegations of fraud, waste, and abuse in TARP programs; to coordinating closely\nwith other oversight bodies; all the while trying to promote transparency in TARP\nprograms.\n\nProviding Advice on Compliance and Fraud Prevention\nTo further its goal of improving prospectively the compliance and fraud prevention\naspects of TARP programs, SIGTARP has attempted to establish and maintain\nregular lines of communications with the personnel primarily responsible for run-\nning TARP, including those working within Treasury\xe2\x80\x99s Office of Financial Stability\n(\xe2\x80\x9cOFS\xe2\x80\x9d) and within other agencies who manage TARP-related programs or activi-\nties, including the bank regulators, the Federal Reserve Board, and the Federal\nReserve Bank of New York (\xe2\x80\x9cFRBNY\xe2\x80\x9d), as follows:\n\n\xe2\x80\xa2 SIGTARP personnel generally receive briefings concerning each new TARP\n initiative and new developments in implemented programs when necessary.\n\xe2\x80\xa2 The Special Inspector General and Deputy Special Inspector General typically\n meet weekly with the head of OFS, OFS\xe2\x80\x99s Chief Compliance Officer, and OFS\xe2\x80\x99s\n General Counsel to discuss ongoing issues and new developments.\n\xe2\x80\xa2 SIGTARP has established regular communication with officials from the\n Federal Reserve System (staff from the Federal Reserve Board of Governors and\n FRBNY) in connection with the Federal Reserve TARP-related programs.\n\x0c16 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Generally, Treasury and the other agencies have been cooperative in making\n their personnel available to SIGTARP and have responded to SIGTARP\xe2\x80\x99s requests\n for documents and information.\n SIGTARP has endeavored, to the extent it has had an opportunity, to examine\n the planned framework for TARP initiatives before their terms are finalized and to\n make recommendations designed to advance oversight and internal controls and\n Mortgage-Backed Securities (\xe2\x80\x9cMBS\xe2\x80\x9d): prevent fraud, waste, and abuse within the programs. Since the April Quarterly\n A pool of mortgages bundled together Report, SIGTARP has made such recommendations with regard to PPIP\xe2\x80\x99s Legacy\n by a financial institution and sold as\n Securities Program, among others.\n securities \xe2\x80\x94 a type of asset-backed\n security.\n Recommendations Regarding the Legacy Securities Program\n As discussed more fully in Section 2 of this report, in PPIP\xe2\x80\x99s Legacy Securities\n Program, private fund managers will buy and manage portfolios of legacy mort-\n gage-backed securities (\xe2\x80\x9cMBS\xe2\x80\x9d) with equity consisting of both private capital and\n TARP funds. In the April Quarterly Report, SIGTARP identified several potential\n vulnerabilities in the basic structure of PPIP and made a series of recommenda-\n tions addressing such vulnerabilities in the areas, among others, of conflicts of\n interest, collusion, money laundering, and how PPIP would interact with TALF.\n Consistent with the Ensign-Boxer Amendment, SIGTARP and Treasury have\n engaged in an active dialogue concerning the compliance and anti-fraud provisions\n of the Legacy Securities Program. In light of those discussions, and after SIGTARP\n consulted extensively with the Federal Reserve and FRBNY (which administers\n several programs in which asset managers are retained in similar circumstances),\n SIGTARP made a series of additional recommendations in two letters to Treasury.\n As discussed in more detail in Section 5 of this report, Treasury has adopted many\n of SIGTARP\xe2\x80\x99s recommendations, making the program far better from a compli-\n ance and fraud-prevention standpoint. However, Treasury has not adopted several\n fundamentally important recommendations, including the need for an information\n barrier, or \xe2\x80\x9cwall,\xe2\x80\x9d between those managing the PPIP funds and those managing\n portfolios of similar assets at each fund management company.\n\n SIGTARP Audit Activity\n To fulfill SIGTARP\xe2\x80\x99s mandate to promote the economy, efficiency, and effectiveness\n of TARP programs and operations, SIGTARP\xe2\x80\x99s Audit Division has identified several\n aspects of TARP \xe2\x80\x94 some internal to Treasury and some external \xe2\x80\x94 that will be the\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 17\n\n\n\n\ngeneral focus of its work. SIGTARP\xe2\x80\x99s audits generally will be designed to accom-\nplish these objectives:\n\n\xe2\x80\xa2 ensure transparency in TARP programs to the fullest reasonable extent to foster\n accountability in use of funds and program results\n\xe2\x80\xa2 examine whether Treasury managers have developed sufficient internal controls\n and procedures to manage TARP programs and the vendors hired to assist in\n such management\n\xe2\x80\xa2 ensure a fair, equitable, and consistent application and review process for indi-\n viduals and entities seeking relief under the various TARP programs\n\xe2\x80\xa2 test compliance with the policies, procedures, regulations, terms, and conditions\n that are imposed on TARP participants\n\xe2\x80\xa2 coordinate with other relevant audit and oversight entities to maximize audit\n coverage while minimizing overlap and duplication of efforts\n\nSIGTARP\xe2\x80\x99s First Completed Audit: Use of Funds\nSIGTARP\xe2\x80\x99s first audit report, which is being released at or about the time of this re-\nport, concerns how recipients of Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d) funds reported\ntheir use of such funds. In February 2009, SIGTARP sent survey letters to more\nthan 360 financial and other institutions that had completed TARP funding agree-\nments through January 2009. In response to those surveys, although most banks\nreported that they did not segregate or track TARP fund usage on a dollar-for-dollar\nbasis, they were able to provide insights into their actual or planned future use of\nTARP funds. Over 98% of survey recipients reported their actual uses of TARP\nfunds. Highlights of the audit include:\n\n\xe2\x80\xa2 More than 80% of respondents cited the use of funds for lending; some reported\n how it helped them avoid reduced lending. Many banks reported that lending\n would have been lower without TARP funds or would have come to a standstill.\n\xe2\x80\xa2 More than 40% of respondents reported that they used some TARP funds to\n help maintain the capital cushions and reserves required by their banking regu-\n lators to be able to absorb unanticipated losses.\n\xe2\x80\xa2 Nearly a third of the respondents reported that they used some TARP funds to\n invest in MBS, such as those backed by Ginnie Mae, Fannie Mae, and Freddie\n Mac. These actions provided immediate support of the lending and borrowing\n activities of other banks and positioned the banks for increased lending later.\n\xe2\x80\xa2 A smaller number reported using some TARP funds to repay outstanding loans\n \xe2\x80\x94 some because the TARP funds were a more cost-effective source of funds\n\x0c18 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n than their outstanding debt and some because of pressure from a creditor to use\n the funds for that purpose.\n \xe2\x80\xa2 Several banks reported using some TARP funds to buy other banks. One re-\n ported that this was a cost-effective way to acquire additional deposits that, in\n turn, would facilitate an even greater amount of lending.\n \xe2\x80\xa2 Some banks reported that they had not yet allocated funds for lending and other\n activities due to the short time elapsed since the receipt of funds, the weak\n demand for credit, and the uncertain economic environment.\n As discussed further in Section 5 of this report, in light of the audit findings,\n SIGTARP renews its recommendation that the Secretary of the Treasury (\xe2\x80\x9cTreasury\n Secretary\xe2\x80\x9d) require all CPP recipients to submit periodic reports to Treasury on\n their use of TARP funds, including reports on their lending, investments, acquisi-\n tions, and other activities that were supported by or resulted from their receipt of\n TARP funds, as well as a description of what actions they were able to take as a\n result of TARP funding.\n\n Audits Nearing Completion\n Several additional audits are nearing completion, and SIGTARP plans to issue\n reports on the following audits over the next quarter:\n\n \xe2\x80\xa2 Executive Compensation Compliance: This audit, also based on SIGTARP\xe2\x80\x99s\n survey of TARP recipients, examines evolving executive compensation require-\n ments during the first nine months of TARP and efforts of CPP recipients to\n comply with the requirements as known at the time. This report is expected to\n be issued in August 2009.\n \xe2\x80\xa2 External Influences: This audit examines whether, or to what extent, external\n parties may have influenced decision making by Treasury or bank regulators in\n approving bank applications for funding under CPP. This report is also expected\n to be issued in August 2009.\n \xe2\x80\xa2 Funding of the First Nine TARP Recipients, with a Special Focus on\n Bank of America: This audit examines the review and approval process associ-\n ated with TARP assistance to the first nine CPP recipients, with emphasis on\n additional assistance to Bank of America subsequently authorized under the\n Targeted Investment and the Asset Guarantee Programs (\xe2\x80\x9cTIP\xe2\x80\x9d and \xe2\x80\x9cAGP\xe2\x80\x9d).\n The audit also examines selected issues and interactions among Treasury,\n Federal Reserve, and Bank of America officials in connection with Bank of\n America\xe2\x80\x99s acquisition of Merrill Lynch and the timing of Government assistance\n under the latter two programs following the acquisition. This report is expected\n to be issued in September 2009.\n \xe2\x80\xa2 Executive Compensation Oversight (AIG Bonuses): This audit examines\n payouts of large bonus payments to American International Group (\xe2\x80\x9cAIG\xe2\x80\x9d)\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 19\n\n\n\n\n employees in March 2009, including the extent of knowledge and oversight of\n AIG compensation issues by Treasury and FRBNY in light of their respective\n programs involving AIG. This report is expected to be issued in September 2009.\n\xe2\x80\xa2 AIG Counterparty Payments: This audit examines payments made to AIG\n counterparties. AIG, which has received the largest amount of financial assis-\n tance from the Government during the current financial crisis, reportedly made\n counterparty payments at 100% of face value to other financial institutions,\n including some foreign institutions and other financial institutions that had\n received financial assistance under TARP. Questions exist whether any efforts\n were made to negotiate any reduction in those payments. This report is expected\n to be issued in September 2009.\n\nNew Audits Underway or Planned\nSIGTARP has a number of recently announced audits and several others are\nplanned. Recently announced audits include:\n\n\xe2\x80\xa2 CPP Warrant Valuation and Disposition Process: This audit seeks to deter-\n mine (i) the extent to which financial institutions have repaid Treasury\xe2\x80\x99s invest-\n ment under CPP and the extent to which the warrants associated with that\n process were repurchased or sold; and (ii) what process and procedures Treasury\n has established to ensure that the Government receives fair market value for\n the warrants, and the extent to which Treasury follows a clear, consistent, and\n objective process in reaching decisions where differing valuations of warrants\n exist. This audit complements a Congressional Oversight Panel (\xe2\x80\x9cCOP\xe2\x80\x9d) report\n released on July 10, 2009, that examines the warrant valuation process.\n\xe2\x80\xa2 Follow-up Assessments of Use of Funds by TARP Recipients: This audit fol-\n lows up on SIGTARP\xe2\x80\x99s earlier use of funds audit. It focuses on use of funds by\n recipients receiving extraordinary assistance under the Systemically Significant\n Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d) program, the Automotive Industry Financing\n Program (\xe2\x80\x9cAIFP\xe2\x80\x9d), as well as insurance companies receiving assistance under\n CPP. This review seeks to provide a more complete picture of use of funds\n across a broader category of recipients to meet a Congressional mandate for a\n SIGTARP report on use of funds by TARP recipients.\n\xe2\x80\xa2 Governance Issues Where U.S. Holds Large Ownership Interests:\n SIGTARP recently received a request from Senator Max Baucus, Chairman\n of the Senate Committee on Finance, to undertake a body of work examin-\n ing the following issues: (i) What is the extent of Government involvement in\n management of companies in which it has made sizeable investments, including\n direction and control over such elements as governance, compensation, spend-\n ing, and other corporate decision making? (ii) To what extent are effective risk\n management, internal controls, and monitoring in place to protect and balance\n\x0c20 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n the Government\xe2\x80\x99s interests and corporate needs? (iii) Are there performance\n measures in place that can be used to track progress against long-term goals\n and timeframes affecting the Government\xe2\x80\x99s ability to wind down its investments\n and disengage from these companies? (iv) Is there adequate transparency to\n support decision making and to provide full disclosure to Congress and the\n public? SIGTARP is currently engaged in discussions and planning with the\n Government Accountability Office (\xe2\x80\x9cGAO\xe2\x80\x9d) directed toward a potential joint or\n complementary effort in addressing this request.\n \xe2\x80\xa2 Status of the Government\xe2\x80\x99s Asset Guarantee Program with Citigroup: This\n review, recently requested by Representative Alan Grayson, addresses a series of\n questions about the Government\xe2\x80\x99s guarantee of certain Citigroup assets through\n the AGP such as: (i) How was the program for Citigroup developed? (ii) What\n are the current cash flows from the affected assets? (iii) What is the potential\n for losses to Treasury, the Federal Deposit Insurance Corporation (\xe2\x80\x9cFDIC\xe2\x80\x9d), and\n the Federal Reserve under the program? SIGTARP expects to launch a review of\n this program during this coming quarter.\n \xe2\x80\xa2 Making Home Affordable Mortgage Modification Program: According\n to Treasury, approximately three to four million homeowners could benefit\n from the Making Home Affordable (\xe2\x80\x9cMHA\xe2\x80\x9d) mortgage modification program.\n SIGTARP plans to launch a broad review during this coming quarter to assess\n the status of the program, the effectiveness of outreach efforts, capabilities of\n loan servicers to provide services to eligible recipients, and challenges confront-\n ing the program as it goes forward.\n\n SIGTARP Investigations Activity\n SIGTARP\xe2\x80\x99s Investigations Division has developed rapidly and is quickly becoming a\n sophisticated white-collar investigative agency. Through June 30, 2009, SIGTARP\n has opened 37 and has 35 ongoing criminal and civil investigations. These investi-\n gations include complex issues concerning suspected accounting fraud, securities\n fraud, insider trading, mortgage servicer misconduct, mortgage fraud, public cor-\n ruption, false statements, and tax investigations. Two of SIGTARP\xe2\x80\x99s investigations\n have recently become public.\n\n Felony Charges Against Gordon Grigg\n On April 23, 2009, Federal felony charges were brought against Gordon B. Grigg in\n the U.S. District Court for the Middle District of Tennessee, charging Grigg with\n four counts of mail fraud and four counts of wire fraud. The charges are based on\n Grigg\xe2\x80\x99s role in embezzling approximately $11 million in client investment funds.\n Grigg pled guilty to all charges and is scheduled for sentencing on August 6, 2009.\n According to public documents, Grigg solicited approximately 60 investors to\n invest funds totaling approximately $11 million. Grigg never purchased securities\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 21\n\n\n\n\nor managed accounts for clients who invested funds with him; instead, he used\nthe investor funds for his personal benefit and expenses and to disburse \xe2\x80\x9cficti-\ntious\xe2\x80\x9d earnings and return of deposits to clients who cashed out or closed their\naccounts. As an inducement for clients to invest, Grigg promised that he would\ngenerate and sustain high rates of annualized returns on investment, and, as part\nof his solicitation, he falsely claimed that he had the ability to invest client funds\nin Government-guaranteed commercial paper and bank debt as part of TARP.\nSIGTARP investigators provided assistance in the case in coordination with the\nUnited States Attorney\xe2\x80\x99s Office for the Middle District of Tennessee, the Securities\nand Exchange Commission (\xe2\x80\x9cSEC\xe2\x80\x9d), the Federal Bureau of Investigation (\xe2\x80\x9cFBI\xe2\x80\x9d),\nthe United States Postal Inspection Service (\xe2\x80\x9cUSPIS\xe2\x80\x9d), the Tennessee Department\nof Commerce and Insurance, and the Franklin, Tennessee, Police Department.\n\nSupporting FTC\xe2\x80\x99s Action Enjoining Improper Use of\n\xe2\x80\x9cMakingHomeAffordable.gov\xe2\x80\x9d\nOn Friday, May 15, 2009, at the request of the Federal Trade Commission (\xe2\x80\x9cFTC\xe2\x80\x9d),\na Federal district court issued an order to stop an Internet-based operation that pre-\ntended to operate \xe2\x80\x9cMakingHomeAffordable.gov,\xe2\x80\x9d the official website of the Federal\nMHA program for mortgage loan assistance. The FTC alleged that the defendants\ndeceptively diverted consumers who searched online for the free Government-\nassistance program to commercial websites that offer loan modification services for\na fee.\n According to the FTC\xe2\x80\x99s complaint, the defendants purchased sponsored links\nfor their advertising on the results pages of Internet search engines, including\nyahoo.com, msn.com, altavista.com, and alltheweb.com. When consumers\nsearched for \xe2\x80\x9cmaking home affordable\xe2\x80\x9d or similar search terms, the defendants\xe2\x80\x99 ads\nprominently and conspicuously displayed the website address \xe2\x80\x9cmakinghomeafford-\nable.gov.\xe2\x80\x9d Consumers who clicked on this advertised hyperlink were not directed to\nthe official website for the MHA program, but rather were diverted to websites that\nsolicit applicants for paid loan modification services. These commercial websites,\nwhich are not part of or affiliated with the U.S. Government, require consumers to\nenter personally identifying and confidential financial information. The operators of\nthese websites either purport to offer loan modification services themselves or sell\nthe personally identifying information to others.\n The FTC filed an emergency request for a temporary restraining order in the\nU.S. District Court for the District of Columbia, Civil Case No. 1:09-cv-00894\n(CKK). Judge Colleen Kollar-Kotelly entered a temporary restraining order, barring\nthe defendants from using the \xe2\x80\x9cMakingHomeAffordable.gov\xe2\x80\x9d hyperlink or repre-\nsenting that they are affiliated with the U.S. Government. The order also requires\nthe four search engine providers to identify those who paid them to place the\nads and to refuse to place paid ads that contain active hyperlinks that are labeled\n\x0c22 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n \xe2\x80\x9cMakingHomeAffordable.gov\xe2\x80\x9d or any other domain name containing \xe2\x80\x9c.gov.\xe2\x80\x9d\n SIGTARP is providing assistance and support to the FTC during the\n investigation.\n\n SIGTARP Hotline\n One of SIGTARP\xe2\x80\x99s primary investigative priorities is to operate the SIGTARP\n Hotline and thus provide an interface with the American public to facilitate the re-\n porting of concerns, allegations, information, and evidence of violations of criminal\n and civil laws in connection with TARP. Over the past quarter alone, the SIGTARP\n Hotline has received and analyzed more than 3,200 contacts on the Hotline. These\n contacts run the gamut from expressions of concern over the economy to serious\n allegations of fraud involving TARP, and more than half of SIGTARP\xe2\x80\x99s investiga-\n tions were generated in connection with Hotline tips. The SIGTARP Hotline is\n capable of receiving information anonymously, and confidentiality can and will be\n provided to the fullest extent possible. The American public can provide informa-\n tion by telephone, mail, fax, or online. SIGTARP has established a Hotline con-\n nection on its website at www.SIGTARP.gov. SIGTARP honors all whistleblower\n protections.\n\n TALF-PPIP Task Force\n In a proactive initiative to get out in front of any efforts to profit criminally from\n the up to $1 trillion TALF program, SIGTARP organized a multi-agency task force\n to deter, detect, and investigate any instances of fraud or abuse in TALF. In con-\n nection with the announcement of the Financial Stability Plan (\xe2\x80\x9cFSP\xe2\x80\x9d), Treasury\n announced the outlines of PPIP to deal with the problems posed by \xe2\x80\x9ctoxic\xe2\x80\x9d legacy\n mortgages and MBS. The PPIFs set up through PPIP will be able to use TALF to\n obtain Federal Reserve financing to purchase such assets. Because of the expected\n use of TALF by PPIP and the significant subject-matter overlap, SIGTARP and its\n partners have expanded the TALF Task Force to also address the law enforcement\n challenges posed by PPIP.\n The TALF-PPIP Task Force, comprising both civil and criminal law enforce-\n ment agencies, with both investigative and analytical resources, demonstrates\n that the agencies involved are meeting that challenge proactively and before the\n bulk of the money has been expended. In addition to SIGTARP, the TALF-PPIP\n Task Force consists of the Inspector General of the Board of Governors of the\n Federal Reserve System, FBI, Treasury\xe2\x80\x99s Financial Crimes Enforcement Network\n (\xe2\x80\x9cFinCEN\xe2\x80\x9d), U.S. Immigration and Customs Enforcement (\xe2\x80\x9cICE\xe2\x80\x9d), Internal\n Revenue Service Criminal Investigation Division (\xe2\x80\x9cIRS-CI\xe2\x80\x9d), SEC, and the USPIS.\n The members of the TALF-PPIP Task Force combine their shared expertise in\n securities fraud investigations and maximize their resources to deter potential\n criminals, to identify and stop fraud schemes before they can fully develop, and to\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 23\n\n\n\n\nbring to justice those who seek to commit fraud through TALF or PPIP. Although\nparticipants of these programs who play by the rules have nothing to fear from this\nTask Force, Federal law enforcement is ready now to detect, investigate, and bring\nto justice any who would try to steal from these important programs.\n Representatives from each agency participate in regular briefings about TALF\nand PPIP, collectively identify areas of fraud vulnerability, engage in the training of\nagents and analysts with respect to the complex issues surrounding the program,\nand serve as points of contact within each agency for leads relating to TALF and\nany resulting cases that are generated. The TALF-PPIP Task Force has already\nreceived substantive briefings from FRBNY, Treasury, and SEC and has further\ntraining sessions scheduled.\n The TALF-PPIP Task Force represents a historic law enforcement effort\nwith an ambitious goal: to redefine the policing of complex Federal Government\nprograms by proactively arranging a coordinated law enforcement response before\nfraud occurs.\n\nCoordination with Law Enforcement Agencies\nAs part of its coordination role, SIGTARP has been active in forging partnerships\nwith other criminal and civil law enforcement agencies. These relationships are de-\nsigned to benefit both investigations originated by other agencies, when SIGTARP\nexpertise can be brought to bear, and SIGTARP\xe2\x80\x99s own investigations, which can be\nimproved by tapping into additional resources. In this regard:\n\n\xe2\x80\xa2 SIGTARP has continued to develop close working relationships with the FBI,\n IRS-CI, USPIS, ICE, SEC, and the FTC, both with each agency\xe2\x80\x99s headquarters\n and various field offices.\n\xe2\x80\xa2 SIGTARP has brought on a full-time detailee from the FBI\xe2\x80\x99s Washington Field\n Office (\xe2\x80\x9cWFO\xe2\x80\x9d) to work on SIGTARP investigations and to serve as a liaison\n with the FBI-WFO.\n\xe2\x80\xa2 The Special Inspector General and Deputy Special Inspector General recently\n met with SEC\xe2\x80\x99s new Chief of the Enforcement Division and SIGTARP has\n several ongoing investigations with SEC.\n\xe2\x80\xa2 SIGTARP is in the process of bringing on board a detailee from SEC to assist in\n SIGTARP investigations and to serve as a liaison with SEC.\n\xe2\x80\xa2 SIGTARP has continued to develop relationships with the Department of\n Justice (\xe2\x80\x9cDOJ\xe2\x80\x9d), both at Main Justice and with U.S. Attorney\xe2\x80\x99s Offices across\n the country, concerning both criminal and civil enforcement, and is currently\n working with various DOJ components on many of its open investigations. The\n Special Inspector General recently gave the keynote address at DOJ/FDIC\xe2\x80\x99s an-\n nual conference on bank fraud.\n\x0c24 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n \xe2\x80\xa2 SIGTARP continues to coordinate with more than a dozen States Attorneys\n General.\n \xe2\x80\xa2 SIGTARP\xe2\x80\x99s Deputy Special Inspector General for Investigations established\n the Assistant Inspector General for Investigations (\xe2\x80\x9cAIGI\xe2\x80\x9d) TARP Interagency\n Working Group. Its objective is to provide an active forum for heads of investiga-\n tive divisions within the Inspector General (\xe2\x80\x9cIG\xe2\x80\x9d) community and other law en-\n forcement agencies whose agency mission is in some way affiliated with TARP,\n to coordinate and share relevant investigative information at the national level.\n \xe2\x80\xa2 SIGTARP continues to work closely with the New York High Intensity Financial\n Crime Area (\xe2\x80\x9cNY HIFCA\xe2\x80\x9d). NY HIFCA provides SIGTARP with two dedicated\n financial analysts, supervised by a Senior Special Agent from ICE, to provide da-\n tabase search and analytical support, and the Special Inspector General recently\n gave the keynote address at the NY HIFCA\xe2\x80\x99s annual conference. This relation-\n ship has already generated several complex ongoing investigations.\n \xe2\x80\xa2 SIGTARP obtains access to Bank Secrecy Act (31 U.S.C. \xc2\xa7 5311 et seq.) data-\n base services through FinCEN. SIGTARP is working with FinCEN to develop\n an advisory regarding TARP programs that will be sent to thousands of financial\n institutions, and SIGTARP\xe2\x80\x99s Deputy Special Inspector General gave a presenta-\n tion at FinCEN\xe2\x80\x99s Bank Secrecy Act Working Group annual meeting.\n\n Coordination with Other EESA Oversight Bodies\n EESA, as amended, is explicit in mandating that SIGTARP coordinate audits and\n investigations into TARP with the other primary oversight bodies: the Financial\n Stability Oversight Board (\xe2\x80\x9cFSOB\xe2\x80\x9d), COP, and GAO. Numerous other agencies,\n both in the IG community and among criminal and civil law enforcement agencies,\n potentially have responsibilities that touch on TARP as well. SIGTARP takes seri-\n ously its mandate to coordinate these overlapping oversight responsibilities, both to\n ensure maximum coverage and to minimize duplicative requests of TARP manag-\n ers. SIGTARP and its partners have continued to have significant success on this\n front since the April Quarterly Report. These coordination efforts include:\n\n \xe2\x80\xa2 bi-weekly conference calls with staff from FSOB\n \xe2\x80\xa2 regular meetings with staff from COP and the launching of a complementary\n effort to address Treasury\xe2\x80\x99s repurchase of warrants from TARP recipients\n \xe2\x80\xa2 frequent interactions with GAO to coordinate ongoing and planned work to\n avoid any unnecessary duplication of efforts and to better facilitate their indi-\n vidual responsibilities\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 25\n\n\n\n\nTARP-IG Council\nDue to the scope of the various programs under TARP, numerous Federal agen-\ncies have some role in administering or overseeing TARP programs. To further\nfacilitate SIGTARP\xe2\x80\x99s coordination role, the Special Inspector General founded and\nchairs the TARP Inspector General Council (\xe2\x80\x9cTARP-IG Council\xe2\x80\x9d), made up of\nthe Comptroller General and those IGs whose oversight functions are most likely\nto touch on TARP issues. The Council meets monthly to discuss developments in\nTARP and to coordinate overlapping audit and investigative issues. The TARP-IG\nCouncil currently comprises:\n\n\xe2\x80\xa2 The Special Inspector General\n\xe2\x80\xa2 Inspector General of the Department of the Treasury\n\xe2\x80\xa2 Inspector General of the Board of Governors of the Federal Reserve System\n\xe2\x80\xa2 Inspector General of the Federal Deposit Insurance Corporation\n\xe2\x80\xa2 Inspector General of the Securities and Exchange Commission\n\xe2\x80\xa2 Inspector General of the Federal Housing Finance Agency\n\xe2\x80\xa2 Inspector General of the Department of Housing and Urban Development\n\xe2\x80\xa2 Treasury Inspector General for Tax Administration\n\xe2\x80\xa2 Inspector General for the Small Business Administration\n\xe2\x80\xa2 Comptroller General of the United States (head of GAO) or designee\n\nCommunications with Congress\nOne of SIGTARP\xe2\x80\x99s primary functions is to ensure that Members of Congress are\nkept informed of developments in TARP programs and SIGTARP\xe2\x80\x99s oversight activi-\nties. To fulfill that role, the Special Inspector General and SIGTARP staff regularly\nbrief Members and staff. More formally, over the past quarter, the Special Inspector\nGeneral testified before the Joint Economic Committee (\xe2\x80\x9cJEC\xe2\x80\x9d) on April 23,\n2009; entitled \xe2\x80\x9cFollowing the Money: A Quarterly Report by the Special Inspector\nGeneral for the TARP,\xe2\x80\x9d the testimony focused on the findings and recommenda-\ntions of SIGTARP\xe2\x80\x99s April Quarterly Report. Copies of all of the Special Inspector\nGeneral\xe2\x80\x99s written testimony, hearing transcripts, and a variety of other materials\nassociated with Congressional hearings since SIGTARP\xe2\x80\x99s inception are posted at\nwww.SIGTARP.gov/reports.\n\n\n\nBUILDING SIGTARP\xe2\x80\x99S ORGANIZATION\nFrom the day that the Special Inspector General was confirmed by the Senate,\nSIGTARP has worked to build its organization through various complementary\nstrategies, including hiring experienced senior executives who can play multiple\n\x0c26 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n roles during the early stages of the organization, leveraging the resources of other\n agencies, and, where appropriate and cost-effective, obtaining services through\n SIGTARP\xe2\x80\x99s authority to contract. Since the April Quarterly Report, SIGTARP has\n continued to make substantial progress in building its operation.\n\n Hiring\n Each of SIGTARP\xe2\x80\x99s divisions has continued the process of filling out its ranks. As\n of June 30, 2009, SIGTARP had approximately 60 personnel, including detailees\n from other agencies, with several new hires to begin over the coming weeks.\n SIGTARP\xe2\x80\x99s employees hail from many Federal agencies, including DOJ, FBI, IRS-\n CI, Air Force Office of Special Investigations, GAO, Department of Transportation,\n Department of Energy, SEC, DOJ, U.S. Secret Service, United States Postal\n Service, U.S. Army Criminal Investigation Command, Naval Criminal Investigative\n Service, Treasury-Office of the Inspector General, Department of Energy-Office\n of the Inspector General, Department of Transportation-Office of the Inspector\n General, Department of Homeland Security-Office of the Inspector General,\n FDIC-Office of the Inspector General, Office of the Special Inspector General for\n Iraq Reconstruction, and the Department of Housing and Urban Development\n Office of the Inspector General. Hiring is actively ongoing, building to SIGTARP\xe2\x80\x99s\n current goal of approximately 160 full-time employees. The SIGTARP organiza-\n tional chart, as of June 30, 2009, is included in Appendix H.\n\n SIGTARP Budget\n Section 121(j) of EESA provided $50 million in initial operating funds to\n SIGTARP. When SIGTARP was established and its initial operating resources were\n allocated, TARP was envisioned as a $700 billion asset-purchase and -guarantee\n FIGURE 1.1\n program. In the months that followed, however, TARP evolved into 12 separate\n SIGTARP FY2010 PROPOSED BUDGET programs that have been estimated to involve up to approximately $3 trillion, sig-\n $ Millions, % of $48.4 Million\n nificantly expanding the necessary scope of SIGTARP\xe2\x80\x99s oversight operations and re-\n source needs. SIGTARP anticipates that its total budget for FY 2010 will be $48.4\n Other $1.4 3% million, based on the assumption that it will reach its target of 160 staff by early\n Transportation 2010. Approximately 50% of SIGTARP\xe2\x80\x99s non-personnel costs will be payments\n $3.1 6%\n to other Government agencies for services provided. For a detailed breakdown of\n Advisory\n 15% SIGTARP\xe2\x80\x99s FY 2010 budget, see Figure 1.1.\n $7.3\n 48% Personnel SIGTARP estimates that its initial operating funds will be expended by ap-\n $23.2\n proximately the second quarter of FY 2010 and that an additional $28.3 million\n 28%\n Rent, Services\n will be needed to fully fund operations through the fiscal year. Taking into account\n $13.4 a portion of the $15 million in additional funds made available by the Ensign-Boxer\n Amendment, which SIGTARP expects to spend over three years (i.e., $5 mil-\n lion per year), SIGTARP has submitted a request to Treasury for a $23.3 million\n amendment to the FY 2010 budget submission.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 27\n\n\n\n\nSIGTARP\xe2\x80\x99s Physical and Technical Infrastructure\nSIGTARP has begun the process of moving into office space at 1801 L Street, NW,\nin Washington, D.C., the same office building in which the Treasury officials man-\naging TARP are located. SIGTARP is already occupying temporary quarters in that\nbuilding while its two permanent floors are being renovated. SIGTARP anticipates\noccupying its permanent space by early 2010.\n SIGTARP operates a website, www.SIGTARP.gov, on which it posts all of its re-\nports, testimony, audits, investigations (once such investigations are made public),\ncontracts, and more. The website prominently features SIGTARP\xe2\x80\x99s Hotline, which\ncan also be accessed by phone at 877-SIG-2009 (877-744-2009).\n From the website\xe2\x80\x99s inception through June 30, 2009, more than 12 million visi-\ntors have accessed SIGTARP\xe2\x80\x99s website, and SIGTARP\xe2\x80\x99s first two reports have been\ndownloaded more than 670,000 times.\n\x0c28 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0cSECT\n CH ION TARP OVERVIEW\n A P2T E R 3\n\x0c30 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 31\n\n\n\n\nThis section summarizes the activities of the U.S. Department of the Treasury\n(\xe2\x80\x9cTreasury\xe2\x80\x9d) in its management of the Troubled Asset Relief Program (\xe2\x80\x9cTARP\xe2\x80\x9d). It\nincludes a financial overview and provides updates on established TARP programs,\nincluding the status of TARP executive compensation restrictions.\n\n\nFINANCIAL OVERVIEW OF TARP\nAs of June 30, 2009, Treasury had announced commitments to spend $643.1\nbillion of the $700 billion authorized by Congress in the Emergency Economic\nStabilization Act of 2008 (\xe2\x80\x9cEESA\xe2\x80\x9d).1 Of this amount, approximately $441 billion\nhad been expended through nine implemented programs to provide support for\nU.S. financial institutions, companies, and individual borrowers.2 On May 6, 2009,\nCongress passed the Helping Families Save Their Home Act of 2009 (Public Law\nNo. 111-22),3 which amended EESA and reduced TARP\xe2\x80\x99s authorized $700 billion\nby $1.2 billion.4 Therefore, the Secretary of the Treasury (\xe2\x80\x9cTreasury Secretary\xe2\x80\x9d)\nnow \xe2\x80\x9chas the authority to purchase and hold up to roughly $699 billion in assets at\none time.\xe2\x80\x9d5\n Treasury interprets the $699 billion maximum funding for TARP, as autho-\nrized in EESA, as a cap on the amount that can be \xe2\x80\x9coutstanding\xe2\x80\x9d at any one time.\nTherefore, as funds are repaid, they become available for other EESA-authorized\npurposes.6 As of June 30, 2009, $70.3 billion7 in TARP funds had been repaid to\nthe Government. In total, 46.9% of TARP\xe2\x80\x99s available $699 billion was outstanding.8\nAny interest or dividends received from Treasury\xe2\x80\x99s investments, as well as revenues\nfrom the sale, exercise, or surrender of the warrants, are deposited into Treasury\xe2\x80\x99s Warrant: The right, but not the obliga-\ngeneral fund for the reduction of public debt and are not available to be re-used by tion, to purchase a certain number of\nTreasury.9 As of June 30, 2009, $6.9 billion in interest and dividends had been re- shares of common stock at a fixed\nceived by the Government, and $20.3 million in profits had been received from the price.\nsale of warrants and preferred stock (received as a result of exercised warrants).10\n The 12 announced programs within TARP can be categorized in 4 general\ngroups depending on the type of support they were designed to provide:\n\n\xe2\x80\xa2 Financial Institution Support Programs \xe2\x80\x94 These programs share a common,\n stated goal of stabilizing the financial market to avoid disruption and provide for\n a healthy economy.\n\xe2\x80\xa2 Asset Support Programs \xe2\x80\x94 These programs attempt to support asset values\n and liquidity in the market by providing funding to purchase securities.\n\xe2\x80\xa2 Automotive Industry Support Programs \xe2\x80\x94 These programs all have a univer-\n sal goal to stabilize the American automotive industry, promoting market stabil-\n ity and a vigorous economy.\n\xe2\x80\xa2 Homeowner Support Programs \xe2\x80\x94 These programs encourage homeowner\n affordability by providing loan modification and refinancing assistance.\n\x0c32 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Financial Institution Support Programs\n The primary tool of TARP for assisting financial institutions thus far has been a\n direct investment of capital. Financial institutions include bank holding companies\n Systemically Significant: A financial and certain systemically significant institutions, such as American International\n institution whose failure would impose Group, Inc. (\xe2\x80\x9cAIG\xe2\x80\x9d).\n significant losses on creditors and\n counterparties, call into question the \xe2\x80\xa2 Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d). Treasury created CPP to provide funds to\n financial strength of other similarly\n \xe2\x80\x9cstabilize and strengthen the U.S. financial system by increasing the capital base\n situated financial institutions, disrupt\n of an array of healthy, viable institutions, enabling them [to] lend to consumers\n financial markets, raise borrowing\n and business[es].\xe2\x80\x9d11 As of June 30, 2009, Treasury had invested $203.2 bil-\n costs for households and businesses,\n and reduce household wealth.\n lion in institutions through CPP out of a maximum projected funding total of\n $218 billion under the program, of which $70.1 billion had been repaid.12 See\n the \xe2\x80\x9cCapital Purchase Program\xe2\x80\x9d discussion in this section for more detailed\n information.\n \xe2\x80\xa2 Capital Assistance Program (\xe2\x80\x9cCAP\xe2\x80\x9d). Similar to CPP, the goal of CAP is to\n \xe2\x80\x9censure the continued ability of U.S. financial institutions to lend to creditwor-\n thy borrowers in the face of a weaker than expected economic environment and\n larger than expected potential losses.\xe2\x80\x9d13 As originally envisioned by Treasury,\n CAP investments were to be targeted to financial institutions with more than\n $100 billion in assets and would be sized to provide a capital buffer to be deter-\n mined by a Supervisory Capital Assessment Program (\xe2\x80\x9cSCAP\xe2\x80\x9d or \xe2\x80\x9cstress test\xe2\x80\x9d).14\n Treasury applied SCAP to 19 of the largest financial institutions and concluded\n that 10 of those institutions will be required to seek additional capital.15 Those\n failing to raise such capital in the private market will be required to take CAP\n funds; however, many financial institutions have raised significant funds on\n their own, which could seemingly limit their need for CAP. In addition to the\n required participants, all qualifying financial institutions may apply under CAP\n for additional capital without the stress-test requirement. As of June 30, 2009,\n Preferred Stock: Equity ownership that no transactions had occurred under this program. See the \xe2\x80\x9cCapital Assistance\n usually pays a fixed dividend, gives the Program\xe2\x80\x9d part of this section for a detailed discussion of the stress tests and\n holder a claim on corporate earnings their results.\n superior to common stock owners, and \xe2\x80\xa2 Systemically Significant Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d) Program. Under the\n has no voting rights. Preferred stock stated terms of the SSFI program, Treasury invests in systemically significant\n also has priority in the distribution of institutions to prevent their failure and the market disruption that would fol-\n assets in the case of liquidation of a low.16 As of June 30, 2009, Treasury, through SSFI, had made, and is commit-\n bankrupt company. ted to make investments in, one institution \xe2\x80\x94 AIG. This support was provided\n through two transactions \xe2\x80\x94 $40 billion17 for the purchase of preferred stock\n from AIG and approximately $29.8 billion for an equity capital facility that AIG\n can draw on as needed.18 As of June 30, 2009, AIG had drawn down $1.15\n billion in equity from the capital facility.19 See the \xe2\x80\x9cSystemically Significant\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 33\n\n\n\n\n Failing Institutions\xe2\x80\x9d part of this section for a detailed discussion of the AIG\n transactions.\n\xe2\x80\xa2 Targeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d). The stated objective of TIP is to\n make targeted investments in financial institutions \xe2\x80\x9cto avoid significant market\n disruptions resulting from the deterioration of one financial institution that can\n threaten other financial institutions and impair broader financial markets and Senior Preferred Stock: Shares that\n pose a threat to the overall economy.\xe2\x80\x9d20 As reported in SIGTARP\xe2\x80\x99s Initial Report give the stockholder priority dividend\n to Congress (\xe2\x80\x9cInitial Report\xe2\x80\x9d), dated February 6, 2009, Treasury purchased $20 and liquidation claims over junior pre-\n ferred and common stockholders.\n billion of senior preferred stock and received warrants of common stock from\n both Citigroup and Bank of America, for a total expenditure of $40 billion in\n TARP funds.21 As of June 30, 2009, Treasury had made no additional funding\n available under this program. Subsequent to SIGTARP\xe2\x80\x99s April Quarterly Report,\n Citigroup finalized an exchange offering that will convert preferred stock,\n including preferred shares acquired by Treasury through TIP/AGP and CPP,\n to trust preferred shares and common stock, respectively. See the \xe2\x80\x9cTargeted\n Investment Program and Asset Guarantee Program\xe2\x80\x9d portion of this section for a\n detailed discussion of Citibank\xe2\x80\x99s exchange offering.\n\xe2\x80\xa2 Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d). Through AGP, Treasury\xe2\x80\x99s stated goal is to\n use insurance-like protections to help stabilize at-risk financial institutions. AGP\n provides certain loss protections on a select pool of mortgage-related or similar Illiquid Assets: Assets that cannot be\n assets held by participants whose portfolios of distressed or illiquid assets pose a quickly converted to cash.\n risk to market confidence.22 As discussed in SIGTARP\xe2\x80\x99s Initial Report, Treasury,\n the Federal Deposit Insurance Corporation (\xe2\x80\x9cFDIC\xe2\x80\x9d), and the Federal Reserve\n agreed to provide certain loss protections with respect to $301 billion in trou-\n bled assets held by Citigroup.23 Treasury\xe2\x80\x99s projected TARP investment through\n this program accounted for $5 billion in protection for Citigroup as of June 30,\n 2009.24 A similar arrangement with Bank of America was announced on January\n 16, 2009; Bank of America, however, recently requested not to go forward with\n the program. As of June 30, 2009, the matter had not yet been resolved.25 See\n the \xe2\x80\x9cTargeted Investment Program and Asset Guarantee Program\xe2\x80\x9d discussion in\n this section for more information on Citigroup\xe2\x80\x99s transactions.\n\nAsset Support Programs\nThe purpose of these programs is to support the liquidity and market value of as-\nsets owned by financial institutions. These assets may include various classes of\nasset-backed securities (\xe2\x80\x9cABS\xe2\x80\x9d) and several types of loans. These programs seek\nto bolster the balance sheets of the financial firms and help free up capital so that\nfinancial institutions can extend more credit to support the U.S. economy.\n\n\xe2\x80\xa2 Term Asset-Backed Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d). TALF was originally\n designed to increase the credit available for consumer and small-business loans\n\x0c34 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n through a Federal Reserve loan program backed by TARP funds. TALF provides\n Commercial Mortgage-Backed Securi-\n non-recourse loans to investors secured by certain types of asset-backed securi-\n ties (\xe2\x80\x9cCMBS\xe2\x80\x9d): A financial instrument\n that is backed by a commercial real ties. Treasury and the Federal Reserve expanded TALF to cover additional asset\n estate mortgage or a group of com- classes, including newly issued and legacy commercial mortgage-backed securi-\n mercial real estate mortgages that are ties (\xe2\x80\x9cCMBS\xe2\x80\x9d) with the potential to expand into residential mortgage-backed\n packaged together. securities (\xe2\x80\x9cRMBS\xe2\x80\x9d). TALF as originally announced was to be a $200 billion\n program that included $20 billion of TARP funds to be used for purchasing\n Residential Mortgage-Backed Securi- surrendered collateral.26 The facility can be expanded to $1 trillion of lending;\n ties (\xe2\x80\x9cRMBS\xe2\x80\x9d): A financial instrument according to Treasury, it will provide up to $80 billion of TARP funds to sup-\n that is backed by a group of residential port this program,27 but according to the Federal Reserve, the amount for which\n real estate mortgages that are pack- Treasury would be responsible would be up to $100 billion.28 As of June 30,\n aged together.\n 2009, the Federal Reserve Bank of New York (\xe2\x80\x9cFRBNY\xe2\x80\x9d) had facilitated four\n TALF subscriptions of non-mortgage-related ABS, totaling approximately $28.5\n Legacy Assets: Also commonly\n billion of TALF borrowing.29 TALF had also launched a subscription for newly\n referred to as troubled or toxic assets,\n issued CMBS in June, for which no loans were issued. An overview of TALF,\n legacy assets are real estate-related\n loans and securities (legacy loans later in this section, provides more information on these activities.\n and legacy securities) that remain on \xe2\x80\xa2 Public-Private Investment Program (\xe2\x80\x9cPPIP\xe2\x80\x9d). As originally announced,\n banks\xe2\x80\x99 balance sheets that have lost Treasury, in coordination with FDIC and the Federal Reserve, intended PPIP\n value but are difficult to price due to to improve the health of financial institutions and restart frozen credit markets\n the recent market disruption. through the purchase of legacy assets (e.g., legacy loans, CMBS, RMBS).30 In\n addition to the expansion of TALF to include legacy securities, as discussed\n Legacy Loans: Loans that are often previously, PPIP was intended to involve investments made through multiple\n underperforming real estate-related Public-Private Investment Funds (\xe2\x80\x9cPPIFs\xe2\x80\x9d) in two subprograms \xe2\x80\x94 one to pur-\n loans held by a bank that it wishes chase real estate-related loans (\xe2\x80\x9clegacy loans\xe2\x80\x9d) and the other to purchase real\n to sell, but recent market disruptions\n estate-related securities (\xe2\x80\x9clegacy securities\xe2\x80\x9d) from financial institutions.\n have made difficult to price.\n However, as of June 30, 2009, the future of the legacy loans program is in\n doubt because FDIC has shelved the program.31 The legacy securities program\n Legacy Securities: Troubled real estate-\n is under development, and Treasury announced the selection of nine PPIF\n related securities (RMBS, CMBS), and\n other asset-backed securities (\xe2\x80\x9cABS\xe2\x80\x9d) managers on July 8, 2009, that will receive up to $30 billion in TARP funds.\n lingering on institutions\xe2\x80\x99 balance sheets Treasury has stated that PPIP, originally intended to involve up to $1 trillion in\n because their value could not be funds, is expected to utilize up to $75 billion of TARP funds.32 See the \xe2\x80\x9cPublic-\n determined. Private Investment Program\xe2\x80\x9d discussion later in this section for details about the\n program structure and fund manager terms.\n Secondary Market: The secondary \xe2\x80\xa2 Unlocking Credit for Small Businesses (\xe2\x80\x9cUCSB\xe2\x80\x9d). Under UCSB, Treasury\n market, also known as the aftermarket, announced that it will begin purchasing up to $15 billion in securities backed\n is the financial market where previously by Small Business Administration (\xe2\x80\x9cSBA\xe2\x80\x9d) loans.33 As demand has diminished\n issued securities and financial instru- in the secondary market for these securities due to adverse credit conditions,\n ments such as stocks, bonds, options,\n there has been a reduction in the volume of new small-business loans written by\n and futures are bought and sold.\n banks. As of June 30, 2009, no transactions had occurred under this program.\n See the discussion of \xe2\x80\x9cUnlocking Credit for Small Businesses\xe2\x80\x9d in this section for\n more information on the program.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 35\n\n\n\n\nAutomotive Industry Support Programs\nThe stated objective of TARP\xe2\x80\x99s automotive industry support programs is to \xe2\x80\x9cprevent\na significant disruption of the American automotive industry, which would pose a\nsystemic risk to financial market stability and have a negative effect on the econo-\nmy of the United States.\xe2\x80\x9d34\n\n\xe2\x80\xa2 Automotive Industry Financing Program (\xe2\x80\x9cAIFP\xe2\x80\x9d). Under this program,\n Treasury made emergency loans to Chrysler Holding LLC (\xe2\x80\x9cChrysler\xe2\x80\x9d), Chrysler\n Financial Services Americas LLC (\xe2\x80\x9cChrysler Financial\xe2\x80\x9d), and General Motors\n Corporation (\xe2\x80\x9cGM\xe2\x80\x9d). In addition to these investments, Treasury purchased\n senior preferred stock from GMAC LLC (\xe2\x80\x9cGMAC\xe2\x80\x9d). Subsequent to SIGTARP\xe2\x80\x99s\n April Quarterly Report, the manufacturers (Chrysler and GM) were unable to\n obtain necessary concessions from key stakeholders and, therefore, filed for\n bankruptcy on April 30, 2009, and June 1, 2009, respectively. These bankrupt-\n cies involved infusion of additional TARP funds. As of June 30, 2009, Treasury\n had expended or committed $79.3 billion in AIFP investments, of which $130.8\n million had been repaid.35 See the discussion of \xe2\x80\x9cAutomotive Industry Financing\n Program\xe2\x80\x9d later in this section for a detailed discussion on the reorganizations of\n these companies.\n\xe2\x80\xa2 Auto Supplier Support Program (\xe2\x80\x9cASSP\xe2\x80\x9d). The stated purpose of ASSP is to\n provide Government-backed financing to break the adverse credit cycle affect-\n ing the auto suppliers and the manufacturers by \xe2\x80\x9cproviding suppliers with the\n confidence they need to continue shipping their parts and the support they need\n to help access loans to pay their employees and continue their operations.\xe2\x80\x9d36\n Treasury\xe2\x80\x99s commitment under this program was $5 billion as of June 30, 2009\n \xe2\x80\x94 $3.5 billion for GM and $1.5 billion for Chrysler.37 See the discussion of\n \xe2\x80\x9cAuto Supplier Support Program\xe2\x80\x9d in this section for more information.\n\xe2\x80\xa2 Auto Warranty Commitment Program (\xe2\x80\x9cAWCP\xe2\x80\x9d). The Auto Warranty\n Commitment Program was designed by the Administration with the inten-\n tion of bolstering consumer confidence in automobile warranties on GM- and\n Chrysler-built vehicles. Under this program, Government-backed financing\n was to be provided for the warranties of cars sold during the GM and Chrysler\n restructuring periods. As of June 30, 2009, Treasury funded $640.7 million\n toward this program \xe2\x80\x94 $360.6 million was made available to GM and $280.1\n million was made available to Chrysler.38 However, Treasury has stated that the\n funds are not expected to be used by the manufacturers. Treasury expects that\n after GM and Chrysler fully emerge from bankruptcy, the committed funds will\n be refunded to Treasury.39 See the discussion of \xe2\x80\x9cAuto Warranty Commitment\n Program\xe2\x80\x9d in this section for more information.\n\x0c36 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Homeowner Support Programs\n The homeowner support programs are aimed at assisting troubled homeowners and\n financial institutions holding the affected assets.\n\n \xe2\x80\xa2 Making Home Affordable (\xe2\x80\x9cMHA\xe2\x80\x9d) Program. According to Treasury, MHA\n is a foreclosure mitigation plan intended to \xe2\x80\x9chelp bring relief to responsible\n homeowners struggling to make their mortgage payments while preventing\n neighborhoods and communities from suffering the negative spillover effects of\n foreclosure, such as lower housing prices, increased crime, and higher taxes.\xe2\x80\x9d40\n Treasury, along with other Federal agencies, \xe2\x80\x9cwill undertake a comprehensive\n multiple-part strategy,\xe2\x80\x9d which will provide for (i) a $75 billion loan modifica-\n tion program for homeowners in default on their payments or facing imminent\n default, (ii) a streamlined refinancing process for homeowners whose loans are\n serviced by Fannie Mae or Freddie Mac, and (iii) approximately $200 billion\n to support Fannie Mae and Freddie Mac.41 The funds for this effort will be\n provided from both TARP- and non-TARP-related sources. Treasury announced\n that up to $50 billion of TARP funds could be expended for this program.42 As\n FIGURE 2.1 of June 30, 2009, $18 billion had been allocated to the program.43\n TARP PROJECTED FUNDING,\n BY PROGRAM The following figures and tables provide a status summary of the implemented\n $ Billions, % of $699 Billion\n and announced TARP and TARP-related initiatives:\n UCSB 2% ASSP $5.0 1%\n $15.0\n AGP $5.0 1% \xe2\x80\xa2 total potential funds subject to SIGTARP oversight (Table 2.1)\n TIP $40.0\n AWCP $0.6 <1% \xe2\x80\xa2 projected TARP funding by program (Figure 2.1)\n MHA $50.0 6% \xe2\x80\xa2 expenditure levels by program as of June 30, 2009 (Table 2.2)\n 7% \xe2\x80\xa2 cumulative expenditures and repayments as of June 30, 2009 (Figure 2.2)\n CPP $218.0\n 21%\n SSFI $69.8 10% ($70.1)a \xe2\x80\xa2 cumulative expenditures over time for implemented programs (Figure 2.3)\n \xe2\x80\xa2 expenditures by program snapshot as of June 30, 2009 (Figure 2.4)\n PPIP $75.0 11%\n \xe2\x80\xa2 summary of terms of TARP agreements (Table 2.3 and Table 2.4)\n 11% 19% \xe2\x80\xa2 summary of largest warrant positions held by Treasury by program as of June 30,\n AIFP $79.3b 11% New Programs, 2009 (Table 2.5)\n or Remaining\n TALF $80.0 Funds for Existing \xe2\x80\xa2 summary of dividend and interest payments received by program (Table 2.6)\n Programs $131.4\n\n\n Implemented Programs\n For a reporting of all purchases, obligations, expenditures, and revenues of\n Announced Programs TARP, see Appendix C: \xe2\x80\x9cCross-Reference to Reporting Requirements.\xe2\x80\x9d\n Remaining Funds\n\n\n\n Notes: Numbers affected by rounding. As of 6/30/2009, funding for\n Capital Assistance Program (\xe2\x80\x9cCAP\xe2\x80\x9d) to be determined.\n\n a\n As of 6/30/2009, $70.1 billion of CPP funding had been repaid.\n b\n As of 6/30/2009, $130.8 million of principal payments related to\n AIFP loans (Chrysler Financial) had been repaid.\n\n Sources: See final endnote.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 37\n\n\n\n\nTABLE 2.1\n\n TOTAL POTENTIAL FUNDS SUBJECT TO SIGTARP OVERSIGHT, AS OF 6/30/2009 ($ BILLIONS)\n\n Total Projected Projected TARP\n Program Brief Description or Participant Funding at Risk ($) Funding ($)\n Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d) Investments in 649 banks to date; 8 institutions $218.0 $218.0\n total $134 billion; received $70.1 billion in capital ($70.1) ($70.1)\n repayments\n Automotive Industry Financing Program GM, Chrysler, GMAC, Chrysler Financial; received 79.3 79.3\n (\xe2\x80\x9cAIFP\xe2\x80\x9d) $130.8 million in loan repayments (Chrysler\n Financial)\n Auto Suppliers Support Program (\xe2\x80\x9cASSP\xe2\x80\x9d) Government-backed protection for auto parts 5.0 5.0\n suppliers\n Auto Warranty Commitment Program Government-backed protection for warranties of 0.6 0.6\n (\xe2\x80\x9cAWCP\xe2\x80\x9d) cars sold during the GM and Chrysler bankruptcy\n restructuring periods\n Unlocking Credit for Small Businesses Purchase of securities backed by SBA loans 15.0a 15.0\n (\xe2\x80\x9cUCSB\xe2\x80\x9d)\n Systemically Significant Failing Institutions AIG investment 69.8b 69.8b\n (\xe2\x80\x9cSSFI\xe2\x80\x9d)\n Targeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d) Citigroup, Bank of America investments 40.0 40.0\n Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d) Citigroup, ring-fence asset guarantee 301.0 5.0\n Term Asset-Backed Securities Loan Facility FRBNY non-recourse loans for purchase of asset- 1,000.0 80.0\n (\xe2\x80\x9cTALF\xe2\x80\x9d) backed securities\n Making Home Affordable (\xe2\x80\x9cMHA\xe2\x80\x9d) Program Modification of mortgage loans 75.0c 50.0\n Public-Private Investment Program (\xe2\x80\x9cPPIP\xe2\x80\x9d) Disposition of legacy assets; Legacy Loans 500.0 \xe2\x80\x93 1,000.0 75.0\n Program, Legacy Securities Program\n (expansion of TALF)\n Capital Assistance Program (\xe2\x80\x9cCAP\xe2\x80\x9d) Capital to qualified financial institutions; includes TBD TBD\n stress test\n New Programs, or Funds Remaining for Potential additional funding related to CAP; other 131.4 131.4\n Existing Programs programs\n Total $2,365.0 \xe2\x80\x93 $2,865.0 $699.0\n\n Notes: Numbers affected by rounding.\n a\n Treasury announced that it would purchase up to $15 billion in securities under the Unlocking Credit for Small Businesses program.\n b\n Actual TARP expenditures as of 6/30/2009.\n c\n $75 billion is for mortgage modification.\n\n Sources: Treasury, Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009; Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/\n transaction-reports/transactions-report_070209.pdf, accessed 7/6/2009; Treasury, \xe2\x80\x9cAuto Supplier Support Program: Stabilizing the Auto Industry in a Time of Crisis,\xe2\x80\x9d 3/19/2009, http://www.\n treas.gov/press/releases/docs/supplier_support_program_3_18.pdf, accessed 3/19/2009; Treasury, \xe2\x80\x9cUnlocking Credit for Small Businesses Fact Sheet,\xe2\x80\x9d 3/17/2009, http://www.financialsta-\n bility.gov/roadtostability/unlockingCreditforSmallBusinesses.html, accessed 6/10/2009; Treasury, \xe2\x80\x9cTreasury, Federal Reserve, and FDIC Provide Assistance to Bank of America,\xe2\x80\x9d 1/16/2009,\n http://www.treas.gov/press/releases/hp1356.htm, accessed 1/16/2009; Treasury Press Release, \xe2\x80\x9cU.S. Government Finalizes Terms of Citi Guarantee Announced in November,\xe2\x80\x9d 1/16/2009,\n http://www.financialstability.gov/latest/hp1358.html, accessed 6/8/2009; Treasury, \xe2\x80\x9cFinancial Stability Plan Fact Sheet,\xe2\x80\x9d 2/10/2009, http://www.financialstability.gov/docs/fact-sheet.pdf,\n accessed 6/8/2009; Treasury, \xe2\x80\x9cMaking Home Affordable: Updated Detailed Program Description,\xe2\x80\x9d 3/4/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed\n 6/10/2009; Treasury, \xe2\x80\x9cPublic-Private Investment Program,\xe2\x80\x9d 4/6/2009, http://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 6/9/2009.\n\x0c38 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 2.2\n\n EXPENDITURE LEVELS BY PROGRAM, AS OF 6/30/2009 ($ BILLIONS)\n\n Amount Percent (%) Section Reference\n Authorized Under EESA $700.0\n Released Immediately $250.0 35.8%\n Released Under Presidential Certificate of Need 100.0 14.3%\n Released Under Presidential Certificate of Need &\n 350.0 50.1%\n Resolution to Disapprove Failed\n Helping Families Save Their Homes Act of 2009 (1.2) (0.2)%\n Total Released $698.8 100.0%\n Less: Expenditures by Treasury Under TARPa\n Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d):\n Bank of Americab $25.0 3.6%\n Citigroup 25.0 3.6%\n JPMorganc 25.0 3.6% \xe2\x80\x9cFinancial Institution Support\n Wells Fargo 25.0 3.6% Programs\xe2\x80\x9d\n Goldman Sachsc 10.0 1.4%\n Morgan Stanley c 10.0 1.4%\n Other Qualifying Financial Institutionsd 83.2 11.9%\n CPP Total $203.2 29.1%\n Systemically Significant Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d)\n \xe2\x80\x9cFinancial Institution Support\n Program:\n Programs\xe2\x80\x9d\n AIG $69.8 10.0%\n SSFI Total $69.8 10.0%\n Targeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d):\n \xe2\x80\x9cFinancial Institution Support\n Bank of America $20.0 2.9%\n Programs\xe2\x80\x9d\n Citigroup 20.0 2.9%\n TIP Total $40.0 5.8%\n Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d): \xe2\x80\x9cFinancial Institution Support\n Citigroupe $5.0 0.7% Programs\xe2\x80\x9d\n AGP Total $5.0 0.7%\n Term Asset-Backed Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d):\n \xe2\x80\x9cAsset Support Programs\xe2\x80\x9d\n TALF LLC $20.0 2.9%\n TALF Total $20.0 2.9%\n Automotive Industry Financing Program (\xe2\x80\x9cAIFP\xe2\x80\x9d):\n GM $49.5 7.1%\n \xe2\x80\x9cAutomotive Industry Support\n GMAC 13.4 1.9%\n Programs\xe2\x80\x9d\n Chrysler 14.9 2.1%\n Chrysler Financialf 1.5 0.2%\n AIFP Total $79.3 11.3%\n Automotive Supplier Support Program (\xe2\x80\x9cASSP\xe2\x80\x9d):\n \xe2\x80\x9cAutomotive Industry Support\n GM Suppliers Receivables LLCg $3.5 0.5%\n Programs\xe2\x80\x9d\n Chrysler Holding LLCg 1.5 0.2%\n ASSP Total $5.0 0.7%\n Automotive Warranty Commitment Program (\xe2\x80\x9cAWCP\xe2\x80\x9d):\n \xe2\x80\x9cAutomotive Industry Support\n GM $0.4 0.1%\n Programs\xe2\x80\x9d\n Chrysler 0.3 0.0%\n AWCP Total $0.6 0.1%\n Making Home Affordable (\xe2\x80\x9cMHA\xe2\x80\x9d):\n Countrywide Home Loans Servicing LP $5.2 0.7%\n Chase Home Finance 3.6 0.5%\n Wells Fargo Bank, NA 2.4 0.3% \xe2\x80\x9cHomeowner Support Programs\xe2\x80\x9d\n CitiMortgage 1.1 0.2%\n GMAC Mortgage 1.0 0.1%\n Other Financial Institutionsh 4.7 0.7%\n MHA Total $18.0 2.5%\n Subtotal - TARP Expenditures $441.0 63.1%\n TARP Repaymentsi $(70.3) (10.0)%\n Balance Remaining of Total Funds Made\n Available as of 6/30/2009 $328.0 46.9%\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 39\n\n\n\n\nNotes: Numbers affected by rounding.\na\n From a budgetary perspective, what Treasury has committed to spend (e.g., signed agreements with TARP fund recipients).\nb\n Bank of America\xe2\x80\x99s share is equal to two CPP investments totaling $25 billion, which is the sum of $15 billion received on 10/28/2008 and $10 billion received on 1/9/2009.\nc\n These institutions repaid their CPP funds pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009.\nd\n Other Qualifying Financial Institutions (\xe2\x80\x9cQFIs\xe2\x80\x9d) include all QFIs that have received less than $10 billion through CPP.\ne\n Treasury committed $5 billion to Citigroup under AGP; however, this funding is conditional based on losses realized and may potentially never be expended. This amount is not an actual outlay of cash.\nf\n Treasury\xe2\x80\x99s $1.5 billion loan to Chrysler Financial represents the maximum loan amount. This $1.5 billion has not been fully expended because the loan will be funded incrementally at $100 million per week.\ng\n Represents a special purpose vehicle (\xe2\x80\x9cSPV\xe2\x80\x9d) created by the manufacturer. Balance represents the maximum loan amount, which will be funded incrementally.\nh\n Other Financial Institutions that have received less than $1 billion through MHA.\ni\n As of 6/30/2009, CPP repayments total $70.1 billion and AIFP loan repayments (Chrysler Financial) total $130.8 million.\n\nSources:\nEmergency Economic Stabilization Act, P.L. 110-343, 10/3/2008; Library of Congress, \xe2\x80\x9cA Joint Resolution Relating to the Disapproval of Obligations under the Emergency Economic Stabilization Act of\n2008,\xe2\x80\x9d 1/15/2009, www.thomas.loc.gov, accessed 1/25/2009; Helping Families Save Their Homes Act of 2009, P.L. 111-22, 5/20/2009; Treasury, Transactions Report, 7/2/2009, http://www.financial-\nstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/6/2009; Treasury, response to SIGTARP data call, 7/8/2009.\n\n\n\n FIGURE 2.2 FIGURE 2.4\n\n CUMULATIVE EXPENDITURE AND EXPENDITURES BY PROGRAM, SNAPSHOT\n $ Billions, % of $441.0 Billion\n REPAYMENTS, AS OF 6/30/2009\n $ Billions\n AGP $5.0 1%\n ASSP $5.0 1%\n MHA $18.0 4%\n\n TALF $20.0 5%\n $328.03 AWCP $0.6 0.1%\n TIP $40.0\n 9%\n $70.25\n $698.76\n 46% CPP $203.2a\n $440.98 SSFI $69.8 16%\n\n\n 18%\n Total TARP TARP TARP TARP Balance\n AIFP $79.3b\n Released Expenditures Repayments Remaining\n\n Note: Numbers affected by rounding. Notes: Numbers affected by rounding.\n a\n As of 6/30/2009, $70.1 billion of CPP funding had been repaid.\n Sources: Treasury, Transactions Report, 7/2/2009; Treasury, response to SIGTARP data call, 7/8/2009. b\n As of 6/30/2009, $130.8 million of principal payments related to AIFP\n loans (Chrysler Financial) had been repaid.\n\n Sources: Treasury, Transactions Report, 7/2/2009; Treasury, response to\n SIGTARP data call, 7/8/2009.\n\nFIGURE 2.3\nEXPENDITURES, BY PROGRAM, CUMULATIVE, 10/2008 \xe2\x80\x93 6/2009\n$ Billions\n\n\n500\n $5.0 AGP\n $18.0 MHA\n $20.0 TALF\n400\n $40.0 TIP\n\n $69.8 SSFI\n300\n a\n $85.0 Auto\n b\n200 Programs\n\n\n c\n100 $203.2 CPP\n\n\n 0\n 0\n 10/31 11/30 12/31 1/31 2/28 3/31 4/30 5/31 6/30\n 2008 2009\n AGP\n MHA\n TALF\n TIP\n SSFI\n Auto Programs\n CPP\n\n Notes: Numbers affected by rounding.\n a As of 6/30/2009, $130.8 million of principal payments related to AIFP loans (Chrysler Financial) had been repaid.\n b Auto Programs include AIFP, ASSP, and AWCP.\n c As of 6/30/2009, $70.1 billion of CPP funding had been repaid.\n\n\n Sources: Treasury, Transactions Report, 7/2/2009; Treasury, response to SIGTARP data call, 7/8/2009.\n\x0c40 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 2.3\n\n EQUITY AGREEMENTS\n TARP Program Company Date of Agreement Cost Assigned Description of Investment\n CPP \xe2\x80\x93 Public 282 QFIs 10/14/2008a and later $199.1 billion Senior Preferred Equity\n Common Stock Purchase Warrants\n b\n CPP \xe2\x80\x93 Private 331 QFIs 11/17/2008 and later $3.8 billion Preferred Equity\n\n Preferred Stock Purchase Warrants that are exercised\n immediately\n SSFI \xc2\xa0AIG 4/17/2009 $41.6 billionc Non-Cumulative Preferred Equity\n\n Common Stock Purchase Warrants\n\n SSFI \xc2\xa0AIG 4/17/2009 $29.8 billiond\n Non-Cumulative Preferred Equity\n\n Common Stock Purchase Warrants\n TIP Citigroup 12/31/2008 $20.0 billione Trust Preferred Securities\n Warrants\n f\n TIP Bank of America 1/16/2009 $20.0 billion Senior Preferred Equity\n Warrants\n AIFP GMAC LLC 12/29/2008 $5.0 billion Senior Preferred Membership Interests\n Preferred Stock Purchase Warrants that are exercised\n immediately\n AIFP GMAC LLC 5/21/2009 $7.5 billion Mandatorily Convertible Preferred Stock\n Preferred Stock Purchase Warrants that are exercised\n immediately\n AIFP GMAC LLC 5/29/2009 $0.9 billion Common Equity Interest\n\n\n\n\n Notes: Numbers affected by rounding.\n a\n Announcement date of CPP Public Term Sheet.\n b\n Announcement date of CCP Private Term Sheet.\n c\n AIG exchanged Treasury\xe2\x80\x99s $40 billion investment in Cumulative Preferred Stock (obtained on 11/25/2008) for Non-Cumulative Preferred Stock, effectively cancelling the original $40 billion investment.\n d\n The Equity Capital Facility was announced as a $30 billion commitment, but Treasury reduced this amount by the value of the AIGFP Retention Payment Amount of $165 million.\n e\n Citigroup exchanged its $20 billion Senior Preferred Equity (obtained on 12/31/2008) for Trust Preferred Securities.\n f\n Date as of Treasury\xe2\x80\x99s 1/27/2009 Transactions Report. The Security Purchase Agreement has a date of 1/15/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 41\n\n\n\n\n Investment Information Dividends Term of Agreement\n 1% - 3% of risk\xe2\x80\x93weighted assets, not to exceed $25 billion for each QFI 5% for first 5 years, 9% thereafter Perpetual\n 15% of senior preferred amount \xe2\x80\x94 Up to 10 years\n 1% - 3% of risk\xe2\x80\x93weighted assets, not to exceed $25 billion for each QFI 5% for first 5 years, 9% thereafter Perpetual\n\n 5% of preferred amount 9% Up to 10 years\n\n $41.6 billion aggregate liquidation preference 10% Perpetual\n 2% of issued and outstanding common stock on investment date; $2.50 \xe2\x80\x94 Up to 10 years\n exercise price\n Up to $29.8 billion aggregate liquidation preference. As of 6/30/2009, the 10% Up to 5 years\n aggregate liquidation preference was $1.15 billion.\n 150 common stock warrants outstanding; $0.00002 exercise price \xe2\x80\x94 Up to 10 years\n $20 billion 8% Perpetual\n 10% of total preferred stock issued; $10.61 exercise price \xe2\x80\x94 Up to 10 years\n $20 billion 8% Perpetual\n 10% of total preferred stock issued; $13.30 exercise price \xe2\x80\x94 Up to 10 years\n $5 billion 8% Perpetual\n 5% of preferred amount 9% Up to 10 years\n\n $7.5 billion 9% Perpetual\n 5% of preferred amount \xe2\x80\x94 Up to 10 years\n\n This equity interest was obtained by exchanging a prior debt obligation with \xe2\x80\x94 Perpetual\n General Motors. See \xe2\x80\x9cDebt Agreements\xe2\x80\x9d table for more information.\n\n\n\n\nSources: Treasury, Transactions Report, 7/2/2009; Treasury, \xe2\x80\x9cTARP Capital Purchase Program Agreement, Senior Preferred Stock and Warrants, Summary of Senior Preferred Terms,\xe2\x80\x9d 10/14/2008;\nTreasury, \xe2\x80\x9cTARP Capital Purchase Program Agreement, (Non-Public QFIs, excluding S Corps and Mutual Organizations) Preferred Securities, Summary of Warrant Terms,\xe2\x80\x9d 11/17/2008; Treasury, \xe2\x80\x9cSecuri-\nties Purchase Agreement dated as of November 25, 2008 between American International Group, Inc. and United States Department of Treasury,\xe2\x80\x9d 11/25/2008; Treasury, \xe2\x80\x9cTARP AIG SSFI Investment,\nSenior Preferred Stock and Warrant, Summary of Senior Preferred Terms,\xe2\x80\x9d 11/25/2008; Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of January 15, 2009 between Citigroup, Inc. and United States\nDepartment of Treasury,\xe2\x80\x9d 1/15/2009; Treasury, \xe2\x80\x9cCitigroup, Inc. Summary of Terms, Eligible Asset Guarantee,\xe2\x80\x9d 11/23/2008; \xe2\x80\x9cSecurities Purchase Agreement dated as of January 15, 2009 between Bank of\nAmerica Corporation and United States Department of Treasury,\xe2\x80\x9d 1/15/2009; Treasury, \xe2\x80\x9cBank of America Summary of Terms, Preferred Securities,\xe2\x80\x9d 1/16/2009; Treasury, \xe2\x80\x9cGMAC LLC Automotive Industry\nFinancing Program, Preferred Membership Interests, Summary of Preferred Terms,\xe2\x80\x9d 12/29/2008; Treasury, response to SIGTARP data call, 7/13/2009; Treasury, \xe2\x80\x9cFactsheet on Capital Purchase Program,\xe2\x80\x9d\n3/17/2009.\n\x0c42 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 2.4\n\n DEBT AGREEMENTS\n TARP Date of Cost\n Program Company Agreement Assigned Description of Investment\n CPP \xe2\x80\x93 36 QFIs 1/14/2009 a\n $0.4 billion Senior Subordinated Securities\n S-Corps\n Senior Subordinated Security Warrants that are exercised immediately\n\n AIFP General Motors 12/31/2008 $19.8 billionb Debt Obligation with Warrants and Additional Note\n\n\n\n\n AIFP General Motors 1/16/2009 $0.9 billion Debt Obligation\n\n\n\n AIFP Chrysler 1/2/2009c $4.8 billionb Debt Obligation with Additional Note\n\n\n\n\n AIFP Chrysler Financial 1/16/2009 $1.5 billion Debt Obligation with Additional Note\n\n\n\n AIFP Chrysler 5/1/2009 $3.8 billion Debt Obligation with Additional Note\n\n\n\n\n AIFP Chrysler 5/27/2009 $6.6 billion Debt Obligation with Additional Note, Equity Interest\n\n\n\n\n AIFP General Motors 6/3/2009, $30.1 billion Debt Obligation with Additional Note\n amended\n 7/10/2009\n\n ASSP GM Supplier 4/9/2009 $3.5 billion Debt Obligation with Additional Note\n Receivables LLC\n\n ASSP Chrysler 4/9/2009 $1.5 billion Debt Obligation with Additional Note\n Receivables SPV LLC\n\n\n Notes: Numbers affected by rounding.\n a\n Announcement date of CPP S-Corporation Term Sheet.\n b\n Amount includes AWCP commitments.\n c\n Date as of Treasury\xe2\x80\x99s 1/27/2009 Transactions Report. The Security Purchase Agreement has a date of 12/31/2008.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 43\n\n\n\n\n Interest / Term of\nInvestment Information Dividends Agreement\nEach QFI may issue Senior Securities with an aggregate principal amount of 7.7% for first 5 years; 13.8% thereafter 30 years\n1% \xe2\x80\x93 3% of its risk-weighted assets, but not to exceed $25 billion.\nTreasury will receive warrants to purchase an amount equal to 5% of the 13.8% 10 years\nSenior Securities purchased on the date of investment.\nThis loan was funded incrementally; $4 billion funded on 12/31/2008, $5.4 LIBOR + 3% 12/29/2011\nbillion funded on 1/21/2009, $4 billion funded on 2/17/2009. Subse-\nquently, this loan was then amended; $2 billion on 4/22/2009 and $4 billion\non 5/20/2009. In addition, on 5/27/2009, $361 million was set aside in an\nSPV for the AWCP.\nThis loan was exchanged for a portion of GM\xe2\x80\x99s common equity interest in LIBOR + 3% 1/16/2012\nGMAC LLC on 5/29/2009. See \xe2\x80\x9cEquity Agreements\xe2\x80\x9d table for more\ninformation.\nLoan of $4 billion; additional note of $267 million (6.67% of the maximum 3% or 8% (if the company is in default of its 1/2/2012\nloan amount). Subsequently, this loan was then amended; $500 million on terms under the agreement) plus the greater\n4/29/2009. In addition, on 4/29/2009, $280 million was set aside in an of (a) three-month LIBOR or (b) LIBOR floor\nSPV for the AWCP. (2.0%)\nLoan is funded incrementally at $100 million per week; additional note is LIBOR + 1% for first year 1/16/2014\n$75 million (5% of total loan size), which vests 20% on closing and 20% on LIBOR + 1.5% for remaining years\neach anniversary of closing.\nLoan of $3 billion committed to Chrysler for its bankruptcy period. Subse- (i) the greater of (a) LIBOR for the related 9/30/2009, subject to\nquently, this loan was amended; $757 million was added on 5/20/2009. interest period or (b) two percent (2%) plus (ii) certain conditions\nTreasury funded $1.9 billion during bankruptcy period. The remaining three and five-tenths percent (3.5%)\namount will be de-obligated.\nCommitment to New CarCo Acquisition LLC (renamed Chrysler Group LLC For $2 billion: (i) the Eurodollar Rate, plus (ii) For $5 billion note:\non or about 6/10/2009) of up to $6.642 billion. The total loan amount is (a) 5% or, on loans extended past the original 12/10/2011; provided\nup to $7.142 billion including $500 million of debt assumed from Treasury\xe2\x80\x99s maturity date, (b) 6.50%. For $5.142 billion that issuer may extend\n1/2/2009 credit agreement with Chrysler Holding LLC. The debt obligations note: (i) the Eurodollar Rate plus 7.91% and maturity for up to\nare secured by a first-priority lien on the assets of New CarCo Acquisition (ii) an additional $17 million in PIK interest per $400 million of principal\nLLC (the company that purchased Chrysler LLC\xe2\x80\x99s assets in a sale pursuant quarter. For other notes: Eurodollar Rate plus to 6/10/2017. For other\nto Section 363 of the Bankruptcy Code). 7.91% notes: 6/10/2017\nOriginal $30.1 billion funded. Amended loan documents provided that $986 LIBOR + 3% Originally 10/31/2009, re-\nmillion of the original DIP loan was left for the old GM. vised to remain outstand-\n ing during the pendency of\n the liquidation\nOriginal loan amount was $3.5 billion, but it was decreased permanently to (i) the greater of (a) LIBOR for the related 4/9/2010\n$2.5 billion on 7/8/2009. interest period or (b) two percent (2%) plus (ii)\n three and five-tenths percent (3.5%)\nOriginal loan amount was $1.5 billion, but it was decreased permanently to (i) the greater of (a) LIBOR for the related 4/9/2010\n$1 billion on 7/8/2009. interest period or (b) two percent (2%) plus (ii)\n three and five-tenths percent (3.5%)\n\nSources: Treasury, \xe2\x80\x9cLoan and Security Agreement By and Between General Motors Corporation as Borrower and The United States\nDepartment of Treasury as Lender Dated as of December 31, 2008,\xe2\x80\x9d 12/31/2008. Treasury, \xe2\x80\x9cGeneral Motors Corporation, Indicative\nSummary of Terms for Secured Term Loan Facility,\xe2\x80\x9d 12/19/08; Treasury, \xe2\x80\x9cGeneral Motors Promissory Note,\xe2\x80\x9d 1/16/2009; Treasury,\n\xe2\x80\x9cLoan and Security Agreement By and Between Chrysler Holding LLC as Borrower and The United States Department of Treasury as\nLender Dated as of December 31, 2008,\xe2\x80\x9d 12/31/2008; Treasury, \xe2\x80\x9cChrysler, Indicative Summary of Terms for Secured Term Loan\nFacility,\xe2\x80\x9d 12/19/2008; Treasury, \xe2\x80\x9cChrysler LB Receivables Trust Automotive Industry Financing Program, Secured Term Loan, Summary\nof Terms,\xe2\x80\x9d 1/16/2009; OFS, response to SIGTARP draft report, 1/30/2009; Treasury, Transactions Report, 6/30/2009; Treasury,\nresponse to SIGTARP data call, 7/13/2009; Treasury, \xe2\x80\x9cFact Sheet on Capital Purchase Program,\xe2\x80\x9d 3/17/2009; Treasury Press Release,\n\xe2\x80\x9cTreasury Releases Capital Purchase Program Term,\xe2\x80\x9d 1/14/2009; Treasury, \xe2\x80\x9cTARP Capital Purchase Program (Subchapter S Corpora-\ntion), Senior Securities, Summary of Terms,\xe2\x80\x9d 1/14/2009.\n\x0c44 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 2.5\n\n LARGEST POSITIONS IN WARRANTS OUTSTANDING HELD BY TREASURY, BY PROGRAM, AS OF 6/30/2009\n Amount \xe2\x80\x9cIn\n Stock Price Strike Price the Money\xe2\x80\x9d\n as of Number of as Stated Stock Price In or Out or \xe2\x80\x9cOut of the\n Transaction Transaction Warrants in the as of of the Money\xe2\x80\x9d as of\n Participant Date Date Outstanding Agreements 6/30/2009 Money? 6/30/2009\n Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d):\n Citigroup 10/28/2008 $13.41 210,084,034 $17.85 $2.97 OUT $(14.88)\n Bank of America 10/28/2008 23.02 73,075,674 30.79 13.20 OUT (17.59)\n Bank of America 1/9/2009 12.99 48,717,116 30.79 13.20 OUT (17.59)\n Wells Fargo 10/28/2008 34.46 110,261,688 34.01 24.26 OUT (9.75)\n JPMorgan Chasea 10/28/2008 37.60 88,401,697 42.42 34.11 OUT (8.31)\n Morgan Stanleya 10/28/2008 15.20 65,245,759 22.99 28.51 IN 5.52\n Systemically Significant Failing\n Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d) Program:\n AIGb 11/25/2008 35.40 2,689,938 50.00 23.20 OUT (26.80)\n AIGb 4/17/2009 32.40 150 0.00c 23.20 IN 23.20\n Targeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d):\n Citigroup 12/31/2008 6.71 188,501,414 10.61 2.97 OUT (7.64)\n Bank of America 1/16/2009 7.18 150,375,940 13.30 13.20 OUT (0.10)\n Automotive Industry Financing\n Program (\xe2\x80\x9cAIFP\xe2\x80\x9d):\n GM 12/31/2008 3.20 122,035,597 3.47 1.09 OUT (2.38)\n Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d):\n Citigroup 1/16/2009 3.50 66,531,728 10.61 2.97 OUT (7.64)\n\n Notes: Numbers affected by rounding.\n a\n These institutions repaid their CPP funds pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009. Treasury still holds these warrants in its portfolio for these\n institutions.\n b\n All warrant and stock data for AIG are based on the 6/30/2009 reverse stock split of 1 for 20.\n c\n $0.00002 strike price.\n\n Sources: Treasury, Transactions Report, 7/2/2009; Treasury, response to SIGTARP data call, 7/8/2009; Capital IQ, Inc. (a division of Standard & Poor\xe2\x80\x99s), www.capitaliq.com.\n\n\n\n\n TABLE 2.6\n\n DIVIDEND AND INTEREST PAYMENTS,\n BY PROGRAM ($ MILLIONS)\n Program Amount\n CPP $5,254.7\n SSFI \xe2\x80\x94\xe2\x80\x93\n\n\n TIP 1,128.9\n AGP 107.6\n AIFPa 361.3\n ASSP 0.7\n Total $6,853.2\n\n Notes: Numbers affected by rounding. Data as of 6/30/2009.\n a Includes AWCP\n\n Source: Treasury, response to SIGTARP data call, 7/8/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 45\n\n\n\n\nFINANCIAL INSTITUTION SUPPORT PROGRAMS\n Qualifying Financial Institutions\nTreasury created five TARP programs that involve investment of capital or guaran-\n (\xe2\x80\x9cQFIs\xe2\x80\x9d): Private and public U.S.-con-\ntee of assets in return for equity in financial institutions. Two investment pro- trolled banks, savings associations,\ngrams, the Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d) and the Capital Assistance Program bank holding companies, certain\n(\xe2\x80\x9cCAP\xe2\x80\x9d), are open to all qualifying financial institutions (\xe2\x80\x9cQFIs\xe2\x80\x9d). The other three savings and loan holding companies,\nprograms, the Systemically Significant Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d) program, and mutual organizations.\nTargeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d), and Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d) are\nmade available on a case-by-case basis to specific institutions needing exceptional\nassistance above that of CPP and CAP.\n FIGURE 2.5\nCapital Purchase Program\n CPP EXPENDITURES, BY PARTICIPANT,\nTreasury currently anticipates that $218 billion of CPP TARP funds will eventually\n CUMULATIVEa\nbe invested in QFIs, which include private and public U.S.-controlled banks, sav- $ Billions, % of $203.2 Billion\nings associations, bank holding companies (\xe2\x80\x9cBHCs\xe2\x80\x9d) (including insurance compa-\nnies organized as BHCs), certain savings and loan holding companies (\xe2\x80\x9cSLHCs\xe2\x80\x9d), Bank of America\n $25.0\nmutual banks, and mutual holding companies. According to Treasury, the intention\n Other\nof CPP is to invest in healthy, viable banks to promote financial stability, maintain Institutions\n 12.3% JPMorgan\n Chase\nconfidence in the financial system, and permit institutions to continue meeting $83.2 40.9%\n $25.0\n 12.3%\nthe credit needs of American consumers and businesses.44 For a summary of the\ndistribution of CPP funding by participant \xe2\x80\x94 not including any repayment \xe2\x80\x94 see 12.3%\n Wells Fargo\nFigure 2.5. $25.0\n 12.3%\n\n 4.9% Citigroup\nProgram Updates Morgan Stanley $25.0\nCPP operations have remained similar to what has been outlined in SIGTARP\xe2\x80\x99s $10.0\n 4.9%\nInitial Report and April Quarterly Report; however, on April 7, 2009, Treasury Goldman Sachs\n $10.0\nannounced an extension of the program to mutual holding companies,45 and, one\nweek later, it released a program term sheet for mutual banks.46 On May 13, 2009, Notes: Numbers affected by rounding. Data as of 6/30/2009.\n Bank of America = Bank of America Corporation; JPMorgan Chase =\nTreasury announced an expansion of CPP known as \xe2\x80\x9cCPP for Small Banks.\xe2\x80\x9d JPMorgan Chase & Co.; Wells Fargo = Wells Fargo and Company;\n Citigroup = Citigroup Inc.; Goldman Sachs = The Goldman Sachs\n Group, Inc.\n a\n $203.2 billion represents total CPP funds expended before any\n CPP repayments. JPMorgan, Goldman Sachs, Morgan Stanley,\n and some other institutions have repaid their TARP funds under\nBank Holding Company (\xe2\x80\x9cBHC\xe2\x80\x9d): A company Mutual Banks: Depository institutions that CPP.\nthat controls a bank. Typically, a company are owned by their depositors and do not\n Source: Treasury, Transactions Report, 7/2/2009.\ncontrols a bank through the ownership of have a holding company associated with\n25% or more of its voting securities. them.\n\nSavings and Loan Holding Company Mutual Holding Company: A bank or savings\n(\xe2\x80\x9cSLHC\xe2\x80\x9d): A company (other than a BHC) and loan holding company that is part of a\nthat controls a savings association. mutual bank that is owned by depositors;\n distributes income in proportion to the\n amount of business that members do with\n the company.\n\x0c46 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 2.7\n\n For more information on the CPP KEY DATES AND DEADLINES FOR CPP APPLICATION PROCESS,\n application process, refer to SIGTARP\xe2\x80\x99s BY APPLICANT CATEGORY\n Initial Report, Section 3: \xe2\x80\x9cTARP Announced Application Number of\n Implementation and Administration.\xe2\x80\x9d Type Date Deadline Participants\n Publicly Helda 10/14/2008 11/14/2008 282\n Privately Heldb 11/17/2008 12/8/2008 331\n \xe2\x80\x9cS\xe2\x80\x9d Corporationc 1/14/2009 2/13/2009 36\n Mutual Organizationsd 4/7/2009 5/7/2009 \xe2\x80\x94\n Mutual Bankse 4/14/2009 5/14/2009 \xe2\x80\x94\n Small Banksf (< $500 million in assets) 5/13/2009 11/21/2009 10g\n\n Notes: Private QFIs are those that are non-public QFIs, excluding S Corporations and mutual organizations.\n a Treasury, \xe2\x80\x9cTreasury Announces TARP Capital Purchase Program Description,\xe2\x80\x9d 10/14/2008, www.treas.gov, accessed 1/22/2009.\n b Treasury, \xe2\x80\x9cProcess Related FAQs for Private Bank Capital Purchase Program,\xe2\x80\x9d no date, www.treas.gov, accessed 1/22/2009.\n c Treasury, \xe2\x80\x9cS Corporation FAQs,\xe2\x80\x9d no date, www.treas.gov, accessed 1/22/2009.\n d Treasury, \xe2\x80\x9cProcess Related FAQs for the Capital Purchase Program, Mutual Holding Company FAQs,\xe2\x80\x9d 4/7/2009,\n\n www.financialstability.gov, accessed 4/7/2009.\n e Treasury, \xe2\x80\x9cTreasury Releases Capital Purchase Program Term Sheet for Mutual Banks,\xe2\x80\x9d 4/14/2009, www.financialstability.gov,\n\n accessed 6/1/2009.\n f Treasury, \xe2\x80\x9cRemarks by Secretary Geithner Before the Independent Community Bankers of America Annual Washington Policy Summit,\xe2\x80\x9d\n\n 5/13/2009, www.financialstability.gov, accessed 6/1/2009.\n g This number includes publicly held institutions, privately held institutions, and \xe2\x80\x9cS\xe2\x80\x9d Corps.\n\n\n\n\n In addition, on May 14, 2009, insurance companies that organized themselves\n under the terms of a BHC and applied within the initial application window were\n granted preliminary approval to participate in CPP.47 The application process for\n these qualified financial institutions is the same as the process for the previously\n funded QFIs. Key dates for each type of institution that has or may apply for CPP\n funding are outlined in Table 2.7.\n Unique term sheets provide CPP guidance for these three types of mutual hold-\n ing companies:\n\n \xe2\x80\xa2 publicly traded, subsidiary holding companies\n \xe2\x80\xa2 privately held, mid-tier subsidiary holding companies\n \xe2\x80\xa2 top-tier, mutual holding companies that do not have subsidiary holding\n companies\n\n The terms for the publicly traded and privately held subsidiary holding com-\n Senior Securities: A debt or equity panies are similar to those of public and private corporations receiving preferred\n security that has a higher priority over shares and warrants currently under CPP.48\n others. For its CPP investment in mutual banks and mutual holding companies, the\n Government will receive senior securities that carry a value equal to and not less\n Risk-Weighted Assets: The amount of than 1% of the recipient firm\xe2\x80\x99s risk-weighted assets and not more than $25 billion\n a bank\xe2\x80\x99s total assets after applying an or 3% of the recipient firm\xe2\x80\x99s risk-weighted assets. This is similar to the amount of\n appropriate risk factor to each asset. preferred shares that are received by Treasury from participating public corpora-\n tions. The senior securities have a maturity of 30 years and carry interest rates of\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 47\n\n\n FIGURE 2.6\n\nTRACKING CAPITAL PURCHASE PROGRAM INVESTMENTS ACROSS THE COUNTRY\n\n\n\n\n $10 Billion or More\n $1 Billion to $10 Billion\n $100 Million to $1 Billion\n $10 Million to $100 Million\n Less than $10 Million\n $0\n\n\n\n Note: Banks in Montana and Vermont had not received any funds as of\n 6/30/2009.\n\n Source: Treasury, \xe2\x80\x9cLocal Impact of the Capital Purchase Program,\xe2\x80\x9d\n 6/30/2009, www.financialstability.gov, accessed 6/30/2009.\n\n\n\n\n7.7% for the first five years and 13.8% for their remaining life. Due to the differing\n TABLE 2.8\ntax structures of mutual organizations, these interest rates approximate the eco-\nnomics of the 5% and 9% dividends required for many other CPP participants, in- CPP ORIGINAL INVESTMENT\ncluding the publicly held BHCs. Just as it does with a private company under CPP, SUMMARY\nTreasury will receive warrants to purchase senior securities equal to 5% of the value Largest Capital Investment $25 Billion\n\nof the CPP investment.49 Additionally, on May 13, 2009, the Treasury Secretary Smallest Capital Investment $301,000\n\nannounced that the CPP application window would be re-opened for banks with Average Capital Investment $312.1 Million\n Median Capital Investment $11.8 Million\nassets under $500 million until November 21, 2009.50 According to Treasury, it will\nbe using the repayments of some of the largest banks to fund this expansion, which Notes: Numbers affected by rounding. Data as of 6/30/2009.\n These numbers are based on total Treasury CPP investment\nwill permit small banks to receive an amount up to 5% of their risk-weighted assets. since 10/28/2008. Bank of America Corporation and Sun-\n Trust Banks, Inc., each received investments in two separate\nThese increases apply to all QFIs with assets under $500 million, including public transactions.\n\nand private corporations, S corporations, and mutual institutions.51 Sources: Treasury, Transactions Report, 7/2/2009. Treasury,\n response to SIGTARP draft report, 7/13/2009.\n\n\nStatus of CPP Funds\nAs of June 30, 2009, Treasury had purchased $203.2 billion in preferred stock TABLE 2.9\nand subordinated debentures from 649 different QFIs in 48 states, the District of CPP ORIGINAL INVESTMENT\nColumbia, and Puerto Rico. Closings for CPP purchases generally occur each week SIZE\non Friday, and information regarding the transactions are made publicly available $10 Billion or More 6\nby the following Tuesday. For geographical distribution of all the QFIs that have $1 Billion to $10 Billion 19\nreceived funding see Figure 2.6. For a full listing of CPP recipients, see Appendix $100 Million to $1 Billion 56\nD: \xe2\x80\x9cTransaction Detail.\xe2\x80\x9d Less than $100 Million 568\n Although the original eight largest investments accounted for $134.2 billion of Total 649\nthe program, CPP has also had many more modest investments: 301 of 649 recipi- Notes: Data as of 6/30/2009. These numbers are based on\n total Treasury CPP investment since 10/28/2008. Bank of\nents received $10 million or less.52 Table 2.8 and Table 2.9 show the distribution of America Corporation and SunTrust Banks, Inc., each received\n investments in two separate transactions.\nthe investments by size.\n Source: Treasury, Transactions Report, 7/2/2009.\n\x0c48 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n For more information on CPP repay-\n Repayment of Funds\n ment, see Section 2: \xe2\x80\x9cTARP Overview\xe2\x80\x9d in\n According to the CPP contracts between Treasury and the institutions, banks\n SIGTARP\xe2\x80\x99s April Quarterly Report.\n were not permitted to repay their CPP funds, subject to certain limitations, within\n the first three years; however, this portion of the agreement was changed by the\n enactment of the American Recovery and Reinvestment Act of 2009 (\xe2\x80\x9cARRA\xe2\x80\x9d),\n which required Treasury to permit financial institutions to repay the capital infu-\n sions, subject to their consultation with the appropriate Federal Banking Agency\n Federal Banking Agency (\xe2\x80\x9cFBA\xe2\x80\x9d): One of\n four agencies:\n (\xe2\x80\x9cFBA\xe2\x80\x9d).53\n 1) Comptroller of the Currency Institutions seeking to buy back their preferred shares, in essence repay their\n 2) Board of Governors of the Federal TARP funds, must meet the standards required by their respective banking supervi-\n Reserve System sor. According to Treasury, FBA supervisors will determine if the interested CPP\n 3) Federal Deposit Insurance recipient has sufficient equity without the CPP funds, an ability to lend, and a\n Corporation comprehensive internal capital-assessment process.54 On June 1, 2009, the Federal\n 4) Office of Thrift Supervision Reserve announced additional specific criteria that it will use to review any request\n for repayment of CPP funds from the top 19 BHCs included in the Supervisory\n Capital Assessment Program (\xe2\x80\x9cSCAP\xe2\x80\x9d) process:55\n\n \xe2\x80\xa2 fulfill its role as an intermediary to provide lending to creditworthy households\n FIGURE 2.7\n and businesses without TARP capital\n \xe2\x80\xa2 maintain levels of capital consistent with supervisory expectations\n SNAPSHOT OF CPP FUNDS\n OUTSTANDING AND REPAID, \xe2\x80\xa2 serve as financial and managerial support to its subsidiaries\n BY QUARTER \xe2\x80\xa2 be able to access equity on the private markets\n $ Billions \xe2\x80\xa2 meet its obligations and lending without reliance on FDIC\xe2\x80\x99s Temporary\n $198.8 $203.2 Liquidity Guarantee Program (\xe2\x80\x9cTLGP\xe2\x80\x9d) (For more information on this program,\n $177.5 see \xe2\x80\x9cTARP in Context \xe2\x80\x94 Other Government Programs to Assist the Financial\n 200 $0.4\n $70.1\n Sector,\xe2\x80\x9d in Section 3 of this report.)\n $198.4\n 150 $177.5 \xe2\x80\xa2 carry a capital level necessary to meet the more adverse economic scenarios\n under the SCAP testing\n $133.1\n 100\n\n For further details on SCAP, refer to the \xe2\x80\x9cCapital Assistance Program\xe2\x80\x9d discus-\n 50\n sion later in this section.\n 0 As of June 30, 2009, 32 banks had repurchased their shares from Treasury.\n Q42008 Q12009 Q22009 Treasury has received $70.1 billion in principal and an additional $316.1 million\n CPP Funds Outstanding at Quarter\xe2\x80\x99s End in accrued and unpaid dividends.56 Figure 2.7 shows the amount of CPP funds\n CPP Funds Repaid at Quarter\xe2\x80\x99s End outstanding, adjusted for repayments. For details of share repurchases conducted\n as of June 30, 2009, see Appendix D: \xe2\x80\x9cTransaction Detail.\xe2\x80\x9d\n Note: Numbers affected by rounding.\n\n Source: Treasury, Transactions Report, 7/2/2009. Repurchase of Warrants\n To maximize the benefit to the taxpayer, EESA mandated that Treasury receive\n warrants when it invests in troubled assets. The warrants for publicly traded institu-\n tions provide Treasury the right to purchase shares of common stock, or, in the case\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 49\n\n\n\n\nof non-publicly traded institutions, preferred stock or debt at a fixed price.57 Under\nCPP, the warrants expire in 10 years. As of June 30, 2009, Treasury had not exer-\ncised its right under the warrants to purchase common shares in any of the public\ninstitutions but had done so for non-public institutions.58\n With institutions beginning to repay their CPP funds, the U.S. Government has\nclarified its treatment of warrant repurchases in various ways. Under the standard\nCPP Securities Purchase Agreement (\xe2\x80\x9cSPA\xe2\x80\x9d) and ARRA, publicly traded TARP re-\ncipients have the right to repurchase their warrants with proper notice to Treasury\nat the fair market value. Non-public TARP recipients have the right to repurchase\nthe preferred shares and subordinated debt that Treasury took when it immediately\nexercised the warrants at the time their CPP transactions closed.59 ARRA states\nthat, following the repayment of TARP funding, Treasury \xe2\x80\x9cshall liquidate warrants\nassociated with such assistance at the current market price.\xe2\x80\x9d60 On May 20, 2009,\nCongress passed the Helping Families Save Their Homes Act of 2009 (Public Law\nNo. 111-22), which amended the ARRA provision requiring Treasury to liquidate\nits warrants immediately upon TARP repayment. Specifically, the phrase \xe2\x80\x9cshall\nliquidate\xe2\x80\x9d was changed to \xe2\x80\x9cmay liquidate\xe2\x80\x9d \xe2\x80\x94 indicating that Treasury has discretion\nin deciding when it should sell or exercise its warrants.61\n On June 26, 2009, Treasury announced guidance for the warrant repurchase\nprocess for publicly traded institutions. If an institution wishes to repurchase war-\nrants from Treasury, it must first take the following steps:62\n\nStep 1: Notification to Treasury with Determination of Fair Market Value\nAny institution wishing to repurchase its warrants must notify Treasury within 15\ndays of repayment of TARP funds.63 According to the CPP SPA, the notification\nmust include the number of warrants to be repurchased and the determination of\nfair market value from the board of directors. Moreover, the board of directors must\nbe acting in good faith with reliance on an \xe2\x80\x9cindependent investment banking firm.\xe2\x80\x9d\nThe independent appraiser must be retained by the TARP recipient and approved\nby Treasury.64\n\nStep 2: Treasury Evaluates Repurchase Offer\nAccording to the CPP SPA and the guidance announced by Treasury, Treasury will\nhave 10 days to evaluate the TARP recipient\xe2\x80\x99s offer of fair market value as required\nby ARRA.65 According to Treasury, it will be using three different valuation method-\nologies to determine market values of the warrants:66\n\n\xe2\x80\xa2 market-price approach \xe2\x80\x93 For those warrants listed on a securities exchange,\n current market value is used. However, many of the warrants that Treasury\n\x0c50 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n holds are not listed on a securities exchange. In these cases, Treasury will use\n market prices of securities with similar characteristics to assess the market value\n of the warrants. Securities with similar characteristics include traded warrants,\n traded options, common equity, and securities listed by similar institutions. Treasury\n has stated that it will be using 5-10 market participants, such as investment banks\n and asset management firms, to provide quotes on the value of the warrants.\n \xe2\x80\xa2 financial models \xe2\x80\x93 Treasury stated that it will conduct valuations based on\n well-known, common financial models, such as the binomial and Black-Scholes\n models. The models use various known inputs as well as assumptions about the\n volatility and dividends of the common stock of the institution to calculate the\n value of the warrants. To measure the volatility and assumptions of the common\n stock, Treasury will be using a 60-day trailing volatility for the past 10 years of\n the common stock price.\n \xe2\x80\xa2 third-party valuation \xe2\x80\x93 Treasury will be using the three asset managers that it\n has hired to manage TARP assets and other outside consultants to assess inde-\n pendently the value of each institution\xe2\x80\x99s warrants.\n\n Step 3: Negotiation Period\n Should Treasury reject the TARP recipient\xe2\x80\x99s repurchase offer, the Chief Executive\n Officer (\xe2\x80\x9cCEO\xe2\x80\x9d) of the TARP recipient and a representative of Treasury shall meet\n to discuss Treasury\xe2\x80\x99s objections to the valuation proposed by the TARP recipient\n and attempt to reach an agreement.67 As of June 30, 2009, all of the warrant repur-\n chases have occurred as a product of this negotiation period.68\n\n Step 4: Appraisal Procedure\n If, in 10 days, no price is agreed upon, either the institution or Treasury may invoke\n the \xe2\x80\x9cAppraisal Procedure.\xe2\x80\x9d This involves Treasury and the TARP recipient each\n choosing an independent appraiser to agree mutually upon the fair market value of\n the warrants. If, after 30 days, the two appraisers are not able to agree upon a fair\n market value, then a third independent appraiser will be chosen with the consent\n of the first two appraisers.69 The third appraiser has 30 days to make a decision,\n and, subject to limitations \xe2\x80\x94 such as if one of the three valuations is significantly\n different from the other two \xe2\x80\x94 a composite valuation of the three appraisals is\n used to establish the fair market value.70 Treasury and the institution will be bound\n by this price determination, but Treasury has stated that if the recipient is not satis-\n fied with this price, it may withdraw its notification to repurchase the warrants.71\n Under the CPP SPA, the costs of conducting any appraisal procedure \xe2\x80\x9cshall be\n borne by the Company.\xe2\x80\x9d72\n\n Alternate Disposition of Warrants\n If the institution and Treasury do not invoke the \xe2\x80\x9cAppraisal Procedure,\xe2\x80\x9d or if the\n institution decides not to seek to repurchase its warrants, Treasury has various\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 51\n\n\n\n\noptions as to how it manages these investments over the 10-year exercisable period\n\xe2\x80\x94 it may sell them, exercise them, or hold them as it sees fit to otherwise maximize\nbenefit to the taxpayers. When selling the warrants on the open market, Treasury\nhas stated that it will do so through an auction process. As of June 30, 2009, guid-\nance on this auction process has not yet been released.73 Treasury has stated that it\nintends to liquidate the warrants of institutions that have redeemed their CPP pre-\nferred shares quickly.74 While under the SPA, Treasury also has the right to auction\n50% of the warrants of financial institutions that have not yet repaid TARP funds;75\nas of June 30, 2009, it had not done so.\n As of June 30, 2009, 11 banks had repurchased their warrants for a total of\n$18.7 million,76 while three private institutions whose warrants were immediately\nexercised into preferred shares had repurchased those shares for a total of\n$1.6 million.77 For a list of institutions, both public and private, that have repaid\ntheir TARP funds and repurchased their warrants as of June 30, 2009, see Table\n2.10. These institutions are no longer part of TARP.\nTABLE 2.10\n\nCPP WARRANT REPURCHASES (PUBLIC) ($ MILLIONS)\n\n Number of Amount of\nRepurchase Warrants Repurchase as\nDate Institution Repurchased of 6/30/2009\n5/8/2009 Old National Bancorp 813,008 $1.2\n5/20/2009 Iberiabank Corporationa 138,490 1.2\n5/27/2009 FirstMerit Corporation 952,260 5.0\n5/27/2009 Sun Bancorp, Inc. 1,543,376 2.1\n5/27/2009 Independent Bank Corp. 481,664 2.2\n6/17/2009 Alliance Financial Corporation 173,069 0.9\n6/24/2009 First Niagara Financial Groupa 953,096 2.7\n6/24/2009 Berkshire Hills Bancorp, Inc. 226,330 1.0\n6/24/2009 Somerset Hills Bancorp 163,065 0.3\n6/24/2009 SCBT Financial Corporation 303,083 1.4\n6/30/2009 HF Financial Corp. 302,419 0.7\nTotal Warrants \xe2\x80\x93 Public 6,049,860 $18.7\nCPP WARRANT REPURCHASES (PRIVATE) ($ MILLIONS)\n Number of Amount of\nRepurchase Preferred Repurchase as\nDate Institution Shares of 6/30/2009\n4/15/2009 Centra Financial Holdings, Inc./ 750 $0.8\n Centra Bank, Inc.\n4/22/2009 First ULB Corp. 245 0.2\n5/27/2009 First Manitowoc Bancorp, Inc. 600 0.6\nTotal Preferred Shares \xe2\x80\x93 Private 1,595 $1.6\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. This does not include the $60 million warrant repurchase by State Street\nCorporation that occurred on 7/8/2009.\na\n These institutions reduced the original amount of warrants issued through a qualified equity offering.\n\nSource: Treasury, Transactions Report, 7/2/2009.\n\x0c52 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Treasury Lending Snapshots\n Treasury snapshots were instituted in January 2009 as a means to track progress\n toward the stated goal of CPP: \xe2\x80\x9cbuilding a capital base of viable U.S. financial in-\n stitutions, enabling them to continue lending to businesses and consumers during\n this unprecedented financial crisis and economic downturn.\xe2\x80\x9d78 Treasury continues\n to measure the lending activities of CPP recipients by performing both monthly\n and quarterly data analysis.79 There are currently two types of monthly reports is-\n sued on CPP. Originally, the monthly intermediation snapshots were conducted for\n the 21 largest CPP participants. In March 2009, Treasury announced that it would\n require all CPP participants to submit data for a new monthly lending report that\n complements the monthly intermediation snapshots. The first monthly lending re-\n port for all CPP participants was published on June 1, 2009, and included data for\n February and March of 2009. A second monthly lending report with April data was\n issued on June 19, 2009. Going forward, this report will be released around the\n 20th of each month.80 As of June 30, 2009, information from the 21 largest CPP\n participants had been collected and released through April 2009.\n\n April 2009 Monthly Intermediation Snapshot\n The most recent monthly intermediation snapshot for the 21 largest CPP recipi-\n ents was released on June 15, 2009, reporting data for the period of April 1, 2009,\n to April 30, 2009. The responses found a decline in total new lending of 7% from\n March to April; the report also included new information on small-business lending\n that will be reported in all surveys going forward. Treasury reviewed and analyzed\n the data and came to the following conclusions:81\n\n \xe2\x80\xa2 Consumer lending levels decreased as a result of a weakening labor market and\n declines in household wealth.\n \xe2\x80\xa2 Commercial and industrial lending was reportedly \xe2\x80\x9cwell below normal levels.\xe2\x80\x9d\n \xe2\x80\xa2 Banks reported $267 billion in outstanding small-business loan balances, with\n $8 billion in small-business loan originations over the month.\n\n For more information on the Capital Capital Assistance Program\n Assistance Program, refer to SIGTARP\xe2\x80\x99s On February 10, 2009, Treasury announced the Capital Assistance Program\n April Quarterly Report, Section 2:\n (\xe2\x80\x9cCAP\xe2\x80\x9d).82 The CAP process has two main steps for the 19 largest BHCs (all other\n \xe2\x80\x9cTARP Overview.\xe2\x80\x9d\n QFIs need not participate in the first step but have the option to participate in the\n second step):83\n\n \xe2\x80\xa2 a \xe2\x80\x9cstress test\xe2\x80\x9d (also known as the Supervisory Capital Assessment Program\n (\xe2\x80\x9cSCAP\xe2\x80\x9d)) to evaluate the 19 largest BHCs\xe2\x80\x99 capital levels for their ability to with-\n stand an adverse economic scenario\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 53\n\n\n\n\n\xe2\x80\xa2 an application to Treasury for funding in the form of additional capital infu-\n Manditorily Convertible Preferred\n sions or as a means to convert CPP investments to CAP mandatorily convertible\n (\xe2\x80\x9cMCP\xe2\x80\x9d) shares: A type of preferred\n preferred (\xe2\x80\x9cMCP\xe2\x80\x9d) shares (available to all QFIs) share (ownership in a company that\n generally entitles the owner of the\n CAP\xe2\x80\x99s stated goal is to \xe2\x80\x9censure the continued ability of U.S. financial institu- shares to collect dividend payments)\ntions to lend to creditworthy borrowers in the face of a weaker-than-expected that can be converted to common\neconomic environment and larger-than-expected potential losses.\xe2\x80\x9d84 As of June 30, stock under certain parameters at\n2009, one institution had applied for but had not yet been approved for CAP. the discretion of the company \xe2\x80\x94 and\n Since SIGTARP\xe2\x80\x99s April Quarterly Report, the Federal Reserve released the must be converted to common stock\nresults of SCAP and provided recommendations for further actions that certain in- by a certain time.\nstitutions will need to take to meet enhanced capital requirements. Of the 19 insti-\ntutions that participated in SCAP, the Federal Reserve determined that 10 needed\napproximately $75 billion total in additional capital, and the other 9 institutions\nhad sufficient capital to cover potential losses even in the more adverse scenario.85\n Upon publication of the SCAP results, Treasury announced a November 9, 2009,\ndeadline for those 10 institutions that need to raise additional capital to meet the\nenhanced capital requirements. Treasury also extended the application deadline for\nall institutions wishing to participate in CAP to November 9, 2009.86 For a timeline\nand description of the CAP process, see Figure 2.8 on the next page.\n\nSupervisory Capital Assessment Program (\xe2\x80\x9cSCAP\xe2\x80\x9d)\nSCAP, otherwise known as the \xe2\x80\x9cstress test,\xe2\x80\x9d was a key component of CAP. The\nstress test was conducted by the FBAs with the stated intention of ensuring that\nthe largest financial institutions have sufficient capital to cover losses and continue\nlending in a more adverse economic scenario than was anticipated at the time the\ntests were conducted. All domestic BHCs with assets exceeding $100 billion at the\nend of 2008 were required to participate. At the end of 2008, there were 19 BHCs\nwith assets of more than $100 billion, representing roughly two-thirds of aggregate\nU.S. BHC assets.87\n According to the Federal Reserve, the stress test was a forward-looking exer-\ncise utilizing both a baseline and adverse scenario of the economy for the next two\nyears. The test was administered by various teams of supervisors and analysts from\nthe FBAs with specialized knowledge of the participating firms or expertise in spe-\ncific asset classes or securities.88\n On May 7, 2009, the Federal Reserve released the results of the SCAP pro-\ncess, revealing that 9 of the 19 BHCs had sufficient capital to withstand the most\nadverse scenario of the tests. As of June 30, 2009, eight of the nine institutions\nthat had sufficient capital under SCAP were approved by their FBAs and had\nrepaid their CPP funds, but had outstanding warrants owned by the Government.\nAs of the drafting of this report, State Street Corporation repurchased its related\nwarrants for $60 million making it the only institution out of the nine to be out of\n\x0c54 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\nFIGURE 2.8\n\nCAPITAL ASSISTANCE PROGRAM PROCESS AND TIMELINE\n\n\n FEBRUARY 2009\n\n\n\n FEBRUARY 10 FEBRUARY 25\n Treasury announces Treasury releases\n Capital Assistance the terms for\n Program (\xe2\x80\x9cCAP\xe2\x80\x9d). QFIs applying\n for CAP funding.\n\n\n FEBRUARY 25\n Stress testing begins for Top 19 BHCs All Other QFIs\n the top 19 BHCs.\n\n\n MAY 7 Stress Test for Top\n Federal Reserve and 19 BHCs\n Treasury announce results\n of stress test.\n\n\n 9 BHCs with 10 BHCs Need\n Sufficient Capital Additional Capital\n\n JUNE 8\n10 BHCs that did not have\nsufficient capital submitted Create a Capital Plan\n their capital plans on how\n they would raise the\n necessary capital.\n NOVEMBER 9\n Deadline for 10 BHCs to Raise Capital in the\n Private Market\n raise additional capital.\n\n\n\n\n NOVEMBER 9\n Raised Still Needs Apply for CAP Apply to Convert CPP\n Application deadline for\n Sufficient Capital Additional Capital Funding Investments to CAP\n applicants.\n\n\n 7 YEARS AFTER CAP\n SETTLEMENT DATE\n Conversion from CAP Convertible preferred\n to Common Stock shares held by Government\n mandatorily convert to\n common shares, if not yet\n voluntarily converted.\n\n\nNote: Many of the 10 BHCs have raised significant funds on their own, which could seemingly limit their need for CAP.\n\nSources: Federal Reserve, \xe2\x80\x9cBanking Organizations Have Submitted Capital Plans To Bolster Their Capital,\xe2\x80\x9d 6/8/2009, www.federalreserve.gov, accessed 6/8/2009; Treasury, \xe2\x80\x9cStatement from Treasury Secretary\nTim Geithner Regarding the Treasury Capital Assistance Program and the Supervisory Capital Assessment Program,\xe2\x80\x9d 5/7/2009, www.financialstability.gov, accessed 5/7/2009; Treasury, \xe2\x80\x9cSecretary Geithner\nIntroduces Financial Stability Plan,\xe2\x80\x9d 2/10/2009, www.treas.gov, accessed 3/25/2009; Treasury Press Release, \xe2\x80\x9cU.S. Treasury Releases Terms of Capital Assistance Program,\xe2\x80\x9d 2/25/2009, www.treas.gov,\naccessed 3/25/2009; Treasury, \xe2\x80\x9cSummary of Mandatorily Convertible Preferred Stock Terms,\xe2\x80\x9d 3/25/2009, www.treas.gov, accessed 3/25/2009.\n\n.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 55\n\n\n\n\n \xe2\x80\x9cTier One Capital\xe2\x80\x9d (\xe2\x80\x9cT1\xe2\x80\x9d) vs.\n \xe2\x80\x9cTier One Common\xe2\x80\x9d (\xe2\x80\x9cT1 Common\xe2\x80\x9d):\n Two of the most relevant measures of\n capital adequacy are tier one capital\n (\xe2\x80\x9cT1\xe2\x80\x9d) and tier one common (\xe2\x80\x9cT1 Com-\n mon\xe2\x80\x9d). For many TARP recipients, these\nTARP.89 The ninth BHC, MetLife, is not a TARP recipient. The other 10 BHCs\n two measures are significantly divergent\nneed to raise an additional $75 billion total of new capital in order to meet the\n in the current market, capturing different\ncapital level deemed necessary to withstand a more adverse economic scenario. aspects of the institution\xe2\x80\x99s health or lack\nOptions for raising the needed capital for these institutions include, but are not thereof.\nlimited to: issuing common stock, exchanging preferred shares for common shares,\nselling non-core businesses, increasing corporate earnings, or applying for CAP T1 or \xe2\x80\x9ccore capital\xe2\x80\x9d consists primarily\n of common equity (including retained\ninvestments. Those failing to raise private funds would be required to take CAP\n earnings), limited types and amounts\nfunds or convert their CPP funds to mandatory convertible shares; however, many\n of preferred equity, certain minority\nfinancial institutions have raised significant funds on their own, which could seem- interests, and limited types and amounts\ningly limit their need for CAP.90 Nine of the 10 BHCs needing additional capital of trust preferred securities. T1 does\nhave begun raising this capital in the private markets; the remaining BHC, Morgan not include goodwill and certain other\nStanley, has already raised its additional capital and repaid its TARP funding. intangibles. Certain other assets are also\n excluded from T1. It can be described as\n a measure of the bank\xe2\x80\x99s ability to sustain\nSCAP Assumptions\n future losses and still meet depositor\xe2\x80\x99s\nThe stress test was designed to determine how much additional capital each insti- demands. Federal regulators look at T1\ntution may need to remain well capitalized in adverse economic conditions until to calculate the tier one capital ratio (\xe2\x80\x9cT1\nthe end of 2010. Well capitalized was a standard defined as being able to main- Ratio\xe2\x80\x9d), which determines what percent-\ntain a 6% tier one risk-based capital ratio (\xe2\x80\x9cT1 Ratio\xe2\x80\x9d) and a 4% tier one common age of a bank\xe2\x80\x99s total assets is catego-\n rized as T1. Under traditional Federal\nrisk-based ratio (\xe2\x80\x9cT1 Common Ratio\xe2\x80\x9d), which is also known as a tangible common\n regulations, a bank with a T1 Ratio of\nequity ratio (\xe2\x80\x9cTCE Ratio\xe2\x80\x9d).91 Generally, the Federal Reserve\xe2\x80\x99s risk-based capital\n 4% or greater is considered adequately\nguidelines for BHCs require a minimum 4% T1 Ratio; however, supervisors expect capitalized.\nBHCs to hold T1 well in excess of the minimum ratio. Supervisors have indicated\nthat common equity (the component of T1 most able to absorb losses) should be T1 Common, also known as tangible\nthe dominant component of T1. The calculation of a T1 Common Ratio assessed common equity (\xe2\x80\x9cTCE\xe2\x80\x9d), is calculated\n by removing all non-common elements\nthe composition of the BHCs\xe2\x80\x99 T1 Ratio to determine whether common equity was\n from T1, e.g., preferred equity, minority\nsufficiently dominant. Once these two ratios were calculated, supervisors followed\n interests, and trust preferred securities.\nthe normal supervisory evaluation process to determine whether a firm\xe2\x80\x99s current It can be thought of as the amount that\ncapital was sufficient in light of its risk profile.92 SCAP\xe2\x80\x99s required ratios are higher would be left over if the bank were dis-\nthan current Federal regulations. solved and all creditors and higher levels\n In SCAP, the regulators created two forward-looking economic scenarios. The of stock, such as preferred stock, were\n paid off. T1 Common is the highest \xe2\x80\x9cqual-\nfirst scenario was a baseline forecast for 2009 and 2010 based on the most recent\n ity\xe2\x80\x9d of capital in the sense of providing a\nprojections available from three professional forecasters prior to the start of the\n buffer against loss by claimants on the\nstress test on February 25, 2009.93 Although the baseline was intended to forecast bank. T1 Common is used in calculating\nlikely economic metrics, the unemployment rate eclipsed the baseline assump- the tier one common risk-based ratio\ntion of an annual average of 8.4% unemployment with the June 2009 unemploy- (\xe2\x80\x9cT1 Common Ratio\xe2\x80\x9d) which determines\nment rate of 9.5%.94 The second scenario evaluated the institutions under worse what percentage of a bank\xe2\x80\x99s total assets\n is categorized as T1 Common. The high-\neconomic conditions than those provided in the baseline forecast \xe2\x80\x94 an \xe2\x80\x9cadverse\n er the percentage, the better capitalized\ncase\xe2\x80\x9d scenario. The assumptions for the baseline and adverse case compared to the\n the bank. Preferred stock is an example\n of capital that is counted in T1, but not in\n T1 Common. For more information on a\n bank\xe2\x80\x99s capital structure, see the \xe2\x80\x9cCapital\n Structure Tutorial\xe2\x80\x9d in SIGTARP\xe2\x80\x99s April\n Quarterly Report.\n\x0c56 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n economic indicators as of June 30, 2009, are in Table 2.11, and demonstrate that\n Tier One Capital (\xe2\x80\x9cT1\xe2\x80\x9d): = Common as of June 30, 2009, two of the three indicators (Real GDP and Unemployment)\n stockholders\xe2\x80\x99 equity + Preferred equity indicate that the economic downturn may be more severe than even the adverse\n (subject to regulatory limits) + Minority scenario for 2009.\n interests + Trust preferred securities To understand how much capital is needed to withstand a certain amount of\n (subject to regulatory limits) \xe2\x80\x93 Good-\n losses and still maintain a capital buffer of at least a 6% T1 Ratio and at least a 4%\n will \xe2\x80\x93 Certain other assets (subject to\n T1 Common Ratio, the BHCs were asked by their FBA regulators to project esti-\n regulatory limits).\n mated losses on loans, securities, and trading-related exposures based upon 2008\n year-end financial data.95\n Tier One Common Equity (\xe2\x80\x9cT1 Com-\n mon\xe2\x80\x9d): = T1 \xe2\x80\x93 Preferred equity \xe2\x80\x93 According to the Federal Reserve, under the more adverse scenario, together\n Minority interests \xe2\x80\x93 Trust preferred the 19 BHCs had approximately $837 billion in T1, $413 billion of which was T1\n securities. Common. These BHCs estimated their net losses to be $185 billion for 2009 and\n Tier One Risk-based Capital Ratio (\xe2\x80\x9cT1 2010. That would leave them with a required SCAP buffer of $74.6 billion un-\n Ratio\xe2\x80\x9d): = T1/Risk-weighted assets der the adverse scenario. When calculating the required SCAP buffer, FBAs took\n into account financial results and any actions that BHCs may have taken dur-\n Tier-One Common Risk-based Ratio ing the first quarter of 2009.96 For example, SCAP took into account Citigroup\xe2\x80\x99s\n (\xe2\x80\x9cT1 Common Ratio\xe2\x80\x9d): = T1 Common / announced exchange offer on February 27, 2009. The announced offer was to\n Risk-weighted assets convert private preferred and Treasury\xe2\x80\x99s CPP investments to common equity, which\n\n Professional Forecasters: Economic TABLE 2.11\n expert firms that use various economic STRESS TEST AND CURRENT MACROECONOMIC SCENARIOS\n data to publish their own projections. 2009 Scenarios 2010 Scenarios Economic\n The three forecasters used for the More More Indicators, as of\n purpose of the stress test were the Baseline Adverse Baseline Adverse 6/30/2009\n Consensus Forecasts, the Blue Chip Real GDP\n (2.0%) (3.3%) 2.1% 0.5% (5.5%)\n Survey, and the Survey of Professional (% Change in Annual Average)\n\n Forecasters. They are independent of Annual Average Civilian\n 8.4% 8.9% 8.8% 10.3% 9.5% a\n Unemployment Rate\n Treasury.\n House Prices\n (% Change Relative to Q4 (14.0%) (22.0%) (4.0%) (7.0%) (18.6%) b\n SCAP Buffer: The amount of capital of Prior Year)\n needed for an institution to sustain a\n Notes: As reported by the source document, baseline forecasts for real GDP and the unemployment rate equal the average of projec-\n 6% Tier One Ratio and a 4% Tangible tions released by Consensus Forecasts, the Blue Chip Survey, and the Survey of Professional Forecasters in February 2009.\n a\n 9.5% is the annualized rate, not the \xe2\x80\x9cannual average.\xe2\x80\x9d\n Common Equity Ratio under the more b\n Number is based off of the S&P Case-Shiller 10-city Home Price Index for first quarter of 2009.\n adverse economic scenario. Sources: Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Design and Implementation,\xe2\x80\x9d 4/24/2009;\n Real GDP as of 6/30/2009: Bureau of Economic Analysis, \xe2\x80\x9cGross Domestic Product, 1st quarter 2009 (final),\xe2\x80\x9d 6/25/2009,\n www.bea.gov, accessed 7/9/2009; Unemployment rate as of 6/30/2009: Department of Labor, \xe2\x80\x9cThe Employment Situation: June\n 2009,\xe2\x80\x9d 6/30/2009, www.bls.gov, accessed 7/9/2009; Changes in Housing Prices as of 6/30/2009: Treasury Office of Thrift Super-\n vision, \xe2\x80\x9cFirst Quarter 2009 Thrift Industry Report \xe2\x80\x94 Economic Data,\xe2\x80\x9d 6/2/2009, www.files.ots.treas.gov, accessed 7/10/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 57\n\n\n\n\n TABLE 2.12\nin effect, increased its T1 Common. The terms of the exchange offer subsequently\n SCAP RESULTS FOR THE LARGEST 19\nwere finalized on June 9, 2009, and are described later in this section. BHCs ($ BILLIONS)\n Table 2.12 shows the SCAP buffer calculation in aggregate for all 19 BHCs un- Tier One Capital $836.7\nder the more \xe2\x80\x9cadverse\xe2\x80\x9d scenario. Table 2.13 shows the results of SCAP for the 10 Tier One Common Capital (included\n 412.5\nBHCs needing additional capital, and Table 2.14 shows the results of SCAP for the in above amount)\n\n9 BHCs that have sufficient capital to withstand the more adverse scenario detailed Total Estimated Losses (599.2)\n Add Purchase Accounting\nunder SCAP. 64.3\n Adjustments\n Add Resources other than Capital to\n 362.9\nPost-SCAP Alternatives Absorb Losses\nOn June 8, 2009, the 10 BHCs requiring additional capital to meet the capital SCAP Buffer as of 12/31/2008 $185.0\nbuffer requirement submitted detailed capital plans to their FBAs outlining how Less Capital Actions and Effects of\n 110.4\n 1st Quarter Results\nthey planned to raise the necessary capital. According to the Federal Reserve, these\n Required SCAP Buffer $74.6\ncapital plans, when implemented, \xe2\x80\x9cwould provide sufficient capital to meet the re-\nquired buffer under the assessment\xe2\x80\x99s more adverse scenario.\xe2\x80\x9d97 The Federal Reserve Source: Board of Governors of the Federal Reserve, \xe2\x80\x9cThe\n Supervisory Capital Assessment Program: Overview of Results,\xe2\x80\x9d\nhas also stated that it will work with the institutions to ensure their plans get 5/7/2009.\n\n\n\n\nTABLE 2.13\n\nSCAP RESULTS FOR INSTITUTIONS NEEDING ADDITIONAL CAPITAL ($ BILLIONS)\n\n\n Bank of Wells Sun Morgan Fifth\n America Fargo GMAC Citigroup Regions Trust Stanley KeyCorp Third PNC Total\nTier One Capital $173.2 $86.4 $17.4 $118.8 $12.1 $17.6 $47.2 $11.6 $11.9 $24.1\nTier One Common Capital 74.5 33.9 11.1 22.9 7.6 9.4 17.8 6.0 4.9 11.7\nTotal Estimated Losses 136.6 86.1 9.2 104.7 9.2 11.8 19.7 6.7 9.1 18.8\nPurchase Accounting\n 13.3 23.7 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 5.9\nAdjustments\nProjected Non-Capital\n 74.5 60.0 (0.5) 49.0 3.3 4.7 7.1 2.1 5.5 9.6\nResourcesa\nSCAP Shortfall as of\n 46.5 17.3 6.7 92.6 2.9 3.4 8.3 2.5 2.6 2.3\n12/31/2008\n1 Quarter Results and Actions\n st\n 12.7 3.6 (4.8) 87.1 0.4 1.3 6.5 0.6 1.5 1.7\nAdditional Capital Required $33.9 $13.7 $11.5 $5.5 $2.5 $2.2 $1.8 $1.8 $1.1 $0.6 $74.6\n\nNotes: Numbers affected by rounding.\na\n Resources include Pre-provision Net Revenue (\xe2\x80\x9cPPNR\xe2\x80\x9d) and the resources available from the allowance for loan and lease losses.\nSource: Board of Governors of the Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Overview of Results,\xe2\x80\x9d 5/7/2009.\n\x0c58 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 2.14\n\n SCAP RESULTS FOR INSTITUTIONS NOT NEEDING ADDITIONAL CAPITAL ($ BILLIONS)\n American Bank of NY Goldman JPMorgan State\n Express BB&T Co. Mellon CapitalOne Sachs Chase MetLife Street USB\n Tier One Capital $10.1 $13.4 $15.4 $16.8 $55.9 $136.2 $30.1 $14.1 $24.4\n Tier One Common\n Capital 10.1 7.8 11.0 12.0 34.4 87.0 27.8 10.8 11.8\n Total Estimated Losses 11.2 8.7 5.4 13.4 17.8 97.4 9.6 8.2 15.7\n Purchase Accounting\n \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 1.5 \xe2\x80\x94 19.9 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94\n Adjustments\n Projected Non-Capital\n 11.9 5.5 6.7 9.0 18.5 72.4 5.6 4.3 13.7\n Resourcesa\n SCAP Shortfall as of\n \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94\n 12/31/2008\n 1st Quarter Results and\n 0.2 0.1 (0.2) (0.3) 7.0 2.5 0.6 0.2 0.3\n Actions\n Additional Capital\n Required \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94\n\n Notes: Numbers affected by rounding.\n a\n Resources include PPNR and the resources available from the allowance for loan and lease losses.\n\n Source: Board of Governors of the Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Overview of Results,\xe2\x80\x9d 5/7/2009.\n\n\n\n\n implemented quickly and are completed by the November 9, 2009, capital-raising\n deadline.98 The capital plan must include the following:99\n\n \xe2\x80\xa2 detailed description of the actions that will be taken to raise the amount of capi-\n tal and/or type of capital needed to meet the SCAP buffer\n \xe2\x80\xa2 list of steps to address weaknesses in the BHC\xe2\x80\x99s internal processes for managing\n and maintaining effective capital\n \xe2\x80\xa2 outline of steps that the BHC will take to repay TARP funds over an allotted\n time and reduce reliance on guarantees through FDIC\xe2\x80\x99s TLGP\n\n Should a BHC not meet its required SCAP buffer by November 9, 2009, it will\n have to take additional capital assistance through CAP. This may include either\n Treasury-approved conversion of the BHCs\xe2\x80\x99 CPP investment to CAP MCP shares\n or the issuance of new CAP MCP shares.100 As of June 30, 2009, many financial\n institutions have raised significant funds on their own, which could seemingly limit\n their need for CAP. Table 2.15 shows how the following banks have already begun\n to raise capital in different ways.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 59\n\n\n\n\nStatus of CAP\nAccording to Treasury, those institutions that were not part of SCAP have until\nNovember 9, 2009, to apply for the CAP program. When applying for CAP, QFIs\ncan either apply directly for additional TARP funding in the form of CAP MCP\nshares or apply to convert their CPP preferred shares in exchange for CAP MCP For more information on the Capital\nshares. 101 As of June 30, 2009, only one institution had applied for CAP, and none Assistance Program terms and condi-\n tions, see SIGTARP\xe2\x80\x99s April Quarterly\nhad yet been funded.\n Report, Section 2: \xe2\x80\x9cTARP Overview.\xe2\x80\x9d\n\n\n\n\nTABLE 2.15\n\nSCAP PROGRESS AS OF 6/30/2009 ($ BILLIONS)\n Capital Capital Raised/\n Needed per Announced as of Capital Needed\nFinancial Institution SCAP l 6/30/2009 by 11/9/2009 Method of Raising Capital\n Exchange offering, common equity offering, reduced dividends,\nBank of Americaa $33.9 $33.9 \xe2\x80\x94\n gain from dispositions\nCitigroupb 5.5 5.5 \xe2\x80\x94 Expanded already announced exchange offer\nFifth Third Bancorp c\n 1.1 2.2 \xe2\x80\x94 Exchange offering, tender offering\n Received $7.5 billion from MCP share issuance to Treasury\nGMAC LLCd 11.5 3.5 8.0\n through AIFP ($3.5 billion used to meet capital requirements)\nKeycorpe 1.8 1.3 0.5 Exchange offering\nMorgan Stanleyf,g 1.8 2.2 \xe2\x80\x94 Public equity offering\nPNC h\n 0.6 0.6 \xe2\x80\x94 At-the-market equity offering\nRegions Financial Corpi 2.5 2.5 \xe2\x80\x94 Exchange offering\nSunTrustj 2.2 2.1 0.1 Equity offering, tender offering\nWells Fargo k\n 13.7 8.6 5.1 Equity offering\nTotal $74.6 $62.5 $13.7\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009.\n\nSources:\na\n Bank of America, \xe2\x80\x9cPress Release,\xe2\x80\x9d 6/25/2009, newsroom.bankofamerica.com/index. g\n Morgan Stanley has since repaid its TARP funds on 6/17/2009.\n php?s=43&item=8485, accessed 6/23/2009. h\n PNC, \xe2\x80\x9cPress Release,\xe2\x80\x9d 5/27/2009, http://pnc.mediaroom.com/index.php?s=43&item=635,\nb\n Citigroup Inc., \xe2\x80\x9cPress Release,\xe2\x80\x9d 5/7/2009, www.citigroup.com/citi/press/2009/090507f.htm, accessed 6/23/2009.\n accessed 6/30/2009. i\n Regions Financial, \xe2\x80\x9cPress Release,\xe2\x80\x9d 6/18/2009, www.regions.com/about_regions/IR_newsreleases.\nc\n Fifth Third Bancorp, 8-K, 6/4/2009, www.sec.gov, accessed 6/23/2009. html, accessed 6/30/2009.\nd\n Treasury, Transaction Report, 7/2/2009, www.financialstability.gov, accessed 7/2/2009. j\n SunTrust, 8-K, 6/8/2009, www.sec.gov, accessed 6/23/2009.\ne\n Keycorp, \xe2\x80\x9cPress Release,\xe2\x80\x9d 6/3/2009, www.snl.com/irweblinkx/file.aspx?IID=100334&FID= k\n Wells Fargo, \xe2\x80\x9cPress Release,\xe2\x80\x9d 5/8/2009, www.wellsfargo.com/press/2009/20090508_stock_\n 7893270, accessed 6/23/2009. raise_results, accessed 6/23/2009.\nf\n Morgan Stanley, \xe2\x80\x9cPress Release,\xe2\x80\x9d 6/2/2009, www.morganstanley.com/about/press/articles/ l\n Board of Governors of the Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Overview\n beb071fc-4f61-11de-96f6-3f25a44c9933.html, accessed 6/23/2009. of Results,\xe2\x80\x9d 5/7/2009.\n\x0c60 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM 60\n\n\n\n\n Systemically Significant Failing Institutions Program\n According to Treasury, the Systemically Significant Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d)\n program was established to \xe2\x80\x9cprovide stability and prevent disruptions to financial\n markets from the failure of institutions that are critical to the functioning of the\n nation\xe2\x80\x99s financial system.\xe2\x80\x9d102 As of June 30, 2009, $69.8 billion has been allocated\n through the SSFI program to American International Group, Inc. (\xe2\x80\x9cAIG\xe2\x80\x9d), the sole\n participant.\n\n American International Group, Inc.\n The $69.8 billion of TARP funds allocated to AIG includes $40 billion of preferred\n Equity Capital Facility: A commitment stock purchased from AIG on November 25, 2008, and the more recent establish-\n to invest equity capital in a firm under ment of a $29.8 billion equity capital facility. AIG used the proceeds of Treasury\xe2\x80\x99s\n certain future conditions. initial stock purchase to reduce the amount it had previously borrowed from the\n Federal Reserve.103 On March 2, 2009, Treasury and the Federal Reserve an-\n Securities Exchange: An agreement be- nounced a restructuring and sale of certain assets that will allow the company to\n tween a firm and investors, permitting repay a portion of the Federal Reserve\xe2\x80\x99s assistance packages to AIG. This overall\n the investors to exchange one class of restructuring of the Government\xe2\x80\x99s interests included a securities exchange, the\n securities for another. previously mentioned $29.8 billion equity capital facility, and an amendment to the\n Federal Reserve\xe2\x80\x99s Revolving Credit Facility. According to Treasury, the restructuring\n will strengthen the company\xe2\x80\x99s finances and is a long-term solution for AIG, its cus-\n tomers, U.S. taxpayers, and the financial system as a whole.104 On April 17, 2009,\n Treasury and AIG signed the securities exchange agreement and the equity facility\n agreement as part of AIG\xe2\x80\x99s ongoing restructuring efforts.105 According to Treasury,\n \xe2\x80\x9corderly restructuring is essential to AIG\xe2\x80\x99s repayment of the support it has received\n from U.S. taxpayers and to preserving financial stability.\xe2\x80\x9d106\n\n Restructuring\n AIG\xe2\x80\x99s \xe2\x80\x9corderly restructuring\xe2\x80\x9d goes beyond the restructuring of its Government\n assistance to include an internal restructuring plan for the company\xe2\x80\x99s assets and\n risk positions. This internal restructuring, which includes asset sales, is an attempt\n by AIG to \xe2\x80\x9cprotect and enhance the value of its key businesses, and position these\n franchises for the future as more independently run, transparent companies.\xe2\x80\x9d107\n Subsequent to SIGTARP\xe2\x80\x99s April Quarterly Report, the following restructuring\n transactions have transpired:108\n \xe2\x80\xa2 Government Agreements: Agreements for a securities exchange and eq-\n uity capital facility have been executed, and changes to the Federal Reserve\n Revolving Credit Facility have been made.\n \xe2\x80\xa2 Separation Activities: Two of AIG\xe2\x80\x99s largest foreign life insurance businesses\n \xe2\x80\x94 American International Company Ltd. (\xe2\x80\x9cAIA\xe2\x80\x9d) and American Life Insurance\n Company (\xe2\x80\x9cALICO\xe2\x80\x9d) \xe2\x80\x94 have been put into special purpose vehicles (\xe2\x80\x9cSPVs\xe2\x80\x9d),\n\x0c61 QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 61\n\n\n\n\n with significant preferred stock interests in those SPVs used to pay down the\n Federal Reserve Revolving Credit Facility.\n \xe2\x80\xa2 Financial Products Corp. Unwind: AIG continues to reduce the risk of its\n derivatives portfolios held by its subsidiary, Financial Products Corp.\n \xe2\x80\xa2 Asset Sales: AIG continues to sell off subsidiaries that are not part of its core\n business.\n\n Government Agreements\n The restructuring of the Government\xe2\x80\x99s assistance package for AIG involved\n three new agreements with two Government agencies. The securities exchange\n and equity capital facility are Treasury agreements, and the amended Revolving\n Credit Facility is with the Federal Reserve. All three agreements are subject to\n Government inspection and control requirements. Provisions for the AIG-Treasury\n contracts include, among others, inspection rights, internal control establishment,\n executive compensation limits, limited lobbying activity, use of funds reporting,\n and dividend rate adjustments. Table 2.16 illustrates these provisions in more\n detail.\n\n\n TABLE 2.16\n\n STANDARD PROVISIONS FOR AIG TREASURY CONTRACTS\n Provision Description\n Treasury, SIGTARP, and the Comptroller General of the United States\n Inspection Rights have access to personnel, and any books, papers, records, or other\n data.\n AIG must establish internal controls to ensure compliance with the\n Internal Controls terms of the contract, and must report on the implementation of the\n internal controls quarterly.\n AIG must comply with all EESA executive compensation requirements\n and any amendments. AIG must also make its best efforts to comply\n Executive Compensation\n with the executive compensation restrictions to non-U.S.-based\n senior employees.\n AIG shall continue to maintain and implement its policy on lobbying,\n Limited Lobbying Activity\n governmental, ethics, and political activities.\n Dividend Rate Adjustment Treasury can change the dividend rate with the objective of\n protecting the U.S. taxpayer.\n Preferred Stock Directors In the event that the board does not declare dividends for four\n quarters (does not need to be consecutive), Treasury has the right\n to elect the greater of (a) two members of the board of directors or\n (b) 20% of the entire board (currently there are 11 directors). Upon\n the receipt of four consecutive full dividend payments, the board\n members will step down.\n\n Note: The executive compensation requirements released on 5/15/2009 apply to AIG.\n Source: Treasury, \xe2\x80\x9cSecurities Exchange Agreement dated as of April 17, 2009, between American International Group, Inc. and\n United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.E.Securities.Exchange.\n Agreement.pdf, accessed 6/8/2009.\n\x0c62 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Securities Exchange Agreement\n The securities exchange allows AIG to replace the 4 million shares of cumulative\n preferred stock issued to Treasury in November 2008 (\xe2\x80\x9cSeries D stock\xe2\x80\x9d) worth $40\n Cumulative Preferred Stock: A type of billion with 400,000 shares of non-cumulative preferred stock (\xe2\x80\x9cSeries E stock\xe2\x80\x9d)\n stock that requires a defined dividend worth $41.6 billion.109 The price of the Series E stock was set at the total value of\n payment. If the company does not pay the Series D stock plus any unpaid dividends.110 The Series D stock paid a 10% an-\n the dividend, it still owes the missed nual dividend (paid quarterly), and the new Series E stock will pay a 10% dividend\n dividends to the owner of the stock. if the board of directors declares dividends.111 AIG may only repurchase the new\n Series E stock with the proceeds of new sources of private capital.112 In addition\n Non-cumulative Preferred Stock: Unpaid\n to the newly issued preferred stock, AIG has issued warrants to Treasury. These\n dividends do not accrue on shares of\n warrants are exercisable for 2,689,938.3 shares of common stock, which represent\n stock when a company does not make\n 2% of AIG\xe2\x80\x99s outstanding common stock as of June 30, 2009.113 The warrants have\n a dividend payment.\n a strike price of $50, and, on June 30, 2009, the current price of AIG stock was\n Reverse Stock Split: A method used by $23.20. On June 30, 2009, AIG had a 1-for-20 reverse stock split, which increased\n corporations to reduce the number of the stock price by a multiple of 20 and reduced the shares outstanding by a quo-\n shares outstanding and increase the tient of 20. The warrants adjust by the same multiple as the stock; the previously\n share price proportionally. The total stated terms of the warrants reflect this reverse stock split.\n value of the shares outstanding remains\n the same. Based on the AIG reverse Equity Capital Facility\n stock split, if a shareholder owned 100 The equity capital facility was announced as a five-year, $30 billion agreement\n shares of common stock valued at $1 between AIG and Treasury.114 Under the agreement, AIG agrees to issue and sell to\n before the 1-for-20 reverse stock split,\n Treasury 300,000 shares of 10% non-cumulative preferred stock (\xe2\x80\x9cSeries F stock\xe2\x80\x9d),\n after the reverse stock split the share-\n plus warrants to purchase 150 shares of common stock.115 Dividends on the Series\n holder would own 5 shares of stock\n F stock do not accumulate and are only owed when declared by the board of direc-\n valued at $20 each.\n tors. The strike price of the warrants is $0.00002 per share.116 On June 30, 2009,\n AIG\xe2\x80\x99s common stock price was $23.20 per share. The agreement terms reflect the\n June 30, 2009, reverse stock split.\n Technically, Treasury has already acquired all 300,000 shares of Series F stock,\n but the shares had no value until cash was disbursed from Treasury to AIG. Upon\n such disbursements, the facility is said to be \xe2\x80\x9cdrawn upon,\xe2\x80\x9d and the value of Series\n F stock increases by the amount of the drawdown.117 In order to draw down the\n equity capital facility, AIG must provide an outline of the expected uses of the\n funds.118 As of June 30, 2009, AIG has drawn down $1.15 billion to improve the\n capitalization of its domestic life insurance and retirement services businesses.119\n In March 2009, AIG made $165 million in retention payments to certain\n employees in its Financial Products Corp. and Trading Group Inc. subsidiaries\n (\xe2\x80\x9cAIGFP Retention Payment Amount\xe2\x80\x9d).120 In an attempt to recoup the $165 mil-\n lion from AIG, Treasury reduced the amount of capital available through the equity\n capital facility by $165 million. This reduced the $30 billion value of the facility to\n $29.835 billion. In addition to the AIGFP Retention Payment Amount, Treasury\n assigned a $165 million commitment fee to AIG for the use of the facility.121 The\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 63\n\n\n\n\ncommitment fee is due in three installments of $55 million on each of the follow-\ning dates: December 17, 2010; August 17, 2012; and April 17, 2014, and must be\npaid from the operational capital of AIG.122\n\nFederal Reserve Revolving Credit Facility\nThe Federal Reserve will make several modifications to the Revolving Credit\nFacility established in September 2008:\n\xe2\x80\xa2 The credit facility will be repaid and reduced in exchange for up to approxi-\n mately $26 billion in preferred interests in two special purpose vehicles created\n to hold all of the outstanding common stock ALICO and AIA.123\n \xe2\x80\x93 The total amount available under the Revolving Credit Facility will be reduced\n to $25 billion.\n\xe2\x80\xa2 The Federal Reserve will make up to $8.5 billion in new loans to AIG. The loans Derivative: A financial instrument whose\n will be repaid by the cash flow received from designated blocks of the domestic value is based on (\xe2\x80\x9cderived from\xe2\x80\x9d) a\n life insurance subsidiaries of AIG.124 different underlying asset, indicator, or\n\xe2\x80\xa2 The interest rate on the facility is the three-month London Interbank Offered financial instrument.\n Rate (\xe2\x80\x9cLIBOR\xe2\x80\x9d) plus 300 basis points. The previous interest rate floor of 3.5%\n Credit Default Swap (\xe2\x80\x9cCDS\xe2\x80\x9d): A contract\n will be removed from the credit facility.125\n where the seller receives a series of pay-\n ments from the buyer in return for agree-\nAIG Financial Products Corp. Unwind\n ing to make a payment to the buyer\nAIG Financial Products Corp. (\xe2\x80\x9cAIGFP\xe2\x80\x9d) is a subsidiary of AIG whose primary\n when a particular credit event outlined in\nbusiness is trading in derivatives of stocks, bonds, credit, and commodities as well the contract occurs (for example, if the\nas energy trading and trading in the foreign exchange markets. Derivatives are credit rating on a particular bond or loan\nfinancial instruments that \xe2\x80\x9cderive\xe2\x80\x9d their value from something else (residential is downgraded or goes into default). It\nmortgage-backed securities, commercial mortgage-backed securities, etc.). AIG\xe2\x80\x99s fi- is commonly referred to as an insurance\nnancial woes were largely a result of AIGFP\xe2\x80\x99s position as underwriter of one type of product where the seller is providing\nderivative, credit default swaps (\xe2\x80\x9cCDSs\xe2\x80\x9d), that sustained substantial losses in 2008. the buyer insurance against the failure\nAIGFP\xe2\x80\x99s CDS exposure on multi-sector collateralized debt obligations (\xe2\x80\x9cCDOs\xe2\x80\x9d) of a bond. The buyer, however, does\nalone accounted for approximately $19 billion of the $24.5 billion in losses AIG not need to own the asset covered by\nannounced in the third quarter of 2008. the contract, which means it can serve\n essentially as a \xe2\x80\x9cbet\xe2\x80\x9d against the underly-\n The downgrade of AIG\xe2\x80\x99s AAA credit rating by the rating agencies triggered a\n ing bond.\ncredit event under many of its derivative contracts. This event required AIGFP to\npost additional collateral to its counterparties. As of November 5, 2008, AIGFP had\n Collateralized Debt Obligation (\xe2\x80\x9cCDO\xe2\x80\x9d):\nposted or agreed to post $37.3 billion in collateral to its counterparties. These col-\n A financial instrument that entitles the\nlateral postings payments exceeded the funds AIG had available, and that is when purchaser to some portion of the cash\nthe Federal Reserve and Treasury began providing assistance to stabilize the com- flows from a portfolio of assets, which\npany. Part of AIG\xe2\x80\x99s restructuring plan involves the unwinding of AIGFP\xe2\x80\x99s derivative may include bonds, loans, mortgage-\nexposure. According to AIG\xe2\x80\x99s first-quarter financial statements, released May 7, backed securities, or other CDOs.\n2009, AIGFP has begun to reduce the exposed risk of AIG; the notional amount\nof AIG\xe2\x80\x99s derivative portfolio exposure has been reduced by more than 40% \xe2\x80\x94 from Notional: Face value.\napproximately $2.7 trillion to approximately $1.5 trillion.\n\x0c64 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Asset Sales\n AIG has also begun a large-scale asset divestiture plan in a move to \xe2\x80\x9cprotect and\n enhance the value of its key business.\xe2\x80\x9d126 AIG has completed the sale of eight sub-\n sidiaries and one large office building in Tokyo. When AIG sells an asset, the total\n sale price could be in the form of cash or AIG debt assumed by the purchaser. The\n total sales price of the nine completed sales is approximately $5.3 billion, includ-\n ing approximately $4.6 billion cash and notes and $726 million debt assumed by\n the purchasers. Table 2.17 lists the assets and the respective sale prices with the\n applicable debt assumptions by the purchasers.127\n\n\n\n\n TABLE 2.17\n\n AIG ASSET SALES ($ MILLIONS)\n\n Debt Assumed Total Sale\n Subsidiary Cash by Purchaser Price\n AIG PhilAm Savings Bank, PhilAm Auto Financing\n $43 $\xe2\x80\x94 $43\n and Leasing, and PFL Holdings\n Hartford Steam Boiler 739 76 815\n AIG Insurance Company of Canada 263 \xe2\x80\x94 263\n AIG Retail Bank Public Company Limited and its\n credit card operations, AIG Card (Thailand) 45 495 540\n Company Limited, in Thailand\n AIG Private Bank Limited 253 55 308\n Deutsche Versicherungs-und\n 26 \xe2\x80\x94 26\n R\xc3\xbcckversicherungs-Aktiengesellschaft\n AIGFP Commodity Index Business 150 \xe2\x80\x94 150\n 21st Century Insurance Group 1,900 100 2,000\n Tokyo Office Building 1,200 \xe2\x80\x94 1,200\n Total $4,619 $726 $5,345\n\n Note: These numbers and announcements are from the unaudited quarterly report and press releases.\n\n Sources: American International Group, Inc., 10-Q, \xe2\x80\x9cQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange\n Act of 1934,\xe2\x80\x9d 3/31/2009, www.sec.gov/Archives/edgar/data/5272/000095012309008272/y76976e10vq.htm, accessed\n 7/9/2009, pp. 3-4; AIG Press Release, \xe2\x80\x9cAIG Completes Sale of Prime Tokyo Real Estate Asset to Nippon Life Insurance Company,\xe2\x80\x9d\n 5/28/2009, ir.aigcorporate.com/phoenix.zhtml?c=76115&p=irol-newsArticle&ID=1293557&highlight=, accessed 7/10/2009;\n AIG Press Release, \xe2\x80\x9cAIG Financial Products Corp Completes Sale of Commodity Index Business,\xe2\x80\x9d 5/7/2009, ir.aigcorporate.com/\n phoenix.zhtml?c=76115&p=irol-newsArticle&ID=1285771&highlight=, accessed 7/10/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 65\n\n\n\n\nTargeted Investment Program and Asset Guarantee Program\nUnder the Targeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d), Treasury had invested, as of\nJune 30, 2009, $40 billion of TARP funds in Citigroup and Bank of America.\nFurthermore, under the Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d), Treasury had commit-\nted a total of $5 billion to support $301 billion of assets held by Citigroup. As of\nJune 30, 2009, Citigroup is the sole participant in AGP.\n\n\xe2\x80\xa2 Stated goal of TIP: To invest funds, on a case-by-case basis, \xe2\x80\x9cto strengthen the\n economy and protect American jobs, savings, and retirement security\xe2\x80\x9d where\n \xe2\x80\x9cthe loss of confidence in a financial institution could result in significant mar-\n ket disruptions that threaten the financial strength of similarly situated financial\n institutions.\xe2\x80\x9d128\n\xe2\x80\xa2 Stated goal of AGP: To use insurance protections to help stabilize at-risk\n financial institutions. Treasury insures a select pool of troubled assets and col-\n lects premiums in return. This program differs from other financial institution\n solvency programs in that Treasury does not invest TARP funds in the institu-\n tion directly; rather, TARP funds are reserved to cover a portion of the possible\n losses in the selected assets.129\n\nCitigroup Inc.\nTreasury has provided no financing to Citigroup beyond its earlier CPP, TIP, and\nAGP funding. Citigroup has received a total of $50 billion in TARP funding over\nthree installments:\n\xe2\x80\xa2 CPP: $25 billion on October 28, 2008\n\xe2\x80\xa2 TIP: $20 billion on December 31, 2008\n\xe2\x80\xa2 AGP: $5 billion loss protection on January 15, 2009\n\n The $5 billion AGP commitment is for Treasury\xe2\x80\x99s portion of the loss exposure Ring-Fencing: Segregating assets from\non the ring-fencing of approximately $301 billion worth of troubled Citigroup the rest of a financial institution, often so\nassets. This amount has not been paid directly to Citigroup, but rather, has been that asset problems can be addressed in\nplaced in reserve against the possibility of future losses on the assets in the ring- isolation.\nfence.130 There have been no additional TARP funds allocated to Citigroup since\nSIGTARP\xe2\x80\x99s April Quarterly Report. However, Treasury\xe2\x80\x99s investments in Citigroup Exchange: In reference to Citigroup\n agreement, taking one type of stock\nhave been modified through a set of exchange offerings that were finalized on\n (e.g., preferred) and converting it at a\nJune 9, 2009.131 The effects of these exchange offers are mixed. The CPP exchange\n specific rate to another type of stock\nwill reduce the dividends payable to Treasury, and Treasury will receive a more\n (e.g., common).\njunior position on the conversion of those shares in the event of a bankruptcy. The\nTIP and AGP exchange to trust preferred securities will result in Treasury having a\n\x0c66 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n For more information on Treasury\xe2\x80\x99s original more senior claim in bankruptcy and Treasury will have a higher priority to receive\n investments in Citigroup, see SIGTARP\xe2\x80\x99s regular interest payments.132 Additionally, Citigroup is implementing a Tax Benefit\n Initial Report and SIGTARP\xe2\x80\x99s April Preservation Plan to protect its shareholders from the potential loss of value of\n Quarterly Report. tax benefits through the dilution that is caused by the exchanges. If followed by\n shareholders, this plan will protect a large amount of tax benefits \xe2\x80\x94 such as loss\n carry-forwards \xe2\x80\x94 that Citigroup can use to offset future income.133 A more detailed\n description of this plan is provided later in this section.\n Loss Carry-Forward: Technique used\n to apply a loss from the current year Citigroup Exchange Offering\n to a future year in order to reduce the On June 9, 2009, Citigroup finalized several private and public preferred securi-\n company\xe2\x80\x99s future tax liability. ties exchange offers that were announced on February 27, 2009. These exchanges\n generally involve arranging for preferred shareholders, including Treasury, to trade\n Interim Security: In the case of the in their shares for new interim securities that can be converted to common stock at\n Citigroup exchange, a preferred stock the request of Citigroup.134 This will permit the interim securities to be counted as\n that is convertible and designated as a\n \xe2\x80\x9ctangible common equity,\xe2\x80\x9d thus strengthening Citigroup\xe2\x80\x99s capital structure. When\n common stock equivalent.\n Citigroup originally announced this exchange offering in February 2009, it intend-\n ed to exchange up to $27.5 billion of its non-Treasury held preferred securities, and\n Treasury-Owned Preferred Stock:\n Treasury had announced that it would match up to $25 billion of the non-Treasury\n Comprises CPP preferred stock, AGP\n preferred stock, and TIP preferred held shares exchanged with its CPP preferred shares (Treasury-owned preferred\n stock. stock). Since then, Citigroup participated in Treasury\xe2\x80\x99s stress test (Supervisory\n Captial Asset Program, or SCAP) to determine an appropriate capital buffer for the\n firm in case of adverse economic conditions. Treasury concluded that Citigroup\n needed to raise $5.5 billion in tangible common equity, even after receiving credit,\n during the SCAP testing, for the $52.5 billion to be exchanged. On May 7, 2009,\n Citigroup announced it will expand the original private portion of its exchange\n offering by $5.5 billion to meet the required buffer under SCAP.135 Refer to the\n \xe2\x80\x9cCapital Assistance Program\xe2\x80\x9d discussion in this section for more detail on SCAP.\n Citigroup has offered the exchange until July 24, 2009, to both its private and\n public preferred shareholders, with Treasury agreeing to match up to $25 bil-\n lion of its CPP preferred shares in the transactions. Should there be full (private,\n public, and Treasury) participation. Citigroup would convert approximately $58\n\n TABLE 2.18\n\n CITIGROUP PREFERRED STOCK EXCHANGE PARTICIPANTS ($ BILLIONS)\n Outstanding Maximum Participation\n Private Preferred $12.5 $12.5\n Public Preferred and Trust Preferred 30.6 20.5\n Treasury-Owned Preferred 50.0 25.0\n Total $93.1 $58.0\n\n Note: Public preferred and trust preferred are combined because public preferred shareholders will exchange first during the exchange\n of public preferred shares, and trust preferred will make up the difference to complete the transaction.\n Source: Citigroup, Schedule 14A, 6/10/2009, www.sec.gov/Archives/edgar/data/831001/000119312509128779/dprer14a.htm,\n accessed 6/15/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 67\n\n\n\n\nFIGURE 2.9\n\n CITIGROUP EXCHANGE OVERVIEW\n\n\n PRE-EXCHANGE OWNERSHIP\n\n\n Private Preferred Public Preferred Newly Created\n Treasury\n Shareholder Shareholder Trust\n\n\n\n Private Preferred Public Preferred CPP Preferred Trust Preferred\n Stock Stock Stock Security\n\n TIP Preferred\n Stock\n\n AGP Preferred\n Stock\n\n\n\n\n POST-EXCHANGE OWNERSHIP\n\n\n Private Preferred Public Preferred Newly Created\n Treasury\n Shareholder Shareholder Trust\n\n\n\n Interim Interim Interim TIP Preferred\n Securities Securities Securities Stock\n\n Public Preferred Trust Preferred AGP Preferred\n Stocka Security Stock\n\n\n\n Notes: Private preferred stock, public preferred stock, and CPP preferred stock will be exchanged for\n interim securities until shareholders approve the transaction.\n a\n If the Public Preferred Exchange has maximum participation, there will be $10.05 billion of Public\n Preferred Stock outstanding.\n\n Source: Citigroup, Exchange Agreement, 6/9/2009, www.sec.gov, accessed 6/10/2009.\n\n\n\nbillion of its preferred stock.136 Table 2.18 lists the total value of the outstanding\npreferred stock by exchange participants and the maximum participation allowed by\nCitigroup in the exchange agreement.\n The exchange offer closing and conversion to common stock is dependent on\nmany factors, including regulatory and shareholder approvals. Figure 2.9 illustrates\nthe ownership of the participating shareholders pre- and post-exchange. Treasury,\npublic shareholders, and private shareholders are holding interim securities until\nthey receive shareholder approval. The details of each transaction are discussed in\nthe following sections.\n\nPrivate Preferred Exchange Offer\nAccording to the exchange agreements, the private preferred shareholders will\nexchange their shares first on the condition that they elect to exchange at least\n\x0c68 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n FIGURE 2.10 $11.5 billion of preferred shares. Under the exchange, Treasury will convert a por-\n tion of its CPP investment that is matched to the amount of preferred shares being\n CITIGROUP PRIVATE PREFERRED exchanged by private preferred shareholders and will receive from Citigroup the\n EXCHANGE PROCESS\n following assets in exchange:137\n PRIVATE PREFERRED \xe2\x80\xa2 interim securities that will convert to common stock upon shareholder approval\n SHAREHOLDERS \xe2\x80\xa2 a warrant to purchase common shares should shareholder approval not be\n obtained\n Public\n Preferred Stock\n The interim securities are designed to encourage shareholder approval of their\n Exchange private\n exchange. For example, they will pay a 9% dividend that, should shareholder ap-\n preferred stock for\n proval not be obtained within six months, will increase by two percentage points\n interim securities and\n warrants to purchase\n Interim\n Securities & Warrants each quarter to a maximum of 19%. For example, during the first quarter following\n common stock, pending\n shareholder approval. the six-month deadline, the dividends will be increased from 11% to 13% if the\n If shareholders approve, shareholder approval is not obtained. The warrant will have $0.01 exercise price\n warrants are cancelled\n Common and permit purchase up to 790 million shares of common stock. Should share-\n and interim securities\n convert to common Stock\n stock. holder approval be obtained, the warrants will be cancelled.138 For a more detailed\n description on the private preferred exchange process, see Figure 2.10.\n Source: Citigroup, \xe2\x80\x9cExchange Agreement,\xe2\x80\x9d 6/9/2009,\n www.sec.gov, accessed 6/10/2009.\n Public Preferred Exchange Offer\n After the private preferred shareholders have exchanged their shares, Citigroup\n will provide exchanges to its public preferred shareholders. Treasury will match\n both the public and private exchanges dollar-for-dollar up to $25 billion at a\n conversion rate of $3.25 per share. If shareholder approval is not obtained upon\n closing, Citigroup will issue to Treasury interim securities that will be convertible\n\n\n FIGURE 2.11\n\n CITIGROUP PUBLIC PREFERRED EXCHANGE PROCESS\n\n\n PUBLIC PREFERRED\n SHAREHOLDERS\n\n\n Public Public\n Preferred Stock Preferred Stock\n\n\n\n If shareholders have not approved\n the exchange as of the closing If shareholders approve the\n date, public preferred stock\n Interim exchange as of the closing date,\n converts to interim securities Securities public preferred stock converts\n pending shareholder approval. directly to common stock.\n\n\n\n\n Common Common\n Stock Stock\n\n\n\n Source: Citigroup, Exchange Agreement, 6/9/2009, www.sec.gov, accessed 6/10/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 69\n\n\n\n\nto common stock upon approval.139 For a more detailed description on the public\npreferred exchange process, see Figure 2.11.\n Trust Preferred Security: A security\n In addition to the exchange of up to $25 billion of its preferred shares obtained\n that has both equity and debt char-\nunder CPP, Treasury will be exchanging the preferred stock it received under the acteristics, created by establishing a\nTIP and AGP programs, to new trust preferred securities. According to Treasury, trust and issuing debt to it. A company\nthe new securities will have \xe2\x80\x9cgreater structural seniority,\xe2\x80\x9d than the existing stock; would create a trust preferred security\nfor example, they will have a more senior claim in bankruptcy and will have a to realize tax benefits, since the trust is\nhigher priority to receive regular monthly interest payments.140 They will have an tax deductible.\nannual coupon rate of 8% maturing in 2039 \xe2\x80\x94 meaning Citigroup will be paying\n8% interest payments on Treasury\xe2\x80\x99s investments.141 Citigroup will also create a new Coupon Rate: Interest rate to be paid\ntrust that will issue and sell the trust preferred securities to Treasury in exchange as a percentage of the face value of\nfor the TIP and AGP shares, as well as any remaining CPP shares that are not the security. For example, if a $100\n security has an 8% coupon, the owner\nexchanged to interim securities or common stock.142\n of the security will receive $8 each\n year for the life of the security.\nTax-Benefits Preservation Plan\nOn June 9, 2009, Citigroup announced that the Board of Directors had unani-\n Ownership Change: Under U.S. income\nmously adopted a tax-benefits preservation plan. Citigroup cited this as an effort tax law, an ownership change will\nto protect Citigroup\xe2\x80\x99s ability to utilize certain tax assets, such as operating loss occur if an owner that controls at\ncarry-forwards to offset future income.143 Under current tax law, should there be an least 5% of the company increases its\nownership change, Citigroup\xe2\x80\x99s ability to offset future income with its current and holding by 50% or more over a rolling\nrecent losses for tax purposes could be eliminated or drastically reduced. three-year period.\n In order to preserve the value of these potential tax benefits, Citigroup\nmust avoid certain events that might be deemed to be a change of ownership.\nAccordingly, Citigroup\xe2\x80\x99s plan contains two provisions that discourage the following\nchanges in ownership:144\n\xe2\x80\xa2 any person or group from becoming a 5% shareholder\n\xe2\x80\xa2 existing 5% (or more) shareholders from acquiring more than a specified num-\n ber of additional shares of Citigroup\n\n In an attempt to preserve the future tax benefits of the losses, Citigroup pre-\npared a strategy to dilute any increase in ownership that could jeopardize any of the\ntax loss carry-forward. Citigroup\xe2\x80\x99s strategy included declaring a stock dividend on\nthe interim securities and common stock allowing shareholders to purchase more\nstock thus permitting the dilution of the stock to avoid a change in control, threby\nprotecting the tax benefits.\n\nBank of America Corporation\nAs of June 30, 2009, Treasury has provided no financing to Bank of America be-\nyond its earlier CPP and TIP funding. Bank of America has received a total of $45\nbillion in three installments:\n\xe2\x80\xa2 CPP: $15 billion on October 28, 2008\n\xe2\x80\xa2 CPP: $10 billion on January 9, 2009\n\xe2\x80\xa2 TIP: $20 billion on January 16, 2009\n\x0c70 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n On January 16, 2009, Treasury had announced the potential participation by\n Bank of America in AGP. On May 7, 2009, Bank of America announced it was no\n longer seeking such assistance.145 As of June 30, 2009, according to Treasury of-\n ficials, the matter remains unresolved.\n\n Use of Funds Reports\n Under their TIP agreements, based on SIGTARP\xe2\x80\x99s recommendations, both\n Citigroup and Bank of America are required to submit a quarterly \xe2\x80\x9cuse of funds\n report.\xe2\x80\x9d The use of funds report must include the following information:146\n \xe2\x80\xa2 how TARP funds were used\n \xe2\x80\xa2 the implementation of internal controls for TARP funds\n \xe2\x80\xa2 compliance or non-compliance with restrictions on use of TARP funds\n\n Use of Funds Report: Citigroup, Inc.\n On May 12, 2009, Citigroup released its second use of funds report. The 60-\n page \xe2\x80\x9cTARP Progress Report for First Quarter 2009,\xe2\x80\x9d describes the steps taken to\n deploy TARP capital received.147 According to the report, Citigroup\xe2\x80\x99s Special TARP\n Committee (the \xe2\x80\x9cTARP Committee\xe2\x80\x9d) of senior executives had approved nearly $45\n billion in initiatives to support the U.S. economy and expand the flow of credit.148\n The report lists and describes its procedures for deployment of TARP capital as well\n as executive compensation reductions.149 Included in Citigroup\xe2\x80\x99s report is a list of\n some of the internal controls put in place in connection with TARP-related lend-\n ing. The internal controls include the following guidelines:150\n \xe2\x80\xa2 The TARP Committee may approve deployment of TARP-related capital for au-\n thorized purposes, up to a certain maximum, without gaining further approval.\n \xe2\x80\xa2 Businesses are required to report quarterly to the TARP Committee on TARP-\n related activities, the performance of any investments, and the benefit of any\n activities to the flow of credit and the U.S. housing system.\n \xe2\x80\xa2 The TARP Committee will report quarterly to Citigroup\xe2\x80\x99s board of directors on\n the specific uses of TARP funds.\n \xe2\x80\xa2 Use of TARP capital must be reported to Head of Financial Planning and\n Analysis with appropriate supporting materials to ensure effective monitoring.\n Municipal Lending: Loans to city and \xe2\x80\xa2 The committee will ensure that the Citigroup Finance Department has appro-\n state governments. priate financial reporting concerning the uses of TARP capital.\n \xe2\x80\xa2 The TARP Committee will meet as often as required but no less than every\n Supplier Financing: The purchase of quarter.\n accounts receivables of small- and\n medium-sized businesses.\n The report details Citigroup activities, including approximately $8.25 billion in\n TARP-related new loans for the first quarter between municipal lending, supplier\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 71\n\n\n\n\n TABLE 2.19\nfinancing, residential mortgages, and auto loans. Citigroup further reported that it\n CITIGROUP USE OF FUNDS,\nexpanded its assistance to homeowners by modifying mortgages for approximately AS OF 6/30/2009 ($ BILLIONS)\n80,000 homeowners with a total combined debt of more than $9 billion.151 Table Conforming Mortgage Securities $10.0\n2.19 lists the TARP-related use of funds reported by Citigroup. Non-Conforming Mortgage Loans 8.2\n U.S. Prime Residential Mortgage 7.5\nUse of Funds Report: Bank of America Corporation Securities\nOn May 11, 2009, Bank of America submitted a four-page use of funds report Credit Cards 5.8\npursuant to its TIP agreement. Included in the report is a certification by the Chief Municipal Financing 5.0\nAccounting Officer (\xe2\x80\x9cCAO\xe2\x80\x9d) that the required internal controls are in place, a Business and Personal Loans 2.5\ndescription of the requirements stated in the contract, and a one-page discussion of Supplier Financing 2.0\nthe use of funds. Corporate Loan Securitization 1.5\n According to the report submitted by Bank of America, the internal controls Student Loans 1.0\nare described as \xe2\x80\x9cincorporated.\xe2\x80\x9d152 In contrast to Citigroup\xe2\x80\x99s use of funds report, Residential Mortgages 1.0\nBank of America\xe2\x80\x99s report does not provide any details of its lending or the amount Auto Loans 0.3\nof lending that has occurred as a result of the increased capital provided by TARP. Total $44.8\nBank of America acknowledged that it did not segregate the $20 billion of TARP\n Source: Citigroup, \xe2\x80\x9cWhat Citi is Doing to Expand the Flow of\nfunds on its balance sheet and included it as part of the operating capital, stating Credit, Support Homeowners and Help the U.S. Economy,\n TARP Progress Report for First Quarter 2009,\xe2\x80\x9d 5/12/2009,\nthat, \xe2\x80\x9csince all TARP investment funds are part of our operating capital, they can- www.citigroup.com, accessed 6/1/2009.\nnot effectively be segregated and they cannot be \xe2\x80\x98unspent.\xe2\x80\x99\xe2\x80\x9d153 According to Bank of\nAmerica, the additional $20 billion was used to \xe2\x80\x9cbolster the company\xe2\x80\x99s capital and\nliquidity positions.\xe2\x80\x9d154 In its report, Bank of America listed the contract require-\nments as part of its internal controls relating to executive compensation, lobby-\ning, and other expenses. It did not provide detail as to how it is implementing the\ninternal controls.\n\x0c72 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n ASSET SUPPORT PROGRAMS\n Treasury, either on its own or in conjunction with the Federal Reserve, has cre-\n ated three programs to support demand in financial markets for hard-to-value\n assets and to restart the credit markets by supporting new loans: the Term Asset-\n Backed Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d), the Public-Private Investment Program\n (\xe2\x80\x9cPPIP\xe2\x80\x9d), and Unlocking Credit for Small Businesses (\xe2\x80\x9cUCSB\xe2\x80\x9d).\n The Federal Reserve\xe2\x80\x99s TALF program will provide up to $1 trillion in funding\n Commercial Mortgage-Backed Securi- to institutions pledging asset-backed securities (\xe2\x80\x9cABS\xe2\x80\x9d) as collateral. According\n ties (\xe2\x80\x9cCMBS\xe2\x80\x9d): A financial instrument to Treasury, it will provide $80 billion of TARP funds to absorb losses on TALF\n that is backed by a commercial real (although the Federal Reserve characterized Treasury\xe2\x80\x99s commitment as up to $100\n estate mortgage or a group of com- billion).155 As announced on May 1, 2009, TALF was expanded to include commer-\n mercial real estate mortgages that are cial mortgage-backed securities (\xe2\x80\x9cCMBS\xe2\x80\x9d) as eligible collateral for TALF loans.156\n packaged together. Through June 30, 2009, the Federal Reserve had facilitated five TALF subscrip-\n tions: four subscriptions related to non-mortgage-backed ABS totaling approximate-\n ly $28.5 billion in TALF loans, and one commercial mortgage-backed subscription\n with no TALF loans issued.\n In addition to the expansion of TALF, PPIP, as announced, included two sub-\n programs, the Legacy Loans Program and the Legacy Securities Program. The\n Legacy Loans Program was intended to utilize equity provided by Treasury and debt\n guarantees provided by FDIC to facilitate purchases of legacy mortgage loans held\n by banks; the program, however, has been shelved by FDIC. The Legacy Securities\n Program utilizes equity provided by Treasury and debt potentially provided by\n Treasury, through TARP, and/or the Federal Reserve, through TALF, to facilitate\n purchases of legacy mortgage-backed securities (\xe2\x80\x9cMBS\xe2\x80\x9d) held by various financial\n institutions.\n Through the UCSB program, Treasury will purchase up to $15 billion in securi-\n ties backed by Small Business Administration (\xe2\x80\x9cSBA\xe2\x80\x9d) loans.\n\n Term Asset-Backed Securities Loan Facility\n\n Program Summary\n In November 2008, the Federal Reserve and Treasury announced TALF, under\n which the Federal Reserve Bank of New York (\xe2\x80\x9cFRBNY\xe2\x80\x9d) would issue up to $200\n billion in loans to make credit available to consumers and small businesses, backed\n by $20 billion of TARP funds.157 Subsequently, in February 2009, Treasury and the\n Federal Reserve announced that they were prepared to expand TALF up to $1 tril-\n lion, which, according to Treasury, will include up to $80 billion of TARP funds.158\n TALF is divided organizationally into two parts:\n \xe2\x80\xa2 lending program \xe2\x80\x93 originates loans to eligible institutions\n \xe2\x80\xa2 asset disposition facility \xe2\x80\x93 an SPV used by FRBNY to purchase and manage\n any collateral surrendered by borrowers from the TALF lending program\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 73\n\n\n\n\n FRBNY will manage both the lending program and the asset disposition facility. For more information on TALF mechan-\nThe funding for the lending program comes from FRBNY. According to Treasury, ics, see Section 2: \xe2\x80\x9cTARP Overview\xe2\x80\x9d of\nthe funding for the asset disposition SPV will first come from interest payments SIGTARP\xe2\x80\x99s April Quarterly Report.\nmade by borrowers from the lending program, then from Treasury\xe2\x80\x99s use of up to\n$80 billion in TARP funds to purchase subordinated debt from the SPV, and finally,\nfrom FRBNY non-recourse loans.\n\nTALF Mechanics\nAs discussed in SIGTARP\xe2\x80\x99s April Quarterly Report to Congress, borrowers in the\nTALF lending program post ABS as collateral for non-recourse loans issued by\nFRBNY. The eligibility of the TALF borrower and the TALF collateral is determined\nthrough an application process.\n Prior to SIGTARP\xe2\x80\x99s April Quarterly Report, only certain newly issued ABS \xe2\x80\x94\nsecurities issued on or after January 1, 2009 \xe2\x80\x94 were eligible for TALF. The loans\nsupporting the ABS were limited to:\n\xe2\x80\xa2 auto, student, and credit-card loans\n\xe2\x80\xa2 equipment loans\n\xe2\x80\xa2 floorplan loans\n\xe2\x80\xa2 commercial and rental fleet leases Floorplan: Revolving lines of credit\n used to finance inventories of items.\n\xe2\x80\xa2 receivables related to residential mortgage servicing advances (servicing advance\n receivables)\n Servicing Advance Receivables:\n\xe2\x80\xa2 small-business loans guaranteed by the SBA\n Receivables related to residential\n mortgage loan securitizations that\n On May 1, 2009, the Federal Reserve added insurance premium finance loans grant the servicer first priority in any\nand CMBS to the list of eligible ABS for TALF. Additionally, the Federal Reserve insurance or liquidation proceeds\nannounced the inclusion of select legacy CMBS for the July TALF subscription; from a loan, and, if those proceeds\nthis marks the first time that legacy securities will be included in TALF. Legacy se- are insufficient, grants the servicer a\ncurities are those securities issued before January 1, 2009, and account for a large first priority to general collections of\npercentage of the ABS currently lingering on the books of financial institutions. For the related securitization.\na more detailed discussion about collateral eligibility, see the \xe2\x80\x9cTerm Asset-Backed\nSecurities Loan Facility\xe2\x80\x9d discussion in Section 2: \xe2\x80\x9cTARP Overview\xe2\x80\x9d in SIGTARP\xe2\x80\x99s Insurance Premium Finance Loan:\nApril Quarterly Report. Loan issued to small businesses so\n they may obtain property or casualty\n Once the collateral is deemed to be eligible, a haircut is assigned to the collater-\n insurance.\nal. Haircuts represent the borrower\xe2\x80\x99s \xe2\x80\x9cskin in the game\xe2\x80\x9d \xe2\x80\x94 or the amount of money\nthe borrower must invest \xe2\x80\x94 and are required for all TALF loans in varying amounts\n Haircut: Difference in the value of the\nbased on the type and riskiness of the ABS securing the TALF loan. Under TALF, collateral and the value of the loan\nFRBNY will lend each borrower the amount of the purchase price of the pledged (the loan value is less than the col-\nABS minus the haircut, subject to certain limitations. The initial haircuts for lateral value).\nnon-mortgage-backed collateral as a percentage of collateral value are posted on\nFRBNY\xe2\x80\x99s website.\n\x0c74 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Much like haircuts, the interest rates for TALF loans are based on the loan\n asset class, and most are quoted at a spread over LIBOR, which is a generally\n accepted interest rate standard. Interest payments on the TALF loans are payable\n monthly or quarterly, depending on the frequency of the interest payments on the\n collateral. TALF loan interest rates may be fixed or floating, as determined by the\n collateral, and are generally below what is currently available in the private mar-\n kets. FRBNY posts the interest rates for TALF loans on its website.\n\n Program Developments\n As the TALF program matures, a number of updates have been introduced, which,\n according to the Federal Reserve, serve three primary purposes:\n \xe2\x80\xa2 to maximize TALF\xe2\x80\x99s impact on all sectors of the ABS market\n \xe2\x80\xa2 to provide transparency to investors and the marketplace\n \xe2\x80\xa2 to protect the taxpayers\xe2\x80\x99 interests\n\n Subsequent to SIGTARP\xe2\x80\x99s April Quarterly Report, the following program-relat-\n ed developments occurred and are discussed in greater detail in this section:\n \xe2\x80\xa2 Three additional TALF subscriptions (for a total of five) were conducted by\n FRBNY.\n \xe2\x80\xa2 TALF-eligible collateral criteria were expanded to include: insurance premium\n Subscription: Process of investors\n finance loans and CMBS \xe2\x80\x94 both legacy and newly issued.\n signing up and committing to invest in\n \xe2\x80\xa2 Two new nationally recognized statistical rating organizations (\xe2\x80\x9cNRSROs\xe2\x80\x9d) were\n a financial instrument before the actual\n added to provide ratings for CMBS only: Realpoint, LLC, and DBRS.\n closing of the purchase.\n \xe2\x80\xa2 A proposed change to Standard & Poor\xe2\x80\x99s (\xe2\x80\x9cS&P\xe2\x80\x99s\xe2\x80\x9d) current ratings methodology\n for CMBS could result in ratings downgrades for CMBS that might otherwise\n have been eligible collateral for TALF loans.\n \xe2\x80\xa2 CMBS-specific haircut methodology was established.\n \xe2\x80\xa2 The role of collateral monitor for CMBS was created to act as another layer of\n risk mitigation.\n \xe2\x80\xa2 Updated program mechanics were introduced for risk mitigation through man-\n datory pre-payment of principal on loans collateralized by CMBS.\n \xe2\x80\xa2 The Federal Reserve hired a law firm to assist in the performance of a fraud risk\n assessment for TALF.\n\n TALF Subscription Activity\n As of June 30, 2009, FRBNY had conducted five subscriptions of TALF. Four\n of these subscriptions related to newly issued, non-mortgage-backed ABS (and\n occurred in the first part of March, April, May, and June), and one subscription\n related to newly issued CMBS (which occurred on June 16, 2009) for which there\n was no activity.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 75\n\n\n\n\nTABLE 2.20\n\n TALF LOANS BY ABS SECTOR, 3/2009 \xe2\x80\x93 6/2009\n (NON-MORTGAGE-BACKED COLLATERAL) ($ BILLIONS)\n March April May June\n ABS Sector 2009 2009 2009 2009 Total\n Auto Loans $1.9 $0.8 $2.2 $3.3 $8.2\n Student Loans \xe2\x80\x94 \xe2\x80\x94 2.4 0.2 2.6\n Credit Card Receivables 2.8 0.9 5.5 6.2 15.4\n Equipment Loans \xe2\x80\x94 \xe2\x80\x94 0.5 0.6 1.1\n Floorplan Loans \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94\n Small-Business Loans \xe2\x80\x94 \xe2\x80\x94 0.1 0.1 0.2\n Servicing Advance Receivables \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 0.5 0.5\n Premium Finance \xe2\x80\x94 \xe2\x80\x94 \xe2\x80\x94 0.5 0.5\n Total $4.7 $1.7 $10.6 $11.5 $28.5\n\n Notes: Numbers affected by rounding. Data as of 6/30/2009.\n As of 6/25/2009, $25.2 billion in TALF loans were outstanding. The 7/7/2009 subscription was for approximately $5.4 billion in\n TALF loans.\n\n Sources: FRBNY, \xe2\x80\x9cTerm Asset-Backed Securities Loan Facility: Operation Announcement,\xe2\x80\x9d 6/2/2009, www.ny.frb.org/markets/\n talf_operations_090602.html, accessed 6/3/2009. FRBNY, \xe2\x80\x9cTerm Asset-Backed Securities Loan Facility: Operation Announcement,\xe2\x80\x9d\n 5/5/2009, www.newyorkfed.org/markets/TALF_operations_090512.html, accessed 5/29/2009. FRBNY, \xe2\x80\x9cTerm Asset-Backed Securi-\n ties Loan Facility: Operation Announcement,\xe2\x80\x9d 4/7/2009, www.newyorkfed.org/markets/TALF_operations_090407.html, accessed\n 5/29/2009. FRBNY, \xe2\x80\x9cTerm Asset-Backed Securities Loan Facility: Operation Announcement,\xe2\x80\x9d 3/19/2009, www.newyorkfed.org/\n newsevents/news/markets/2009/ma090319.html, accessed 5/29/2009. FRBNY, \xe2\x80\x9cTerm Asset-Backed Securities Loan Facility: non-\n CMBS,\xe2\x80\x9d 7/7/2009, www.newyorkfed.org/markets/TALF_operations.html, accessed 7/8/2009.\n\n\n\n\nSubscriptions Using Non-Mortgage-Backed Collateral\nAs of June 30, 2009, FRBNY had facilitated four TALF non-mortgage-backed ABS\nsubscriptions, totaling approximately $28.5 billion. As Table 2.20 illustrates, TALF\nlending for non-mortgage-backed ABS has grown since the initial subscription in\nMarch 2009.\n TALF loans issued for the purchase of ABS backed by student loans and ABS\nbacked by loans guaranteed by the SBA may have up to five-year maturities, as\nopposed to up to three-year maturities for the non-mortgage-backed loans extended\nthus far.\n\nSubscriptions Using Mortgage-Backed Collateral\nOn June 16, 2009, FRBNY concluded the first subscription of TALF related to\nnewly issued CMBS. This was the first subscription with mortgage-backed securi-\nties as collateral. No loans were issued to borrowers during the subscription. Prior\nto the subscription, during public remarks, the President of FRBNY indicated\nthat participation would be minimal because there had been little advance notice.\nAccording to industry sources, for commercial real estate \xe2\x80\x9cit can take as long as six\nmonths from the time a loan is originated to when it\xe2\x80\x99s securitized.\xe2\x80\x9d159\n\x0c76 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Commercial Mortgage-Backed Securities\n On May 1, 2009, the Federal Reserve issued a press release announcing the\n expansion of TALF to include qualifying newly issued CMBS as eligible collateral\n for TALF loans.160 On May 19, 2009, the Federal Reserve announced that legacy\n CMBS would also be included.161 According to the Federal Reserve, \xe2\x80\x9cThe CMBS\n market came to a standstill in mid-2008. The inclusion of CMBS as eligible col-\n lateral for TALF loans will help prevent defaults on economically viable commercial\n properties, increase the capacity of current holders of maturing mortgages to make\n Amortization Schedule: A complete additional loans, and facilitate the sale of distressed properties.\xe2\x80\x9d162\n schedule of periodic blended loan pay- Commercial real estate mortgages that back CMBS are typically structured so\n ments, showing the amount of principal that mortgage borrowers are required to make monthly payments consistent with\n and the amount of interest in each a 20- to 30-year amortization schedule, but have a shorter term, which requires\n payment so that the loan will be paid the borrower to make a bullet or balloon payment as the term reaches maturity. In\n off over a certain time period. other words, the term of the mortgage may be five years, but unlike most residential\n mortgages, at the end of the commercial real estate loans, most of the principal has\n Term: The period of time assigned as not yet been repaid, leaving a very large final payment. As a result, most commer-\n the lifespan of any investment.\n cial mortgages are refinanced, that is, a new loan is sought at the end of the term.\n Commercial lenders often make mortgage loans with the understanding that bor-\n Bullet Payment: A one-time, lump-sum\n rowers will seek to refinance when the bullet becomes due.\n repayment of an outstanding loan, typi-\n cally made by the borrower after very\n As discussed in further detail in \xe2\x80\x9cTARP Tutorial: Securitization\xe2\x80\x9d in\n little, if any, amortization of the loan. Section 2: \xe2\x80\x9cTARP Overview\xe2\x80\x9d of SIGTARP\xe2\x80\x99s April Quarterly Report, securities is-\n suance provides financial institutions a significant source of liquidity to make new\n loans and refinance existing loans. When the CMBS market shut down last year,\n commercial mortgage borrowers discovered that commercial lenders were not will-\n ing to refinance commercial real estate loans. Because many borrowers are unable\n to make the final bullet payment without financing, this has created a potential\n crisis in the commercial real estate market.\n\n Which CMBS Will Meet Collateral Eligibility Requirements?\n In order to qualify as TALF collateral, newly issued CMBS and legacy CMBS must\n meet a number of eligibility requirements. Some eligibility requirements are the\n same for both newly issued and legacy CMBS:163\n \xe2\x80\xa2 Eligible CMBS must evidence an interest in a trust fund consisting of fully\n funded mortgage loans and not other CMBS, other securities, interest rate swap\n or cap instruments, or other hedging instruments.\n \xe2\x80\xa2 Eligible CMBS must have a credit rating in the highest long-term investment-\n grade rating category from at least two TALF CMBS-eligible rating agencies and\n must not have a credit rating below the highest investment-grade rating category\n from any TALF CMBS-eligible rating agency.\n \xe2\x80\xa2 Eligible CMBS must entitle its holders to payments of principal and interest.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 77\n\n\n\n\n\xe2\x80\xa2 Eligible CMBS must not be issued by an agency or instrumentality of the\n United States or a Government-sponsored enterprise.\n\xe2\x80\xa2 Eligible CMBS must include a mortgage or similar instrument on a fee or lease-\n hold interest in one or more income-generating commercial properties.\n\n Some eligibility requirements for newly issued CMBS are similar to require-\nments for legacy CMBS with minor, but important, differences:\n\n Newly issued CMBS:164\n\xe2\x80\xa2 Eligible newly issued CMBS must evidence first-priority mortgage loans that are\n current in payment at the time of securitization.\n\xe2\x80\xa2 Eligible newly issued CMBS must not be junior to other securities with claims\n on the same pool of loans.\n\xe2\x80\xa2 Each property underlying eligible newly issued CMBS must be located in the\n United States or one of its territories.\n\n Legacy CMBS:165\n\xe2\x80\xa2 Eligible legacy CMBS must not have been junior to other securities with claims\n on the same pool of loans upon issuance.\n\xe2\x80\xa2 As of the TALF loan subscription date, at least 95% of the properties underlying\n eligible legacy CMBS, by related loan principal balance, must be located in the\n United States or one of its territories.\n\xe2\x80\xa2 If issued during or after 2005, eligible legacy CMBS must be \xe2\x80\x9csuper senior\xe2\x80\x9d in\n priority at the time of the TALF loan, meaning the holder is entitled to first pay-\n ment. It became common practice in 2005 to sub-tranche (or further subdivide\n cash flows), and TALF will only accept the most senior of these sub-tranches in\n the highest rating category.166\n\n For CMBS, the Federal Reserve has retained the services of a collateral\n Collateral Monitor: Independent third\nmonitor to evaluate ABS to ensure that specific risks to the Federal Reserve and\n party engaged by the Federal Reserve\nTreasury are mitigated. For more on the role of the collateral monitor, refer to the\n to assess the riskiness of the underly-\n\xe2\x80\x9cCompliance and Fraud Prevention\xe2\x80\x9d discussion later in this section.\n ing mortgage pools.\n\nNationally Recognized Statistical Rating Organizations for CMBS\nThe ratings assigned by NRSROs to CMBS are developed through methodologies\nintended to provide a depiction of a financial instrument\xe2\x80\x99s likelihood of default,\nor riskiness. NRSRO methodologies often involve proprietary models, drawing on\nbasic assumptions about the MBS and comparisons of similarly structured invest-\nments, which may periodically be reviewed and could result in changes to ratings\nissued by an NRSRO.\n\x0c78 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n The ratings issued by NRSROs are integral to participation in the TALF pro-\n gram. The terms and conditions of TALF have two distinct requirements related to\n ratings for pledged collateral:\n \xe2\x80\xa2 At the time of subscription for the TALF loan, pledged collateral must have the\n highest long-term investment-grade rating category (e.g., AAA) from two or more\n TALF-eligible rating agencies.\n \xe2\x80\xa2 Collateral cannot have a credit rating less than the highest rating from any\n TALF-eligible rating agency, nor can it be currently on review or on watch for\n downgrade by any of the approved NRSROs.\n\n If collateral pledged for a TALF loan does not possess the necessary ratings, the\n borrower may not pledge that collateral as security for a TALF loan.\n Prior to the expansion of TALF, the Federal Reserve would accept ratings from\n S&P\xe2\x80\x99s, Moody\xe2\x80\x99s Investors Service, and Fitch Ratings for non-mortgage-backed\n ABS. On May 19, 2009, the Federal Reserve announced the addition of two new\n NRSROs to its list of acceptable NRSROs \xe2\x80\x94 DBRS and Realpoint, LLC \xe2\x80\x94 specif-\n ically for their experience in dealing with CMBS.167 These five NRSROs are known\n as TALF-eligible ratings agencies, because the ratings they issue may be relied on\n for determining collateral eligibility. In light of TALF\xe2\x80\x99s expansion to additional asset\n classes, \xe2\x80\x9cthe Federal Reserve will periodically review its use of NRSROs for the\n purpose of determining TALF-eligible ABS.\xe2\x80\x9d168\n\n Potential Downgrade of CMBS\n On May 26, 2009, S&P\xe2\x80\x99s proposed changes to the methodology it uses to rate\n CMBS.169 The change in methodology will likely cause significant downgrades for\n CMBS issued within the past three years, particularly with respect to the highest\n long-term rating. It is being reported that, \xe2\x80\x9c25%, 60%, and 90% of the most senior\n tranches of the 2005, 2006, and 2007 issuances, respectively, could be downgrad-\n ed.\xe2\x80\x9d170 On June 26, 2009, S&P affirmed that it would adopt this stance.171 Because\n of the eligibility requirement that collateral cannot have a credit rating less than\n the highest rating from any major TALF-eligible rating agency, these downgrades by\n S&P will render a significant portion of the legacy CMBS market ineligible for par-\n ticipation in the TALF program. SIGTARP will follow these developments closely\n and report on substantive changes to program design in subsequent reports.\n\n Haircuts for Legacy CMBS Collateral\n Similar to collateral requirements for other types of ABS collateral, TALF loans\n secured by CMBS require borrowers to put up a portion of their own money, or\n the haircut. The amount of the haircut is designed to reflect the inherent riski-\n ness of the collateral and the potential for it to decline in value. Haircuts for newly\n issued CMBS will be at 15%, increasing by one percentage point for each year of\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 79\n\n\n\n\nTABLE 2.21\n\n EXAMPLE CMBS EFFECTIVE HAIRCUT CALCULATION\n CMBS Expected Par Market TALF Effective\n Value Life Value Value Haircut % Haircut $ Loan Haircut\n High Five Years $1,000 $1,000 15% $150 $850 15%\n Medium Five Years 1,000 700 15% 150 550 21%\n Low Five Years 1,000 400 15% 150 250 38%\n\n\n\n\nadditional average life over five years.172 Although also at 15%, haircuts on legacy\nCMBS provide an additional technical-downside protection in that \xe2\x80\x9cthe haircuts Par Value: The dollar value assigned\nare based on a percentage of par value, but applied on a dollar basis to market to a security by the issuer.\nprices.\xe2\x80\x9d173 For example, assume that a TALF borrower pledges legacy CMBS with\na par value of $1,000 for a TALF loan. The CMBS have an average life of five\nyears, which would require a 15% haircut from the borrower. If the legacy CMBS\nwere trading at full value, the borrower could get a loan for $850, putting up $150\n(taking a $150 haircut). If, however, the legacy CMBS are trading at $700, the\nborrower will only be able to secure a $550 TALF loan (the haircut is still $150 but\nit now represents 21% of the now-lower market value). This formulation creates an\n\xe2\x80\x9ceffective haircut\xe2\x80\x9d that considers the proportion of the haircut to loan amount. The\nlower the market value of the legacy CMBS, the higher percentage of market value\nwill be the haircut. See Table 2.21 for scenarios based on differing market values\nfor legacy CMBS.\n Calculating haircuts in this manner acknowledges that legacy CMBS with large Weighted Average Life: The average\ndifferences between par value and market value are generally likely to be experienc- number of years for which each dollar\ning performance problems with the underlying assets. This approach to calculating of unpaid principal on a loan or mort-\nthe required haircut minimizes the loan amount extended by the Federal Reserve gage remains outstanding.\nand thus the potential exposure to loss.\n Haircuts are designed to consider the weighted average life of a security, which\nprovides insight regarding how many years it will take to repay the principal. The\nloans underlying a CMBS typically have a longer life than those of non-mortgage TABLE 2.22\nABS. The standard haircut for CMBS is 15%. To see the CMBS haircut percent-\n CMBS HAIRCUT PERCENTAGES\nages across a range of average life for the underlying collateral, see Table 2.22.\n Average Life (years)\n 0\xe2\x80\x935 6 7 8 9 10\nCompliance and Fraud Prevention\n 15% 16% 17% 18% 19% 20%\nAs discussed in detail in Section 4: \xe2\x80\x9cLooking Forward: SIGTARP\xe2\x80\x99s\nRecommendations to Treasury\xe2\x80\x9d of SIGTARP\xe2\x80\x99s April Quarterly Report, SIGTARP Source: FRBNY, \xe2\x80\x9cTerm Asset-Backed Securities Loan Facility:\n Terms and Conditions\xe2\x80\x9d 5/19/2009, www.newyorkfed.org/\nmade a series of recommendations regarding TALF program mechanics and fraud markets/talf_terms.html, accessed 5/19/2009.\n\nprevention procedures. Subsequently, in two letters to SIGTARP, dated\nMay 5, 2009, and May 22, 2009, the Board of Governors of the Federal Reserve\nresponded to many of the recommendations from the past quarterly report and\noutlined plans to implement procedures to address these concerns in subsequent\n\x0c80 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TALF operations. Those letters are included in Appendix G: \xe2\x80\x9cCorrespondence\n Primary Dealers: Banks and securi- Regarding SIGTARP Recommendations.\xe2\x80\x9d\n ties broker-dealers that trade in U.S.\n Government securities with the Federal Compliance Summary\n Reserve Bank of New York for the Under TALF, the primary dealers are responsible for many of the compliance-relat-\n purpose of carrying out open market ed activities, including performing due diligence regarding the eligibility of pledged\n operations. There are currently 16 ABS and the TALF applicant. Specifically, each primary dealer is responsible for\n primary dealers. applying its \xe2\x80\x9cKnow Your Customer\xe2\x80\x9d / \xe2\x80\x9cAnti-Money Laundering\xe2\x80\x9d identification\n program to each TALF borrower and making a representation to FRBNY that the\n borrower is eligible for participation in TALF.174\n\n For further detail regarding the primary CMBS Risk Mitigation through Collateral Monitoring\n dealer\xe2\x80\x99s role in TALF, see Section 2:\n In addition to haircuts, which are predetermined, fixed percentages, FRBNY will\n \xe2\x80\x9cTARP Overview\xe2\x80\x9d of SIGTARP\xe2\x80\x99s April\n conduct an actual valuation of any pledged collateral using adverse economic\n Quarterly Report.\n assumptions to determine the maximum price at which it will be willing to lend.\n This may lead to lower TALF loan values than would have been issued relying\n solely on haircuts for risk mitigation, and this practice is designed to ensure that\n the total amount of money lent to the borrower will not exceed the total value of\n the CMBS should the market continue to deteriorate. The process will also help to\n deter collusion, in that a proposed price that is deemed too high may be rejected\n by the Federal Reserve. FRBNY has retained the services of a collateral monitor to\n assist with this collateral evaluation using certain eligibility requirements provided\n by the Federal Reserve. According to FRBNY, the collateral monitor will also assess\n the pledged collateral pool for diversity of loan size, geography, property type, and\n borrower sponsorship to avoid over-concentration in any particular sector. The\n collateral monitor will \xe2\x80\x9cestimate the value of the collateral under adverse eco-\n nomic conditions, and the FRBNY will not make a loan that exceeds the stressed\n valuation.\xe2\x80\x9d175\n For example, a stressed valuation performed by the collateral monitor may\n evaluate the performance of CMBS in light of increased unemployment. Any\n increase to the unemployment rate would likely decrease the need for corporate\n office space, thus increasing vacancies and reducing rent collection. Commercial\n borrowers that recently took out a mortgage for the development of office space\n may thus default on the mortgage because of less income, which subsequently\n would harm the performance of CMBS. The collateral monitor\xe2\x80\x99s evaluation may\n show that CMBS with a market value of $600 under current economic conditions\n would be worth $400 if the unemployment rate increases. Under this scenario,\n a TALF borrower pledging the CMBS as collateral for a TALF loan would not be\n granted a loan greater than the stressed value of $400. Specific information about\n the Federal Reserve\xe2\x80\x99s stress valuation of CMBS will not be made public.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 81\n\n\n\n\n On June 16, 2009, FRBNY announced the retention of Trepp LLC as its first\ncollateral monitor for the assessment of CMBS eligibility, both newly issued and\nlegacy. According to FRBNY, Trepp will \xe2\x80\x9cassist the New York Fed by providing valu-\nation, modeling, analytics and reporting.\xe2\x80\x9d176 FRBNY further clarified that it may\nrely upon other firms as collateral monitors.\n\nRisk Mitigation through Prepayment\nThe expansion of TALF includes additional protections to limit the Federal\nReserve\xe2\x80\x99s exposure to losses from collateral declining in value and to encourage\nborrowers to repay principal instead of abandoning the collateral at the end of the\nTALF loan term.\n Any remittance of principal for legacy CMBS must be used immediately to\npay down the TALF loan in proportion to the haircut of that loan.177 In the case of\nCMBS, these principal remittances occur when a borrower prepays the mortgage,\nentitling the security holder to payment beyond the security\xe2\x80\x99s normal cash flow. For\nexample, if a TALF borrower obtained a three-year TALF loan with a 15% haircut,\nthe borrower would keep only 15% of any principal remittance, and the remain-\ning 85% would go to FRBNY to pay down the loan. In other words, if $1,000 of\nprincipal was remitted, the TALF borrower would receive $150, and $850 would go\nto FRBNY to pay down principal on the borrower\xe2\x80\x99s TALF loan.\n A second CMBS risk mitigation involves the use of interest payments received\nby the holder of the CMBS. The interest generated by the CMBS is received by\nFRBNY\xe2\x80\x99s custodian and distributed in the following order:\n\xe2\x80\xa2 pay interest on TALF loan\n\xe2\x80\xa2 pay the TALF borrower subject to a cap\n\xe2\x80\xa2 pay down outstanding principal on the TALF loan\n Assuming the interest received from CMBS is greater than interest payable on\nthe TALF loan, interest will be remitted to the TALF borrower until the following\nlimits are reached (on a five-year TALF loan) after which interest will go to pay\ndown remaining principal on the TALF loan:\n\xe2\x80\xa2 25% of the haircut amount (annually) for the first three years of the TALF loan\n\xe2\x80\xa2 10% of the haircut amount during the fourth year of the TALF loan\n\xe2\x80\xa2 5% of the haircut amount during the fifth year of the TALF loan\n\n For example, if a TALF borrower puts up a haircut of $100 for a five-year TALF\nloan, the interest remitted to the borrower from the CMBS \xe2\x80\x94 above and beyond\nthe interest that is paid to the Federal Reserve for the loan \xe2\x80\x94 cannot exceed $25\nfor the first year, $25 for the second year, $25 for the third year, $10 for the fourth\nyear, and $5 for the fifth year. All payments more than these amounts go to the\nFederal Reserve to repay the principal on the loan. In this way, the surrendering of\nassets at the end of the TALF loan term will be discouraged as some principal will\n\x0c82 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n have been repaid and the borrower will have retained some \xe2\x80\x9cskin in the game.\xe2\x80\x9d\n Otherwise, a borrower could recoup its entire haircut and profit, and have no\n incentive to pay off the loan, and reacquire the CMBS, at the end of the loan.\n\n Fraud Risk Assessment\n In a May 22, 2009, letter to SIGTARP, the Federal Reserve indicated that FRBNY\n had retained the services of a law firm to assist in the performance of a compre-\n hensive fraud risk assessment for TALF.178 According to the Federal Reserve, the\n assessment \xe2\x80\x9cwill include a review of fraud cases and investigation consultation\n with a wide range of relevant law enforcement, government agencies, academics,\n law firms and public and private investors and recommendations regarding addi-\n tional measures, strategies or controls to reduce the potential fraud risk associated\n with the program.\xe2\x80\x9d179 SIGTARP has met with FRBNY and a representative of the\n law firm.\n Additionally, FRBNY is developing an inspection program of the primary deal-\n ers facilitating TALF loans to ensure they are performing the required due dili-\n gence of collateral and borrowers.\n\n Performance of ABS Markets\n On June 4, 2009, the president and chief executive of FRBNY, William C. Dudley,\n addressed the Securities Industry and Financial Markets Association and Pension\n Real Estate Association\xe2\x80\x99s Public-Private Investment Program Summit in New York\n City regarding TALF.\n During the remarks, Mr. Dudley stated, \xe2\x80\x9cTALF loans have accounted for a bit\n more than half of total issuance volume of ABS (since the initial TALF subscrip-\n tion)...this means that the TALF is helping to restart the market, rather than the\n TALF being the market.\xe2\x80\x9d180 Additionally, Mr. Dudley noted that, \xe2\x80\x9cspreads on con-\n sumer ABS have been coming down sharply from their peak levels reached late last\n year. For example, the spreads on AAA-rated credit card ABS have narrowed from\n a peak of about 600 basis points over LIBOR to slightly above 200 basis points\n currently.\xe2\x80\x9d181\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 83\n\n\n\n\n Legacy Assets: Also known as troubled\n or toxic assets, legacy assets are real\n estate-related loans and securities\nPublic-Private Investment Program (legacy loans and legacy securities)\nOn March 23, 2009, Treasury, in combination with FDIC and the Federal Reserve, that remain on banks\xe2\x80\x99 balance sheets\nannounced the Public-Private Investment Program (\xe2\x80\x9cPPIP\xe2\x80\x9d), a $500 billion to and that have lost value, but are dif-\n ficult to price due to the recent market\n$1 trillion effort to improve the health of financial institutions holding legacy assets\n disruption.\non their balance sheets and to restart frozen credit markets.182 As noted by FDIC,\nthese troubled loans and securities \xe2\x80\x9chave depressed market perceptions of banks\n Market Value: Price at which a security\nand impeded new lending.\xe2\x80\x9d183 PPIP is designed to purchase these legacy assets could be bought or sold.\nfrom institutions through multiple Public-Private Investment Funds (\xe2\x80\x9cPPIFs\xe2\x80\x9d)\nfunded by Government and private-investor capital as well as desirable debt financ- Mark-to-market: Assets are carried at\ning. PPIP will initially focus on assets related to mortgages on residential and com- fair market value on a continual basis\nmercial real estate.184 At program announcement, Treasury declared its intention to with periodic changes in the fair value.\ncommit up to $100 billion to PPIP and the expansion of TALF to legacy assets.185 Fluctuations in value are shown in the\nOn July 8, 2009, Treasury announced that it will initially invest up to $30 billion of corporate earnings.\nequity and debt in nine PPIFs for the purchase of legacy securities.186\n Illiquid market: A market in which\nUnderstanding the Current Environment assets cannot be quickly converted to\n cash.\nPPIP\xe2\x80\x99s success in meeting its goal of taking toxic assets off of banks\xe2\x80\x99 books is\ndependent on banks\xe2\x80\x99 willingness to sell such assets. In order to assess the incentive\n Fair Value: The price that would be\nfor banks to participate and sell their troubled assets, it is necessary to understand\n received by the holder of that asset in\nhow institutions must account for these assets. Companies have traditionally held an orderly transaction.\ncertain assets \xe2\x80\x94 like stocks of other companies and asset-backed securities (\xe2\x80\x9cABS\xe2\x80\x9d)\n\xe2\x80\x94 on their books at market value. Accounting standards required banks to value Recognized: Gains or losses that occur\ncertain assets at the current market price (i.e., mark-to-market). Consequently, if when an asset is re-valued or sold.\nthe market value decreased, the company had to recognize a loss on its balance\nsheet equal to the amount of the drop in value of the security, even though it has Financial Accounting Standards Board\nnot sold it. Similarly, if the market value increased, banks could recognize a gain, or (\xe2\x80\x9cFASB\xe2\x80\x9d): Established in 1973, FASB\nprofit, on their balance sheet, improving their capital position with no actual sale is the regulatory body responsible for\ntaking place. The mark-to-market methodology is a snapshot of value \xe2\x80\x94 it does not establishing rules for financial account-\ncapture the expected future earnings or the expected lifetime losses of the securi- ing and the reporting of public, private,\n and not-for-profit companies. Those\nties.187 Illiquid and inactive markets make this fair value determination more dif-\n standards \xe2\x80\x9cgovern the preparation of\nficult. The recent turmoil in the economy caused the market value of ABS to drop\n financial reports and are officially rec-\nsignificantly, and, for some legacy securities, the market ceased to exist. As a result,\n ognized as authoritative by the Securi-\ninstitutions have had to recognize losses on their balance sheets reflective of the ties and Exchange Commission [\xe2\x80\x9cSEC\xe2\x80\x9d]\nmuch lower market value of these assets. and the American Institute of Certified\n The economic crisis focused scrutiny on the Financial Accounting Standards Public Accountants [regulators].\xe2\x80\x9d189\nBoard (\xe2\x80\x9cFASB\xe2\x80\x9d), which sets corporate accounting principles, and on mark-to- These standards are necessary for\nmarket accounting. This scrutiny is based on the belief that the current market investors, creditors, and others to rely\nis priced for a \xe2\x80\x9cfire sale,\xe2\x80\x9d and not an \xe2\x80\x9corderly transaction\xe2\x80\x9d between \xe2\x80\x9cinformed on the accuracy, transparency, timeli-\nparties.\xe2\x80\x9d188 As a result, Section 133 of EESA mandated that the Securities and ness, and comparability of financial\nExchange Commission (\xe2\x80\x9cSEC\xe2\x80\x9d) conduct a study on mark-to-market account- statements.190\ning standards and whether it should be a governing accounting standard. On\n\x0c84 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n December 30, 2008, the SEC provided a study resulting in recommendations\n for improvement in mark-to-market rules relating to the application of fair\n value measures in illiquid or inactive markets.191\n There are arguments for and against mark-to-market accounting for legacy\n assets. According to the Chairman of FASB, the mark-to-market accounting\n is seen in the current environment by financial institutions and their trade\n groups as \xe2\x80\x9coverstating the extent of losses and capital erosion and as a fac-\n tor exacerbating the crisis.\xe2\x80\x9d192 On the other side of the argument, investors,\n financial analysts, and other users of financial reporting \xe2\x80\x9chave urged [FASB]\n not to suspend or weaken the current requirements, fearing that would enable\n institutions to improperly avoid or delay the recognition of economic losses\n and depleted capital.\xe2\x80\x9d193\n Financial Accounting Standard 157-4 On April 9, 2009, FASB issued Financial Accounting Standard 157-4\n (\xe2\x80\x9cFAS157-4\xe2\x80\x9d): On April 9, 2009, FASB (\xe2\x80\x9cFAS157-4\xe2\x80\x9d) to \xe2\x80\x9cestablish a consistent definition of fair value\xe2\x80\x9d194 and provide\n issued FAS157-4 to offer more clarity a framework for valuing assets in differing market conditions.195 FAS157-4\n on valuing and accounting for assets offers further clarification on which type of assets (i.e., company stock) should\n in an inactive market when pricing rely on market price and which assets (i.e., ABS) can use other valuation\n represents distressed conditions. methods when the markets are not orderly. This clarification directly affects\n the legacy assets being purchased by the PPIFs. FAS157-4 may allow banks\n Legacy Loans: Underperforming real\n to hold assets on their balance sheets at a higher value than the previous rule.\n estate-related loans held by a bank\n With the legacy assets now valued higher on their balance sheets, institutions\n that it wishes to sell, but recent market\n may be less willing to sell their assets to PPIFs because they would have to\n disruptions have made difficult to price.\n recognize as a loss (and a reduction in their capital), the difference between\n Legacy Securities: Troubled real the value at which they held the asset on their books and the price at which\n estate-related securities (residential they sold it.\n mortgage-backed securities, commer-\n cial mortgage-backed securities, and Program Details\n asset-backed securities) lingering on In response to the economic crisis and the problems with legacy assets,\n institutions\xe2\x80\x99 balance sheets because Treasury has announced programs intended to help remove the troubled as-\n their value could not be determined. sets from the balance sheets of banks and to restart illiquid markets. PPIP, as\n originally announced, would provide between $500 billion and $1 trillion of\n capital for the purchase of legacy assets through the following programs:\n\n \xe2\x80\xa2 Legacy Loans Program: PPIFs purchase legacy loans with TARP funds\n and private-equity capital combined with FDIC-guaranteed debt.\n \xe2\x80\xa2 Legacy Securities Program: PPIFs purchase legacy securities using\n TARP funds and private investment capital combined with TARP-issued\n debt and/or optional leveraging from the expanded TALF for TALF-eligible\n securities.\n \xe2\x80\xa2 Expanded TALF: The Federal Reserve has expanded eligible ABS to\n include CMBS and is considering expansion to RMBS.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 85\n\n\n\n\nLegacy Loans Program\nAs announced, the Legacy Loans Program was designed to purchase hard-to-\nvalue real estate-related loans from financial institutions.196 In the Legacy Loans\nProgram, Treasury would form PPIFs with private investors and would match the\nprivate investment dollar-for-dollar (i.e., for every $1 invested by the private inves-\ntor, Treasury would also invest $1). FDIC would provide a debt guarantee of up to\na 6-to-1 leverage ratio (i.e., debt-to-equity ratio) on the pool of loans. The allowed\namount of leverage would be predetermined by FDIC after an independent, third-\nparty analysis of the loans.\n For more information on the Legacy Loans\n On June 3, 2009, FDIC announced that, although it is continuing to develop Program, see Section 2: \xe2\x80\x9cTARP Overview\xe2\x80\x9d\nthe Legacy Loans Program, the program would be postponed indefinitely. It cited in SIGTARP\xe2\x80\x99s April Quarterly Report.\nrecent successful capital-raising efforts by financial institutions as reflecting\n\xe2\x80\x9crenewed investor confidence in our banking system.\xe2\x80\x9d197 SIGTARP will provide\nupdates when more information on the Legacy Loans Program is available.\n\nLegacy Securities Program\nAccording to Treasury, \xe2\x80\x9cthe Legacy Securities Program is intended to restart the\nmarket for legacy securities, allowing banks and other financial institutions to\nfree up capital and stimulate the extension of new credit.\xe2\x80\x9d198 Legacy securities are\nABS supported by a pool of real estate-related loans, and for the purposes of PPIP,\nissued before January 1, 2009.199 Private investors and Treasury will co-invest to\npurchase these assets from banks, insurance companies, mutual funds, pension\nfunds, and any other eligible institutions.200\n In the Legacy Securities Program, Treasury will invest equity alongside pri-\nvate investors in a PPIF. In addition to the equity investment, Treasury will also\noffer debt financing equal to or double the amount of the private investment.\nFurthermore, Treasury and the Federal Reserve will allow the PPIFs to obtain ad-\nditional financing, up to certain limits, from the Federal Reserve\xe2\x80\x99s TALF program\nfor those assets that are eligible for TALF (currently only CMBS).201\n\nExpanded TALF\nThe Federal Reserve, as described in the previous \xe2\x80\x9cTerm Asset-Backed Securities\nLoan Facility\xe2\x80\x9d discussion in this report, has expanded its eligible asset classes to\ninclude legacy CMBS. This expansion allows, but does not require, participants in\nPPIP\xe2\x80\x99s Legacy Securities Program to also participate in TALF, subject to applicable\nhaircuts. According to OFS, \xe2\x80\x9chaircuts will be increased so that the combination\nof Treasury- and TALF-supplied debt will not exceed the total amount of TALF\ndebt that would be available leveraging the PPIF equity alone.\xe2\x80\x9d202 See the previous\n\xe2\x80\x9cTerm Asset-Backed Securities Loan Facility\xe2\x80\x9d discussion in this section for more\ninformation on the mechanics and the eligible collateral of TALF. Treasury and\nthe Federal Reserve are continuing to assess whether to expand TALF to new and\nlegacy RMBS, but, as of June 30, 2009, no final decision has been made.\n\x0c86 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n FIGURE 2.12\n\n PPIP ASSET/CASH FLOW Legacy Securities Program Process\n The following steps detail the process for participation in the Legacy Securities\n Program and Figure 2.12 details the flow of cash and assets:\n OWNERSHIP/ LENDERS\n INVESTORS\n 1. Fund managers apply to Treasury to participate in the program.\n Treasury Treasury\n Fund Manager Third Party (TALF) 2. Approved fund managers must raise necessary private capital for the PPIF.\n Private Investors 3. Treasury matches the capital raised, dollar-for-dollar (up to a predetermined\n maximum amount, currently $1.1 billion).\n EQUITY DEBT\n \xe2\x80\x93 Treasury also receives warrants so it can further participate if profits are\n PPIP earned by the PPIF.\n 4. Fund managers can borrow additional money from Treasury.\n MBS CASH \xe2\x80\x93 Managers can borrow 50-100% of the total equity investment (currently\n $1.1 billion or up to $2.2 billion).\n SELLER BANK\n \xe2\x80\x93 If managers take no more than 50% financing from Treasury, PPIF may re-\n ceive TALF loans for TALF-eligible assets (subject to leverage limits) or other\n Sources: OFS, \xe2\x80\x9cLegacy Securities Public-Private Investment third-party debt.\n Partnership Summary of Indicative Terms and Conditions,\xe2\x80\x9d\n received from SIGTARP 7/1/2009; OFS, \xe2\x80\x9cPublic-Private 5. Fund manager purchases and manages the legacy securities and provides\n Investment Program: White Paper,\xe2\x80\x9d 3/23/2009, www.treas.gov,\n accessed 6/15/2009. monthly reports to Treasury.\n\n There are many participants in the operation and oversight of PPIP. Treasury,\n in particular, has many roles. Table 2.23 describes the participants and their\n respective roles.\n\n\n\n\n TABLE 2.23\n\n PPIP PARTICIPANTS AND ROLES\n Role Participant Description\n Private Investor Invests in a PPIF to purchase legacy assets\n\n Treasury Provides an equity investment matching the contributions made by the private investors and fund manager\n Investor\n Required to invest at least $20 million in the PPIF \xe2\x80\x94 limited to 9.9% ownership of the total capital provided by\n Fund Manager\n private investors\n Treasury Lends PPIF either 50% or 100% of the value of the total equity investment\n Lender\n Third Party Lends to PPIF \xe2\x80\x94 can be private lender or FRBNY via TALF \xe2\x80\x94 subject to leverage caps\n PPIF Manager Fund Manager Will make investment decisions and manage the operation of the PPIF \xe2\x80\x94 paid management fees\n Custodian Provides reports on the PPIF and provides asset test on the purchased securities\n Administrator\n Valuation Agent Values assets purchased by the PPIF\n SIGTARP\n Oversight Treasury-OFS Allows access to all personnel and records involved in the activities of the PPIF\n GAO\n\n Source: Treasury, \xe2\x80\x9cLetter of Intent and Term Sheet,\xe2\x80\x9d 7/8/2009, www.financialstability.gov/docs/S-PPIP_LOI_Term-Sheets.pdf, accessed 7/8/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 87\n\n\n\n\nPPIF Manager Selection\nAccording to Treasury officials, fund manager selection was a multistep process\nthat began with the initial applications; followed by minimum criteria review; then\nfinal committee review, interviews, and comparison; and culminated in the selec-\ntion of fund managers. All of the applicants were reportedly evaluated by a commit-\ntee of five voting members and two non-voting members.203\n Treasury reported that it initially received 141 applications and narrowed them\ndown to 104 applicants based on incomplete or duplicative applications and other\neligibility criteria. The 104 applicants were then compared against the minimum\ncriteria. Failure to meet any two of the five criteria reportedly disqualified an ap-\nplicant. According to Treasury officials, these criteria included, but were not limited\nto:204\n\n\xe2\x80\xa2 a demonstrated ability to raise $500 million of private capital\n\xe2\x80\xa2 a demonstrated experience investing in eligible assets\n\xe2\x80\xa2 having $10 billion in eligible assets under management\n\xe2\x80\xa2 a demonstrated capacity to manage the fund consistent with Treasury\xe2\x80\x99s goals for\n the program\n\xe2\x80\xa2 being headquartered in the United States\n\n After eliminating the non-conforming applicants and dropouts, the committee\nnarrowed the possible fund managers to 11 for further review, interviews, and rank-\ning.205 Upon completion, Treasury announced the following fund managers:206\n\n\xe2\x80\xa2 AllianceBernstein, L.P. and its sub-advisors Greenfield Partners, LLC, and\n Rialto Capital Management, LLC\n\xe2\x80\xa2 Angelo, Gordon & Co., L.P., and GE Capital Real Estate\n\xe2\x80\xa2 BlackRock, Inc.\n\xe2\x80\xa2 Invesco Ltd.\n\xe2\x80\xa2 Marathon Asset Management, L.P.\n\xe2\x80\xa2 Oaktree Capital Management, L.P.\n\xe2\x80\xa2 RLJ Western Asset Management, L.P.\n\xe2\x80\xa2 The TCW Group, Inc.\n\xe2\x80\xa2 Wellington Management Company, L.L.P.\n\n In addition to the 9 announced fund managers, 10 leading small-, veteran-, mi-\nnority-, and women-owned businesses will provide \xe2\x80\x9cmeaningful\xe2\x80\x9d partnership roles\nto the PPIFs.207 These roles include, but are not limited to, asset management,\ncapital raising, broker-dealer, investment sourcing, research, advisory, cash manage-\nment, and fund administration.208\n\x0c88 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Terms Agreed to by Fund Managers\n On July 8, 2009, Treasury announced the terms of its equity and debt term sheets\n with the newly selected PPIF managers that will work to \xe2\x80\x9cgenerate attractive\n returns\xe2\x80\x9d through \xe2\x80\x9clong-term opportunistic investments.\xe2\x80\x9d209 The debt term sheet set\n forth three financing options with respective leverage limits for the PPIF. The PPIF\n will purchase originally AAA-rated CMBS and non-agency RMBS issued prior to\n 2009 and other approved temporary investments.210 The three financing options\n are:\n\n 1. equity matching, 100% debt financing as a percentage of total equity, and no\n additional debt financing is allowed\n 2. equity matching, 50% debt financing as a percentage of total equity, and a lever-\n age cap for borrowing from a third party at 5:1\n 3. equity matching, 50% debt financing as a percentage of total equity, and lever-\n age from the Federal Reserve through TALF at an amount in combination with\n Treasury that will \xe2\x80\x9cnot exceed the total amount of TALF debt that would be\n available leveraging the PPIF equity alone\xe2\x80\x9d211\n Temporary Investments: For the pur-\n poses of PPIP, they are cash, Treasur- A fund manager has several options to leverage PPIF funds, depending on\n ies, money market mutual funds, and whether it seeks to purchase TALF-eligible securities. For example, if a fund man-\n interest rate hedges. ager raises $50 in equity and receives a matching $50 Treasury equity investment,\n it has three different options to seek Government leverage to buy MBS:\n\n 1. The fund manager can borrow 100% of equity ($100) from Treasury as a non-\n recourse loan and buy a total of $200 worth of MBS. Under this option, the\n fund manager may not borrow from TALF.\n 2. The fund manager can borrow nothing from Treasury and apply the full $100\n of equity to TALF as a haircut. If a particular MBS has a 20% haircut, the fund\n manager could obtain a maximum non-recourse loan from FRBNY of $400 and\n purchase $500 of MBS.\n 3. The fund manager can borrow 50% of the total equity ($50) from Treasury un-\n der PPIP and seek additional funding from TALF to purchase MBS. However,\n because of the prohibition of leverage-on-leverage in the interaction between\n PPIP and TALF, the total leverage for the PPIF (using both Treasury and TALF\n debt) is based on the original equity. In this example, because the equity is\n $100, the maximum leverage at a 20% TALF haircut is $400. Because the PPIF\n fund manager has already received a $50 loan from Treasury through PPIP, the\n maximum additional leverage that it can receive from TALF is an additional\n $350, giving the fund manager the ability to purchase $500 worth of MBS. As\n the program was originally designed, the PPIF would have been able to apply\n both the PPIP debt and equity ($150 total) to TALF as the haircut, and in this\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 89\n\n\n\n\n example, would have been able to receive a $600 loan under TALF and thus\n able to purchase $750 worth of MBS.\n\n If a PPIF is going to use third-party debt, the PPIF must form a subsidiary to\nfinance, acquire, and hold the assets. Any recourse from the third-party debt is\nrestricted to the subsidiary, and no further actions can be taken against the PPIF or\nits investors.\n As the PPIFs begin to have normal operations, the fund managers will be\nrequired to submit an audited annual report, unaudited quarterly reports, monthly\nreports, and in some cases, weekly reports on behalf of the PPIFs. In the monthly\nreports the PPIF is required to report on the following: CUSIP: Unique identifying number\n assigned to all registered securities in\n\xe2\x80\xa2 PPIF holdings (including CUSIP or ISIN, security description, par value, cost, the United States and Canada.\n fair market value, and accrued income)\n International Securities Identification\n\xe2\x80\xa2 purchases and sales\n Number (\xe2\x80\x9cISIN\xe2\x80\x9d): Unique identifying\n\xe2\x80\xa2 capital activity including contributions and withdrawals of securities and cash\n number assigned to all internationally\n\xe2\x80\xa2 a summary of the change in the fair market value of the PPIF\xe2\x80\x99s investments\n traded securities.\n\xe2\x80\xa2 performance data (including 1-month, 3-month, year-to-date, latest 12-months,\n since inception [cumulative] and since inception [annualized]) Solvency: A company\xe2\x80\x99s ability to pay its\n\xe2\x80\xa2 management discussion and analysis of the partnership\xe2\x80\x99s investment activities debts with available cash.\n\xe2\x80\xa2 an analysis of current market conditions\n Asset Coverage Test: For the purposes\n All PPIFs are required to have continuous testing of their solvency and liquid- of PPIP, a requirement that the total as-\nity. These tests include an asset coverage test, and, for PPIFs that choose debt sets of a PPIF be proportionally larger\nfinancing, a leverage ratio test. The asset coverage test requires total assets to than total debt. The asset coverage\nbe proportionally larger than total debt, and the leverage ratio test, if applicable, ratio is calculated as: ([market value\nrequires the total debt to be proportionally larger than the total equity. Based on the of PPIF assets] + [market value of any\n assets held by a subsidiary] \xe2\x80\x93 [any\nrequirements, a PPIF choosing 50% leverage must have an asset coverage ratio of\n debt associated with those subsidiary\nat least 225% (i.e., if the PPIF has $100 in debt, then the asset value of its portfolio\n assets]) / total debt.\nmust be at least $225). On the other hand, if the PPIF chooses 100% debt financ-\ning, then it must have an asset coverage ratio of at least 150% (i.e., if the PPIF has\n Leverage Ratio Test: For the purposes\n$100 debt, then the asset value must be at least $150). Those PPIFs that do not of PPIP, the application of the leverage\ncomply with the standards set by the asset coverage test or the leverage test cannot cap to determine if a PPIF exceeds its\npurchase any more assets until the PPIF is in compliance and must submit weekly debt limit. Calculated as: total debt /\nreports until the PPIF is in compliance. To determine the value of the assets, net assets.\nTreasury will employ a valuation agent that will report to Treasury its estimate of\nthe value of the assets in the funds. Net Assets: The value of all of the\n assets minus any debt associated with\nPPIP Safeguards and Conflict Mitigation those assets.\nAs SIGTARP noted in its April Quarterly Report, there are numerous potential\nopportunities for fraud, waste, and abuse in PPIP. On July 8, 2009, Treasury issued\n\x0c90 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n updated guidance on safeguards put in place to protect the taxpayer against losses.\n Table 2.24 describes some of the safeguards included in the PPIP debt and equity\n agreements. In addition, Treasury announced specific conflict standards for PPIF\n managers. Table 2.25 describes these conflicts and the possible mitigating efforts\n For more information on PPIP vulner-\n put in place by Treasury to protect its investment in the PPIFs.\n abilities and SIGTARP\xe2\x80\x99s recommenda-\n tions, see Section 4: \xe2\x80\x9cLooking Forward:\n SIGTARP\xe2\x80\x99s Recommendations to Treasury\xe2\x80\x9d\n in SIGTARP\xe2\x80\x99s April Quarterly Report. TABLE 2.24\n\n PPIP SAFEGUARDS\n PPIF must set aside three months of expected interest pay-\n Interest Reserve\n ments to Treasury.\n Investors cannot withdraw investment. The PPIF is sup-\n Investor Withdrawal Prevention\n posed to be a long-term investment.\n Fund managers must have at least $20 million invested\n Fund Manager Investment so they have some \xe2\x80\x9cskin in the game.\xe2\x80\x9d Investment cannot\n exceed 9.9% of the total private investment.\n A valuation agent is responsible for calculation of market\n value of eligible assets and temporary investments on a\n Independent Valuation\n monthly basis. The same valuation agent will be used for all\n of the PPIFs.\n Leverage Cap There is a limit to the amount of debt a PPIF can take on.\n When distributions are made, there is a defined order to\n Distribution Waterfall ensure repayment of Treasury debt prior to distributions to\n private investors.\n Fund managers are required to develop, implement, and\n Ethics\n monitor an ethics standard.\n Fund managers are required to develop, implement, and\n Conflict Standards\n monitor a conflicts standard.\n In addition to the PPIF transactions, the fund manager and\n Eligible Asset Watch List its affiliates must disclose information on all transactions\n with eligible assets outside of the PPIF.\n Leverage Cap: For the purposes of Source: Treasury, \xe2\x80\x9cLetter of Intent and Term Sheet,\xe2\x80\x9d 7/8/2009, www.financialstability.gov/docs/S-PPIP_LOI_Term-Sheets.pdf,\n PPIP, a limit to the amount of debt a accessed 7/8/2009.\n\n PPIF can assume based on its equity.\n Calculated as: total debt / net assets.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 91\n\n\n\n\nTABLE 2.25\n\n PPIP CONFLICTS OF INTEREST AND MITIGATING EFFORTS\n PPIF manager may have proprietary interest and/or interest for other clients in eligible collateral which could lead\n Conflict:\n to a more favorable treatment of non-PPIF clients over PPIF investors and Treasury.\n\n Shall comply with act, including, but not limited to: anti-fraud provisions, rules regarding record\n Investment Advisors Act of\n keeping, contracts, advertising, custody of client funds and assets, disclosure and transpar-\n 1940\n ency.\n Shall adopt a fair trade allocation policy that requires a pro rata or comparably equitable allo-\n Allocation and Valuation Pricing\n cation of trades and investment opportunities between the PPIF and non-PPIF funds that invest\n Policy\n in eligible assets.\n Co-investment Required to invest a minimum of $20 million.\n\n Acknowledge that it owes Treasury and the private investors fiduciary duties of loyalty and\n Fiduciary Duty\n care when performing services for the PPIF.\n\n Record Access Treasury and SIGTARP have access to books and records of the PPIF.\n Treasury and SIGTARP can conduct an annual or ad hoc review of compliance with these poli-\n Mitigating Reviews\n cies.\n Efforts:\n Will establish a list of securities in which the PPIF manager, its clients, and/or its named affili-\n Eligible Assets Watch List\n ates hold positions, or they are analyzing for current investment.\n Shall disclose to Treasury all actual and potential conflicts of interest and who within the PPIF\n Disclosure of Conflicts\n manager\xe2\x80\x99s firm will have access to PPIF investment and strategy decisions.\n Disclosure of Beneficial Owner-\n Will disclose to Treasury all information regarding the beneficial owners of equity in a PPIF.\n ship Interest\n Disclosure of Top 10 PPIF\n Will report to Treasury and SIGTARP quarterly on the 10 largest positions of the PPIF.\n Positions\n Will comply with \xe2\x80\x9cKnow Your Customer\xe2\x80\x9d regulations, Office of Foreign Asset Control statutes\n Investor Diligence\n and regulations, and all relevant Federal securities screening laws.\n Internal controls will be audited annually, with reports submitted to Treasury and SIGTARP. Valu-\n Independent Oversight\n ation and return calculations and methodology will also be independently verified.\n Conflict: PPIF manager may have conflicts with named affiliates holding or servicing eligible assets. The PPIF manager\n could have control over the affiliate\xe2\x80\x99s decisions, or the affiliate could have control over the PPIF manager\xe2\x80\x99s\n decisions.\n All controls from above.\n May not acquire or sell eligible assets to:\n (1) fund manager\n Transaction Restrictions (2) sub-advisors of the fund manager\n (3) any named affiliates of the fund manager\n Mitigating (4) any other PPIF\n Efforts:\n Disclosure regarding asset Cannot inform PPIF investors or any other fund managed by the PPIF manager of potential\n acquisition acquisitions except to the extent necessary to facilitate a transaction for the PPIP\n Disclose quarterly when any affiliates:\n Quarterly Disclosure (1) service eligible assets\n (2) invest in any of the same categories of securities\n PPIF manager may have conflicts with fund raisers and broker-dealer relationships. These relationships could have\n Conflict:\n revenue-sharing relationships which could improperly influence the decisions of the PPIF manager.\n All controls from above.\n Mitigating (1) no trades for PPIF allowed by broker-dealer affiliates\n Efforts: Relationship Restrictions (2) must disclose any such relationships and the terms of the relationship\n (3) compliance department to put controls in place to prohibit, monitor, and test for such transactions\n Continued on next page.\n\x0c92 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n PPIP CONFLICTS OF INTEREST AND MITIGATING EFFORTS (CONTINUED)\n\n Conflict: PPIF managers may have personal conflicts of interest.\n Mitigating\n Personal Conflicts Policies All related parties, employees, and the like subject to conflict rules and code of ethics\n Effort:\n Conflict: The PPIF manager may engage in asset crossing, flipping, or round tripping.\n All controls from above\n\n Mitigating (1) best price and/or best execution to be achieved\n Efforts: (2) no crossing trades\n Transaction Restrictions\n (3) no purchases with the intent of selling within one week\n (4) no resale of assets within limited window of time of purchase\n Conflict: PPIF manager could be involved in other recovery-related programs.\n Mitigating Must disclose to Treasury activities such as asset acquisition, disposition, or management\n Disclosure Requirement\n Efforts: services to the Federal Reserve or FDIC\n Conflict: PPIF manager may improperly represent its relationship with Treasury.\n Mitigating\n Marketing Restrictions Cannot advertise its relationship with Treasury except for its participation in PPIP\n Efforts:\n\n Source: Treasury, response to SIGTARP draft report, 7/13/2009.\n\n\n\n\n Asset Crossing: Buying or selling Round Tripping: Buying an asset\n assets from affiliates, either directly from an entity and reselling the\n or through third parties. asset back to the entity or its\n affiliates.\n Asset Flipping: buying assets with\n the intention of reselling these\n assets in the short term.\n\n\n\n\n Unlocking Credit for Small Businesses\n 7(a) Program: SBA loan program\n guaranteeing a percentage of loans for On March 16, 2009, Treasury initiated the Unlocking Credit for Small Businesses\n small businesses that cannot otherwise (\xe2\x80\x9cUCSB\xe2\x80\x9d) program to encourage banks to extend more credit to small busi-\n obtain conventional loans at reasonable nesses.212 Under the UCSB program, Treasury announced that it would purchase\n terms. up to $15 billion in securities backed by pools of Small Business Administration\n (\xe2\x80\x9cSBA\xe2\x80\x9d) loans from two SBA participating programs: the 7(a) Program and the\n 504 Community Development Loan 504 Community Development Loan Program. According to Treasury, the UCSB\n Program: SBA program combining program was designed to provide banks the liquidity necessary to start writing new\n Government-guaranteed loans with small-business loans again.213 As of June 30, 2009, Treasury had not expended any\n private-sector mortgage loans to\n funds under the UCSB program.\n provide loans of up to $10 million for\n community development.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 93\n\n\n\n\nAUTOMOTIVE INDUSTRY SUPPORT PROGRAMS\nFor the U.S. automotive industry, the quarter ending June 30, 2009, was domi-\nnated by the bankruptcy filings of Chrysler and General Motors (\xe2\x80\x9cGM\xe2\x80\x9d). TARP is\nplaying a key role in the financing of these companies as they undergo and emerge\nfrom bankruptcy, as well as in the support of critical related industries.\n Through TARP, Treasury has initiated three distinct programs to support\nthe automotive industry: the Automotive Industry Financing Program (\xe2\x80\x9cAIFP\xe2\x80\x9d)\nto assist automakers and their financing arms,214 the Auto Supplier Support\nProgram (\xe2\x80\x9cASSP\xe2\x80\x9d) to assist the firms that supply them,215 and the Auto Warranty\nCommitment Program (\xe2\x80\x9cAWCP\xe2\x80\x9d) to support consumer confidence in these compa-\nnies.216 Investments in these three programs are summarized in Table 2.26.\n\n\nTABLE 2.26\n\n TARP AUTOMOTIVE PROGRAMS FUNDING COMMITTED\n AS OF 6/30/2009 ($ BILLIONS)\n Bankrupt Entities Non-Bankrupt Entities\n Chrysler\n Chrysler GM Financial GMAC Total\nPre-Bankruptcy:\n AIFP $4.5a $19.4 $1.5 $13.4 $38.8\n ASSP 1.5b 3.5c \xe2\x80\x93 \xe2\x80\x93 5.0\n AWCP 0.3 0.4 \xe2\x80\x93 \xe2\x80\x93 0.6\n $6.3 $23.3 $1.5 $13.4 $44.4\nIn-Bankruptcy\n(DIP Financing):\n AIFP $3.8d $30.1 \xe2\x80\x93 \xe2\x80\x93 $33.9\nPost-Bankruptcy\n(Working Capital):\n AIFP $6.6e \xe2\x80\x93 \xe2\x80\x93 \xe2\x80\x93 $6.6\nSubtotals by\nProgram:\n AIFP $79.3\n ASSP 5.0\n AWCP 0.6\nTotal $16.7 $53.4 $1.5 $13.4 $85.0\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009.\na\n $500 million of this commitment was never funded.\nb\n Commitment was decreased to $1 billion on 7/8/2009.\nc\n Commitment was decreased to $2.5 billion on 7/8/2009.\nd\n $1.9 billion of this commitment was never funded.\ne\n Approximately $4.7 billion of this commitment was provided in working capital; approximately $2 billion was used to pay senior\n secured lenders.\n\nSources: Treasury, Transactions Report, 7/2/2009; Treasury, Transactions Report, 7/10/2009; Treasury, response to SIGTARP draft,\n7/13/2009.\n\x0c94 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 2.27\n\n AIFP FUNDING COMMITTED TO AUTO COMPANIES\n AS OF 6/30/2009 ($ BILLIONS)\n Institution Total\n Chrysler $14.9\n GM 49.5\n Chrysler Financial 1.5a\n GMAC 13.4\n Total $79.3\n\n Notes: Does not include funds invested under ASSP or AWCP. Numbers affected by\n rounding. Data as of 6/30/2009.\n a\n As of 6/30/2009, $130.8 million of principal payments related to the Chrysler Financial\n loan had been repaid.\n\n Sources: Treasury, Transactions Report, 7/2/2009; Treasury, response to SIGTARP data\n call, 7/8/2009.\n\n\n\n\n Automotive Industry Financing Program\n For more information regarding the The Automotive Industry Finance Program (\xe2\x80\x9cAIFP\xe2\x80\x9d), under which Treasury invests\n background of AIFP, refer to the AIFP in automakers and their financial arms, was created on December 19, 2008, with\n discussions in SIGTARP\xe2\x80\x99s Initial Report the stated goal of preventing a significant disruption to the American automotive\n and SIGTARP\xe2\x80\x99s April Quarterly Report.\n industry that would pose a systemic risk to financial market stability and have a\n negative effect on the U.S. economy.217\n\n Status of Funds\n As of June 30, 2009, Treasury had committed, through AIFP, $79.3 billion to two\n automakers and their two financial affiliates of which, $130.8 million has been\n repaid.218 Treasury has received $160 million in dividends and $202 million in\n interest payments from its AIFP investments.219 Table 2.27 summarizes Treasury\xe2\x80\x99s\n committments under AIFP.\n\n Auto Supplier Support Program\n Because of the rapid decline in auto sales, many auto parts suppliers are struggling\n to access credit, and they face uncertainty regarding the future of their businesses.\n In a typical sales cycle, auto suppliers ship parts to manufacturers 45 to 60 days\n before receiving payment. The suppliers typically fund operations by borrowing\n from banks, using their receivables as collateral while payments are outstand-\n ing. However, the current credit crisis has made it very difficult for suppliers to\n get loans from banks. According to Treasury, the Auto Supplier Support Program\n (\xe2\x80\x9cASSP\xe2\x80\x9d) will provide select suppliers with access to Government-backed protec-\n tion that guarantees money owed to them will be paid.220\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 95\n\n\n\n\nProgram Goals\nOn March 19, 2009, Treasury announced the formation of ASSP to provide up to\n$5 billion in financing to suppliers to the U.S. auto manufacturing industry. The\nprogram was designed to give suppliers confidence to continue shipping parts, pay-\ning employees, and maintaining operations.221 Although all domestic auto compa-\nnies were eligible to participate, Chrysler and General Motors are the only two that\ndecided to take advantage of the program. However, any domestic supplier that\nships parts to Chrysler or General Motors is also eligible, as well as any receivables\nfor goods shipped after March 19, 2009, purchased on qualifying terms between\nan eligible manufacturer and an eligible supplier. The auto companies can select\nthe suppliers and specific receivable accounts that will be included in the program.\nSelected suppliers sell their receivable accounts into the program at a small dis-\ncount, as a fee for participation.222\n\nStatus of Funds\nOn April 9, 2009, Treasury executed agreements to fund $5 billion under ASSP.\nBoth Chrysler and General Motors created special purpose vehicles (\xe2\x80\x9cSPVs\xe2\x80\x9d) to Special Purpose Vehicle (\xe2\x80\x9cSPV\xe2\x80\x9d): An\nreceive these funds. Chrysler Receivables SPV, LLC received a commitment for off-balance sheet legal entity that holds\n$1.5 billion and GM Supplier Receivables, LLC received a commitment for $3.5 the transferred assets presumptively\nbillion.223 Table 2.28 summarizes the ASSP funds that were committed as of beyond the reach of the entities provid-\nJune 30, 2009. ing the assets (e.g., legally isolated).\n Because most suppliers have been paid during the course of the companies\xe2\x80\x99\nbankruptcies, a diminished amount of activity is expected under the program going\nforward. Under the original loan agreements for each SPV, the Treasury commit-\nments could be decreased if the outstanding amounts did not exceed the commit-\nments made on June 30, 2009. At the request of Chrysler and GM, on\nJuly 8, 2009, the original commitments were reduced to $1.0 billion and\n$2.5 billion respectively.224\n\nTABLE 2.28\n\n ASSP FUNDING COMMITTED AS OF 6/30/2009 ($ BILLIONS)\n Original\nInstitution Commitment\nChrysler Receivables SPV, LLC $1.5\nGM Supplier Receivables, LLC 3.5\nTotal $5.0\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. Data does not include reductions\nthat took place on 7/8/2009.\n\nSource: Treasury, Transactions Report, 7/2/2009.\n\x0c96 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Auto Warranty Commitment Program\n How to maintain consumer confidence during their respective restructuring\n periods was a major issue for both Chrysler and GM. With the long-term futures\n of Chrysler and GM in doubt, there were concerns that some consumers would\n be reluctant to purchase vehicles because the manufacturers might not be able to\n honor the warranties. The Auto Warranty Commitment Program (\xe2\x80\x9cAWCP\xe2\x80\x9d) was\n created to alleviate these concerns and encourage consumers to continue buying\n Chrysler and GM vehicles.\n\n Program Goals\n On March 30, 2009, Treasury announced the creation of AWCP to give retail\n consumers confidence that their automobile warranties would be honored. The\n program covers all warranties on new vehicles purchased during the participating\n manufacturers\xe2\x80\x99 restructuring period. Any retail consumer who purchases a new\n vehicle during this time will be automatically eligible for the program. According to\n Treasury, the program is designed to encourage the continued viability of restruc-\n turing auto companies by mitigating consumer uncertainty and increasing vehicle\n sales.225\n\n Status of Funds\n Prior to Chrysler\xe2\x80\x99s bankruptcy filing on April 30, 2009, Treasury made $280 mil-\n lion available through an SPV to backstop warranties on new car sales. Similarly,\n Treasury made $361 million available to GM prior to its bankruptcy.226 Table 2.29\n summarizes the funds that have been invested under AWCP.\n As of June 30, 2009, the AWCP remains operational but Treasury has stated\n that the funds are not expected to be used by the manufacturers. Both companies\n are continuing to honor consumer warranties while in bankruptcy. Treasury expects\n that after Chrysler and GM emerge from bankruptcy, their respective SPVs will\n refund the committed funds back to Treasury.227\n\n\n\n TABLE 2.29\n\n AWCP FUNDING COMMITTED AS OF 6/30/2009 ($ MILLIONS)\n Investment\n Institution Amount\n Chrysler Warranty SPV LLC $280\n GM Warranty LLC 361\n Total $641\n\n Notes: Numbers affected by rounding. Data as of 6/30/2009.\n\n Source: Treasury, Transactions Report, 7/2/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 97\n\n\n\n\nTARP TUTORIAL: BANKRUPTCY\n\nAs reported in SIGTARP\xe2\x80\x99s April Quarterly Report, Chrysler and GM were given 30- and 60-\nday extensions, respectively, to submit revised restructuring plans to the President\xe2\x80\x99s Auto\nTask Force. After the April Quarterly Report, both manufacturers were unable to obtain\nthe voluntary stakeholder concessions needed to implement restructuring plans that\nwould achieve long-term viability; each company thus filed for bankruptcy as a means\nto bring those plans to fruition. A basic tutorial on the bankruptcy process is provided\nbelow.\n For more information on the President\xe2\x80\x99s Auto Task Force see Section 2: \xe2\x80\x9cTARP\nOverview\xe2\x80\x9d in SIGTARP\xe2\x80\x99s April Quarterly Report.\n\n\nAlternatives Available to a Financially Troubled Business Insolvent: A company\xe2\x80\x99s total liabilities\nWhen a company\xe2\x80\x99s total liabilities are greater than its assets, it is considered insolvent (debts) are greater than its total\n assets.\nand it has several options:\n\n\n\xe2\x80\xa2 pursuit of operational solutions such as merging with another company, refinancing\n business loans, or cutting costs\n\xe2\x80\xa2 dissolution of the company\n\xe2\x80\xa2 negotiations or some form of out-of-court arrangement with its creditors to pay off\n debts\n\xe2\x80\xa2 bankruptcy\n\n\nDissolution\nAmong the alternatives available to financially troubled businesses (i.e., businesses that\n Liquidation: The sale of a company\xe2\x80\x99s\nare or may become insolvent) is dissolution. Dissolution is the orderly liquidation of a\n assets in order to pay off outstanding\ncompany\xe2\x80\x99s operations under state law and involves the liquidation of the company\xe2\x80\x99s\n debts with the remaining amount being\nassets to pay, or partially pay, debts. Depending upon the nature of the business (e.g., distributed to shareholders. Once this\npartnership, limited partnership, limited liability company, corporation, etc.), dissolution process is complete, the company\nmay not fully release the business from its liability for debts not paid in full. goes out of business.\n\n Creditor: A person or entity that is\nNegotiations with Creditors\n owed money by another person or\nIf a business is in financial trouble but wishes to continue operations, it may first request entity.\na meeting with creditors, the people or entities to whom it owes money, to try to come\nto an agreement (i.e., workout) regarding on how the business can pay back or settle\noutstanding debt. During these negotiations, the business discusses the reasons for the\nfailure and tries to convince the creditors that working out an agreement would benefit all\n\x0c98 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n parties because creditors would receive more money through a workout than if the busi-\n Moratorium: An authorized period to ness was forced to go into bankruptcy. A workout usually involves \xe2\x80\x9can extension of time\n delay the payment of a debt obligation. (a moratorium), a pro rata settlement (composition), or a combination of the two.\xe2\x80\x9d228 The\n objective of a workout is similar to a formal reorganization bankruptcy proceeding in that\n Composition: A settlement reached be-\n the company is attempting to resolve its obligations to creditors and continue in business;\n tween a debtor and a creditor prior to\n bankruptcy. The settlement discharges however, it is generally much faster, less expensive, and more flexible than bankruptcy.\n the debt owed to the creditor for an\n amount less than the original amount Bankruptcy\n owed. If a business fails to reach an agreement with its creditors to restructure obligations in\n order to achieve more manageable payment terms, it may have to file for bankruptcy re-\n lief. The principal purpose of the United States Bankruptcy Code (the \xe2\x80\x9cCode\xe2\x80\x9d) is to grant a\n \xe2\x80\x9cfresh start\xe2\x80\x9d to the \xe2\x80\x9chonest but unfortunate debtor.\xe2\x80\x9d229 In this context, a fresh start signifies\n \xe2\x80\x9ca new opportunity in life and a clear field for future effort, unhampered by the pressure\n and discouragement of preexisting debt.\xe2\x80\x9d230\n Discharge: A court action that releases The discharge of debts in bankruptcy is a \xe2\x80\x9cpermanent order prohibiting the creditors of\n a debtor from liability for certain types the debtor from taking any form of collection action\xe2\x80\x9d against the discharged debts.231 It is\n of debts.\n important to note that not all debts are discharged in a bankruptcy proceeding; but rather\n each form of bankruptcy (discussed in detail below) identifies the various categories of\n debts that are granted a discharge.\n The Code is a series of Federal statutes codified under Title 11 of the United States\n Code and is the \xe2\x80\x9cuniform federal law that governs all bankruptcy cases.\xe2\x80\x9d232 Within Title 11,\n several subsections define the different types of bankruptcy proceedings (e.g., Chapter 7,\n Chapter 9, Chapter 11, Chapter 12, etc.) available to individuals, businesses, and other\n entities.\n\n What Happens in Bankruptcy\n Two common forms of bankruptcy available to businesses are liquidation and reorganization.\n\n\n Liquidation\n Chapter 7 of the Code relates to liquidation in bankruptcy, which is the most common\n form of bankruptcy filed by businesses in the United States.233 According to a press\n release from the U.S. Courts, Chapter 7 \xe2\x80\x93 Liquidation \xe2\x80\x9cis used only when the corporation\n sees no hope of being able to operate successfully or to obtain the necessary creditor\n agreement.\xe2\x80\x9d234\n The process of liquidation refers to the sale of a company\xe2\x80\x99s assets for the satisfac-\n tion of creditors and the subsequent dissolution of the business. Under Chapter 7, a\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 99\n\n\n\n\nbankruptcy trustee gathers and sells a bankrupt company\xe2\x80\x99s nonexempt assets and uses\nthe proceeds of such assets to pay creditors in accordance with the priority of creditors Trustee: A person who holds property\nestablished by the Code. See the \xe2\x80\x9cHierarchy of Claims, by Priority\xe2\x80\x9d discussion later in this on behalf of a beneficiary.\n\nsection for information on priority payments.\n Nonexempt Assets: Property that\n belongs to a debtor which can be\nReorganization liquidated to satisfy creditor claims.\nReorganization in bankruptcy falls under Chapter 11 of the Code and is the second-most Examples include motor vehicles, real\ncommon form of bankruptcy filed by businesses in the United States.235 Chapter 11 busi- estate, factories, etc.\n\nness reorganization \xe2\x80\x9ccan be used as the means of working out an arrangement with credi-\ntors where the debtor is allowed to continue in business \xe2\x80\xa6[or] can be used for a complete\nreorganization of the corporation.\xe2\x80\x9d236\n Under Chapter 11, the company files a \xe2\x80\x9cplan of reorganization,\xe2\x80\x9d which is prepared in\ncooperation with its creditors, and details the necessary steps the company must take in\norder to emerge from bankruptcy as a viable entity. The plan of reorganization may call\nfor any number of actions the business and its advisors deem necessary for a successful\nreorganization of the business, including, for example, the sale of non-essential business\nunits to third parties or the reworking of labor contracts.237 The \xe2\x80\x9cplan of reorganization\xe2\x80\x9d\nmust be reasonable in its attempt to restructure the business because it must obtain Creditors\xe2\x80\x99 Committee: A group\napproval from the creditors\xe2\x80\x99 committee and the bankruptcy court. Since the plan of representing several entities that\n have claims against a business in a\nreorganization generally includes concessions from all interested parties, showing favor\n bankruptcy proceeding.\nto any particular group of creditors will likely cause the plan to be rejected by competing\ncreditors whose interests are impacted more severely by the bankruptcy. Further, as it\nordinarily occurs, if a creditor or class of creditors rejects a plan of reorganization, then\nthe bankruptcy court may confirm or approve the plan over such objection \xe2\x80\x94 but only\nupon a demonstration that the creditor or creditor class would have fared no better had\nthe bankruptcy been processed under Chapter 7 \xe2\x80\x93 Liquidation.\n\n\nPrepackaged Reorganization\nA prepackaged bankruptcy is similar to a workout and refers to a proceeding in which\nthe business filing for protection has met with its creditors to negotiate their expected re-\ncoveries prior to the actual filing of a petition under the Code. The goal of a prepackaged\nbankruptcy is to shorten the bankruptcy process to save fees a company would typically\npay to bankruptcy advisors. A prepackaged bankruptcy also minimizes the amount of time\nspent in bankruptcy restructuring a business and, consequently, can return an operating\nentity to its core business and generating revenue much sooner than if it had participated\nin a standard reorganization.\n\x0c100 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n FIGURE 2.13\n\n BANKRUPTCY DECISION FLOW\n Section 363 Sale\n\n CAN THE BUSINESS It may become apparent that a company cannot reorganize and maintain its current owner-\n MEET ITS OBLIGATIONS\n ship structure and therefore must pursue a sale of most, if not all, of its assets under\n TO CREDITORS?\n Section 363 of the Code. In this scenario, the company does not emerge from bankruptcy\n YES NO\n but, instead, comes under new ownership \xe2\x80\x94 as in the cases of the Chrysler and GM\n bankruptcies.\n Continue Attempt Workout\n Operations with Creditors Regardless of the nature of the reorganization, many companies face the same deci-\n sions in the process leading up to declaring bankruptcy. These decisions are described in\n Settlement Figure 2.13.\n Reached?\n\n\n YES Who Is Involved in Bankruptcy?\n NO\n Creditors\n File for\n Bankruptcy When a business enters into a bankruptcy proceeding, a variety of individuals or organiza-\n tions may have claims \xe2\x80\x94 employees may be owed wages, banks may be owed loans,\n Can Debts Be\n Restructured? and other financial institutions may have unfulfilled contracts with the business. These\n individuals or companies are all referred to as creditors because the business owes\n YES NO\n them something. At the point of bankruptcy, the likelihood of any of these creditors being\n repaid depends on whether the company has enough assets to repay its debts. The Code\n Chapter 11 Chapter 7\n Reorganization Liquidation provides for circumstances in which a business does not have enough assets to satisfy all\n of its debts by establishing a hierarchy of priority among creditors.\n Plan of\n Reorganization In some cases, the creditors and the business may have already negotiated terms\n Approved?\n Sell Assets for the\n of repayment and developed a restructuring or liquidation plan in advance of filing. Such\n NO Satisfaction of\n Creditors\n arrangements can improve the speed and efficiency of a restructuring or even liquidation.\n YES However, this is often not the case and, as experienced by Chrysler, certain creditors may\n New Company Dissolve\n Emerges Company\n take issue with the plan and try to block or stall the bankruptcy plan until they are satisfied\n or until their objections have been overruled by the court.\n Claimants to the assets of a company are categorized as either secured creditors or\n unsecured creditors. A secured creditor must present proof of its claim to the bankruptcy\n Secured Creditor: A creditor that holds\n court for the claim to be honored. Secured claims are then paid directly from forfeiture of\n a special assurance of debt payment,\n through holding collateral or possess- the company\xe2\x80\x99s collateral or proceeds from the sale of its collateral. If the collateral is insuf-\n ing a lien on the same. ficient to pay the claim in full, the balance becomes an unsecured claim and enters into the\n queue of other unsecured creditors. As the name implies, unsecured creditors do not have\n Collateral: Tangible assets pledged\n any tangible assets pledged against the debts owed to them by the business.\n against debts owed.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 101\n\n\n\n\nTABLE 2.30\n\nPRIORITIES, PER THE U.S. BANKRUPTCY CODE\nPriority Claim\nFirst Allowed unsecured claims:\n \xe2\x80\xa2 Domestic support obligations (debts to spouse or children for court-ordered support)\n \xe2\x80\xa2 Administrative expenses of the bankruptcy (lawyers, trustees, etc.)\n \xe2\x80\xa2 \xe2\x80\x9cGap\xe2\x80\x9d claims (unsecured, post-petition claims in an involuntary bankruptcy case arising\n after initiation of case but before appointment of trustee, relating to ordinary business or\n finances)\n \xe2\x80\xa2 Wages, commissions (claims of employees/independent salespersons up to $10,000\n per claim)\n \xe2\x80\xa2 Employee benefit plans (contributions of up to $10,000 per employee)\n \xe2\x80\xa2 Specific claims of farmers and fishermen against bankrupt storage or processing facilities\n \xe2\x80\xa2 \xe2\x80\x9cLayaway\xe2\x80\x9d claims (individuals did not receive the goods/services for which they made\n deposits)\n \xe2\x80\xa2 Government taxes (recent income, sales, employment, or gross receipts taxes)\n \xe2\x80\xa2 Regulatory obligations (to FDIC or equivalent to maintain capital of insured depository\n institution)\n \xe2\x80\xa2 Vehicle-related personal injury or death (if debtor used vehicle/vessel under the influence\n of drugs/alcohol)\nSecond Other claims, filed on time, that do not fall into \xe2\x80\x9cFirst,\xe2\x80\x9d \xe2\x80\x9cThird,\xe2\x80\x9d or \xe2\x80\x9cFourth\xe2\x80\x9d category below\nThird Allowed unsecured tardy or late claims\n Allowed secured or unsecured claims for any fines, penalties, damages from before the\nFourth\n bankruptcy which are not compensation for actual pecuniary loss suffered by the claimant\nFifth Interest accrued, at legal rate, from the date of the filing to payment of allowed claims\nSixth To the debtor\n\nSource: Mini Code Special Redlined Edition, United States Bankruptcy Code, 2006 Edition, Texas: AWHFY, L.P., 2005.\n\nHierarchy of Claims, by Priority\nThe term \xe2\x80\x9cpriority\xe2\x80\x9d refers to the order in which unsecured claims in a bankruptcy case are\npaid from the money available in the bankruptcy estate. Claims in the higher priority are\npaid in full before claims in a lower priority receive anything. Once a company pays all of\nits debts, any remaining assets are returned to its shareholders.\n Section 726 of the Code lists six classes of unsecured creditors in a bankruptcy, in\norder of priority.238 Table 2.30 provides a summary outline of those classes. Note the first\ngrouping of claims is defined by Section 507 of the Code and is further broken down into\na sub-hierarchy.\n\nTrustee\nThe role of the trustee varies greatly, based on the chapter under which a company files. A\nChapter 7 trustee is broadly responsible for managing the financial aspects of a bankrupt\nbusiness undergoing liquidation. The trustee can be an individual or a team of professionals\nwho, among other things:\n\xe2\x80\xa2 account for property received\n\xe2\x80\xa2 investigate the financial affairs of the debtor\n\x0c102 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n \xe2\x80\xa2 review proofs of claim\n \xe2\x80\xa2 oppose the debtor\xe2\x80\x99s discharge, if appropriate\n \xe2\x80\xa2 furnish information to interested parties\n \xe2\x80\xa2 report on the administration of the case\n\n\n The trustee is paid out of the proceeds of the liquidation and is second in order among\n the first class of unsecured creditors.\n A Chapter 11 trustee serves more in an administrative capacity, focusing more directly\n on the reporting requirements associated with the bankruptcy case and fee applications\n for compensation that are submitted by professionals and advisors rendering bankruptcy-\n related services to the company. The trustee receives a quarterly fee from the business as\n compensation.\n\n\n Bankruptcy Court\n Bankruptcies, both personal and corporate, are administered by U.S. Federal courts; bank-\n ruptcy cases cannot be filed in state court. The Federal court system is composed of 94\n districts, all of which handle bankruptcy matters, and substantially all of which have a court\n specifically designated for bankruptcy.239\n\n\n Example of Chapter 11 Bankruptcy Process\n This section provides a simplified step-by-step example of a Chapter 11 bankruptcy pro-\n cess for a hypothetical business, \xe2\x80\x9cSample Company,\xe2\x80\x9d walking through the key steps from\n the initial realization that it cannot repay its creditors to the new company emerging from\n the process. A bankruptcy process can be lengthy, especially if the negotiation with credi-\n tors is difficult \xe2\x80\x94 all it takes is one creditor to delay the approval of a restructuring plan (or\n a pre-bankruptcy restructuring agreement). The process detailed below and illustrated in\n Figure 2.14 for Sample Company is a simplified version, focused on the key steps of the\n process.\n A. Sample Company is operating in a difficult market environment. Its revenues have\n shrunk, but its obligations have not. It discovers that it no longer can afford to pay its\n debts to its creditors without cutting back on its variable costs. It cancels all non-\n essential purchases, suspends dividend payments to its shareholders, but still this\n does not generate enough cash to pay its obligations. Sample Company begins to\n lay off employees to shrink its payroll and closes unprofitable plants to cut operating\n costs, but still cannot bring its expenditures in line with its new, lower revenues.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 103\n\n\n\n\nFIGURE 2.14\n\nBANKRUPTCY PROCESS\n\n A B C D E F G H I J K\n A: Unable to pay creditors\n\n\n B: Attempts to negotiate out-of-court settlement\n\n\n C: Company declares Chapter 11, receives \xe2\x80\x9cAutomatic Stay\xe2\x80\x9d\n\n\n D: Creditors\xe2\x80\x99 Committee forms, Trustee reviews creditors\xe2\x80\x99 claims\n\n\n E: Company develops restructuring plan\n\n\n F: Court reviews, approves restructuring plan\n\n\n G: Company seeks, obtains \xe2\x80\x9cDIP\xe2\x80\x9d financing\n\n\n H: Company executes restructuring plan\n\n\n I: Company seeks, obtains exit financing\n\n\n J: Court approves exit from bankruptcy\n\n\n K: \xe2\x80\x9cNew\xe2\x80\x9d company emerges from bankruptcy\n\n\n\n\nB. Sample Company owes a lot of money; it is saddled with expensive debts to creditors\n incurred when it borrowed heavily to grow a few years earlier. These creditors range\n from banks that provided loans, to bondholders whose bonds were issued at high rates\n because the company\xe2\x80\x99s debt was not highly rated, to obligations for employees\xe2\x80\x99 benefit\n plans (such as pensions). Seeing that it cannot continue to meet all these obligations,\n Sample Company seeks to renegotiate some or all of its debts to a more manageable\n level.\nC. Some of Sample Company\xe2\x80\x99s creditors agree to reduce the debt that they are owed,\n thinking that a voluntary restructuring is preferable to a court-administrated bankruptcy\n or liquidation where it is uncertain what they would receive for their claims. However,\n certain creditors are uncompromising, thinking that the company\xe2\x80\x99s offers understate\n what they think the company can actually afford to repay them. They refuse the offer of\n\x0c104 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n a voluntary restructuring, which forces Sample Company to file a petition for Chapter\n 11 bankruptcy with the U.S. court in its district. With its filing, Sample Company\n receives an \xe2\x80\x9cAutomatic Stay\xe2\x80\x9d meaning that creditors are temporarily prohibited from\n enforcing their claims outside of the bankruptcy forum.\n D. With the filing of the bankruptcy petition, Sample Company becomes what is known as\n Debtor in Possession (\xe2\x80\x9cDIP\xe2\x80\x9d): A com- the debtor in possession (\xe2\x80\x9cDIP\xe2\x80\x9d). DIPs retain possession of the operations and assets\n pany which is operating under Chapter\n of the business until otherwise ordered by the court (which could be the case if the\n 11 bankruptcy protection, which still\n technically owns its assets but is court ultimately decides Chapter 7 \xe2\x80\x93 Liquidation is the best option and appoints a\n operating them to maximize the benefit trustee to manage the company through that process). Sample Company also provides\n to its creditors. to the court a range of documents certifying its assets and liabilities, income and ex-\n penditures, contracts and unexpired leases, and a statement certifying its financial af-\n fairs. Meanwhile, the U.S. Trustee, appointed by the court to monitor Sample Company\n during its bankruptcy, works with creditors to assemble a Creditors\xe2\x80\x99 Committee. The\n Creditors\xe2\x80\x99 Committee hires an attorney to advocate for the creditors\xe2\x80\x99 claims with the\n court. Any creditors whose claims are not listed on the schedules provided to the court\n by Sample Company must provide a proof of claim to be included in the case.\n E. As DIP, Sample Company assumes all of the fiduciary responsibilities of a trustee,\n aside from the investigative role, and uses this authority to hire a team of lawyers,\n accountants, consultants, appraisers, and auctioneers \xe2\x80\x94 whose compensation\n represents unsecured claims with priority over all other unsecured claims except\n \xe2\x80\x9csuper-priorities\xe2\x80\x9d \xe2\x80\x94 to help it throughout the restructuring process. Sample Company\n works with this team to develop a restructuring plan that both shrinks the company and\n its debts. Ideally, Sample Company will emerge as a leaner, profitable company with\n more manageable debts. The plan that Sample Company develops includes closing\n down additional unprofitable plants, selling certain business lines, and converting some\n of its debt holders into equity holders by exchanging their bonds or loans for shares\n of stock, making them partial owners in the new company. In addition to selling just\n portions of a business, a company\xe2\x80\x99s restructuring plan can include an arrangement\n whereby the entire business is sold to another company (a Section 363 sale). An\n example of a Section 363 sale can be found in the recent restructuring of Chrysler,\n where the operating business was sold to a new group of owners.\n F. Once Sample Company has developed its restructuring plan, it must seek the consent\n of its creditors to approve the plan. In order to receive that consent, Sample Company\n files a disclosure providing creditors with information about its plan and Sample\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 105\n\n\n\n\n Company\xe2\x80\x99s affairs so that they can make an informed decision about the proposed\n plan. The court then holds a hearing. In Sample Company\xe2\x80\x99s case, the creditors approve\n its plan, which is confirmed in a court hearing as being feasible, in good faith, and com-\n pliant with the Code, allowing it to begin implementation of the restructuring process.\n Additionally, the confirmation of the plan effectively discharges Sample Company from\n its dischargeable pre-filing debts (i.e., debts not part of the bankruptcy claims), and\n replaces them with the agreed-upon obligations contained in the plan.240\nG. Since Sample Company has taken on additional expenses such as lawyers and\n consultants, its plan provides for operating capital to help it complete the restructuring\n process. It obtains this financing, called \xe2\x80\x9cDIP financing,\xe2\x80\x9d from a bank which receives DIP Financing: A credit line used\n court-appointed \xe2\x80\x9csuper-priority\xe2\x80\x9d in claims \xe2\x80\x94 placing it above all other unsecured credi- during Chapter 11 proceedings to\n tors in the priority list. maintain the value of a company\xe2\x80\x99s\n asset base.\nH. After the confirmation of the restructuring plan, Sample Company operates as a func-\n tioning company; it is now obligated to begin making any payments it promised in the\n plan, and is bound by all commitments contained in the provisions of the plan (which\n supersede its pre-bankruptcy contracts). Sample Company\xe2\x80\x99s restructuring process is\n relatively straightforward, and it achieves the key objectives rapidly. It sells several non-\n core units, and converts the debt to its bondholders to an equity stake as determined\n in the plan. Further, it converts some of the unpaid obligations to employees\xe2\x80\x99 benefit\n plans into equity stakes. Throughout this process Sample Company reports regularly\n to the court and the Creditors\xe2\x80\x99 Committee on the progress made since confirmation of\n the plan.\nI. As Sample Company nears the completion of its restructuring and recapitalization\n process, it seeks exit financing \xe2\x80\x94 actually a key component of its restructuring plan. It\n negotiates an exit financing facility from a major lender, which it uses to pay off certain\n creditors\xe2\x80\x99 claims and to fund its ongoing operations after bankruptcy. This exit financ-\n ing will enable the new company to emerge from bankruptcy in a strong, competitive\n state.\nJ. Once Sample Company completes its restructuring plan, it returns to court and applies\n for a \xe2\x80\x9cfinal decree\xe2\x80\x9d which certifies consummation of the plan. This enables the newly\n restructured, recapitalized Sample Company to emerge from bankruptcy.\nK. The \xe2\x80\x9cnew\xe2\x80\x9d Sample Company begins operating, and uses its new financial health to\n operate more competitively in its market.\n\x0c106 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Chrysler\n Chrysler filed for Chapter 11 bankruptcy on April 30, 2009, and the transaction\n in which substantially all of its assets were sold to the newly formed entity (\xe2\x80\x9cNew\n New Chrysler: The entity that pur- Chrysler\xe2\x80\x9d) closed on June 10, 2009. Chrysler has received $16.7 billion in com-\n chased substantially all of Chrysler\xe2\x80\x99s mitments from Treasury through AIFP, ASSP, and AWCP, $10.4 billion of which\n assets during bankruptcy.\n was provided through DIP or working capital funding after Chrysler\xe2\x80\x99s bankruptcy\n filing.241 Figure 2.15 shows a timeline of Treasury\xe2\x80\x99s investments in Chrysler as well\n as important milestones regarding Chrysler\xe2\x80\x99s bankruptcy.\n\n\n\n\n FIGURE 2.15\n\n CHRYSLER TIMELINE\n\n\n JANUARY 2009 FEBRUARY 2009 MARCH 2009 APRIL 2009 MAY 2009 JUNE 2009\n\n\n\n JANUARY 2 FEBRUARY 17 MARCH 30 APRIL 9 MAY 1 JUNE 10\n Treasury commits to Chrysler submits Obama Administration Treasury commits Treasury provides Substantially all of\n invest $4 billion in restructuring lays out framework for to invest $1.5 Chrysler with a Chrysler\xe2\x80\x99s assets are\n Chrysler. plan to Obama Chrysler to work with billion in an SPV $3 billion sold to New Chrysler\n Administration. Fiat to achieve viability. for the Auto DIP loan. pursuant to Section\n Supplier Support 363 of the\n Program.a MAY 20 Bankruptcy Code and\n Treasury amends Treasury commits to\n APRIL 29 initial DIP fund an additional\n Treasury amends initial investment in $6.6 billion.\n investment in Chrysler Chrysler by\n by committing an investing an\n additional $500 million.b additional\n $757 million.c\n APRIL 29\n Treasury invests $280\n million in an SPV for the\n Auto Warranty\n Commitment Program.\n\n APRIL 30\n Chrysler files for\n bankruptcy under Section\n 363 of the Bankruptcy\n Code.\n\n\n\n Notes:\n a\n Commitment was decreased to $1 billion on 7/8/2009.\n b\n This $500 million commitment was never funded.\n c\n $1.9 billion of the total $3.8 billion DIP financing was never funded.\n\n Sources: Treasury, Transactions Report, 7/2/2009; Treasury, \xe2\x80\x9cObama Administration Auto Restructuring Initiative: Chrysler-Fiat Alliance,\xe2\x80\x9d 4/30/2009,\n www.financialstability.gov, accessed 6/9/2009; Treasury, \xe2\x80\x9cObama Administration New Path to Viability for GM & Chrysler,\xe2\x80\x9d 3/30/2009,\n www.financialstability.gov, accessed 6/9/2009; Treasury, responses to SIGTARP drafts, 7/9/2009 and 7/13/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 107\n\n\n\n\nChrysler-Fiat Alliance\n Pro Forma: In finance, refers to the\nOn March 30, 2009, the President\xe2\x80\x99s Auto Task Force determined that Chrysler\xe2\x80\x99s\n presentation of hypothetical financial\nrestructuring plan was not likely to lead to viability on a stand-alone basis as it was information assuming that certain\nstructured at the time. The Government stated that Chrysler could only achieve assumptions will happen. For example,\nviability by forming a partnership with Fiat.242 On April 30, 2009, Chrysler filed Table 2.31 sets forth the ownership\nfor bankruptcy under Chapter 11 of the United States Bankruptcy Code. As noted interests in New Chrysler based on the\nabove, New Chrysler emerged from bankruptcy on June 10, 2009, with a new assumption that Fiat will meet its per-\nownership structure including Fiat. See Table 2.31 for a list of the actions taken by formance goals and obtain an addition-\neach stakeholder and their respective equity stakes in New Chrysler.243 al 15% of equity from the other equity\n holders. If the new equity stakes were\n not reported pro forma, the equity\n interest of the other equity participants\n would be higher to account for Fiat\xe2\x80\x99s\n additional 15%.\n\nTABLE 2.31\n\n CHRYSLER-FIAT ALLIANCE STAKEHOLDERS ACTIONS AND EQUITY STAKE\nStakeholders Action Equity Stakes with New Chrysler-Fiat Alliancea\n \xe2\x80\xa2 20% equity in New Chrysler\n \xe2\x80\xa2 Contribute billions of dollars in technology and intellectual property\nFiat \xe2\x80\xa2 15% additional equity based on performance metricsb\n \xe2\x80\xa2 Offer access to global distribution network\n \xe2\x80\xa2 Selection of three directors\nSecured Lenders \xe2\x80\xa2 Exchange $6.9 billion secured claim \xe2\x80\xa2 Receive $2 billion cash\n \xe2\x80\xa2 55% equity in New Chrysler, pro forma for Fiat\nUAW (VEBA) \xe2\x80\xa2 Make concessions on wages, benefits, and retiree health care additional equity\n \xe2\x80\xa2 Selection of one director\n \xe2\x80\xa2 Waive repayment of $1.9 billion DIP financing provided during bankruptcyc\nUnited States \xe2\x80\xa2 Provide $4.7 billion in working capitald \xe2\x80\xa2 8% equity in New Chrysler, pro forma\nTreasury \xe2\x80\xa2 Waive $3.5 billion of the $4 billion pre-bankruptcy loan, with the \xe2\x80\xa2 Selection of four directors\n remaining $500 million carried over to the new financinge\nCanadian \xe2\x80\xa2 2% equity in New Chrysler, pro forma\n \xe2\x80\xa2 Lend money alongside the U.S. Treasury based on a 3:1 formula\nGovernment \xe2\x80\xa2 Selection of one director\n \xe2\x80\xa2 Waive its share of Chrysler\xe2\x80\x99s $2 billion second-lien debt\nDaimler \xe2\x80\xa2 Waive 19% equity in Chrysler\xe2\x80\x99s parent \xe2\x80\xa2 None\n \xe2\x80\xa2 Pay $600 million to Chrysler\xe2\x80\x99s Pension Plan to settle PBGC obligation\n \xe2\x80\xa2 Waive its share of Chrysler\xe2\x80\x99s $2 billion second-lien debt\n \xe2\x80\xa2 Forfeit its entire equity stake in Chrysler\nCerberus \xe2\x80\xa2 Transfer ownership of old Chrysler headquarters building to the New \xe2\x80\xa2 None\n Chrysler-Fiat alliance\n \xe2\x80\xa2 Contribute to a claim against Daimler to help settle with PBGC\nPBGC \xe2\x80\xa2 Settle claim with Daimler \xe2\x80\xa2 None\n\nNotes: Numbers affected by rounding.\na\n The listed ownership percentages are based on the assumption that Fiat will achieve all three performance metrics.\nb\n Fiat can earn this 15% equity by achieving certain performance metrics. It would receive 5% for meeting each of three performance goals: produce a vehicle at a Chrysler factory in the United States that\n performs at 40 mpg or better; provide Chrysler with a distribution network in numerous foreign jurisdictions; manufacture state-of-the-art, next generation engines at a U.S. Chrysler facility.\nc\n $3.8 billion DIP financing was originally committed but $1.9 billion of that commitment was never funded.\nd\n A total of $6.6 billion is committed; $2 billion is used to pay senior secured lenders.\ne\n $4.5 billion was originally committed, but $500 million of that commitment was never funded.\n\nSources: Treasury, \xe2\x80\x9cObama Administration Auto Restructuring Initiative: Chrysler-Fiat Alliance,\xe2\x80\x9d 4/30/2009, www.financialstability.gov/docs/AIFP/Chrysler-restructuring-factsheet_043009.pdf, accessed\n6/9/2009; Treasury, responses to SIGTARP draft reports, 7/9/2009 and 7/13/2009.\n\x0c108 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TARP Support for Chrysler\n As shown in Table 2.26, Treasury is using a number of different TARP investment\n vehicles to support Chrysler. Treasury has stated that its intention is to maximize\n taxpayer return, while at the same time maximizing the likelihood of the New\n Chrysler succeeding.244 Prior to Chrysler\xe2\x80\x99s bankruptcy, Treasury increased its initial\n $4.5 billion loan by $280.1 million, which was set aside for the Auto Warranty\n Commitment Program (\xe2\x80\x9cAWCP\xe2\x80\x9d) and which will be returned to Treasury. While\n Chrysler was in bankruptcy, Treasury committed to provide a loan of $3.8 billion\n in DIP financing. On June 10, 2009, Treasury committed $6.6 billion in new debt\n obligations. Treasury does not expect to receive repayment for its DIP investments\n but expects repayment of $6.6 billion in loans and has received an 8% pro forma\n equity share in New Chrysler.245 Treasury will also select four of the initial inde-\n pendent directors, but has claimed that it will play no other role in management\n or governance of the company.246 Treasury anticipates having quarterly meetings\n with Chrysler leadership that focus solely on financial reporting and key operating\n metrics.\n\n Financing\n Chrysler entered into an agreement with GMAC, pursuant to which GMAC agreed\n to provide certain dealer and retail financing. GMAC will have financing agree-\n ments with both Chrysler and GM post-bankruptcy. Treasury has provided GMAC\n with additional capital to support its anticipated growth in Chrysler dealer and\n retail loans.247\n\n FIGURE 2.16\n\n TABLE 2.32 GM TIMELINE\n IMPACT OF THE CHRYSLER-FIAT ALLIANCE ON STAKEHOLDERS\n Stakeholders Impact DECEMBER 2008 FEBRUARY 2009\n \xe2\x80\xa2 Chrysler\xe2\x80\x99s insurers will continue to pay workers compensation\n claims.\n Employees\n \xe2\x80\xa2 Pension plan and VEBA funding will be transferred to the pur-\n chaser. DECEMBER 29 FEBRUARY 17\n Treasury GM submits\n \xe2\x80\xa2 Chrysler will continue to pay suppliers. commits to loan restructuring\n Suppliers\n \xe2\x80\xa2 Auto Supplier Support Program will continue to operate. GM $884 billion. plan to Obama\n \xe2\x80\xa2 Chrysler will continue to honor customer warranties. Administration.\n \xe2\x80\xa2 Chrysler will continue to honor dealer incentives for those\n Dealers DECEMBER 31\n dealers that will remain operational. Treasury invests\n \xe2\x80\xa2 Chrysler has identified certain dealers to terminate. $13.4 billion in GM.\n \xe2\x80\xa2 Modified labor agreement between UAW and Chrysler will be\n UAW Note:\n operative. a\n Commitment was decreased to $2.5 billion on 7/8/2009.\n Creditors \xe2\x80\xa2 Majority of senior secured lenders support the transactions.\n Sources: Treasury, Transactions Report, 7/2/2009; Treasury,\n \xe2\x80\x9cObama Administration Auto Restructuring Initiative: General\n Source: Treasury, \xe2\x80\x9cObama Administration Auto Restructuring Initiative: Chrysler-Fiat Alliance,\xe2\x80\x9d 4/30/2009, www.\n financialstability.gov/docs/AIFP/Chrysler-restructuring-factsheet_043009.pdf, accessed 6/9/2009.\n Motors Restructuring,\xe2\x80\x9d 6/1/2009, www.financialstability.gov,\n accessed 6/9/2009; Treasury, \xe2\x80\x9cObama Administration New\n Path to Viability for GM & Chrysler,\xe2\x80\x9d 3/30/2009,\n www.financialstability.gov, accessed 6/9/2009; Treasury,\n responses to SIGTARP draft, 7/9/2009 and 7/13/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 109\n\n\n\n\n Execution of the Chrysler-Fiat Alliance\n Chrysler entered bankruptcy on April 30, 2009, and substantially all of its assets\n were sold to New Chrysler on June 10, 2009, with a new alliance with Fiat.248 The New GM: The entity that purchased\n impact of the alliance on the specific stakeholders is listed in Table 2.32. substantially all of GM\xe2\x80\x99s assets during\n bankruptcy.\n General Motors\n General Motors (\xe2\x80\x9cGM\xe2\x80\x9d) filed for Chapter 11 bankruptcy on June 1, 2009, and the\n transaction in which substantially all of its assets were sold to the newly formed\n entity (\xe2\x80\x9cNew GM\xe2\x80\x9d) closed on July 10, 2009. Treasury has committed $53.4 billion\n to GM, of which $30.1 billion is DIP financing.249 Figure 2.16 shows a timeline\n of Treasury\xe2\x80\x99s investments in GM as well as important milestones regarding GM\xe2\x80\x99s\n bankruptcy.\n\n Restructured General Motors\n In accordance with the March 31, 2009, deadline, the Obama Administration\n determined that GM\xe2\x80\x99s restructuring plan was not likely to lead to viability on a\n stand-alone basis. The Government laid out the framework for GM to achieve vi-\n ability through a substantially more aggressive restructuring plan.250 On June 1, 2009,\n GM filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code.\n Under its reorganization plan, New GM will purchase from GM the assets needed\n to implement the plan for viability. In exchange for this purchase, Treasury will\n waive the majority of its loans to GM and obtain a controlling equity stake in the\n new company. See Table 2.33 for a list of the actions taken by each stakeholder and\n their respective role with New GM.251\n\n\n\n\nMARCH 2009 APRIL 2009 MAY 2009 JUNE 2009 JULY 2009\n\n\n\n MARCH 30 APRIL 9 MAY 20 JUNE 3 JULY 10\n Obama Administration Treasury Treasury amends Treasury commits to a Substantially all of\n lays out framework for commits to invest earlier investment in $30.1 billion DIP loan. GM\xe2\x80\x99s assets are sold\n GM to restructure and $3.5 billion in an GM by investing an to New GM pursuant\n achieve viability. SPV for the Auto additional $4 billion. to Section 363 of\n Supplier Support the Bankruptcy\n Program.a MAY 27 JUNE 1 Code.\n Treasury places $361 GM files for bankruptcy\n million in an SPV for under Section 363 of the\n APRIL 22 the Auto Warranty Bankruptcy Code.\n Treasury amends Commitment Program.\n earlier investment in\n GM by investing an MAY 29\n additional $2 billion. Treasury exchanges its\n $884 million loan to GM\n for a portion of GM\xe2\x80\x99s\n equity interest in GMAC.\n\x0c110 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TARP Support for GM\n As shown in Table 2.26, Treasury has made a number of investments in GM. In\n December 2008, Treasury made two initial investments in GM: one that provided\n $884 million and one that committed to provide GM an additional $13.4 billion in\n financing. Treasury made three amendments to the $13.4 billion loan bringing the\n total of that loan, as of May 27, 2009, to $19.8 billion, which includes $361 mil-\n lion used to capitalize an SPV for the Auto Warranty Commitment Program.252\n On May 29, 2009, Treasury exchanged its $884 million loan in GM for a por-\n tion of GM\xe2\x80\x99s common equity in GMAC. This transaction raised Treasury\xe2\x80\x99s owner-\n ship of GMAC\xe2\x80\x99s common equity to 35.4%.253\n GM filed for bankruptcy on June 1, 2009. On June 3, 2009, Treasury commit-\n ted to loan GM $30.1 billion, under the terms of the DIP financing agreement.254\n According to Treasury, the Government is taking steps to limit its involvement\n in the day-to-day management of GM. The Obama Administration has published\n four core principles to guide the Government\xe2\x80\x99s management of ownership interests\n\n\n\n\n TABLE 2.33\n\n NEW GM STAKEHOLDERS ACTIONS AND ROLES\n Stakeholders Restructuring Actions Role with New GM\n \xe2\x80\xa2 17.5% equity share of New GM\n \xe2\x80\xa2 Make concessions on\n \xe2\x80\xa2 Warrants to purchase an additional 2.5%\n UAW (VEBA) compensation and retiree\n share of New GM\n health care\n \xe2\x80\xa2 Select one initial director\n \xe2\x80\xa2 10% equity share of New GM\n \xe2\x80\xa2 Give up $27.1 billion of\n Bondholders \xe2\x80\xa2 Warrants to purchase an additional 15%\n unsecured debt\n share of New GM\n GM Pension Plans \xe2\x80\xa2 None \xe2\x80\xa2 Transferred to New GM\n \xe2\x80\xa2 Provide $30.1 billion in DIP\n \xe2\x80\xa2 $7.1 billion in debt assumed by New GM\n financing to support GM\n United States \xe2\x80\xa2 $2.1 billion of preferred stock in New GM\n through bankruptcy\n Treasury \xe2\x80\xa2 61% equity share of New GM\n \xe2\x80\xa2 Contribute the $19.4 billion\n \xe2\x80\xa2 Select 10 initial directors\n pre-bankruptcy loan\n \xe2\x80\xa2 $1.7 billion in debt and preferred stock in\n Governments of\n New GM\n Canada and \xe2\x80\xa2 Lend $9.5 billion\n \xe2\x80\xa2 12% equity share of the New GM\n Ontario\n \xe2\x80\xa2 Select one initial director\n\n Notes: Numbers affected by rounding. Treasury did not publish pro forma data on equity ownership.\n\n Sources: Treasury, \xe2\x80\x9cObama Administration Auto Restructuring Initiative: General Motors Restructuring,\xe2\x80\x9d 6/1/2009, www.financialstabil-\n ity.gov/latest/05312009_gm-factsheet.html, accessed 6/10/2009; Treasury, responses to SIGTARP draft reports, 7/9/2009 and\n 7/13/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 111\n\n\n\n\nin private firms such as GM. According to Treasury, the Government will attempt\nto do the following:255\n\n\xe2\x80\xa2 seek to dispose of its ownership interest as soon as practicable\n\xe2\x80\xa2 reserve the right to set upfront conditions to protect taxpayers, promote finan-\n cial stability, and encourage growth\n\xe2\x80\xa2 protect the taxpayers\xe2\x80\x99 investment by managing its ownership stake in a hands-\n off, commercial manner\n\xe2\x80\xa2 vote on core governance issues, including the selection of a company\xe2\x80\x99s board of\n directors and major corporate events or transactions\n\n OFS has not publicly released the details of its exit strategy for GM.\n\nExecution of the GM Restructuring\nGM entered bankruptcy on June 1, 2009. The impact of the restructuring on the\nspecific stakeholders is described in Table 2.34.\n\n\n\n\nTABLE 2.34\n\n EXECUTION IMPACT OF THE GENERAL MOTORS RESTRUCTURING ON\n STAKEHOLDERS\nStakeholders Impact\nEmployees \xe2\x80\xa2 Pension Plan and VEBA funding will be transferred to New GM\n \xe2\x80\xa2 GM will continue to pay suppliers\nSuppliers\n \xe2\x80\xa2 Auto Supplier Support Program will continue to operate\n \xe2\x80\xa2 GM will continue to honor customer warranties\n \xe2\x80\xa2 GM will attempt to honor dealer incentives for those dealers that will\nDealers\n remain operational\n \xe2\x80\xa2 GM will identify certain dealers to terminate\nUAW \xe2\x80\xa2 Modified labor agreement between UAW and GM will be operative\n\nSource: Treasury, \xe2\x80\x9cObama Administration Auto Restructuring Initiative: General Motors Restructuring,\xe2\x80\x9d 6/1/2009, www.financialstability.\ngov/latest/05312009_gm-factsheet.html, accessed 6/10/2009.\n\x0c112 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n GMAC\n The majority of automobile purchases in the United States are financed, including\n an estimated 80% \xe2\x80\x93 90% of consumer purchases and substantially all dealer inven-\n tory purchases.256 In fall 2008, credit began to tighten and it became increasingly\n difficult for both dealers and customers to obtain credit for automobile purchases.\n It has been estimated that 2 million to 2.5 million vehicle sales were lost because\n either dealers or customers could not obtain credit.257 Treasury has stated that it\n believes its investment in GMAC will help provide a reliable source of financing\n to both auto dealers and customers seeking to buy cars, and that a recapitalized\n GMAC will offer strong credit opportunities, help stabilize the auto financing mar-\n ket, and contribute to the overall economic recovery.258 Under AIFP, Treasury has\n invested $13.4 billion in GMAC.259\n GMAC has entered a master financing agreement with Chrysler to provide\n certain dealer and retail financing.260\n\n Status of Funding\n On December 29, 2008, Treasury invested $5 billion in GMAC. At the time of this\n investment, GMAC reorganized into a bank holding company and thus became\n eligible to receive TARP funds and participate in other Government support\n programs.261 On May 21, 2009, Treasury purchased an additional $7.5 billion of\n mandatorily convertible preferred equity in GMAC.262 Of this $7.5 billion invest-\n ment, $4 billion will support GMAC\xe2\x80\x99s anticipated growth in Chrysler dealer and\n retail loans.263 The additional $3.5 billion will help GMAC address its capital needs\n as identified through the SCAP stress test completed with the Federal Reserve.264\n At the time of the initial Treasury investment, the Federal Reserve required\n GMAC to raise $2 billion of new equity. GMAC raised $1.1 billion through private\n investments, and Treasury loaned GM the remaining $884 million to purchase\n GMAC equity.265 On May 29, 2009, Treasury exchanged this $884 million loan to\n GM for a portion of GM\xe2\x80\x99s common equity interests in GMAC. As a result of that\n exchange, Treasury now holds 35.4% of GMAC\xe2\x80\x99s common shares.266 Treasury\xe2\x80\x99s\n mandatorily convertible preferred shares may be converted to common shares at\n GMAC\xe2\x80\x99s option with the approval of the Federal Reserve, though any conversion by\n GMAC must not result in Treasury owning in excess of 49% of GMAC\xe2\x80\x99s common\n shares except under the following circumstances:267\n\n \xe2\x80\xa2 with the prior written consent of Treasury\n \xe2\x80\xa2 pursuant to GMAC\xe2\x80\x99s capital plan, as agreed upon by the Federal Reserve\n \xe2\x80\xa2 pursuant to an order of the Federal Reserve compelling such a conversion\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 113\n\n\n\n\nSupervisory Capital Assessment Program (\xe2\x80\x9cSCAP\xe2\x80\x9d) For more information on the\nAs detailed in the \xe2\x80\x9cCapital Assessment Program\xe2\x80\x9d discussion earlier in this section, Supervisory Capital Assessment\nU.S. bank supervisors recently created SCAP to determine if BHCs have a suf- Program, see \xe2\x80\x9cFinancial Institution\nficient capital buffer to operate in worse-than-expected future economic condi- Support Programs\xe2\x80\x9d earlier in this\ntions.268 As a result of the stress test, GMAC is required to raise a SCAP buffer of section.\n\n$11.5 billion. As noted previously, $3.5 billion of Treasury\xe2\x80\x99s recent investment will\nbe applied to meet this capital shortfall.269\n\nChrysler Financial\nIn January 2009, Treasury loaned $1.5 billion to a bankruptcy-remote SPV to sup-\nport Chrysler Financial retail loan originations. Treasury\xe2\x80\x99s loan forms the senior\nportion of the capital structure of the SPV, with Chrysler Financial providing the\njunior capital. Treasury\xe2\x80\x99s loan is collateralized by retail auto loans with stronger\ncredit characteristics (higher credit scores, lower loan-to-value, shorter maturity)\nthan Chrysler Financial\xe2\x80\x99s broader retail loan portfolio.270\n Chrysler Financial has essentially ceased ordinary operations and is winding\ndown its business.271 Due to the nature of the collateral, Treasury expects to recover\nfully the $1.5 billion loan to Chrysler Financial.\n\x0c114 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n HOMEOWNER SUPPORT PROGRAMS\n Making Home Affordable Program\n The Making Home Affordable (\xe2\x80\x9cMHA\xe2\x80\x9d) program was introduced by the\n Administration on February 18, 2009, and was intended to assist homeowners who\n Servicer: Administrative party that col- are facing foreclosure or struggling to make their monthly mortgage payments.\n lects payments and generates reports Two weeks later, on March 4, 2009, Treasury released detailed program guidelines,\n regarding mortgage payments. which allowed mortgage servicers to begin to refinance and issue modifications.272\n MHA comprises three major initiatives: a loan modification program, a loan refi-\n Private-Label Mortgages: Loans that nancing program, and additional support to lower mortgage interest rates. Only the\n are not owned or guaranteed by Fannie loan modification program, known as the Home Affordable Modification Program\n Mae, Freddie Mac, or another Federal\n (\xe2\x80\x9cHAMP\xe2\x80\x9d) currently involves TARP funds.273\n agency.\n According to Treasury, HAMP is a $75 billion program that will lower monthly\n mortgage payments for homeowners facing foreclosure by providing loan modifica-\n Government-Sponsored Enterprises\n tions and incentive payments for the loan servicers, loan holders, and homeowners.\n (\xe2\x80\x9cGSEs\xe2\x80\x9d): Private corporations created\n by the Government to reduce borrow- Under HAMP, $50 billion from TARP will be used to modify private-label mortgag-\n ing costs. They are chartered by the es. An additional $25 billion, funded under the Housing and Economic Recovery\n U.S. Government but are not consid- Act of 2008 (\xe2\x80\x9cHERA\xe2\x80\x9d), will be used to modify mortgages that are owned or guar-\n ered to be direct obligations. anteed before January 1, 2009, by Government-sponsored enterprises (\xe2\x80\x9cGSEs\xe2\x80\x9d),\n particularly Fannie Mae and Freddie Mac.274\n HAMP has several key components:275\n\n For more information regarding HAMP \xe2\x80\xa2 The lender will reduce monthly payments so that the borrower\xe2\x80\x99s monthly mort-\n eligibility, modifications, and incen- gage is no greater than 38% of the borrower\xe2\x80\x99s monthly income.\n tive payments, see SIGTARP\xe2\x80\x99s April \xe2\x80\xa2 Treasury and the lender will split the cost of reducing the monthly payments\n Quarterly Report, Section 2: \xe2\x80\x9cTARP from 38% to 31% of the borrower\xe2\x80\x99s monthly income.\n Overview.\xe2\x80\x9d\n \xe2\x80\xa2 The borrower will enter a 90-day trial period of reduced payments before enter-\n ing program; if successful (i.e., borrower makes payments), the borrower will\n maintain new, lower mortgage payments for five years.\n \xe2\x80\xa2 Treasury will make incentive payments to servicers, lenders/investors, and (to\n servicers) on behalf of borrowers.\n\n Status of Funds\n As of June 30, 2009, Treasury had signed agreements with loan servicers allocating\n up to $18 billion under HAMP.276\n Countrywide Home Loans Servicing, LLP, will receive up to $5.2 billion \xe2\x80\x94\n the largest allocation under the program. The average allocation to each servicer\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 115\n\n\n\n\nthrough HAMP is $781.8 million. These funds can be used to modify both first\nand second lien mortgages.277 Table 2.35 provides a detailed list of allocations made\nunder the HAMP program as of June 30, 2009.\n\nTABLE 2.35\n\nHOME AFFORDABLE MODIFICATION PROGRAM FUNDING\n Adjusted\nDate of Cap as of\nInitial 6/30/2009\nTransaction Institution Ultimate Parent Company ($ Millions)\n\n4/13/2009 Select Portfolio Servicing Credit Suisse Group AG $660.59\n4/13/2009 CitiMortgage, Inc. Citigroup, Inc. 1,079.42\n4/13/2009 Wells Fargo Bank, NA Wells Fargo & Company 2,410.01\n4/13/2009 GMAC Mortgage, Inc. GMAC 1,017.65\n4/13/2009 Saxon Mortgage Services, Inc. Morgan Stanley 632.04\n4/13/2009 Chase Home Finance, LLC JPMorgan Chase & Co. 3,552.0\n4/16/2009 Ocwen Financial Corporation, Inc. N/A 553.38\n4/17/2009 Bank of America, N.A. Bank of America Corporation 804.44\n Countrywide Home Loans\n4/17/2009 Servicing, LP Bank of America Corporation 5,182.84\n4/20/2009 Home Loan Services, Inc. Bank of America Corporation 447.30\n4/20/2009 Wilshire Credit Corporation Bank of America Corporation 453.13\n4/24/2009 Green Tree Servicing, LLC N/A 91.01\n4/27/2009 Carrington Mortgage Services, LLC N/A 131.02\n5/1/2009 Aurora Loan Services, LLC Lehman Brothers Holding, Inc. 459.55\n5/28/2009 Nationstar Mortgage LLC N/A 117.14\n6/12/2009 Residential Credit Solutions Residential Credit Holdings, LLC 19.40\n6/17/2009 CCO Mortgage The Royal Bank of Scotland, PLC 16.52\n6/17/2009 RG Mortgage Corporation R&G Financial Corporation 57.00\n6/19/2009 First Federal Savings and Loan N/A 0.77\n6/19/2009 Wescom Central Credit Union N/A 0.54\n Citizens First Wholesale Mortgage\n6/26/2009 Company N/A 0.03\n6/26/2009 Technology Credit Union N/A 0.07\n6/26/2009 National City Bank PNC Financial Services Group, Inc. 294.98\nTotal $17,980.83\n\nNotes: Numbers may be affected by rounding. Data as of 6/30/2009.\n\nSources: Treasury, Transactions Report, 7/2/2009; Factiva website, http://fce.factiva.com/pcs/default.aspx, accessed 6/24/2009;\n\xe2\x80\x9cCMS, Loan Servicing,\xe2\x80\x9d https://myloan.carringtonms.com, accessed 6/24/2009; \xe2\x80\x9cNationstar Mortgage, About Us,\xe2\x80\x9d https://www.\nnationstarmtg.com, accessed 6/24/2009; \xe2\x80\x9cRCS, Corporate Information,\xe2\x80\x9d https://www.residentialcredit.com, accessed 6/24/2009;\n\xe2\x80\x9cAbout CCO Mortgage,\xe2\x80\x9d https://www.ccomortgage.com, accessed 6/24/2009; \xe2\x80\x9cFirst Federal, About Us,\xe2\x80\x9d http://www.ourfirstfed.com,\naccessed 6/24/2009; GMAC Investor FAQ, www.gmacfs.com, accessed 6/24/2009.\n\x0c116 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Second Lien Program\n On April 28, 2009, Treasury released guidelines regarding the Second Lien\n Program within HAMP. A significant portion of delinquent borrowers carry both\n senior- and second-lien debt and therefore may need assistance with both loans to\n remain in their homes. In other cases, homeowners may be able to pay their first\n mortgage, but the second mortgage increases the monthly payments to a level that\n is no longer affordable. According to Treasury, the Second Lien Program was de-\n signed to create substantially affordable mortgage payments for homeowners who\n qualify for a first-mortgage modification but still struggle to make their monthly\n Second-Lien Debt: Debt that is ranked payments because of a second mortgage. According to Treasury, the Second Lien\n lower than senior debt in the event of a\n Program could potentially reduce payments for 1 million\xe2\x80\x931.5 million homeowners,\n liquidation or bankruptcy restructuring.\n which could account for up to half of all HAMP participants.278\n Second-lien debt is subordinate to a senior claim. Both claims use the same\n Loan-to-Value (\xe2\x80\x9cLTV\xe2\x80\x9d) Ratio: In real\n asset as collateral. For example, in addition to a mortgage on a home, borrowers\n estate lending, the outstanding\n principal amount of the loan divided may take out a second mortgage or a home-equity loan to pay for higher education.\n by the appraised value of the property Homeowners can use their house as collateral for both loans. The home mortgage\n underlying the loan. is considered to be senior to the second loan. In the event of a first-lien foreclosure,\n personal bankruptcy, or liquidation, the second-lien investor only gets paid after the\n Back-End Debt-to-Income (\xe2\x80\x9cDTI\xe2\x80\x9d) Ratio: initial mortgage holder has been paid in full.279\n Indicates the percentage of an income\n that is used to pay debts. Reducing Second Mortgage Payments\n To reduce the number of foreclosures initiated by second-lien holders, Treasury\n Back-End DTI Ratio = Total Monthly will make an offer to the second mortgage holder that Treasury will share in both\n Debt Expense / Gross Monthly Income\n the write-down of the mortgage and the refinancing of the loan. Treasury will also\n deliver \xe2\x80\x9cPay for Success\xe2\x80\x9d incentive payments to servicers, lenders/investors, and\n Unpaid Principal Balance (\xe2\x80\x9cUPB\xe2\x80\x9d):\n (to servicers) on behalf of borrowers. Since the bank holding the second mortgage\n Amount of a loan that is unpaid. This\n does not include additional charges,\n may not receive any money if the borrower defaults on the loan, it is incentivized to\n such as interest. work with the Government to refinance the second mortgage and recoup at least\n part of its investment.280\n Lenders may decide that rather than modify a loan, they would like to termi-\n For more information regarding Loan- nate the loan in exchange for a one-time payment from the borrower. This is called\n to-Value ratios and Debt-to-Income extinguishing a loan. The one-time payment is determined through a set payment\n ratios, see SIGTARP\xe2\x80\x99s April Quarterly schedule based on four factors: the loan-to-value (\xe2\x80\x9cLTV\xe2\x80\x9d) ratio, the back-end debt-\n Report, Section 2: \xe2\x80\x9cTARP Overview.\xe2\x80\x9d to-income (\xe2\x80\x9cDTI\xe2\x80\x9d) ratio, the unpaid principal balance (\xe2\x80\x9cUPB\xe2\x80\x9d), and the duration of\n the delinquency (the length of time the loan has been overdue).281\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 117\n\n\n\n\nSecond Lien Guidelines\nAccording to Treasury, prior to the MHA program, mortgage servicers often re-\nfrained from completing loan modifications due to a lack of common standards. In\naddition to the guidelines in the original modification program, on April 28, 2009,\nTreasury issued guidelines on second-lien modifications. These guidelines include\nthe following:282\n\n\xe2\x80\xa2 The second lien is automatically modified when a first lien is modified.\n\xe2\x80\xa2 The second-lien modification may not delay first-lien modification.\n\xe2\x80\xa2 Borrower, servicer, and lender incentives have been aligned to complete modifi-\n cations at an affordable and sustainable level.\n\xe2\x80\xa2 Payments are designed under the principle of \xe2\x80\x9cpay for success,\xe2\x80\x9d which aligns\n incentives to reduce payments in a way that is most cost-effective for taxpayers.\n\x0c118 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n EXECUTIVE COMPENSATION\n As discussed in SIGTARP\xe2\x80\x99s previous reports, the executive compensation restric-\n tions set forth in EESA have been changed over time by regulations, amendments,\n and notices. On February 17, 2009, Section 111 of EESA was amended by Section\n 7001 of the American Recovery and Reinvestment Act of 2009 (\xe2\x80\x9cARRA\xe2\x80\x9d), which\n further required that Treasury promulgate regulations to implement ARRA amend-\n ments.283 On June 10, 2009, Treasury released its Interim Final Rule on TARP\n Standards for Compensation and Corporate Governance (the \xe2\x80\x9cRule\xe2\x80\x9d), which imple-\n ments EESA as amended by ARRA. The Rule is an \xe2\x80\x9cInterim Final Rule\xe2\x80\x9d \xe2\x80\x94 mean-\n ing it took effect upon its publication in the Federal Register on June 15, 2009, but\n there is a 60-day public comment period after which it may be changed. The Rule\n \xe2\x80\x9cimplement[s] ARRA provisions, consolidates all of the executive-compensation-\n related provisions that are specifically directed at TARP recipients into a single rule\n (superseding all prior rules and guidance), and utilizes the discretion granted to the\n [Treasury] Secretary under ARRA to adopt additional standards, some of which are\n adapted from principles set forth\xe2\x80\x9d in guidance previously provided by Treasury in\n February 2009.284 Figure 2.17 describes the changes in executive compensation re-\n strictions set forth by Congress and included in Treasury regulations over time. For\n more information on the guidelines in the figure, see Section 2: \xe2\x80\x9cTARP Overview\xe2\x80\x9d\n in SIGTARP\xe2\x80\x99s April Quarterly Report.\n\n FIGURE 2.17\n\n EXECUTIVE COMPENSATION RESTRICTIONS TIMELINE\n\n\n OCTOBER 2008 JANUARY 2009 FEBRUARY 2009 JUNE 2009\n\n\n\n OCTOBER 3 JANUARY 16 FEBRUARY 4 JUNE 10\n EESA NOTICE 2008-PSSFI ADMINISTRATION INTERIM FINAL RULE \xe2\x80\x9cTARP\n EESA is enacted to include Mandated a more stringent ANNOUNCEMENT ON STANDARDS FOR\n executive compensation rule regarding golden EXECUTIVE COMPENSATION COMPENSATION AND\n restrictions for any parachutes. New guidance on executive CORPORATE GOVERNANCE\xe2\x80\x9d\n institution that was to sell compensation separating Implements executive\n troubled assets to the companies receiving TARP compensation standards\n Government under TARP. funding into two categories: under EESA, as amended by\n Exceptional Assistance and ARRA. Consolidates and\n OCTOBER 14 Generally Available Programs. supersedes all prior\n TREASURY REGULATION executive compensation\n 31 CFR PART 30 FEBRUARY 17 rules and guidance.\n Implemented Section 111 AMERICAN RECOVERY AND\n of EESA to institutions REINVESTMENT ACT,\n that received financial (\xe2\x80\x9cARRA\xe2\x80\x9d) SECTION 7001\n assistance from Section 7001 of ARRA is\n Treasury. enacted, amending and replacing\n Section 111 of EESA.\n\n\n Sources: EESA, P.L. 110-343, 10/3/2008; Treasury, \xe2\x80\x9cTreasury Regulation 31 CFR Part 30,\xe2\x80\x9d 10/14/2008; Treasury, \xe2\x80\x9cNotice 2008 \xe2\x80\x93 PSSFI,\xe2\x80\x9d 1/16/2009, www.treas.gov, accessed\n 1/19/2009; Treasury, \xe2\x80\x9cTreasury Announces New Restrictions on Executive Compensation,\xe2\x80\x9d 2/4/2009, www.treas.gov, accessed 3/20/2009; ARRA, P.L 111-5, 2/17/2009;\n Treasury, \xe2\x80\x9cTARP Standards for Compensation and Corporate Governance,\xe2\x80\x9d 6/10/2009, www.financialstability.gov, accessed 6/10/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 119\n\n\n\n\n The Rule applies to all TARP recipients, defined in the Rule to include \xe2\x80\x9cany\nentity that has received or holds a commitment to receive financial assistance\xe2\x80\x9d pro-\nvided under TARP or any entity that owns 50% or more, or is 50% or more owned\nby such an entity.285 In general, the executive compensation restrictions in the\nRule apply only so long as the TARP recipient has an \xe2\x80\x9cobligation\xe2\x80\x9d to Treasury; an\n\xe2\x80\x9cobligation\xe2\x80\x9d does not include Treasury holding warrants to purchase common stock\nof the TARP recipient.286\n In general, the Rule defines financial assistance as \xe2\x80\x9cany funds or fund com-\nmitment provided through the purchase of troubled assets\xe2\x80\x9d by Treasury through\na direct financial transaction between Treasury and the TARP participant.287 For\nexample, CPP participants that directly sell preferred stock to Treasury generally\nhave received financial assistance under the Rule. However, those institutions that\npost collateral to and receive loans from TALF are considered to have not \xe2\x80\x9creceived\nfinancial assistance provided under TARP\xe2\x80\x9d and therefore are not subject to the\nRule.288 Table 2.36 shows a breakdown of how the compensation and governance\nstandards set forth in the Rule apply to all TARP programs.\n\nTABLE 2.36\n\nINTERIM RULE EXECUTIVE COMPENSATION RESTRICTIONS AS THEY APPLY TO\nTARP PROGRAMS\nTARP\nProgram Applicable Notes\n All participating institutions are subject to the executive compensation\nCPP X\n restrictions.\n All participating institutions are subject to the executive compensation\nCAP X\n restrictions.\nSSFI X Restrictions apply to AIG.\nTIP X Restrictions apply to Citigroup and Bank of America.\nAGP X Restrictions apply to Citigroup.\nAIFP X Restrictions apply to GM, GMAC, Chrysler, Chrysler Financial.\n Executive compensation restrictions apply only to auto companies, not the\nASSP X\n suppliers.\n Executive compensation restrictions apply only to auto companies, not\nAWCP X\n automobile purchasers.\nTALF Program is not applicable to TALF participants.\n Would apply only if there was a majority owner of the Public-Private Invest-\n ment Fund (\xe2\x80\x9cPPIF\xe2\x80\x9d). Since PPIF will be structured so that no entity can invest\nPPIP in more than 9.9% of the fund, executive compensation restrictions will\n not apply. According to OFS, the luxury expenditure policy will apply to the\n recipient.a\nMHA Program is exempted by statute.b\nUCSB X Restrictions apply only to the institution selling the eligible assets to Treasury.\n\nNotes:\na Treasury, response to SIGTARP draft report, 7/9/2009.\nb The Making Home Affordable program is exempted by statute from the executive compensation and corporate governance standards\n\n set forth in the ARRA amendments. See Section 7002 of the American Recovery and Reinvestment Act of 2009, P.L. 111-5,\n 2/13/2009.\n\nSource: Treasury, \xe2\x80\x9cTARP Standards for Compensation and Corporate Governance,\xe2\x80\x9d 6/10/2009, www.financialstability.gov, accessed\n6/10/2009.\n\x0c120 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Compensation Limits\n The Rule establishes certain compensation requirements by which all TARP recipi-\n Senior Executive Officers (\xe2\x80\x9cSEOs\xe2\x80\x9d): A ents must abide. The number of employees to whom the requirements apply varies;\n \xe2\x80\x9cnamed executive officer\xe2\x80\x9d of a TARP in general, however, the compensation limitations in the Rule apply to the TARP\n recipient as defined under Federal recipient\xe2\x80\x99s senior executive officers (SEOs) and most highly compensated employ-\n securities law, which generally includes ees, determined by reference to annual compensation. The Rule defines annual\n the principal executive officer (\xe2\x80\x9cPEO\xe2\x80\x9d), compensation as the dollar value for total compensation as determined pursuant to\n principal financial officer (\xe2\x80\x9cPFO\xe2\x80\x9d), and\n applicable Federal securities laws.289\n the next three most highly compen-\n Different types of compensation are addressed differently in the Rule. For\n sated employees.\n example, the number of employees for whom bonus payments are limited is based\n upon the amount of TARP funding received by the institution.290 The Rule did not\n Most Highly Compensated Employee:\n The employee of a TARP recipient include the annual compensation limit of $500,000 that had been set forth in the\n whose total annual compensation is February 2009 Administration guidance.291 Table 2.37 shows how bonus payments\n determined to be the highest among all are applied to each TARP recipient based on funding levels. The specific compen-\n employees, where \xe2\x80\x9cannual compensa- sation requirements set forth in the Rule, and how each requirement applies to\n tion\xe2\x80\x9d includes the dollar value for total TARP recipients, are detailed in Table 2.38.\n compensation as determined pursuant\n to Federal securities laws reduced by\n the amount required by the employee\xe2\x80\x99s\n defined benefit and pension plans.\n TABLE 2.37\n\n EMPLOYEES SUBJECT TO BONUS LIMITATIONS, BY AMOUNT OF TARP FUNDING\n Amount of TARP Funding Applicable Employees\n < $25,000,000 most highly compensated employee\n >$25,000,000 < $250,000,000 at least the 5 most highly compensated employees\n >$250,000,000 < $500,000,000 SEOs and 10 next most highly compensated employees\n >$500,000,000 SEOs and 20 next most highly compensated employees\n\n Note: The ARRA amendments provide that, with respect to financial institutions that have received greater than $25,000,000 in TARP\n assistance, the Secretary may apply the bonus limitations to a higher number of employees as the Secretary may determine is in the\n public interest.\n\n Source: Treasury, \xe2\x80\x9cTARP Standards for Compensation and Corporate Governance,\xe2\x80\x9d 6/10/2009, www.financialstability.gov, accessed\n 6/10/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 121\n\n\n\n\nTABLE 2.38\n\nCOMPENSATION LIMIT REQUIREMENTS\nRequirement Definition How Requirement Is Applied To Whom the Requirement Applies\nBonus Payments Bonus, retention award, or incentive Bonus payments are prohibited \xe2\x80\x94 except Employees identified in Table 2.37 (based\n compensation for payments made in the form of restricted on the level of TARP assistance)\n stock (which cannot have a value greater than\n 1/3 of the employee\xe2\x80\x99s total compensation\n and must be forfeitable if the employee does\n not continue providing services for the TARP\n recipient for at least two years from the date\n of grant).\nCommissions Payment earned by an employee Commissions meeting the definition in the Rule Employees identified in Table 2.37 (based\n consistent with a program in existence are exempt from the limitations on bonuses, on the level of TARP assistance)\n for that type of employee as of February retention awards, and incentive compensation;\n 17, 2009, if a substantial portion of however, fees earned in connection with a\n the services provided by the employee specified transaction (e.g., an initial public\n consists of the direct sale of a product or offering) are not commissions for purposes of\n service to an unrelated customer the Rule.\nExcessive Risk Unnecessary risk taking encouraged by Review of employee compensation plans by All TARP recipients\n employee compensation plans the compensation committee, a narrative\n explanation of the committee\xe2\x80\x99s analysis with\n respect to risk, and certification that the\n compensation committee has completed the\n review.\nClawback Recovery by the company of amounts All bonuses, retention awards, and incentive SEOs and the next 20 most highly\n paid to an employee based on materially compensation must be subject to clawback compensated employees\n inaccurate performance criteria if the payments were based on materially\n inaccurate performance criteria; the TARP\n recipient must actually exercise its clawback\n rights unless it can demonstrate that it would\n be unreasonable to do so.\nGolden Parachute Any payment to an employee for Prohibits any and all golden parachute SEOs and the next 5 most highly\n departure for any reason, or any payment payments to the applicable employees made compensated employees\n due to a change in control at the time of departure or upon a change in\n control.\nPerquisite Personal benefit, including a privilege Must disclose the amount, nature, and Employees identified in Table 2.37 (based\n or profit incidental to regular salary or justification for the perquisite whose value on the level of TARP assistance)\n wages exceeds $25,000.\n\nSource: Treasury, \xe2\x80\x9cTARP Standards for Compensation and Corporate Governance,\xe2\x80\x9d 6/10/2009, www.financialstability.gov, accessed 6/10/2009.\n\x0c122 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Office of the Special Master for TARP Executive\n Compensation\n Under the Rule, Treasury has created a new Office of the Special Master for\n TARP Executive Compensation (\xe2\x80\x9cSpecial Master\xe2\x80\x9d) which will be responsible for\n the review and analysis of executive compensation at TARP recipients.292 Treasury\n has appointed Kenneth R. Feinberg, a \xe2\x80\x9chighly respected mediator widely praised\n for his leadership of the September 11th Victim Compensation Fund,\xe2\x80\x9d as Special\n Master, and he will report to the Assistant Secretary of the Treasury for Financial\n Stability.293 The Special Master\xe2\x80\x99s scope is limited to executive compensation and\n corporate governance issues under the Rule for TARP recipients. The Special\n Master has the authority to accomplish these objectives:294\n \xe2\x80\xa2 review compensation payments and plans at TARP recipients that have received\n \xe2\x80\x9cexceptional assistance\xe2\x80\x9d (for the SEOs and 20 next most highly compensated\n employees) and compensation structures (for the 100 most highly compensated\n employees and any executive officers)\n \xe2\x80\xa2 review bonuses, retention awards, and other compensation paid before\n February 17, 2009, by TARP recipients and, where appropriate, negotiate\n reimbursements\n \xe2\x80\xa2 provide advisory opinions with respect to the application of the Rule and\n whether compensation payments and plans are consistent with EESA, TARP,\n and the public interest\n\n The Rule requires that the Special Master use specific principles when review-\n ing compensation payments and plans at TARP recipients:295\n\n \xe2\x80\xa2 Risk \xe2\x80\x94 The compensation structure should avoid incentives for employees to\n take unnecessary or excessive risks that could threaten the value of the TARP\n recipient, including incentives that reward employees for short-term or tempo-\n rary increases in value, performance, or similar measures that may not ultimate-\n ly be reflected by an increase in the long-term value of the TARP recipient.\n \xe2\x80\xa2 Taxpayer Return \xe2\x80\x94 The compensation structure, and amount payable where\n applicable, should reflect the need for the TARP recipient to remain a competi-\n tive enterprise, to retain and recruit talented employees who will contribute to\n the TARP recipient\xe2\x80\x99s future success, and ultimately to be able to repay TARP\n obligations.\n \xe2\x80\xa2 Appropriate Allocation \xe2\x80\x94 The compensation structure should appropriately\n allocate the components of compensation (e.g., salary, executive pensions,\n bonus payments, and incentives). The appropriate allocation may be different\n for different positions and for different employees, but generally, in the case of\n an executive or other senior-level position, a significant portion of the overall\n compensation should be long-term compensation that aligns the interest of the\n employee with the interests of shareholders and taxpayers.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 123\n\n\n\n\n\xe2\x80\xa2 Performance-Based Compensation \xe2\x80\x94 An appropriate portion of the com-\n pensation should be performance-based over a relevant performance period.\n Performance-based compensation should be determined through tailored\n metrics that encompass individual performance and/or the performance of the\n TARP recipient or a relevant business unit, taking into consideration specific\n business objectives.\n\xe2\x80\xa2 Comparable Structures and Payments \xe2\x80\x94 The compensation structure\n and pay should be consistent with pay for those in similar positions at similar\n entities.\n\xe2\x80\xa2 Employee Contribution to TARP Recipient Value \xe2\x80\x94 The compensation\n structure should reflect the current or prospective contributions of an employee\n to the value of the TARP recipient, taking into account multiple factors.\n\nExceptional Assistance Authority\nUnder the Rule, the Special Master has specific duties regarding payments and\ncompensation plans for executives of TARP recipients that have received exception- Exceptional Assistance: Companies\nal assistance. For companies receiving exceptional assistance, the Special Master receiving assistance under the pro-\nwill review compensation payments for the SEOs and the 20 most highly compen- grams for SSFI, TIP, AGP, AIFP, and any\nsated employees at each institution. In addition, he will be reviewing compensa- future Treasury program designated by\ntion plans for SEOs and the 100 most highly compensated employees (and the the Treasury Secretary as providing ex-\nexecutive officers) of a TARP recipient receiving exceptional assistance. According ceptional assistance. Currently includes\nto Treasury, this is to ensure that compensation is fair and structured, to protect AIG, Citigroup, Bank of America, GM,\n GMAC, Chrysler, and Chrysler Financial.\ntaxpayer interests and to promote long-term shareholder value.296\n\n\xe2\x80\x9cLook-Back\xe2\x80\x9d Authority\nThe Special Master will also be conducting a \xe2\x80\x9clook-back\xe2\x80\x9d review of certain pay-\nments at all TARP recipients made prior to February 17, 2009 (i.e., the date of\nARRA\xe2\x80\x99s enactment). The review will cover all bonuses, retention awards, and other\ncompensation paid to the 5 SEOs and the next 20 most highly paid employees.297\nThis review will encompass approximately 436 institutions and 10,900 individu-\nals.298 Should the Special Master determine that payments were made inappropri-\nately or contrary to the public interest, he will have responsibility for negotiations\nwith the TARP recipient and the applicable employee for appropriate reimburse-\nment to the Federal Government.299\n\x0c124 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n The American Recovery and Reinvestment Act of 2009 \xe2\x80\x94\n Expanded Provisions\n The Rule expanded upon three provisions set forth in ARRA. They include review\n by the Board Compensation Committee of all employee compensation plans, the\n \xe2\x80\x9cSay on Pay\xe2\x80\x9d requirement, and enhanced luxury expenditure requirements.300\n\n Board Compensation Committee\n Under the Rule, each TARP recipient must establish a Board Compensation\n Committee (the \xe2\x80\x9cCommittee\xe2\x80\x9d). The Committee must include independent direc-\n tors from the company\xe2\x80\x99s board and will convene for the purpose of reviewing all\n employee compensation plans. An exception to this requirement is made for TARP\n recipients that are not registered under the Securities Exchange Act of 1934 and\n have received $25 million or less in TARP assistance. These institutions may\n have their boards of directors carry out the duties of the Board Compensation\n Committee.301\n The Committee is required to meet at least semiannually to review with senior\n risk officers the proposed compensation plans of all employees and ensure that the\n TARP recipient is not unnecessarily exposed to risks. In addition, the Committee\n will evaluate SEO compensation plans to ensure that the plans do not encourage\n SEOs to take unnecessary and excessive risks that could threaten the value of the\n TARP recipient. The Rule requires that the Committee submit an annual report to\n Treasury providing a narrative description of how it limited any features of compen-\n sation plans that would encourage SEOs to take unnecessary and excessive risks\n and any features of compensation plans that could encourage the manipulation of\n reported earnings to enhance the compensation of an employee.302\n\n \xe2\x80\x9cSay on Pay\xe2\x80\x9d\n Say on Pay: A non-binding vote by The Rule provides a provision for a non-binding vote by shareholders on executive\n shareholders with respect to the compensation, sometimes referred to as \xe2\x80\x9cSay on Pay.\xe2\x80\x9d This provision requires all\n company\xe2\x80\x99s executive compensation, as TARP recipients to permit an annual non-binding vote by shareholders on execu-\n disclosed pursuant to SEC regulations. tive compensation as required by SEC regulations.303\n\n Luxury Expenditures\n The Rule also addresses corporate luxury expenses; the Rule states that the board\n of directors of any institution receiving TARP funds must have a company-wide\n policy to define and prevent excessive expenditure on entertainment or events, of-\n fice and facility renovations, aviation or other transportation services, and other ac-\n tivities or events that are not reasonable expenditures for the following activities:304\n \xe2\x80\xa2 staff development\n \xe2\x80\xa2 reasonable performance incentives\n \xe2\x80\xa2 other activities conducted in the normal course of business operations\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 125\n\n\n\n\n The company must file this policy with Treasury and post it to the company\nwebsite no later than (i) 90 days after the closing of the transaction between\nTreasury and the TARP recipient or (ii) 90 days following publication of the\nRule.305 The Rule also requires that the PEO and PFO of each institution provide\ncertification that any expenditures needing approval by a senior executive or the\nboard of directors have been properly approved.306\n\nAdditional Compensation and Governance Standards\nAccording to Treasury, the Rule provides additional requirements that will further\nprotect shareholder value and increase transparency by all TARP recipients.\nIn addition to the compensation and corporate governance standards explicitly\nrequired by Congress, the Rule includes three additional requirements: a prohibi-\ntion on tax gross-ups, a requirement that TARP recipients provide additional dis-\nclosure of perquisites, and a requirement that TARP recipients provide disclosure\nwith respect to compensation consultants.307\n\nTax Gross-Up\nA tax gross-up is typically a specific payment to cover taxes due on certain\ncompensation. According to Treasury, studies have shown that these payments\ncost the companies that provide them far more than the benefits the payments\n Tax Gross-Up: A reimbursement\nprovide to executives. The Rule prohibits TARP recipients from providing any tax\n of taxes owed with respect to any\ngross-up payments to senior executives and to the next 20 highest-compensated\n compensation.\nemployees.308\n\nPerquisites\nIn addition to disclosure requirements applicable to perquisites that are already\nenforced by the SEC, the Rule subjects TARP recipients to more stringent\nrequirements. SEC rules require disclosure of perquisites given to the top five\nexecutive officers. The Rule expands this requirement to include perquisites over\n$25,000 given to any employees of TARP recipients subject to the bonus limita-\ntions described in Table 2.37. Additionally, firms must provide a narrative descrip-\ntion and justification for these benefits.309\n\nCompensation Consultants\nMany firms hire compensation consultants to determine appropriate pay levels\nfor top executives. According to Treasury, these consultants may have influence\nover the setting of compensation, and it may be helpful for shareholders to know\nwhether TARP recipients have hired an outside consultant. More specifically, the\nRule requires all TARP recipients to provide a narrative description of the services\nprovided by such consultants and a description of any benchmarking analysis\nperformed by the consultants.310\n\x0c126 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Certifications\n As recommended by SIGTARP, the Rule provides certification and reporting\n requirements on the compensation and corporate governance guidelines that apply\n to TARP recipients. All certifications provided by TARP recipients must name the\n SEOs and the 20 most highly compensated employees for the current fiscal year.\n Under the Rule, this determination is based on their prior fiscal year\xe2\x80\x99s total annual\n compensation. Each certification must also provide a statement by the officer certi-\n fying that they \xe2\x80\x9cunderstand that a knowing and willful false or fraudulent statement\n made in connection with the certification may be punished by fine, imprisonment,\n or both.\xe2\x80\x9d311 Table 2.39 describes the reporting and certification requirements and\n the frequency with which the institution must provide the certifications.\n In addition to the requirements in Table 2.39, those TARP recipients classified\n as receiving exceptional assistance must certify to Treasury that they have had their\n compensation payments and structures approved by the Special Master as required\n by the Rule.312\n\n\n\n\n TABLE 2.39\n\n EXECUTIVE COMPENSATION REPORTING AND CERTIFICATION REQUIREMENTS\n Compliance Category Action Requiring Certification Certification Frequency\n Board Compensation TARP recipient has created a Board Compensation Committee that meets \xe2\x80\xa2 Later of 90 days after the closing of the transac-\n Committee the requirements of the Rule. tion or 90 days after publication of the Rule\n Compensation Plans The Committee has evaluated SEO compensation plans and has identified \xe2\x80\xa2 Evaluate every 6 months\n Excessive Risk and limited features of plans that could lead to unnecessary risks. The \xe2\x80\xa2 90 days after the end of each fiscal year \xe2\x80\x94 must\n committee has also reviewed employee compensation plans for features submit narrative description and certification\n that could encourage the manipulation of reported earnings.\n Bonus Payments TARP recipient has limited bonus payments to applicable employees \xe2\x80\xa2 90 days after the end of each fiscal year\n in accordance with Section 111 of EESA and guidance thereunder.\n Luxury TARP recipient has established an excessive or luxury expenditures policy, \xe2\x80\xa2 Later of 90 days after the closing of the transac-\n Expenditures and has posted it to the company website, and its employees have com- tion or 90 days after publication of the Rule\n plied with the policy. \xe2\x80\xa2 90 days after the end of each fiscal year\n Say on Pay TARP recipient has permitted a non-binding shareholder resolution on ex- \xe2\x80\xa2 90 days after the end of each fiscal year\n ecutive compensation (publicly traded TARP recipients only) in accordance\n with applicable SEC regulations.\n Compensation TARP recipient has disclosed whether an executive compensation consul- \xe2\x80\xa2 90 days after the end of each fiscal year\n Consultants tant was hired and a description of services provided.\n Perquisite TARP recipient has disclosed the amount, nature, and justification for \xe2\x80\xa2 90 days after the end of each fiscal year\n offering any perquisites greater than $25,000 to each of its employees\n subject to bonus limitations (as identified in Table 2.37).\n Clawback TARP recipient has required that all bonus payments are subject to re- \xe2\x80\xa2 90 days after the end of each fiscal year\n covery if the payments were based on materially inaccurate performance\n metrics.\n\n Source: Treasury, \xe2\x80\x9cTARP Standards for Compensation and Corporate Governance,\xe2\x80\x9d 6/10/2009, www.financialstability.gov, accessed 6/10/2009.\n\x0c TARP IN CONTEXT:\nSECT ION 3 FINANCIAL INSTITUTION\n SUPPORT AND POLICIES\n OUTSIDE OF TARP\n\x0c128 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 129\n\n\n\n\nThis section provides some background on the Federal agencies and financial res-\ncue initiatives that have been implemented as part of the Government\xe2\x80\x99s response to\nthe financial crisis. TARP programs must work in concert with these other agencies\nand their initiatives \xe2\x80\x94 either as a direct partner, as in the case of the Term Asset-\nBacked Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d), or as a potentially overlapping business\nalternative for banks requiring funds. Though a huge sum in its own right, the\n$700 billion in TARP funding represents only a portion of a much larger sum \xe2\x80\x94\nestimated to be as large as $23.7 trillion \xe2\x80\x94 of potential Federal Government\nsupport to the financial system. This support is spread among numerous Federal\nagencies, with the Federal Reserve System (\xe2\x80\x9cFederal Reserve\xe2\x80\x9d), providing one of\nthe largest support packages ($6.8 trillion if each initiative were implemented to its\nmaximum authorized level).\n In an effort to provide context to the environment within which the TARP\nprograms are operating, this section provides an overview of the Federal Reserve\nSystem and a description of the multiple financial-crisis-response programs\nthroughout the Federal Government. This section is intended to provide perspec-\ntive for understanding TARP. SIGTARP has no oversight responsibility for any of\nthe programs set forth in this section that do not involve TARP funds. Additionally,\nthroughout this section, SIGTARP uses the term \xe2\x80\x9cpotential support\xe2\x80\x9d to represent\nthe maximum amount of support a Government agency has specified that it could\nprovide under a specific program. In those cases in which there are no specified\nmaximum thresholds, SIGTARP has used the high-water mark of the program\n(the maximum amount actually expended or guaranteed) through June 30, 2009.\nFurther, some of the programs have been discontinued or even, in some cases, not\nutilized. As such, these total potential support figures do not represent a current\ntotal, but the sum total of all support programs announced since the onset of the\nfinancial crisis in 2007.\n\x0c130 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TARP TUTORIAL: THE FEDERAL RESERVE SYSTEM\n\n The Federal Reserve System is the central bank of the United States and is structured as\n a collection of quasi-governmental financial entities. It comprises a Board of Governors,\n 12 Federal Reserve District Banks, a Federal Open Market Committee, and a number of\n advisory councils. Established by the Federal Reserve Act of 1913, the Federal Reserve\n oversees monetary policy, supervises and regulates various banking institutions, contains\n systemic risk in financial markets, and provides banking services to depository institu-\n tions. For an outline of the Federal Reserve System organization, see Figure 3.1.\n FIGURE 3.1\n\n THE FEDERAL RESERVE SYSTEM ORGANIZATION\n\n BOARD OF GOVERNORS\n 7 members --- appointed by the President and confirmed\n by the Senate (currently two vacancies)\n\n Members Advises\n\n Broad oversight\n FEDERAL OPEN MARKET and appointment of 3 ADVISORY COUNCILS\n COMMITTEE (\xe2\x80\x9cFOMC\xe2\x80\x9d) 3 board members to\n each Federal Reserve\n 7 members from the Board of Federal Advisory Council\n Bank board of\n Governors\n directors\n Consumer Advisory Council\n 5 (out of 12) Federal Reserve\n Bank presidents Thrift Institutions Advisory\n Council\n President of FRBNY is a\n permanent member\n\n\n\n Appoints Appoints\n\n\n FEDERAL RESERVE BANKS\n 12 banks and 25 branches\n\n Each bank has a 9-member\n board of directors\n\n\n\n Contribute capital & elect 6 board members\n to each Federal Reserve Bank\n board of directors\n\n\n MEMBER BANKS\n Approximately 3,000 members\n (38% of all commercial banks)\n\n Each bank holds stock in its\n regional Federal Reserve Bank\n (3% of the member bank\xe2\x80\x99s\n capital)\n\n Source: Federal Reserve, \xe2\x80\x9cFED 101,\xe2\x80\x9d no date,\n www.federalreserveeducation.org/FED101%5HTML/structure/, accessed 7/8/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 131\n\n\n\n\nThe Federal Reserve System: Structure and Key Individuals\nThe Chairman and Board of Governors\nThe Board of Governors of the Federal Reserve is a group of seven Members\n(\xe2\x80\x9cGovernors\xe2\x80\x9d), nominated by the President and confirmed by the Senate. The Banking\nAct of 1935 states that the Board of Governors should have a \xe2\x80\x9cfair representation of the\nfinancial, agricultural, industrial, and commercial interests and geographical divisions of the\ncountry,\xe2\x80\x9d and no two Governors may come from the same Federal Reserve District.313 Each\nGovernor\xe2\x80\x99s term is 14 years, and those who have served full terms cannot be reappointed;\nhowever, those appointed to complete an unexpired term may be appointed for the follow-\ning full term. Appointments are staggered so that one term expires on January 31 of each\neven-numbered year.314 Currently, there are two vacant seats on the Board of Governors.\n The Chairman of the Board is chosen by the President and must be confirmed by the\nSenate. The Chairman serves terms of four years and may be reappointed as Chairman\nuntil his or her terms as a Governor expire. Currently, the Chairman of the Board of\nGovernors is Ben Bernanke. Sworn in as Chairman on February 1, 2006, his term on the\nBoard of Governors will expire in 2020,315 although his term as Chairman will expire on\nJanuary 31, 2010, unless reappointed.\n\nFederal Open Market Committee\nThe Federal Open Market Committee (\xe2\x80\x9cFOMC\xe2\x80\x9d) is the other primary policymaking body of\nthe Federal Reserve System, responsible for Open Market Operations (\xe2\x80\x9cOMOs\xe2\x80\x9d). These\nOMOs are the principal tool of monetary policy, comprising purchases and sales of U.S.\nGovernment and Federal agency securities that are used to affect bank reserves and,\nin turn, the cost and availability of money and credit in the U.S. economy. The FOMC\nspecifies a short-term objective for the OMOs. These policy targets change from time to\ntime, but the current objective of the FOMC is to stabilize the federal funds rate around a\ntarget interest rate. The FOMC instructs the Federal Reserve Bank of New York (\xe2\x80\x9cFRBNY\xe2\x80\x9d)\nto engage in OMOs as appropriate to keep the federal funds rate near the target. Such Federal Funds Rate: The rate at\nactivity either contracts or expands the supply of bank reserves until the federal funds rate which depository institutions lend to\n each other overnight to fill immediate\nnears the target, directly affecting interest rates. Of the Federal Reserve banks, FRBNY\n shortages.\nhas a preeminent role in executing monetary policy, particularly in its role as the executing\ninstitution of FOMC directives.\n Traditionally, monetary policy has been conducted by changing the target federal funds\nrate. Lower interest rates tend to stimulate the economy, while higher interest rates tend\nto temper growth and inflationary pressures.\n\x0c132 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TARP TUTORIAL: THE FEDERAL RESERVE SYSTEM\n TABLE 3.1\n\n 2009 FOMC MEMBERS\n Member Title(s)\n Ben S. Bernanke Chairman, Board of Governors\n Vice Chairman, Board of Governors; President, Federal\n William C. Dudley\n Reserve Bank of New York\n Elizabeth A. Duke Member, Board of Governors\n Charles L. Evans President, Federal Reserve Bank of Chicago\n Donald L. Kohn Member, Board of Governors\n Jeffrey M. Lacker President, Federal Reserve Bank of Richmond\n Dennis P. Lockhart President, Federal Reserve Bank of Atlanta\n Daniel K Tarullo Member, Board of Governors\n Kevin M. Warsh Member, Board of Governors\n Janet L. Yellen President, Federal Reserve Bank of San Francisco\n Note: As of 6/30/2009 two board member positions are currently vacant.\n\n Source: Board of Governors of the Federal Reserve System, www.federalreserve.gov/monetarypolicy/fomc.htm, accessed\n 6/29/2009.\n\n\n\n\n The FOMC comprises 12 voting members: the 7 members of the Board of Governors,\n the president of FRBNY, and 4 of the other 11 Federal Reserve Bank presidents, who\n serve one-year terms on a rotating basis. Table 3.1 details the current members of the\n FOMC.\n FOMC meetings are held at regular intervals of five to eight weeks. The staff prepares\n policy papers for discussion and committee members discuss options in detail. Decisions\n may only be implemented, however, after reaching consensus. FOMC policy directives are\n then referred to FRBNY for execution.\n\n Federal Reserve Banks\n There are 12 Federal Reserve Banks, one in every Federal Reserve District, each of which\n is headed by a President. For a map detailing the 12 Federal districts and the location of\n the Federal Reserve Banks, see Figure 3.2. For a listing of the current Presidents of the\n Federal Reserve Banks, see Table 3.2.\n The individual Federal Reserve Banks are \xe2\x80\x9cowned\xe2\x80\x9d by the private, commercial banks in\n their districts. This ownership is, however, very different from the private-sector concept\n of stock ownership; the shareholders cannot sell their stock, they cannot vote, and they\n cannot receive dividends.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 133\n\n\n\n\n FIGURE 3.2\n MAP OF FEDERAL RESERVE BANKS AND THEIR DISTRICT BOUNDARIES\n\n\n\n\n 9 Minneapolis\n 1 Boston\n\n 2 New York\n 7 Chicago 3 Philadelphia\n 12 San Francisco\n 4 Cleveland\n 10 Kansas City 8 St. Louis\n 5 Richmond\n\n\n\n\n 6 Atlanta\n 11 Dallas\n\n\n\n\n Note: Alaska and Hawaii are part of the San Francisco District.\n\n Source: Federal Reserve, www.federalreserve.gov/otherfrb.htm, accessed 6/30/2009.\n TABLE 3.2\n\n FEDERAL RESERVE BANKS AND THEIR\n LEADERSHIP\nIndependence of the Federal Reserve System District President\nThe Federal Reserve Board of Governors is an independent agency of the Federal 1st District \xe2\x80\x94 Boston Eric S. Rosengren\nGovernment. The individual Federal Reserve banks are not agencies of the Federal 2nd District \xe2\x80\x94 New York William C. Dudley\nGovernment. 316\n Congressional oversight requires that the Chairman of the Board of 3rd District \xe2\x80\x94 Philadelphia Charles I. Plosser\n\nGovernors of the Federal Reserve appear twice before Congress each year to testify on 4th District \xe2\x80\x94 Cleveland Sandra Pianalto\n 5th District \xe2\x80\x94 Richmond Jeffrey M. Lacker\nthe subject of the Federal Reserve\xe2\x80\x99s monetary policy. Congress may also enact changes\n 6th District \xe2\x80\x94 Atlanta Dennis P. Lockhart\nin the Federal Reserve Act to affect long-term Federal Reserve policies and priorities. The\n 7th District \xe2\x80\x94 Chicago Charles L. Evans\nFederal Reserve is a hybrid entity with characteristics of both public and private organiza-\n 8th District \xe2\x80\x94 St. Louis James B. Bullard\ntions. Its independence is an important feature, designed to protect the monetary base 9th District \xe2\x80\x94 Minneapolis Gary H. Stern\nand the financial system oversight from \xe2\x80\x9cpoliticization.\xe2\x80\x9d 10th District \xe2\x80\x94 Kansas City Thomas M. Hoenig\n 11th District \xe2\x80\x94 Dallas Richard W. Fisher\nTaxpayer Exposure to the Federal Reserve\n 12th District \xe2\x80\x94 San Francisco Janet L. Yellen\nAs the Federal Reserve has been providing liquidity to financial institutions during the\n Source: Federal Reserve, \xe2\x80\x9cFederal Reserve Presidents,\xe2\x80\x9d www.federal-\ncurrent crisis, it has increased its exposure to potential for losses, such as if the value of reserve.gov, accessed 6/30/2009.\n\x0c134 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n the collateral posted for non-recourse loans were to fall below the loan amount. Although\n taxpayers are not directly liable to make up any losses of the Federal Reserve, in practice,\n the American public is exposed in many ways to the effects of Federal Reserve actions.\n To a certain extent, losses can be absorbed by the Federal Reserve in the course of\n its ongoing business. The Federal Reserve derives revenues from interest on outstanding\n loans to banks and from fees for services. In 2008, the Federal Reserve had a surplus of\n $35 billion, which it remitted to Treasury.317 If Federal Reserve losses exceeded a certain\n level \xe2\x80\x94 for example, the amount of the Federal Reserve\xe2\x80\x99s annual revenues \xe2\x80\x94 further\n funds would be required to meet those losses.\n As a central bank, however, the Federal Reserve has other options that are not open\n to the typical private-sector business. Losses up to a point can be covered by such means\n as assessments on member banks, increases in interest rates on Federal Reserve loans,\n or fee increases. These efforts would indirectly affect taxpayers, however, because the\n banks could increase consumer fees or interest rates to compensate for the Federal\n Reserve assessments.\n A major financial shortfall at the Federal Reserve could lead to either an appropriation\n by Congress of taxpayer funds for a bailout or an expansion of the money supply (\xe2\x80\x9crunning\n the printing press\xe2\x80\x9d) to cover Federal Reserve losses, which could lead to inflation.\n\n\n The Federal Reserve\xe2\x80\x99s Role in Addressing the Current\n Financial Crisis\n In the current financial crisis, the Federal Reserve has initiated a number of programs\n to provide liquidity to the financial system, including engaging in large-scale asset pur-\n chases, which has resulted, since January 2007, in a $1.2 trillion expansion of its balance\n sheet and a number of regulatory changes intended to reduce stress on the financial\n system.318 The Federal Reserve has also created new standby credit facilities and loan\n guarantees, and has engaged in \xe2\x80\x9cquantitative easing\xe2\x80\x9d (lowering interest rates to provide\n banks with additional profits through larger spreads). The role of the Federal Reserve in\n the Government\xe2\x80\x99s response to the financial crisis is covered in more detail in the \xe2\x80\x9cTARP in\n Context: Other Government Programs To Assist the Financial Sector\xe2\x80\x9d discussion following\n this section of the report.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 135\n\n\n\n\nOversight and Authority\nThe legal authority to undertake efforts to stabilize the economy was provided by Exact Language of Section 13(3) of\nCongress in the Federal Reserve Act of 1913. A certain level of balance sheet activity the Federal Reserve Act:\n\nwill always be occurring during the Federal Reserve\xe2\x80\x99s normal operations, but the activity 13(3) Discounts for Individuals,\nin 2008 was extraordinary by any measure. Congress receives regular reports from the Partnerships, and Corporations\nFederal Reserve and has occasionally enacted legislation designed to accomplish certain In unusual and exigent circumstances,\n the Board of Governors of the Federal\neconomic and financial policy goals.\n Reserve System, by the affirmative\n Section 13 of the Federal Reserve Act (\xe2\x80\x9cSection 13\xe2\x80\x9d) details the powers of the Federal vote of not less than five members,\nReserve Banks. In 1932, the Emergency Relief and Construction Act added paragraph 3 may authorize any Federal reserve\nto Section 13, opening the Federal Reserve\xe2\x80\x99s discount window to nonbanks \xe2\x80\x9cin unusual bank, during such periods as the\n said board may determine, at rates\nand exigent circumstances.\xe2\x80\x9d319 Section 13(3) of the Federal Reserve Act is an \xe2\x80\x9cemergency\n established in accordance with the\nclause,\xe2\x80\x9d which provides the Federal Reserve with broad powers to take actions necessary provisions of section 14, subdivision\nto protect the U.S. financial system. Portions of Section 13 were used during the Great (d), of this Act, to discount for any in-\nDepression and for almost 20 years thereafter to provide credit from the Federal Reserve dividual, partnership, or corporation,\nto nonbanking businesses. In 1991, Section 13(3) was invoked to provide a $25 billion notes, drafts, and bills of exchange\n when such notes, drafts, and bills of\ndirect loan from the Federal Reserve to the FDIC\xe2\x80\x99s Bank Insurance Fund as a response\n exchange are endorsed or otherwise\nto the Savings and Loan Crisis of the 1980s and 1990s. Section 13(3) was amended secured to the satisfaction of the\nin 1991, allowing the Federal Reserve to lend directly to securities firms during financial Federal Reserve bank: Provided,\nemergencies. Between 1991 and 2008 Section 13(3) was not invoked.320 Since 2008, the that before discounting any such\n note, draft, or bill of exchange for an\nFederal Reserve\xe2\x80\x99s lending under Section 13(3) includes: loans to JPMorgan Chase & Co.\n individual, partnership, or corporation\n(\xe2\x80\x9cJPMorgan\xe2\x80\x9d) to facilitate the acquisition of Bear Stearns Companies Inc. (\xe2\x80\x9cBear Stearns\xe2\x80\x9d); the Federal reserve bank shall obtain\na loan to American International Group, Inc. (\xe2\x80\x9cAIG\xe2\x80\x9d), a diversified financial company, which evidence that such individual, partner-\nis not normally under the Federal Reserve\xe2\x80\x99s discount window authority; and the creation ship, or corporation is unable to\n secure adequate credit accommoda-\nof the TALF. For a complete list of recent, known Section 13(3)-related Federal Reserve\n tions from other banking institutions.\nlending, see Table 3.3. All such discounts for individuals,\n partnerships, or corporations shall be\n subject to such limitations, restric-\n tions, and regulations as the Board\n of Governors of the Federal Reserve\n System may prescribe.\n\n Discount Window: Federal Reserve\n facility that lends short-term money\n directly to eligible institutions.\n\x0c136 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 3.3\n\n RECENT KNOWN AUTHORIZATIONS UNDER SECTION 13(3) ($ BILLIONS)\n Authorized\n Date Program Upper Limit* End Date Comments\n 3/11/2008 TSLF $250.0 2/1/2010 Subsequently modified to include TSLF TOP (Options Program)\n 3/14/2008 Bear Stearns Bridge 12.9 Repaid\n Loan 3/17/2008\n 3/16/2008 PDCF \xe2\x89\xa5147.7 2/1/2010 Covers primary dealers \xe2\x80\x94 in September 2008, extended to include\n broker/dealer subsidiaries of the primary dealers\n 3/16/2008 Maiden Lane LLC 29.8 To facilitate purchase by JPMorgan of Bear Stearns\n (Bear Stearns Acquisi-\n tion Loan)\n 9/16/2008 AIG Revolving Credit 85.0 For: AIG; reduced to $60 billion in November 2008\n Facility\n 9/19/2008 AMLF/Non-depository \xe2\x89\xa5145.9 2/1/2010 13(3) was needed to bring non-depository institutions into program\n Institutions\n 10/7/2008 CPFF 1,800.0 2/1/2010\n 10/8/2008 AIG Securities Lending 37.8 12/12/2008 For: AIG. Paid off and terminated on 12/12/2008\n Program\n 10/21/2008 MMIFF 600.0 10/30/2009 Eligibility expanded in January 2009 \xe2\x80\x94 unused, as of 6/30/2009\n 11/10/2008 Maiden Lane II 22.5 For: AIG\n 11/10/2008 Maiden Lane III 30.0 For: AIG\n 11/23/2008 Residual Financing for 220.4 For Citigroup: \xe2\x80\x9cRing-Fence\xe2\x80\x9d\n Citigroup Designated\n Asset Pool\n 11/24/2008 TALF 1,000.0 12/31/2009 There have been several expansions\n 1/15/2009 a\n Residual Financing for For: Bank of America \xe2\x80\x9cRing-Fence\xe2\x80\x9d\n Bank of America Des-\n ignated Asset Pool b\n 3/2/2009 c AIG Securitization of 8.5d For: AIG, loans secured by life\n Life Insurance Cash insurance cash flows\n Flows (\xe2\x80\x9cSLICF\xe2\x80\x9d)\n Total $4,390.5\n\n Notes: Numbers affected by rounding. In certain occasions, Section 13(3) was invoked multiple times for a single program.\n *Authorized limits do not account for any collateral pledged; \xe2\x80\x9c\xe2\x89\xa5\xe2\x80\x9d reflects programs that did not specify upper limit \xe2\x80\x94 in such cases high-water mark of program is used.\n a\n Based on Citigroup Master Agreement date of 1/15/2009.\n b\n The residual financing arrangement for Bank of America has not been executed as of 6/30/2009.\n c\n Based on press release date of 3/2/2009.\n d\n The authority for this facility was invoked separately from the revolving credit facility for AIG.\n Sources: Federal Reserve Report to Congress, www.federalreserve.gov, 6/26/2009, accessed 7/1/2009; TSLF\xe2\x80\x93 Congressional Budget Office, \xe2\x80\x9cThe Budget and Economic Outlook: Fiscal Years\n 2009-2019,\xe2\x80\x9d p. 37, www.cbo.gov/doc.cfm?index=9957&type=3, accessed 7/9/2009; PDCF\xe2\x80\x93Technically unlimited potential, although usage peaked on 10/1/2008 at $147.7 billion; St. Louis Federal\n Reserve Bank, \xe2\x80\x9cFactors Affecting Reserve Balances,\xe2\x80\x9d www.research.stlouisfed.org/fred2/categories/32215/downloaddata, accessed 7/9/2009; Bear Stearns Bridge Loan\xe2\x80\x93Initial outlay of 3/14/2008\xe2\x80\x93\n 3/16/2008 repaid on 3/17/2009; Federal Reserve, \xe2\x80\x9cReport Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Bridge Loan to The Bear Stearns Companies Inc. Through\n JPMorgan Chase Bank,\xe2\x80\x9d no date, www.federalreserve.gov/monetarypolicy/files/129bearstearnsbridgeloan.pdf, accessed 6/11/2009; Maiden Lane\xe2\x80\x93 Initial outlay peaked on 7/2/2008 at $29.8 billion;\n St. Louis Federal Reserve Bank, \xe2\x80\x9dFactors Affecting Reserve Balances,\xe2\x80\x9d www.research.stlouisfed.org/fred2/categories/32215/downloaddata, accessed 7/9/2009; AIG Revolving Credit/AIG Securi-\n ties\xe2\x80\x93Prior to restructuring of assistance, Federal Reserve assistance to AIG peaked at $122.5 billion between two programs, an $85 billion credit facility and a $37.5 billion securities lending facility;\n AMLF\xe2\x80\x93Week ending 10/8/2008; St. Louis Federal Reserve, \xe2\x80\x9dFactors Affecting Reserve Balances,\xe2\x80\x9d research.stlouisfed.org/fred2/data/WABCMMF.txt, accessed 7/9/2009; AMLF second source\xe2\x80\x93FDIC,\n Supervisory Insights, Summer 2009, www.fdic.gov/regulations/examinations/supervisory/insights/sisum09/si_sum09.pdf, accessed 7/9/2009, p. 4; MMIFF/SPV\xe2\x80\x93Federal Reserve, \xe2\x80\x9cCredit and Liquidity\n Programs and the Balance Sheet,\xe2\x80\x9d www.federalreserve.gov, accessed 7/1/2009; MMIFF second source \xe2\x80\x94 Congressional Budget Office, \xe2\x80\x9cThe Budget and Economic Outlook: Fiscal Years 2009-2019,\xe2\x80\x9d\n p. 36, www.cbo.gov/doc.cfm?index=9957&type=3, accessed 7/9/2009; MMIFF third source\xe2\x80\x93FDIC, Supervisory Insights, Summer 2009, p. 4, www.fdic.gov/regulations/examinations/supervisory/\n insights/sisum09/si_sum09.pdf, accessed 7/9/2009; CPFF\xe2\x80\x93 FDIC, Supervisory Insights, Summer 2009, p. 4, www.fdic.gov/regulations/examinations/supervisory/insights/sisum09/si_sum09.pdf,, ac-\n cessed 7/9/2009; AGP Credit\xe2\x80\x93Citigroup Master Agreement, 1/15/2009; AGP Credit second source\xe2\x80\x93Federal Reserve, response to SIGTARP draft report, 1/29/2009. Source for invocation date\xe2\x80\x93Federal\n Reserve, \xe2\x80\x9cPeriodic Report Pursuant to Section 129(b) of the Emergency Economic Stabilization Act of 2008: Update on Outstanding Lending Facilities Authorized by the Board Under Section 13(3) of\n the Federal Reserve Act, 6/26/2009, www.federalreserve.gov/monetarypolicy/files/129periodicupdate06262009.pdf, accessed 7/9/2009; Maiden Lane III\xe2\x80\x93Federal Reserve, \xe2\x80\x9cH.4.1 Release \xe2\x80\x93 Factors\n Affecting Reserve Balances,\xe2\x80\x9d 6/26/2009, www.federalreserve.gov, accessed 7/1/2009; Federal Reserve Board, Monetary Report to Congress, Appendix A, 2/24/2009, www.federalreserve.gov/\n monetarypolicy/mpr_20090225_appendixa.htm, accessed 5/14/2009; TALF\xe2\x80\x93\xe2\x80\x9cCredit and Liquidity Programs and the Balance Sheet,\xe2\x80\x9d www.federalreserve.gov, accessed 7/1/2009;Treasury, \xe2\x80\x9cFinancial\n Stability Plan Fact Sheet,\xe2\x80\x9d www.treas.gov, accessed 1/16/2009; Maiden Lane II, Federal Reserve Board, Monetary Report to Congress, Appendix A, 2/24/2009, www.federalreserve.gov/monetary-\n policy/mpr_20090225_appendixa.htm, accessed 5/14/2009; AIG SLICF\xe2\x80\x93Federal Reserve Press Release, \xe2\x80\x9d U.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan,\xe2\x80\x9d\n 3/2/2009, www.federalreserve.gov, accessed 7/1/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 137\n\n\n\n\nTARP IN CONTEXT: OTHER GOVERNMENT\nPROGRAMS TO ASSIST THE FINANCIAL SECTOR\nBy itself, the Troubled Asset Relief Program (\xe2\x80\x9cTARP\xe2\x80\x9d) is a huge program at $700\nbillion. As discussed in SIGTARP\xe2\x80\x99s April Quarterly Report, the total financial\nexposure of TARP and TARP-related programs may reach approximately $3 trillion.\nAlthough large in its own right, TARP is only a part of the combined efforts of the\nFederal Government to address the financial crisis. Approximately 50 initiatives\nor programs have been created by various Federal agencies since 2007 to provide\npotential support totaling more than $23.7 trillion.\n The Federal Reserve has been one of the lead agencies responding to the finan-\ncial crisis \xe2\x80\x94 increasing its balance sheet to more than $2 trillion to implement a\nwide range of programs designed to stimulate liquidity in financial markets, as well\n The Federal Reserve balance sheet\nas several institution-specific interventions.321 The Federal Reserve\xe2\x80\x99s $2 trillion bal-\n represents the assets that the Federal\nance sheet (which grew from approximately $900 billion prior to the financial crisis\n Reserve has acquired as it has put\nto a peak of nearly $2.3 trillion in December 2008),322 however, does not reflect the\n resources into the financial sector. The\ntrue potential amount of support the Federal Reserve has provided to those pro- assets on the Federal Reserve\xe2\x80\x99s bal-\ngrams, which is estimated to be at least $6.8 trillion. This is because many of the ance sheet are the tools it employs to\nprograms involve guarantees that, although not listed on the balance sheet, expose manage liquidity in the economy.\nthe Federal Reserve to significant losses if the assets they are backing deteriorate in\nvalue.\n Other players in the Government\xe2\x80\x99s efforts include the Federal Deposit\nInsurance Corporation (\xe2\x80\x9cFDIC\xe2\x80\x9d), which has contributed more than $2 trillion in\nnew gross potential support. The newly created Federal Housing Finance Agency\n(\xe2\x80\x9cFHFA\xe2\x80\x9d) \xe2\x80\x94 under whose auspices fall the Government-Sponsored Enterprises\n(\xe2\x80\x9cGSEs\xe2\x80\x9d) such as Fannie Mae, Freddie Mac, and Federal Home Loan Banks\n(\xe2\x80\x9cFHLBs\xe2\x80\x9d) \xe2\x80\x94 has effectively provided more than $6 trillion in gross potential\nsupport. Meanwhile, Treasury itself has programs outside of those authorized\nunder the Emergency Economic Stabilization Act (\xe2\x80\x9cEESA\xe2\x80\x9d), and has supplied\npotential support beyond TARP of approximately $4.4 trillion. An overview of the\nGovernment\xe2\x80\x99s new potential support relating to the financial crisis is listed by\nFederal agency in Table 3.4.\n Of this $23.7 trillion in assistance to financial institutions, participants in\nnon-TARP programs are not subject to TARP\xe2\x80\x99s restrictions and conditions, such as\nexecutive compensation, nor do they necessarily require specific Congressional ap-\nproval. Although SIGTARP\xe2\x80\x99s oversight responsibility is for the operations of TARP\nand directly related programs (such as TALF and the Public-Private Investment\nProgram (\xe2\x80\x9cPPIP\xe2\x80\x9d)), it is necessary to understand the larger context in which\nTARP operates, the linkages between TARP and the trillions of dollars of other\nGovernment initiatives. As noted earlier, SIGTARP has no authority over any of the\nnon-TARP activities of the agencies discussed below.\n\x0c138 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 3.4\n\n INCREMENTAL FINANCIAL SYSTEM SUPPORT, BY FEDERAL AGENCY\n SINCE 2007 ($ TRILLIONS)\n Maximum Total Potential\n Current Balance as of Support\n Balance 6/30/2009 Related to Crisis\n Federal Reserve $1.4 $3.1 $6.8\n FDIC 0.3 0.3 2.3\n Treasury \xe2\x80\x94 TARP (including\n Federal Reserve, FDIC 0.6 0.6 3.0\n components)\n Treasury \xe2\x80\x94 Non-TARP 0.3 0.3 4.4\n Other: FHFA, NCUA, GNMA, FHA, VA 0.3 0.3 7.2\n Total $3.0 $4.7 $23.7\n\n Notes: Numbers affected by rounding. Amounts may include overlapping agency liabilities, \xe2\x80\x9cimplied\xe2\x80\x9d guarantees, and unfunded\n initiatives. Total Potential Support does not account for collateral pledged. See the \xe2\x80\x9cMethodology for Estimating Government Financial\n Exposure\xe2\x80\x9d discussion in this section for details on the methodology of this chart. Other agencies include: FHFA, National Credit Union\n Administration (\xe2\x80\x9cNCUA\xe2\x80\x9d), Government National Mortgage Association (\xe2\x80\x9cGNMA\xe2\x80\x9d), Federal Housing Administration (\xe2\x80\x9cFHA\xe2\x80\x9d), and U.S.\n Department of Veterans Affairs (\xe2\x80\x9cVA\xe2\x80\x9d).\n Source: See respective source notes in the agency-specific tables later in this section.\n\n\n\n\n Methodology for Estimating Government Financial Exposure\n No official financial statements have been prepared for the combined efforts of\n the Federal Government in its response to the financial crisis. The estimates in\n this section are designed to suggest the scale and scope of those efforts and not to\n provide a firm financial statement. These numbers may have some overlap, and\n have not been evaluated to provide an estimate of likely net costs to the taxpayer.\n Available data has been broken down into the following categories:\n\n \xe2\x80\xa2 Current Balance \xe2\x80\x94 the amount that has been expended on bank rescue efforts\n and that is currently outstanding.\n \xe2\x80\xa2 Maximum Balance to Date \xe2\x80\x94 the highest balance a program has reached in\n its history to date. Many programs reached their peak in December 2008 and\n are now declining. Comparing the maximum balance to the current balance\n provides a sense of how far past the high-water mark a program might be. The\n sum for each Federal agency reflects the sum of the individual high-water marks\n for each program under its supervision.\n \xe2\x80\xa2 Total Potential Support \xe2\x80\x94 quantifies the gross, not net, exposure that an agency\n would face should all eligible program applicants request assistance at once to\n the maximum permitted under the program guidelines. Note that many of these\n programs are collateralized or have not been drawn down to their full authorized\n levels, and as such, the actual potential for losses is likely to be lower. In certain\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 139\n\n\n\n\n cases, programs included have been canceled or repaid; however, they are still\n included in this table (SIGTARP\xe2\x80\x99s intent is to represent all support programs\n created).\n\n The program listings in this section are not comprehensive \xe2\x80\x94 there are dozens\nof smaller programs, regulations, statutes, and procedures of individual agen-\ncies that are not captured in the following tables. Also, there is potential for some\ndouble-counting of exposure in instances where different Federal agencies provide\nguarantees for the same financial institutions (such as the overlapping exposure by\nTreasury, the Federal Reserve, and FHFA to the GSEs).\n\nOther Federal Responses: Beyond TARP\nThe Federal Government has undertaken dozens of initiatives, some of them\ninvolving specific programs with specific spending limits and others without any\nspecific, quantifiable measurement appearing in the books of the responsible\nagency. Examples of the latter include the increase in deposit insurance instituted\nby FDIC, or the action by the Federal Reserve to pay interest on reserves held by\nbanks at the Reserve Banks.323 To the extent possible, SIGTARP has quantified\nthe total exposure of these programs using publicly available information from the\nFederal agencies responsible for the programs or initiatives. Following each table\nare brief descriptions of key programs implemented by the agencies. The descrip-\ntions reflect the agencies\xe2\x80\x99 own descriptions of their programs. Note that the TARP-\nrelated programs, such as TALF and PPIP, are not included as they are addressed\nin other sections of this report.\n\nFederal Reserve System\nAs the central bank of the United States, the Federal Reserve has exceptional\nresponsibilities and powers to deal with systemic financial crises. See the previous\ndiscussion \xe2\x80\x9cTARP Tutorial: The Federal Reserve System\xe2\x80\x9d in this report. The Federal\nReserve has created 18 financial support programs outside of its TARP-related\nprograms, as listed in Table 3.5.\n\x0c140 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 3.5\n\n NON-TARP GOVERNMENT SUPPORT OF THE FINANCIAL SECTOR \xe2\x80\x94 FEDERAL RESERVE SYSTEM ($ BILLIONS)\n\n Maximum\n Balance Total Potential\n Current as of Support Related\n Program Coverage Balance 6/30/2009 to Crisis*\n Term Auction Facility (\xe2\x80\x9cTAF\xe2\x80\x9d) Banks $282.8 $493.1a $900.0b\n Primary Credit (\xe2\x80\x9cDiscount Program Modification\xe2\x80\x9d) Banks 39.1 111.9c \xe2\x89\xa5 111.9\n Tri-Party Repurchase Agreements Banks \xe2\x80\x94 124.6 d\n \xe2\x89\xa5 124.6\n\n Commercial Paper Funding Facility (\xe2\x80\x9cCPFF\xe2\x80\x9d)*** Corporate Debt Markets 128.1 349.9e 1,800.0f\n\n Money Market Investor Funding Facility (\xe2\x80\x9cMMIFF\xe2\x80\x9d) Money Market Mutual \xe2\x80\x94 \xe2\x80\x94 600.0g\n Funds\n Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Money Market Mutual 16.7 145.9h \xe2\x89\xa5 145.9\n Facility (\xe2\x80\x9cAMLF\xe2\x80\x9d)*** Funds\n Term Securities Lending Facility (\xe2\x80\x9cTSLF\xe2\x80\x9d), TSLF Options Program Primary Dealers 8.0 233.6i 250.0j\n (\xe2\x80\x9cTOP\xe2\x80\x9d)**\n Expansion of System Open Market Account (\xe2\x80\x9cSOMA\xe2\x80\x9d) Securities Primary Dealers 14.7l 25.9m 32.0n\n Lendingk\n Primary Dealer Credit Facility (\xe2\x80\x9cPDCF\xe2\x80\x9d), credit to other primary Primary Dealers \xe2\x80\x94 147.7o \xe2\x89\xa5 147.7\n dealers***\n Purchase of Direct Obligations of GSEs GSEs 92.1 92.1p 200.0q\n\n Purchase of GSE Guaranteed Mortgage-Backed Securitiesr GSEs 467.1 467.1s 1,250.0t\n\n Foreign Central Bank Currency Liquidity Swaps U.S. Markets 121.6 582.8u 755.0v\n\n Treasuries Purchase Program Private Credit Markets 174.5 174.5w 300.0x\n Credit to AIG Specific Institution 42.6 89.5y 122.8z\n Maiden Lane LLC (Bear Stearns)*** Specific Institution 25.9 29.8aa 29.8\n Maiden Lane II LLC (AIG)*** Specific Institution 16.0 20.1 bb\n 22.5cc\n Maiden Lane III LLC (AIG)*** Specific Institution 20.1 28.1dd 30.0ee\n Other Credit Extensions (JPMorgan, Bear Stearns bridge loan)** Specific Institution \xe2\x80\x94 12.9 ff\n 12.9\n Total $1,449.3 $3,129.5 \xe2\x89\xa5$6,835.1\n\n Notes: Numbers affected by rounding; if only one source is given for \xe2\x80\x9cCurrent Balance\xe2\x80\x9d and \xe2\x80\x9cMaximum Balance,\xe2\x80\x9d it is the same source for both.\n *Total Potential Support does not account for any collateral pledged; \xe2\x80\x9c\xe2\x89\xa5\xe2\x80\x9d reflects programs that did not specify upper limit \xe2\x80\x94 in such cases high-water mark of program is used as total potential support.\n **Denotes program that has been canceled or completed\n ***Current and maximum balances for CPFF, AMLF, PDCF, and Maiden Lane LLCs are derived from value of collateral held, which is approximately the loan amounts outstanding.\n\n\n (Sources on next page)\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 141\n\n\n\n\nSources:\na\n Week ending 3/11/2009: St. Louis Fed, www.research.stlouisfed.org/fred2/series/WTERAUC?rid=20.\nb\n Federal Reserve Press Release, 10/6/2008, www.federalreserve.gov/newsevents/press/monetary/20081006a.htm, accessed 6/8/2009.\nc\n Week ending 10/29/2008: St. Louis Fed, www.research.stlouisfed.org/fred2/series/WPC?rid=20, accessed 6/8/2009.\nd\n Week ending 6/18/2008: St. Louis Fed, www.research.stlouisfed.org/fred2/series/WREPO, accessed 6/30/2009.\ne\n Week ending 1/21/2009: St. Louis Fed, www.research.stlouisfed.org/fred2/data/WCPFF.txt, accessed 6/30/2009.\nf\n FDIC, Supervisory Insights, Summer 2009, p. 4.\ng\n Congressional Budget Office, \xe2\x80\x9cThe Budget and Economic Outlook: Fiscal Years 2009-2019, p. 36; FDIC, Supervisory Insights, Summer 2009, p. 4.\nh\n Week ending 10/8/2008: St. Louis Fed, www.research.stlouisfed.org/fred2/data/WABCMMF.txt; FDIC, Supervisory Insights, Summer 2009, p. 4.\ni\n Week ending 10/1/2008: St. Louis Fed, www.research.stlouisfed.org/fred2/series/WTERFAC?rid=20, accessed 6/30/2009.\nj\n Congressional Budget Office, \xe2\x80\x9cThe Budget and Economic Outlook: Fiscal Years 2009-2019, p. 37.\nk\n Maximum $5 billion per primary dealer; Fed\xe2\x80\x99s primary dealer list shows 16 dealers (www.newyorkfed.org/markets/pridealers_current.html). Limit was increased from $3 billion to $5 billion per dealer in\n 2008 (www.newyorkfed.org/markets/sec_announcements.html), increasing maximum amount to $80 billion from $48 billion.\nl\n Federal Reserve, Statistical Release H.4.1, 6/4/2009, www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9, accessed 6/7/2009.\nm\n Maximum amount is net SOMA securities lending allowed (new maximum minus old maximum). Federal Reserve, Federal Reserve Statistical Release H.4.1, 6/4/2009, www.federalreserve.gov/releases/\n h41/current/h41.htm#h41tab9, accessed 6/8/2009; historical data, www.federalreserve.gov/releases/h41/hist/h41hist1.pdf, accessed 6/11/2009.\nn\n SOMA figures for \xe2\x80\x9ctotal exposure\xe2\x80\x9d are net of pre-existing exposure. To estimate a total exposure of $32 billion, the increased facility of $2 billion per firm was multiplied by the 16 firms in the industry;\n historical data, www.federalreserve.gov/releases/h41/hist/h41hist1.pdf, accessed 6/11/2009.\no\n Technically unlimited potential; though usage peaked on 10/1/2008 at $147.7 billion. St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata, accessed 6/30/2009.\np\n Week ending 6/3/2009: St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata; additional data on total of purchases of GSE debt from 9/19/2009 through 5/14/2009,\n source: Federal Reserve Bank of New York Agency OMO program, www.newyorkfed.org/markets/pomo/display/index.cfm, accessed 6/28/2009.\nq\n Federal Reserve Board Press Release, 3/18/2009, federalreserve.gov/newsevents/press/monetary/20090318a.htm, accessed 5/15/2009.\nr\n Federal Reserve Bank of New York, \xe2\x80\x9cFAQ\xe2\x80\x99s: MBS Purchase Program,\xe2\x80\x9d www.newyorkfed.org/markets/mbs_faq.html, accessed 5/18/2009.\ns\n Week ending 5/27/2009: St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata; additional data on total of gross purchases of Agency MBS, through 5/13/2009, source:\n Federal Reserve Bank of New York, Agency Mortgage-Backed Securities Purchase Program, www.newyorkfed.org/markets/mbs/, accessed 6/28/2009.\nt\n Federal Reserve Board Press Release, 3/18/2009, federalreserve.gov/newsevents/press/monetary/20090318a.htm, accessed 5/15/2009.\nu\n Week ending 12/10/2008: St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata, accessed 7/8/2009.\nv\n Federal Reserve Press Releases: 10/29/2008, www.federalreserve.gov/newsevents/press/monetary/20081029b.htm, accessed 6/9/2009; 10/28/2008, www.federalreserve.gov/newsevents/press/\n monetary/20081028a.htm, accessed 6/9/2009; 10/28/2008, www.federalreserve.gov/newsevents/press/monetary/20081028a.htm, accessed 6/9/2009; 9/29/2008, www.federalreserve.gov/\n newsevents/press/monetary/20080929a.htm, accessed 6/9/2009.\nw\n Data derived from taking the increase of U.S. Treasury securities held from 3/18/2009 (date of program announcement) to 6/3/2009 to data source: St. Louis Fed, www.research.stlouisfed.org/fred2/\n categories/32215/downloaddata, accessed 6/11/2009.\nx\n Federal Reserve, FOMC statement, 3/18/2009, www.federalreserve.gov/newsevents/press/monetary/20090318a.htm, accessed 6/8/2009.\ny\n Week ending 10/29/2008: St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata, accessed 6/26/2009.\nz\n Prior to restructuring of assistance, Fed assistance to AIG peaked at $122.8 billion between two programs \xe2\x80\x94 an $85 billion credit facility and a $37.8 billion securities lending facility. Federal Reserve\n Board, Monetary Report to Congress, Appendix A, 2/24/2009, www.federalreserve.gov/monetarypolicy/mpr_20090225_appendixa.htm, accessed 5/14/2009.\naa\n Initial outlay peaked on 7/2/2008 at $29.8 billion. St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata, accessed 6/26/2009.\nbb\n Week ending 1/7/2009: St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata, accessed 6/26/2009.\ncc\n Federal Reserve Board, Monetary Report to Congress, Appendix A, 2/24/2009, www.federalreserve.gov/monetarypolicy/mpr_20090225_appendixa.htm, accessed 5/14/2009.\ndd\n Week ending 12/24/2008: St. Louis Fed, www.research.stlouisfed.org/fred2/categories/32215/downloaddata.\nee\n Federal Reserve Board, Monetary Report to Congress, Appendix A, 2/24/2009, www.federalreserve.gov/monetarypolicy/mpr_20090225_appendixa.htm, accessed 5/14/2009.\nff\n Initial outlay of March 14\xe2\x80\x9316, 2008; repaid on March 17, 2009; source: Federal Reserve, Report Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Bridge Loan to The Bear\n Stearns Companies Inc. Through JPMorgan Chase Bank, N.A., www.federalreserve.gov/monetarypolicy/files/129bearstearnsbridgeloan.pdf, accessed 6/11/2009.\n\n\n\n\nTerm Auction Facility (\xe2\x80\x9cTAF\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: Approximately\n$900 Billion\nThe Term Auction Facility (\xe2\x80\x9cTAF\xe2\x80\x9d) allows banks to borrow funds simply by putting\nup collateral. It is an alternative to the Federal Reserve\xe2\x80\x99s discount window, which is\nthe means by which banks have historically raised funds in an emergency. Because\nof its association with emergencies, borrowing at the discount window in the past\nhas carried a certain stigma. TAF, by contrast, is an ordinary lending program, and\nits use is perceived less as a sign of weakness.\n TAF was created in December 2007 by the Federal Reserve Board of Governors\nto meet the short-term liquidity needs of banks. The Federal Reserve claimed that\n\xe2\x80\x9cby increasing the access of depository institutions to funding, the TAF has sup-\nported the ability of such institutions to meet the credit needs of their customers.\xe2\x80\x9d\n Technically, the funds are borrowed by banks in an auction that sets the inter-\nest rate. The bank must be in \xe2\x80\x9cgenerally sound financial condition,\xe2\x80\x9d and it must\npost collateral \xe2\x80\x94 such as high-quality notes \xe2\x80\x94 that are subject to certain haircuts.\nThus, a bank may borrow, for example, $0.92 after posting $1.00 worth of securi-\nties. The minimum interest rate a bank may bid is the interest rate paid by the\nFederal Reserve on excess reserve balances. Typically, the Federal Reserve conducts\n\x0c142 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n FIGURE 3.3\n regular auctions of 28- and 84-day funds for $150 billion at a time.324 Banks\n BANKS HAVE BORROWED FROM may not necessarily have been using the funds they have borrowed from TAF to\n THE FEDERAL RESERVE \xe2\x80\x94 AND\n make new loans to consumers. According to the Federal Reserve\xe2\x80\x99s weekly statisti-\n INCREASED THEIR RESERVES AT\n THE SAME TIME cal releases (Table Z.1 - Flow of Funds Accounts), the banks have, in aggregate,\n $ Billions been adding the cash to their reserves at the Federal Reserve. See Figure 3.3 for a\n comparison of bank borrowings from the Federal Reserve (which are predominantly\n$1000 through TAF), versus the cash that the banks have placed as reserves at the Federal\n Reserve.\n 800\n\n\n 600 Primary Credit Program (the \xe2\x80\x9cDiscount Program Modification\xe2\x80\x9d) \xe2\x80\x94 Total Potential\n Support: At Least $111.9 Billion\n 400 Primary credit loans are taken by banks at the Federal Reserve\xe2\x80\x99s discount window\n when they require short-term funds to meet the needs of their customers and credi-\n 200\n tors. Normally, the Federal Reserve lends at a fixed rate and the bank must post\n 0 suitable collateral, subject to a haircut. In August 2007, the Federal Reserve set the\n Q4 Q1 Q2 Q3 Q4 Q1\n term at 30 days and approved a 50-basis-point reduction in the primary credit rate\n 2007 2008 2009\n to narrow the spread to 50 basis points, or 0.5%, in response to the liquidity crisis\n Federal Reserve Borrowing\n Bank Reserves in the banking system. Accessibility was broadened in March 2008, as the interest\n rate was lowered to 25 basis points over the FOMC target federal funds rate, and\n Source: Federal Reserve Board, Statistical Release Z.1, \xe2\x80\x9cFlow of\n Funds Accounts of the United States,\xe2\x80\x9d Table L.108, 6/11/2009.\n the term has been lengthened from 30 to 90 days, renewable by the borrower.325\n\n Tri-Party Repurchase Agreements (\xe2\x80\x9cRepo\xe2\x80\x99s\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support:\n At Least $124.6 Billion\n According to the Federal Reserve, \xe2\x80\x9crepurchase agreements reflect some of the\n Federal Reserve\xe2\x80\x99s temporary OMOs. Repurchase agreements are transactions in\n which securities are purchased from a primary dealer under an agreement to sell\n them back to the dealer on a specified date in the future. The difference between\n the purchase price and the repurchase price reflects an interest payment. The\n Federal Reserve may enter into repurchase agreements for up to 65 business days,\n but the typical maturity is between one and 14 days. Federal Reserve repurchase\n agreements supply reserve balances to the banking system for the length of the\n agreement. The Federal Reserve employs a naming convention for these transac-\n tions based on the perspective of the primary dealers: the dealers receive cash while\n the Federal Reserve receives the collateral.\xe2\x80\x9d326 In an effort to mitigate problems in\n certain Repo markets, on September 14, 2008, the Federal Reserve Board an-\n nounced that it would provide a \xe2\x80\x9ctemporary exception to the limitations in section\n 23A of the Federal Reserve Act\xe2\x80\x9d (which limits a bank\xe2\x80\x99s credit exposure to its affili-\n ates).327 This exception \xe2\x80\x9callows all insured depository institutions to provide liquid-\n ity to their affiliates for assets typically funded in the tri-party repo market.\xe2\x80\x9d328\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 143\n\n\n\n\nCommercial Paper Funding Facility (\xe2\x80\x9cCPFF\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support:\n$1.8 Trillion\nThe Commercial Paper Funding Facility (\xe2\x80\x9cCPFF\xe2\x80\x9d) was created in October 2008\nto provide an emergency source of funds (in the Federal Reserve\xe2\x80\x99s terms, a \xe2\x80\x9cliquid-\nity backstop\xe2\x80\x9d)329 to U.S. corporations that borrow short-term funds by issuing\nCommercial Paper (\xe2\x80\x9cCP\xe2\x80\x9d). CP is a short-term debt security used by corporations\nto raise funds in what has historically been a liquid market. This market ceased to\nfunction well in the fall of 2008, and the CPFF has played a role in assuring issuers\nand investors in CP that they have a \xe2\x80\x9cbuyer of last resort.\xe2\x80\x9d The CPFF, according\nto the Federal Reserve Board\xe2\x80\x99s February 24, 2009, Monetary Report to Congress,\n\xe2\x80\x9cis intended to improve liquidity in short-term funding markets and thereby\nincrease the availability of credit for businesses and households.\xe2\x80\x9d330 Under CPFF,\nthe Federal Reserve Bank of New York (\xe2\x80\x9cFRBNY\xe2\x80\x9d) is committed to lending funds\nas needed to a special purpose vehicle (\xe2\x80\x9cSPV\xe2\x80\x9d) that buys eligible CP from eligible\nissuers. Eligible CP is U.S.-dollar-denominated CP or asset-backed CP rated at\nleast A-1/P-1/F1 (these are the top ratings of the different rating agencies). Eligible\nissuers are U.S. corporations, including those with a foreign parent company. For\nany given issuer, the SPV is limited to the maximum amount of CP that issuer had\noutstanding between January 1 and August 31, 2008. Issuers must pay a fee to\nFRBNY of 0.1% of the maximum amount of its CP the SPV could own. The CPFF\nis scheduled to expire on February 1, 2010.331\n\nMoney Market Investor Funding Facility (\xe2\x80\x9cMMIFF\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support:\n$600 Billion\nMoney market funds are large investment funds that buy high-quality, short-term\ndebt instruments such as Treasury securities and high-quality bank and corporate\nnotes. Investors in money market funds want absolute safety for their principal and\nfast access to funds. In turn, banks and other financial intermediaries depend on\nthe money market as a source of funds for their business and household customers.\nIn 2008, this market experienced the same liquidity problems as other markets \xe2\x80\x94\nthat is, investors could not find buyers for securities they were seeking to sell when\nneeded.\n To meet this liquidity need, the Federal Reserve created the Money Market\nInvestor Funding Facility (\xe2\x80\x9cMMIFF\xe2\x80\x9d) on October 21, 2008. According to the\nFederal Reserve Board\xe2\x80\x99s Monetary Report to Congress, \xe2\x80\x9cthe Federal Reserve Bank\nof New York will provide senior secured funding to a series of SPVs to facilitate an\nindustry-supported private-sector initiative to finance the purchase of eligible assets\nfrom eligible investors. Eligible assets include U.S. dollar-denominated certificates\nof deposit and commercial paper issued by highly rated financial institutions and\nhaving remaining maturities of 90 days or less.\xe2\x80\x9d332 The SPVs for the MMIFF are\nsimilar to the SPV for CPFF in that they purchase eligible money market paper\n\x0c144 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n using funds from MMIFF and asset-backed CP. FRBNY is committed to lending the\n SPVs 90% of the purchase price of eligible assets; sellers of assets to the SPV will\n receive that much in cash and the remaining 10% in asset-backed securities from the\n SPV.333 The MMIFF has not yet funded any purchases of money market instruments.\n Even without having advanced funds to the market, the program may be considered\n by the market to be working merely by its existence; investors are given the comfort\n that if they need it, it is available. The MMIFF SPVs are authorized through\n October 30, 2009.334\n\n Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility\n (\xe2\x80\x9cAMLF\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: At Least $145.9 Billion\n The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility\n (\xe2\x80\x9cAMLF\xe2\x80\x9d) is designed to assist money market funds that hold asset-backed commer-\n cial paper (\xe2\x80\x9cABCP\xe2\x80\x9d). Through the facility, the Federal Reserve provides non-recourse\n loans at the primary credit rate to U.S. depository institutions and bank holding\n companies to finance their purchases of high-quality ABCP from money market\n mutual funds. According to the Federal Reserve, AMLF is intended \xe2\x80\x9cto assist money\n funds that hold such paper in meeting demands for redemptions by investors and\n to foster liquidity in the ABCP markets and broader money markets.\xe2\x80\x9d335 The AMLF\n was initially authorized on September 19, 2008, and although originally scheduled to\n terminate in January 2009, has been subsequently extended by the Federal Reserve\n Board to February 1, 2010.336\n\n Term Securities Lending Facility (\xe2\x80\x9cTSLF\xe2\x80\x9d), and Term Securities Lending Facility\n Options Program (\xe2\x80\x9cTOP\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: $250 Billion\n In the securities markets, primary dealers are a group of securities broker-dealers who\n specialize in Treasury and Federal agency debt, and who have the right to trade di-\n rectly with the Federal Reserve System. They also participate directly in U.S. Treasury\n auctions. They are an important conduit for financial interactions between the\n Federal Government and the private markets. In early 2008, this dealer system was\n under increasing liquidity pressure, which the Federal Reserve addressed on March\n 11, 2008, with the establishment of a Term Securities Lending Facility (\xe2\x80\x9cTSLF\xe2\x80\x9d).\n According to the Federal Reserve Board\xe2\x80\x99s February, 2009 Monetary Report to\n Congress, \xe2\x80\x9cUnder the TSLF, the Federal Reserve lends up to $200 billion of Treasury\n securities to primary dealers for a term of 28 days (rather than overnight, as in the\n regular securities lending program); the lending is secured by a pledge of other securi-\n ties.\xe2\x80\x9d337 The other securities that must be posted as collateral were broadened from\n the traditional eligible assets \xe2\x80\x94 Treasury and Federal agency securities, and AAA-\n rated private-label residential mortgage-backed securities (\xe2\x80\x9cRMBS\xe2\x80\x9d) \xe2\x80\x94 to include all\n investment-grade debt securities. TSLF makes securities available in weekly auctions.\n The program is scheduled to end on February 1, 2010.338\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 145\n\n\n\n\n An extension of the TSLF is the TSLF Options Program (\xe2\x80\x9cTOP\xe2\x80\x9d), described by\nFRBNY as a program intended to \xe2\x80\x9cenhance the effectiveness of TSLF by offer-\ning added liquidity over periods of heightened collateral market pressures, such\nas quarter-end dates.\xe2\x80\x9d339 The program \xe2\x80\x9coffers options on a short-term fixed rate\nof [TSLF] bond-for-bond loan of general Treasury collateral against a pledge of\neligible collateral.\xe2\x80\x9d340 FRBNY\xe2\x80\x99s Open Market Trading Desk will offer a total of\n$50 billion in options for each targeted period.341 As of June 25, 2009, the TOP has\nbeen suspended, although the Federal Reserve states that it is prepared to resume\nTOP auctions \xe2\x80\x9cif warranted by evolving market conditions.\xe2\x80\x9d342\n\nExpansion of System Open Market Account (\xe2\x80\x9cSOMA\xe2\x80\x9d) Securities Lending \xe2\x80\x94 Total\nPotential Support: $32 Billion Increase in Funding\nThe System Open Market Account (\xe2\x80\x9cSOMA\xe2\x80\x9d) was started in 1969, and is man-\naged by FRBNY. The account contains dollar-denominated assets purchased in\nopen market operations,343 and is a \xe2\x80\x9cstore of liquidity in the event an emergency\nneed for liquidity arises.\xe2\x80\x9d344 Borrowing is permitted \xe2\x80\x9cfor the purpose of covering an\nexpected fail to receive on the part of a dealer. In order to prevent lending activity\nfrom affecting reserves, Treasury securities, rather than cash, are posted with the\nFederal Reserve as collateral.\xe2\x80\x9d345 In response to market pressures, the program was\nexpanded on September 23, 2008, to raise the current dealer aggregate limit from\n$3 billion to $4 billion346 and raised again on October 8, 2008, to $5 billion per\ndealer.347\n\nPrimary Dealer Credit Facility (\xe2\x80\x9cPDCF\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: At Least\n$148 Billion\nThe Federal Reserve Board\xe2\x80\x99s February 2009 Monetary Report to Congress states\nthat \xe2\x80\x9cto bolster market liquidity and promote orderly market functioning, on March\n16, 2008, the Federal Reserve Board voted unanimously to authorize the Federal\nReserve Bank of New York to create a lending facility \xe2\x80\x94 the Primary Dealer Credit\nFacility [\xe2\x80\x9cPDCF\xe2\x80\x9d] \xe2\x80\x94 to improve the ability of primary dealers to provide financing\nto participants in securitization markets.\xe2\x80\x9d348 Loans are made to primary dealers,\nagainst which they must post eligible collateral \xe2\x80\x94 the definition of which has been\nexpanded from all investment-grade securities to now include \xe2\x80\x9call collateral eligible\nfor pledge in tri-party funding arrangements through the major clearing banks.\nThe interest rate charged on such credit is the same as the primary credit rate\nat the Federal Reserve Bank of New York.\xe2\x80\x9d349 The first participants in the PDCF\nwere Merrill Lynch, Goldman Sachs, and Morgan Stanley; it was later expanded to\ninclude other primary dealers. The program is scheduled to terminate on\nFebruary 1, 2010.350\n\x0c146 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Purchases of Direct Obligations of GSEs \xe2\x80\x94 Total Potential Support: $200 Billion\n Government-Sponsored Enterprises (\xe2\x80\x9cGSEs\xe2\x80\x9d) are private corporations created by\n Congress to fulfill certain financial policy goals, primarily in the housing finance\n markets. The most prominent of these are Fannie Mae, Freddie Mac, and the\n FHLBs. As Fannie Mae and Freddie Mac in particular encountered difficulty rais-\n ing funds in 2008, their problems affected the housing markets in general, where\n these two agencies alone accounted for more than half of all financing.\n To promote market functioning, the availability of credit, and support for the\n housing and mortgage markets, the Federal Reserve, on September 19, 2008, an-\n nounced that it would commence purchasing debt and other instruments of the\n GSEs though its Open Market Trading Desk; these purchases are made in com-\n petitive auctions through primary dealers.\n On November 25, 2008, the Federal Reserve announced a program to purchase\n up to $100 billion in the GSEs\xe2\x80\x99 direct obligations. Note that GSEs raise funds for\n mortgage lending in two ways \xe2\x80\x94 by direct borrowing or by guaranteeing third-party\n mortgage-backed securities (\xe2\x80\x9cMBS\xe2\x80\x9d). On March 18, 2009, the Federal Reserve\xe2\x80\x99s\n FOMC increased the size of these lines to a total of $200 billion for direct\n obligations.351Although the direct borrowing line has been focused on fixed-rate,\n non-callable, senior benchmark securities of the GSEs, the Federal Reserve has\n stated that it may change the scope of its purchases in the future.\n\n Purchases of GSE-Guaranteed MBS \xe2\x80\x94 Total Potential Support: $1.25 Trillion\n In addition to purchasing the direct obligations of GSEs, the Federal Reserve is\n further supporting the mortgage markets by committing to purchase up to\n $1.25 trillion of MBS that have been guaranteed by the GSEs. This purchase line\n was originally announced on November 25, 2008, with a maximum purchase limit\n of $500 billion, but this amount was raised by $750 billion to $1.25 trillion on\n March 18, 2009.352\n\n Foreign Central Bank Currency Liquidity Swaps \xe2\x80\x94 Total Potential Support:\n $755 Billion\n On December 12, 2007, the FOMC announced that it had authorized dollar\n liquidity swap lines with the European Central Bank and the Swiss National Bank\n in order to \xe2\x80\x9cprovide liquidity in U.S. dollars to overseas markets.\xe2\x80\x9d353 Since then, the\n program has expanded to include additional central banks.\n The Federal Reserve describes the transactions as follows: \xe2\x80\x9cThese swaps involve\n two transactions. When a foreign central bank draws on its swap line with the\n Federal Reserve, the foreign central bank sells a specified amount of its currency\n to the Federal Reserve in exchange for dollars at the prevailing market exchange\n rate. The Federal Reserve holds the foreign currency in an account at the foreign\n central bank. The dollars that the Federal Reserve provides are deposited in an\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 147\n\n\n\n\naccount that the foreign central bank maintains at the Federal Reserve Bank of\nNew York. At the same time, the Federal Reserve and the foreign central bank enter\ninto a binding agreement for a second transaction that obligates the foreign central\nbank to buy back its currency on a specified future date at the same exchange rate.\nThe second transaction unwinds the first. At the conclusion of the second transac-\ntion, the foreign central bank pays interest, at a market-based rate, to the Federal\nReserve.\n \xe2\x80\x9cWhen the foreign central bank lends the dollars it obtained by drawing on\nits swap line to institutions in its jurisdiction, the dollars are transferred from the\nforeign central bank\xe2\x80\x99s account at the Federal Reserve to the account of the bank\nthat the borrowing institution uses to clear its dollar transactions. The foreign cen-\ntral bank remains obligated to return the dollars to the Federal Reserve under the\nterms of the agreement, and the Federal Reserve is not a counterparty to the loan\nextended by the foreign central bank. The foreign central bank bears the credit risk\nassociated with the loans it makes to institutions in its jurisdiction.\xe2\x80\x9d354\n\nTreasuries Purchase Program (\xe2\x80\x9cTPP\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: $300 Billion\nOn March 18, 2009, the FOMC announced that \xe2\x80\x9cto help improve conditions in\nprivate credit markets, the [FOMC] Committee decided to purchase up to $300\nbillion of longer-term Treasury Securities over the next six months.\xe2\x80\x9d355 The Federal\nReserve states that the goal of TPP is \xe2\x80\x9cto provide support to mortgage and hous-\ning markets and to foster improved conditions in financial markets more generally\xe2\x80\x9d\nby cheapening the yields of the longer-term Government securities which are the\nbenchmarks against which the rates of long-term loans, such as mortgages, are\nset.356\n\nCredit to American International Group, Inc. \xe2\x80\x94 Total Potential Support:\n$122.5 Billion\nThe Federal Reserve Board\xe2\x80\x99s Monetary Report to Congress states that \xe2\x80\x9cIn early\nSeptember, the condition of American International Group, Inc. (\xe2\x80\x9cAIG\xe2\x80\x9d), a large,\ncomplex financial institution, deteriorated rapidly. In view of the likely systemic\nimplications and the potential for significant adverse effects on the economy of a\ndisorderly failure of AIG, on September 16, the Federal Reserve Board, with the\nsupport of Treasury, authorized the Federal Reserve Bank of New York to lend up\nto $85 billion to the firm to assist it in meeting its obligations and to facilitate the\norderly sale of some of its businesses. This facility had a 24-month term, with inter-\nest accruing on the outstanding balance at a rate of 3-month Libor plus 850 basis\npoints, and was collateralized by all of the assets of AIG and its primary non-regu-\nlated subsidiaries. On October 8, the Federal Reserve announced an additional pro-\ngram under which it would lend up to $37.8 billion to finance investment-grade,\nfixed-income securities held by AIG. These securities had previously been lent by\n\x0c148 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n AIG\xe2\x80\x99s insurance company subsidiaries to third parties.\xe2\x80\x9d357 This facility was repaid\n in full and terminated on December 12, 2008.358 Subsequently, in November 2008,\n \xe2\x80\x9cTreasury, through TARP, purchased $40 billion of newly issued AIG preferred\n shares under the Systemically Significant Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d) program.\n The $40 billion took some of the pressure off the first Federal Reserve line of\n credit, allowing the Federal Reserve to reduce from $85 billion to $60 billion the\n total amount available under the credit facility.\xe2\x80\x9d359 In addition to reducing the size\n of the line of credit, the Federal Reserve reduced the interest rate on the facility\n and extended the term of the facility from two years to five years.360 On\n March 2, 2009, the Federal Reserve announced authorization for new loans of up\n to an aggregate amount of approximately $8.5 billion to special purpose vehicles\n established by domestic life insurance subsidiaries of AIG that would be repaid by\n the net cash flows from designated blocks of life insurance policies held by the par-\n ent insurance companies.361\n\n Maiden Lane LLC (Bear Stearns) \xe2\x80\x94 Total Potential Support: $29.8 Billion\n In mid-March of 2008, Bear Stearns, a major investment bank and primary dealer,\n was in imminent danger of failure. According to the Federal Reserve Board\xe2\x80\x99s\n February 2009 Monetary Report to Congress, \xe2\x80\x9cA bankruptcy filing would have\n forced the secured creditors and counterparties of Bear Stearns to liquidate un-\n derlying collateral, and given the illiquidity of markets, those creditors and coun-\n terparties might well have sustained substantial losses. If they had responded to\n losses or the unexpected illiquidity of their holdings by pulling back from providing\n secured financing to other firms and by dumping large volumes of illiquid assets\n on the market, a much broader financial crisis likely would have ensued. Thus,\n the Federal Reserve judged that a disorderly failure of Bear Stearns would have\n threatened overall financial stability and would most likely have had significant\n adverse implications for the U.S. economy.\xe2\x80\x9d362 To prevent a complete collapse of\n Bear Stearns, therefore, the Federal Reserve invoked its emergency authorities\n under Section 13(3) of the Federal Reserve Act to authorize a loan of $30 billion,\n secured by $30 billion in Bear Stearns\xe2\x80\x99 assets, to be used by JPMorgan to purchase\n Bear Stearns and to assume the company\xe2\x80\x99s financial obligations. A limited liability\n company, Maiden Lane LLC was formed to facilitate these arrangements, particu-\n larly to hold and manage certain assets. On June 26, 2008, JPMorgan completed\n the acquisition. Maiden Lane LLC purchased approximately $30 billion in Bear\n Stearns assets on that date with approximately $29 billion of funding from the\n Federal Reserve to Maiden Lane LLC and a subordinated loan of approximately $1\n billion from JPMorgan.363 Today, the Federal Reserve is managing the disposition of\n Bear Stearns\xe2\x80\x99 assets.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 149\n\n\n\n\nMaiden Lane II LLC and Maiden Lane III LLC (American International Group, Inc.)\n\xe2\x80\x94 Total Potential Support: $22.5 Billion and $30.0 Billion, Respectively\nThe Federal Reserve Board\xe2\x80\x99s April 2009 Monetary Report to Congress states that\n\xe2\x80\x9cIn November 2008, the Federal Reserve also announced plans to restructure its\nlending related to AIG by extending credit to two newly formed limited liability\ncompanies. The first, Maiden Lane II LLC, received a $22.5 billion loan from\nthe Federal Reserve and a $1 billion subordinated loan from AIG and purchased\nresidential mortgage-backed securities from AIG. As a result of these actions, the\nsecurities lending facility established on October 8 was subsequently repaid and\nterminated. The second new company, Maiden Lane III LLC, received a $30 bil-\nlion loan from the Federal Reserve and a $5 billion subordinated loan from AIG\nand purchased multi-sector collateralized debt obligations on which AIG ha[d] writ-\nten credit default swap contracts.\xe2\x80\x9d364 The Federal Reserve\xe2\x80\x99s first quarterly report on\nits credit and liquidity programs shows a decline in fair value on the assets held in\nthe AIG-related Maiden Lane facilities \xe2\x80\x94 a decline in fair value of $2.5 billion and\n$6.4 billion, respectively, for Maiden Lanes II and III.365\n\nBridge Loan to JPMorgan Chase & Bear Stearns \xe2\x80\x94 Total Potential Support:\n$12.9 Billion\nAccording to the Federal Reserve, on March 14, 2008, FRBNY made an overnight\ndiscount window loan of $12.9 billion to JPMorgan to facilitate its purchase of\nBear Stearns; this was done simultaneously, in a back-to-back transaction, to pro-\nvide secured financing to Bear Stearns.366 The loan was repaid in full the following\nMonday, March 17, 2008, \xe2\x80\x9cwith interest of nearly $4 million.\xe2\x80\x9d The Federal Reserve\nBoard describes this decision to extend credit as \xe2\x80\x9cdesigned to provide funding to\nBear Stearns to meet its immediate liquidity needs for that day and to give the com-\npany and policymakers additional time to develop a more permanent solution to\nthe company\xe2\x80\x99s severe liquidity pressures that threatened to cause its sudden default\nand bankruptcy.\xe2\x80\x9d367\n\nFederal Deposit Insurance Corporation\nFDIC supports banks by insuring depositors against loss. Once depositors need not\nworry about the financial health of any particular bank, the entire banking system\ncan avoid the destabilizing and dangerous potential for \xe2\x80\x9cruns on the bank\xe2\x80\x9d or other\nprecipitous withdrawals of funds. Historically a standby guarantor of deposits, the\ncurrent banking crisis has drawn FDIC into the business of direct guarantees of\ndebt instruments, investment funds, and asset values \xe2\x80\x94 businesses increasingly\n\x0c150 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n distant from its core. Table 3.6 provides a summary of the key FDIC initiatives\n related to the financial crisis. As with the Federal Reserve, any of FDIC\xe2\x80\x99s TARP-\n related programs such as its involvement in PPIP and the Asset Guarantee Program\n (\xe2\x80\x9cAGP\xe2\x80\x9d), are omitted from this discussion because they are already mentioned in\n Section 2: \xe2\x80\x9cTARP Overview\xe2\x80\x9d of this report.\n\n Enhanced FDIC Deposit Insurance \xe2\x80\x94 Total Potential Support: $700 Billion\n Since the 1980s, FDIC has insured deposits up to a maximum of $100,000 per\n depositor. In late 2008, in response to the liquidity crisis and uncertain solvency\n in the banking industry, FDIC received statutory authority to increase its coverage\n to $250,000 for individual accounts.368 FDIC states, \xe2\x80\x9cIf a depositor\xe2\x80\x99s accounts at\n one FDIC-insured bank or savings association total $250,000 or less, the deposits\n are fully insured. A depositor can have more than $250,000 at one insured bank\n or savings association and still be fully insured provided the accounts meet certain\n requirements.\xe2\x80\x9d369 According to FDIC, \xe2\x80\x9cthe standard insurance amount of $250,000\n per depositor is in effect through December 31, 2013. On January 1, 2014, the\n standard insurance amount will return to $100,000 per depositor for all account\n\n\n TABLE 3.6\n\n NON-TARP GOVERNMENT SUPPORT OF THE FINANCIAL SECTOR\n FEDERAL DEPOSIT INSURANCE CORPORATION ($ BILLIONS)\n Total\n Potential\n Maximum Support\n Current Balance Related to\n Program Coverage Balance 6/30/2009 Crisis*\n Enhanced Deposit Insurance\n Depositors $\xe2\x80\x94 $\xe2\x80\x94 $700.0b\n (to $250K/account)a\n Temporary Liquidity Guarantee\n Program - Debt Guarantees Banks 345.8 345.8c 940.0d\n (\xe2\x80\x9cTLGP - DGP\xe2\x80\x9d)\n Temporary Liquidity Guarantee\n Program - Transaction Account Depositors 0.4 0.4e 684.0f\n Guarantee Program (\xe2\x80\x9cTLGP - TAG\xe2\x80\x9d)\n Total $346.2 $346.2 $2,324.0\n\n Notes: Numbers affected by rounding.\n * Total Potential Support does not account for any collateral pledged.\n a\n As of 3/31/2009, the Deposit Insurance Fund (DIF) remained solvent and FDIC had yet to draw on any of the additional borrowing\n authority granted by Congress. FDIC, Chief Financial Officer\xe2\x80\x99s Report to the Board, First Quarter 2009, www.fdic.gov/about/strate-\n gic/corporate/cfo_report_1stqtr_09/exec_summary.html, accessed 7/10/2009.\n b\n Estimate as of 12/31/2008. Congressional Budget Office, \xe2\x80\x9cThe Budget and Economic Outlook: Fiscal Years 2009-2019, p. 41.\n c\n Federal Deposit Insurance Corporation, Monthly Reports on Debt Issuance Under the Temporary Liquidity Guarantee Program,\n 5/31/2009, www.fdic.gov/regulations/resources/tlgp/reports.html, accessed 6/23/2009.\n d\n FDIC, Chief Financial Officer\xe2\x80\x99s Report to the Board, Q4 2008, www.fdic.gov/about/strategic/corporate/cfo_report_4qtr_08/\n sum_trends_results.html, accessed 6/30/2009.\n e\n As of 3/31/2009, during 2008 FDIC paid out $70 million in guaranteed claims of depositors. FDIC, Chief Financial Officer\xe2\x80\x99s\n Report to the Board, Q4 2008, www.fdic.gov/about/strategic/corporate/cfo_report_4qtr_08/sum_trends_results.html, accessed\n 6/30/2009. During Q1 2009, FDIC paid out $323 million, www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_09/corp_\n fund_fin_statement.html, accessed 6/30/2009.\n f\n FDIC, Supervisory Insights, Summer 2009, p. 4, FDIC, Supervisory Insights, Summer 2009, p. 4, www.fdic.gov/regulations/\n examinations/supervisory/insights/sisum09/si_sum09.pdf, accessed 7/9/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 151\n\n\n\n\ncategories except IRAs and other certain retirement accounts, which will remain at\n$250,000 per depositor.\xe2\x80\x9d370\n The Congressional Budget Office (\xe2\x80\x9cCBO\xe2\x80\x9d), in its \xe2\x80\x9cBudget and Economic\nOutlook: Fiscal Years 2009 to 2019,\xe2\x80\x9d estimates that the temporary increase in the\nlimit of deposit insurance will \xe2\x80\x9cincrease the amount of insured deposits by about\n$700 billion, or 15 percent.\xe2\x80\x9d371 Claims on deposit insurance are paid by the Deposit\nInsurance Fund (\xe2\x80\x9cDIF\xe2\x80\x9d), which is financed by fees levied on insured banks. In the\nevent that the funds available in the DIF should be insufficient to cover claims,\nFDIC can borrow from Treasury (historically up to $30 billion, but recently in-\ncreased to $100 billion with a temporary authority up to $500 billion).372 As of the\nend of March, 2009, FDIC had not borrowed from Treasury to cover any losses to\nDIF.373\n\nTemporary Liquidity Guarantee Program (Debt Guarantee Program) \xe2\x80\x94 Total\nPotential Support: $940 Billion\nThe Temporary Liquidity Guarantee Program (\xe2\x80\x9cTLGP\xe2\x80\x9d) was established in October\n2008 to address \xe2\x80\x9cdisruptions in the credit market, particularly the interbank lend-\ning market, which reduced banks\xe2\x80\x99 liquidity and impaired their ability to lend. The\ngoal of the TLGP is to decrease the cost of bank funding so that bank lending to\nconsumers and businesses will normalize.\xe2\x80\x9d374 The program \xe2\x80\x9cdoes not rely on the\ntaxpayer or the deposit insurance fund to achieve its goals;\xe2\x80\x9d375 rather, it is \xe2\x80\x9centirely\nfunded by industry fees.\xe2\x80\x9d376 TLGP has two components, the debt guarantee pro-\ngram (\xe2\x80\x9cDGP\xe2\x80\x9d) discussed in this paragraph and the Transaction Account Guarantee\n(\xe2\x80\x9cTAG\xe2\x80\x9d) program described in the following paragraph. DGP provides an FDIC\nguarantee of newly issued senior unsecured debt of depository institutions. The\ngoal of the DGP is to \xe2\x80\x9ccreate significant investor demand, and dramatically reduce\nfunding costs for eligible banks and bank holding companies.\xe2\x80\x9d377 FDIC-insured\ninstitutions were automatically included in the program, but given the option not to\nparticipate. Participating institutions may issue debt under the DGP until October\n31, 2009, with the debt being guaranteed until \xe2\x80\x9cthe earliest of the opt-out date,\nthe maturity of the debt, the mandatory conversion date for mandatory convertible\ndebt, or December 31, 2012.\xe2\x80\x9d378\n\nTemporary Liquidity Guarantee Program (Transaction Account Guarantee\nProgram) \xe2\x80\x94 Total Potential Support: $684 Billion\nOn October 14, 2008, FDIC announced the temporary Transaction Account\nGuarantee (\xe2\x80\x9cTAG\xe2\x80\x9d) program, which is the second component of the TLGP. It\nprovides depositors with \xe2\x80\x9cunlimited coverage for non-interest-bearing transac-\ntion accounts if their bank is a participant in FDIC\xe2\x80\x99s TLGP. Non-interest-bearing\nchecking accounts include Demand Deposit Accounts (\xe2\x80\x9cDDAs\xe2\x80\x9d) and any transac-\ntion account that has unlimited withdrawals and that cannot earn interest. Also\n\x0c152 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n included are low-interest NOW [\xe2\x80\x9cNegotiable Order of Withdrawal\xe2\x80\x9d] accounts\n that cannot earn more than 0.5% interest.\xe2\x80\x9d379 The program is scheduled to end on\n December 31, 2009. On June 23, 2009, FDIC voted to seek comment on whether\n to extend the TAG until June 30, 2010.380 As with the debt guarantee component,\n FDIC-insured institutions were given the option not to participate in the TAG\n program.\n\n U.S. Department of the Treasury\n Outside of TARP, Treasury is using its non-EESA resources and authorities to sup-\n port a number of other programs for the benefit of the financial industry. EESA,\n the legislation that created TARP, was not the first financial rescue act of Congress\n in 2008. Prior to EESA, Congress passed the Housing and Economic Recovery\n Act of 2008 (\xe2\x80\x9cHERA\xe2\x80\x9d) in July 2008. As such, many of Treasury\xe2\x80\x99s earlier efforts at\n restoring stability to the financial sector arose out of provisions in this law. Table\n 3.7 provides a summary of the key Treasury initiatives related to the financial crisis.\n\n TABLE 3.7\n\n NON-TARP GOVERNMENT SUPPORT OF THE FINANCIAL SECTOR \xe2\x80\x94 U.S. TREASURY ($ BILLIONS)\n Maximum Total Potential\n Current Balance as of Support Related\n Program Coverage Balance 6/30/2009 to Crisis*\n Money Market Mutual Fund (\xe2\x80\x9cMMMF\xe2\x80\x9d)\n Money Market Mutual Funds $\xe2\x80\x94 $\xe2\x80\x94 $3,355.3a\n Program\n GSE Preferred Stock Purchase\n Fannie/Freddie; Housing Markets 59.8 59.8b 400.0c\n Agreements (\xe2\x80\x9cPSPA\xe2\x80\x9d)\n GSE MBS Purchase Program Fannie/Freddie; Housing Markets 145.7 145.7d 314.0e\n GSE Credit Facility Program Fannie/Freddie; Housing Markets \xe2\x80\x94 \xe2\x80\x94 25.0f\n Other HERA/Treasury\n Homeowners, Communities 19.0 19.0 19.0g\n (Tax Benefits and CDBG)\n Student Loan Purchases, and Asset-\n Higher Education 32.6 32.6h 195.0i\n Backed Commercial Paper Conduitsc\n Potential International Fund Liabilities International Agencies \xe2\x80\x94 \xe2\x80\x94 100.0j\n Total $257.1 $257.1 $4,408.3\n\n Notes: Numbers affected by rounding.\n *Total potential support does not account for any collateral pledged.\n a\n Per Treasury, the MMMF provided coverage to all participating money market mutual funds as of 9/19/2008. Treasury Press Release, \xe2\x80\x9cTreasury Announces Extension of Temporary\n Guarantee Program for Money Market Funds,\xe2\x80\x9d 3/31/2009, www.ustreas.gov/press/releases/tg76.htm, accessed 6/24/2009. The amount, $3.355 trillion, represents the total money\n market mutual funds outstanding at the end of Q3, 2008. Federal Reserve Board Statistical Release Z.1, Flow of Funds Accounts of the United States, 6/11/2009, Table L.206.\n b\n Data as of 4/16/2009. White House, FY 2010 Budget, www.whitehouse.gov/omb/budget/fy2010/assets/gov.pdf, accessed 6/25/2009.\n c\n Data as of 4/16/2009. White House, FY 2010 Budget, www.whitehouse.gov/omb/budget/fy2010/assets/gov.pdf, accessed 6/25/2009.\n d\n Treasury, Monthly Treasury Statement, May 2009, www.fms.treas.gov/mts/mts0509.pdf, accessed 6/25/2009.\n e\n Treasury, \xe2\x80\x9cBudget in Brief FY 2010,\xe2\x80\x9d www.ustreas.gov/offices/management/budget/budgetinbrief/fy2010/BIB-HousingGSE.pdf, accessed 6/25/2009; represents the sum of Trea-\n sury\xe2\x80\x99s estimates for FY 2008, FY 2009, and FY 2010.\n f\n House Financial Services Committee, Summary of Key Provisions in HR 3221, Housing and Economic Recovery Act of 2008, www.financialservices.house.gov/FHA.html, accessed\n 6/25/2009.\n g\n House Financial Services Committee, Summary of Key Provisions in HR 3221, Housing and Economic Recovery Act of 2008, www.financialservices.house.gov/FHA.html, accessed\n 6/25/2009.\n h\n As of May 31, 2009. Treasury, Monthly Treasury Statement, May 2009, www.fms.treas.gov/mts/mts0509.pdf, accessed 7/2/2009.\n I\n Federal Register, \xe2\x80\x9cVol. 74, No. 10, 1/15/2009, Notices; Department of Education Federal Family Education Loan Program,\xe2\x80\x9d http://federalstudentaid.ed.gov/ffelp/library/EA43FedReg.\n pdf, accessed 6/28/2009.\n j\n Treasury, \xe2\x80\x9cFact Sheet: IMF Reforms and New Arrangements to Borrow,\xe2\x80\x9d 5/18/2009, www.treas.gov/press/releases/tg136.htm, accessed 6/25/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 153\n\n\n\n\nMoney Market Mutual Fund (\xe2\x80\x9cMMMF\xe2\x80\x9d) Program \xe2\x80\x94 Total Potential Support:\n$3.4 Trillion\nTreasury initiated the temporary Money Market Mutual Fund (\xe2\x80\x9cMMMF\xe2\x80\x9d) guaran-\ntee program on September 29, 2008. The stated intent was to address temporary\ndislocations in credit markets by guaranteeing \xe2\x80\x9cthe share price of any publicly\noffered eligible money market mutual fund \xe2\x80\x94 both retail and institutional \xe2\x80\x94 that\napplies for and pays a fee to participate in the program.\xe2\x80\x9d381 According to Treasury,\nthe program provided \xe2\x80\x9ccoverage to shareholders for amounts that they held in par-\nticipating money market funds as of the close of business on September 19, 2008.\nThe guarantee will be triggered if a participating fund\xe2\x80\x99s net asset value falls below\n$0.995, commonly referred to as breaking the buck.\xe2\x80\x9d382\n Originally designed to last for three months, the program has been renewed and\nextended by the Treasury Secretary to run until the close of business on September\n18, 2009.383 Funding for the program was drawn not from TARP funds, but from\nthe Exchange Stabilization Fund, which was established by the Gold Reserve Act of\n1934.384 The Exchange Stabilization Fund has assets of approximately $50 million,\nand the total exposure of the MMMF program is theoretically approximately $3.4\ntrillion \xe2\x80\x94 the total amount of money market mutual funds outstanding as of the\nthird quarter of 2008, when the program was created.385\n\nGSE Preferred Stock Purchase Agreements (\xe2\x80\x9cPSPA\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support:\n$400 Billion\nHERA provided temporary authority for Treasury to purchase obligations of the\nhousing GSEs. In September 2008 FHFA, established under HERA to oversee\nthe housing GSEs, put Fannie Mae under Federal conservatorship, and Treasury\nentered into a Preferred Stock Purchase Agreement (\xe2\x80\x9cPSPA\xe2\x80\x9d) with Fannie Mae\nto make investments of up to $100 billion in senior preferred stock as required to\nmaintain positive equity.386 According to the White House\xe2\x80\x99s FY 2010 budget docu-\nment, \xe2\x80\x9cOn February 18, 2009, Treasury announced that the funding commitments\nfor the PSPA would be increased to $200 billion. As of April 16, 2009, Fannie Mae\nhas received $15.2 billion under the PSPA.\xe2\x80\x9d387 Similarly, in September 2008, FHFA\nput Freddie Mac under Federal conservatorship and Treasury entered into a PSPA\nwith Freddie Mac to make investments of up to $100 billion in senior preferred\nstock as required to maintain positive equity. On February 18, 2009, Treasury\nannounced that the funding commitments for the Freddie Mac PSPA would be\nincreased to $200 billion, the same as Fannie Mae\xe2\x80\x99s commitment. As of April 16,\n2009, Freddie Mac has received $44.6 billion under the PSPA.388According to\nTreasury\xe2\x80\x99s FY 2010 budget, \xe2\x80\x9cthe function of the PSPAs is to instill confidence in\ninvestors that Fannie Mae and Freddie Mac will remain viable entities critical to\nthe functioning of the housing and mortgage markets.\xe2\x80\x9d389\n\x0c154 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n GSE MBS Purchase Program \xe2\x80\x94 Total Potential Support: $314 Billion\n HERA also gave Treasury the authority to purchase GSE MBS in the open mar-\n ket, and Treasury announced the program on September 7, 2008.390 According to\n Treasury\xe2\x80\x99s FY 2010 budget, \xe2\x80\x9cThe function of the GSE MBS Purchase Program is to\n help improve the availability of mortgage credit to American homebuyers and miti-\n gate pressures on mortgage rates. To promote the stability of the mortgage market,\n Treasury has purchased GSE MBS in the secondary market. By purchasing these\n guaranteed securities, Treasury sought to broaden access to mortgage funding for\n current and prospective homeowners as well as to promote market stability.\xe2\x80\x9d391\n\n GSE Credit Facility Program \xe2\x80\x94 Total Potential Support: $25 Billion\n The third Treasury program conducted under HERA relating to the GSEs is a\n program designed to \xe2\x80\x9censure credit availability to the housing GSEs by providing\n secured funding on an as-needed basis.\xe2\x80\x9d392 All of the GSEs (Fannie Mae, Freddie\n Mac, and the FHLBs) would be able to borrow under the program if needed until\n December 31, 2009. Treasury\xe2\x80\x99s FY 2010 budget describes the program as one of\n short-term loans \xe2\x80\x94 less than one month but greater than one week \xe2\x80\x94 collateral-\n ized by MBS issued by Fannie Mae and Freddie Mac and advances made by the\n FHLBs; no loan can have a maturity date later than December 31, 2009.393\n\n Other HERA 2008 Programs \xe2\x80\x94 Total Potential Support: $19 Billion\n HERA focused on the early centers of the financial crisis \xe2\x80\x94 the home mortgage\n markets and the housing-related GSEs. Beyond the GSE programs, the other\n components pertaining to Treasury include measures to support home prices in\n general, and to support families and communities harmed by the mortgage market\n problems. Specifically, the act introduced $15 billion in homebuyer tax credits,\n extension of the property tax deduction to non-itemizing filers, as well as $4 billion\n in emergency assistance for neighborhood real estate market stabilization.394\n\n Joint Treasury/Department of Education Student Loan Programs \xe2\x80\x94\n Total Potential Support: $195 Billion\n Treasury and the Department of Education have jointly announced four pro-\n grams to support the student loan markets, which have been affected by the\n credit crisis. The authority for these new programs is addressed in the Ensuring\n Continued Access to Student Loans Act of 2008. The first of these programs is\n the Participation Program, under which the Government will buy participations\n in pools of student loans. The second is the Purchase Program, through which\n the Government will purchase individual loans from lenders so that the lender\xe2\x80\x99s\n balance sheets can be freed up to make new student loans. The third is the Short\n Term Purchase Program (\xe2\x80\x9cSTPP\xe2\x80\x9d), which is a time extension of the Purchase\n Program. The fourth new program is the Asset-Backed Conduit Program (\xe2\x80\x9cABCP\xe2\x80\x9d),\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 155\n\n\n\n\nunder which the Government will issue forward commitments to purchase Federal\nFamily Educational Loan Program (\xe2\x80\x9cFFELP\xe2\x80\x9d) loans from qualified ABS issuers.395\n\nCommitments to International Fund \xe2\x80\x94 Total Potential Support: $100 Billion\nOn April 2, 2009, President Obama secured an agreement to increase the\nInternational Monetary Fund (\xe2\x80\x9cIMF\xe2\x80\x9d) New Arrangements to Borrow (\xe2\x80\x9cNAB\xe2\x80\x9d)\nby up to $500 billion, of which the United States committed up to $100 billion.\nAccording to Treasury, \xe2\x80\x9cexpanding the NAB will ensure the IMF has adequate\nresources to play its central role in resolving and preventing the spread of interna-\ntional economic and financial crises. Large and urgent financing needs projected\nfor emerging markets and developing countries cannot be met from pre-crisis IMF\nlending resources.\xe2\x80\x9d396\n\nOther Federal Agencies Supporting Financial Markets\nIn addition to the Federal Reserve, Treasury, and FDIC, the Federal Government\noperates a number of financial agencies, many of which are running their own\nfinancial rescue programs as outlined in Table 3.8.\n\nFederal Home Finance Agency (\xe2\x80\x9cFHFA\xe2\x80\x9d) \xe2\x80\x94 Fannie Mae and Freddie Mac \xe2\x80\x94\nTotal Potential Support: $5.5 Trillion\nFHFA was created on July 30, 2008, as part of HERA. The agency is an indepen-\ndent regulator of certain housing-related GSEs.397 These institutions are Fannie\nMae, Freddie Mac, and the FHLBs. The financial markets have historically viewed\nthe GSEs as quasi-governmental, and awarded them high ratings and low borrow-\ning costs in the anticipation that the U.S. Government would bail them out if they\nwere ever in trouble.\n In August and September of 2008, Fannie and Freddie lost market confidence\nas their losses grew and their financial situations became uncertain, and both had\ndifficulty raising funds. Instead of shutting down the companies, FHFA brought\nthem into Federal conservatorship and worked with Treasury and the Federal\nReserve to institute the various purchase and credit programs mentioned above.\nBy bailing out Fannie Mae and Freddie Mac, FHFA has reinforced the market\xe2\x80\x99s\nassumptions that the obligations of the GSEs are implied liabilities of the U.S.\nGovernment.398 Outstanding debt obligations and MBS guarantees of those two\nfirms alone exceed $5.5 trillion.399\n\nFHFA \xe2\x80\x94 Federal Home Loan Banks (\xe2\x80\x9cFHLBs\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support:\n$1.3 Trillion\nThe Federal Home Loan Banks (\xe2\x80\x9cFHLBs\xe2\x80\x9d) are a system of 12 regional banks from\nwhich local lending institutions borrow funds to finance housing and other lending.\nThe FHLBs are organized as member-owned cooperatives, focused on providing\n\x0c156 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n TABLE 3.8\n\n NON-TARP GOVERNMENT SUPPORT OF THE FINANCIAL SECTOR\n OTHER FEDERAL HOUSING AND FINANCIAL SYSTEM SUPPORT ($ BILLIONS)\n Total\n Potential\n Maximum Support\n Current Balance as of Related to\n Agency / Program Coverage Balance 6/30/2009 Crisis*\n FHFA \xe2\x80\x94\n Fannie Mae and\n Fannie Mae / Freddie $\xe2\x80\x94 $\xe2\x80\x94 $5,500.0b\n Freddie Mac\n Mac Conservatorshipa\n FHFA \xe2\x80\x94 Implied Guarantee Federal Home\n \xe2\x80\x94 \xe2\x80\x94 1,300.0b\n of FHLB liabilitiesa Loan Banks\n National Credit Union Administration\n (\xe2\x80\x9cNCUA\xe2\x80\x9d)\n Temporary Corporate Credit Union Credit Unions 15.2 15.2d 15.2\n Liquidity Guarantee Program\n (\xe2\x80\x9cTCCULGP\xe2\x80\x9d)c\n NCUA Homeowners Affordability\n Relief Program (\xe2\x80\x9cHARP\xe2\x80\x9d) and Credit\n Credit Unions 8.4 8.4e 41.0f\n Union System Investment Program\n (\xe2\x80\x9cCU SIP\xe2\x80\x9d)\n Increase in Guarantees by Govern-\n Mortgage\n ment National Mortgage Assoc. 149.2 149.2 149.2h\n Lenders\n (\xe2\x80\x9cGNMA\xe2\x80\x9d)g\n Increase in Guarantees by Federal Mortgage\n 134.5 134.5 134.5i\n Housing Authority (\xe2\x80\x9cFHA\xe2\x80\x9d)g Lenders\n Increase in Guarantees by Dept. of Mortgage\n 10.6 10.6 10.6j\n Veterans Affairs (\xe2\x80\x9cVA\xe2\x80\x9d)g Lenders\n Total $317.9 $317.9 $7,150.5\n Notes: Numbers affected by rounding.\n *Total potential support does not account for any collateral pledged.\n a\n These obligations have been viewed as enjoying an \xe2\x80\x9cimplied\xe2\x80\x9d guarantee because of historical U.S. Government involvement and sup-\n port. In 2001, the CBO stated: \xe2\x80\x9cCBO attributes the greater liquidity of GSE securities over those of other financial firms to the implicit\n guarantee, much as the Government guarantee of Treasury securities is often cited as the reason for their liquidity.\xe2\x80\x9d Congressional\n Budget Office, \xe2\x80\x9cFederal Subsidies and the Housing GSEs, Appendix A: Responses to Analyses of the Congressional Budget Office\xe2\x80\x99s 1996\n Subsidy Estimates,\xe2\x80\x9d 5/2001, www.cbo.gov/doc.cfm?index=2841&type=0&sequence=7, accessed 7/1/2009.\n b\n Federal Housing Finance Agency (FHFA), \xe2\x80\x9cThe Housing GSE\xe2\x80\x99s\xe2\x80\x9d, Presentation by James Lockhart, Executive Director, 12/10/2008,\n www.fhfa.gov/webfiles/216/WHF121008webversion.pdf, accessed 6/28/2009.\n c\n Does not include impact of deposit insurance increase to $250,000.\n d\n NCUA, Preliminary NCUA Financial Highlights, 3/31/2009, www.ncua.gov/Resources/Reports/ncusif/2009/Mar09PRELIMNETREPORT.\n pdf, accessed 6/28/2009.\n e\n NCUA, \xe2\x80\x9cStatement of Michael E. Fryzel, Chairman, National Credit Union Administration, on \xe2\x80\x98HR 2351, The Credit Union Share Insurance\n Stabilization Act,\xe2\x80\x9d 5/20/2009, www.house.gov/apps/list/hearing/financialsvcs_dem/fryzel_testimony.pdf, accessed 7/14/2009.\n f\n Congressional Budget Office, \xe2\x80\x9cThe Budget and Economic Outlook \xe2\x80\x93 Fiscal Years 2009 and 2010,\xe2\x80\x9dJanuary 2009.\n g\n Represents increase in 2008 over 2007.\n h\n GNMA, Report to Congress, Fiscal Year 2008, 11/7/2008, www.ginniemae.gov/reporttocongress/, accessed 6/28/2009.\n i\n Federal Housing Administration, \xe2\x80\x9cMessage from the Chief Financial Officer,\xe2\x80\x9d p. 323, 11/17/2008, fhasecure.gov/offices/cfo/reports/\n section3.pdf, accessed 6/28/2009.\n j\n White House, Budget FY 2009 \xe2\x80\x93 Department of Veterans Affairs, www.whitehouse.gov/omb/budget/fy2009/veterans.html, accessed\n 6/28/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 157\n\n\n\n\nlow-cost funding for their members. According to the Council of Federal Home\nLoan Banks, the FHLBs provide financing to approximately 80% of U.S. lending\ninstitutions.400\n It is true that FHFA, and by extension Treasury, do not have full legal liability\nfor all of Fannie Mae\xe2\x80\x99s and Freddie Mac\xe2\x80\x99s losses, but it has created a very strong\nimplied guarantee by taking responsibility for the entities and increasing their\nparticipation in the financial markets, instead of closing them. By bailing out\nFannie Mae and Freddie Mac, the FHFA creates an assumption in the market that\nit would do the same for the FHLBs. The FHLBs have total liabilities of approxi-\nmately $1.3 trillion.401\n\nNCUA \xe2\x80\x94 Temporary Corporate Credit Union Liquidity Guarantee Program\n(\xe2\x80\x9cTCCULGP\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: $15.2 Billion\nThe National Credit Union Administration (\xe2\x80\x9cNCUA\xe2\x80\x9d) essentially acts as the FDIC\nof the nation\xe2\x80\x99s credit unions. The independent agency charters and supervises cred-\nit unions, as well as insures their depositors (technically, \xe2\x80\x9cshareholders\xe2\x80\x9d) against\nloss through the National Credit Union Share Insurance Fund (\xe2\x80\x9cNCUSIF\xe2\x80\x9d).402 As\nof March 31, 2009, NCUA insured approximately $612 billion of deposits.403\n NCUA has initiated several programs to address financial system difficulties,\nin addition to its normal deposit insurance programs. The first is the Temporary\nCorporate Credit Union Liquidity Guarantee Program (\xe2\x80\x9cTCCULGP\xe2\x80\x9d), under\nwhich NCUA insures the senior unsecured debt of member institutions experi-\nencing temporary liquidity difficulties.404 On May 21, 2009, the TCCULGP was\nextended to June 30, 2010, for new issuances, with the debt being guaranteed until\nJune 30, 2017. Further, the guaranteed debt limit was revised to \xe2\x80\x9cthe greater of:\n1) 100% of maximum unsecured debt obligations outstanding from September 30,\n2007, to September 30, 2008, limited to no more than $10 billion, 2) amount ap-\nproved by the Office of Corporate Credit Unions not to exceed the greater of $100\nmillion or 5% of liabilities and shares.\xe2\x80\x9d405 As of April 21, 2009, there were\n23 corporate credit unions participating in the program.406\n\nNCUA Homeowners Affordability Relief Program (\xe2\x80\x9cHARP\xe2\x80\x9d) and Credit Union\nSystem Investment Program (\xe2\x80\x9cCU SIP\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: $41 Billion\nThe other major financial rescue programs initiated by NCUA were the\nHomeowners Affordability Relief Program (\xe2\x80\x9cHARP\xe2\x80\x9d)407 and the Credit Union\nSystem Investment Program (\xe2\x80\x9cCU SIP\xe2\x80\x9d).408 These programs intend to help mem-\nbers avoid delinquency and default (HARP) and increase the liquidity in the credit\nunion system (CU SIP).\n\x0c158 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Government National Mortgage Association (\xe2\x80\x9cGNMA\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support:\n $149.2 Billion\n GNMA guarantees investors the timely payment of principal and interest on MBS\n backed by Federally insured or guaranteed loans, thus helping to provide liquid-\n ity to the housing markets. The largest housing agency that supplies mortgages\n to GNMA-backed MBS is the Federal Housing Administration (\xe2\x80\x9cFHA\xe2\x80\x9d). Other\n Federal mortgage programs participating in GNMA\xe2\x80\x99s programs include those of the\n Veteran\xe2\x80\x99s Administration.409 The guarantees are thus redundant, in the sense that\n another Federal program is already insuring much of the principal amount, but\n the ultimate potential losses to the Federal Government depend on the particulars\n of the individual losses. Outstanding single-family guarantees in September 2008\n were $537.3 billion, and outstanding multi-family guarantees were $39.4 billion.\n Collectively, those amounts were up $149.2 billion in 2008 as the private financial\n sector lost its ability to absorb them.410\n\n Federal Housing Administration (\xe2\x80\x9cFHA\xe2\x80\x9d) \xe2\x80\x94 Total Potential Support: $134.5 Billion\n FHA provides home mortgage insurance to lenders; if the borrower should fail to\n make payments and goes into foreclosure, FHA will insure the lender against most\n of its losses. FHA is the oldest of the Federal housing agencies. In 2008, it had\n outstanding liabilities of more than $576.4 billion in single-family and multi-family\n mortgage programs, an increase of $134.5 billion from the previous year.411\n\n Department of Veterans Affairs (\xe2\x80\x9cVA\xe2\x80\x9d) Home Loan Guarantee Program \xe2\x80\x94\n Total Potential Support: $10.6 Billion\n The Department of Veterans Affairs (\xe2\x80\x9cVA\xe2\x80\x9d) runs a mortgage guarantee program\n similar to FHA\xe2\x80\x99s, but limited to veterans of the U.S. military. VA\xe2\x80\x99s programs pro-\n vide 100% financing (that is, there is no down payment required).412 There were\n estimated to be nearly $35 billion in VA loans outstanding in 2008, an increase of\n nearly $11 billion (44%) over the previous year.413\n\x0c TARP OPERATIONS AND\nS ECT ION 4\n ADMINISTRATION\n\x0c160 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 161\n\n\n\n\nUnder the Emergency Economic Stabilization Act of 2008 (\xe2\x80\x9cEESA\xe2\x80\x9d), Congress\nauthorized the Treasury Secretary to take such actions as necessary to build\nthe operational and administrative infrastructure to support the Troubled Asset\nRelief Program (\xe2\x80\x9cTARP\xe2\x80\x9d) activities. EESA authorized the establishment of an\nOffice of Financial Stability (\xe2\x80\x9cOFS\xe2\x80\x9d) within the U.S. Department of the Treasury\n(\xe2\x80\x9cTreasury\xe2\x80\x9d) to be responsible for the administration of TARP. 414 Treasury has the\nauthority to establish program vehicles, issue regulations, directly hire or appoint\nemployees, enter into contracts, and designate financial institutions as financial\nagents of the Federal Government.415 In addition to using permanent and interim\nstaff, OFS relies on contractors and financial agents in legal, investment consult-\ning, accounting, and other key service areas.416\n\n\n\nTARP ADMINISTRATIVE AND PROGRAM\nEXPENDITURES\nTreasury stated that it had incurred $27.5 million in TARP-related administrative\nexpenditures through June 30, 2009.417 Table 4.1 summarizes these expenditures,\nas well as additional obligations through June 30, 2009. The majority of these costs\nare allocated to Personnel Services and Non-Personnel Other Services.\n\nTABLE 4.1\n\nTARP ADMINISTRATIVE EXPENDITURES AND OBLIGATIONS ($MILLIONS)\n Obligations for Period Expenditures for Period\nBudget Object Class Title Ending 6/30/2009 Ending 6/30/2009\nPersonnel Services\nPersonnel Compensation & Services $7,897,655 $7,186,531\nTotal Personnel Services $7,897,655 $7,186,531\n\n\nNon-Personnel Services\nTravel & Transportation of Persons $107,630 $75,975\nTransportation of Things 24,105 105\nRents, Communications, Utilities & Misc.\n 80,659 30,435\nCharges\nPrinting & Reproduction 395 395\nOther Services 54,516,949 19,953,191\nSupplies & Materials 81,783 81,783\nEquipment 222,966 217,857\nLand & Structures \xe2\x80\x94 \xe2\x80\x94\nTotal Non-Personnel Services $55,034,487 $20,359,741\n\n\nGrand Total $62,932,142 $27,546,272\n\nNote: Numbers affected by rounding.\n\nSource: Treasury, response to SIGTARP data call, 7/8/2009.\n\x0c162 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n Additionally, Treasury has released details of programmatic expenditures. These\n expenditures include costs to hire financial agents and legal firms associated with\n TARP operations. Treasury shows the allocation of these programmatic costs at\n $64 million as of June 30, 2009.418\n TARP operations are projected to cost approximately $175 million for fis-\n cal year 2009.419 These costs are not reflected in determining any gains or losses\n on the TARP-related transactions and are not included in the $699 billion limit\n on asset purchases. Therefore, these expenditures will add to the Federal budget\n deficit regardless of whether the TARP transactions result in a gain or a loss for the\n Government.420\n\n\n\n CURRENT CONTRACTORS AND FINANCIAL\n AGENTS\n As of June 30, 2009, Treasury had retained 45 outside contractors, including 4\n asset managers, to provide a range of services to assist in administering TARP. As\n permitted in EESA, Treasury has used streamlined solicitation procedures and has\n structured several agreements and contracts to allow for flexibility in obtaining\n the required services expeditiously. Table 4.2 lists outside vendors as of June 30,\n 2009.421\n As required by EESA, SIGTARP must report the biographical information for\n each person or entity hired to manage the troubled assets associated with TARP.422\n Since the publication of SIGTARP\xe2\x80\x99s April Quarterly Report, there have been four\n important staff- or contractor- related developments at OFS:\n\n \xe2\x80\xa2 confirmation of a new Assistant Secretary of the Treasury for Financial Stability\n \xe2\x80\xa2 appointment of a Special Master for TARP Executive Compensation\n \xe2\x80\xa2 creation of a Treasury position for restructuring/exit strategy\n \xe2\x80\xa2 appointment of three asset managers\n\n Assistant Secretary\n On June 19, 2009, Herbert Allison was confirmed by the U.S. Senate to be the\n Assistant Secretary of the Treasury for Financial Stability, replacing Neel Kashkari,\n who served on an interim basis.423 In this role, Mr. Allison is responsible for \xe2\x80\x9cde-\n veloping and coordinating Treasury\xe2\x80\x99s policies on legislative and regulatory issues\n affecting financial stability, including overseeing the Troubled Asset Relief Program\n (TARP).\xe2\x80\x9d424 He will also have the title of Counselor to the Secretary.\n\n Special Master for TARP Executive Compensation\n On June 10, 2009, the President announced plans to appoint Kenneth Feinberg as\n the Special Master for TARP Executive Compensation, to \xe2\x80\x9censure compensation\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 163\n\n\n\n\nTABLE 4.2\n\nOUTSIDE VENDORS\nDate Vendor Purpose Type of Transaction*\n10/10/2008 Simpson, Thacher & Bartlett Legal Services BPA\n10/11/2008 EnnisKnupp Investment and Advisory Services BPA\n10/14/2008 Bank of New York Mellon Custodian and Cash Management Financial Agent\n10/16/2008 PricewaterhouseCoopers Internal Control Services BPA\n10/18/2008 Ernst & Young Accounting Services BPA\n10/23/2008 GSA \xe2\x80\x93 Turner Consulting** Archiving Services IAA\n10/29/2008 Hughes Hubbard & Reed Legal Services BPA\n10/29/2008 Squire Sanders & Dempsey Legal Services BPA\n10/31/2008 Lindholm & Associates** Human Resources Services Contract\n11/7/2008 Thacher Proffitt & Wood*** Legal Services BPA\n11/14/2008 Securities and Exchange Commission Detailees IAA\n11/14/2008 CSC Systems and Solutions IT Services Procurement\n12/3/2008 Trade and Tax Bureau \xe2\x80\x93 Treasury IT Services IAA\n12/5/2008 Department of Housing and Urban Development Detailees IAA\n12/5/2008 Washington Post Vacancy Announcement Procurement\n12/10/2008 Thacher Proffitt & Wood*** Legal Services BPA\n12/12/2008 Pension Benefit Guaranty Corporation Legal Services IAA\n12/15/2008 Office of Thrift Supervision Detailees IAA\n12/24/2008 Cushman and Wakefield of VA, Inc. Painting Procurement\n1/6/2009 Office of the Comptroller of the Currency Detailees IAA\n1/7/2009 Colonial Parking Parking Procurement\n1/9/2009 Internal Revenue Service Detailees IAA\n1/27/2009 Cadwalader Wickersham & Taft, LLP Legal Services BPA\n1/27/2009 Whitaker Brothers Bus. Machines Office Machines Procurement\n2/2/2009 Government Accountability Office Oversight IAA\n2/9/2009 Pat Taylor and Associates, Inc.** Temporary Employee Services Contract\n2/12/2009 Locke Lord Bissell & Lidell LLP Legal Services Contract\n2/18/2009 Freddie Mac Homeownership Program Financial Agent\n2/18/2009 Fannie Mae Homeownership Program Financial Agent\n2/20/2009 Congressional Oversight Panel Oversight IAA\n2/20/2009 Simpson, Thacher & Bartlett Legal Services Contract\n2/22/2009 Venable LLP Legal Services Contract\n3/6/2009 Boston Consulting Group Management Consulting Support Contract\n3/16/2009 EARNEST Partners Asset Management Services Financial Agent\n3/23/2009 Heery International Inc. Architects Procurement\n3/30/2009 McKee Nelson, LLP Legal Services Contract\n3/30/2009 Sonnenschein Nath & Rosenthal Legal Services Contract\n3/30/2009 Cadwalader Wickersham & Taft, LLP Legal Services Contract\n3/30/2009 Haynes and Boone LLP Legal Services Contract\n3/31/2009 FI Consulting** Modeling and Analysis BPA\n Continued on next page.\n\x0c164 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n OUTSIDE VENDORS (CONTINUED)\n Date Vendor Purpose Type of Transaction*\n 4/3/2009 American Furniture Rentals** Office Furniture Procurement\n 4/17/2009 Herman Miller Office Furniture Procurement\n 4/17/2009 Bureau of Printing and Engraving Detailee IAA\n 4/21/2009 AllianceBernstein Asset Management Services Financial Agent\n 4/21/2009 FSI Group Asset Management Services Financial Agent\n 4/21/2009 Piedmont Investment Advisors Asset Management Services Financial Agent\n 5/14/2009 Phacil Inc.** FOIA Services Contract\n 5/26/2009 Anderson, McCoy & Orta, LLP** Legal Services Contract\n 5/26/2009 Simpson, Thacher & Bartlett Legal Services Contract\n 6/8/2009 Department of Interior IT Services IAA\n 6/29/2009 Department of Interior Website Testing IAA\n\n Notes:\n *IAA = Inter-Agency Agreement, BPA = Blanket Purchase Agreement.\n **Small or Women/Minority-Owned Small Business.\n ***Contract responsibilities assumed by Sonnenschein Nath & Rosenthal via novation.\n\n Source: Treasury, response to SIGTARP data call, 7/8/2009.\n\n\n\n\n plans are consistent with the public interest.\xe2\x80\x9d425 As mentioned previously in\n the \xe2\x80\x9cExecutive Compensation\xe2\x80\x9d discussion in Section 2: \xe2\x80\x9cTARP Overview,\xe2\x80\x9d Mr.\n Feinberg, whose mediation experience includes acting as the Special Master of the\n September 11th Victim Compensation Fund, \xe2\x80\x9cwill review payments and compen-\n sation plans for the executives and the 100 most highly compensated employees\n of TARP recipients that have received exceptional assistance to ensure that com-\n pensation is structured in a way that gives those employees incentives to maximize\n long-term shareholder value and protect taxpayer interests.\xe2\x80\x9d426 Companies receiv-\n ing exceptional financial assistance include those receiving assistance under the\n Systemically Significant Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d), the Targeted Investment\n Program (\xe2\x80\x9cTIP\xe2\x80\x9d), and the Automotive Industry Financing Program (\xe2\x80\x9cAIFP\xe2\x80\x9d), and\n currently include the American International Group (\xe2\x80\x9cAIG\xe2\x80\x9d), Citigroup, Bank of\n America, Chrysler, General Motors (\xe2\x80\x9cGM\xe2\x80\x9d), GMAC and Chrysler Financial.\n\n Restructuring/Exit Strategy\n On May 18, 2009, Treasury announced the hiring of Jim Millstein as its Chief\n Restructuring Officer, within OFS. Mr. Millstein, whose restructuring experience\n included 28 years of advisory work as a lawyer and as an investment banker, has\n taken the lead in managing Treasury\xe2\x80\x99s investment in AIG and other significant\n investments and in developing exit strategies for Treasury from these investments\n over time.\n\n Asset Managers\n On April 22, 2009, Treasury announced the selection of three firms to manage its\n portfolio of assets issued by banks and other institutions participating in the Capital\n Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d) and other TARP programs. The assets to be managed\n include senior preferred shares, senior debt, equity warrants, and other equity and\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 165\n\n\n\n\ndebt obligations. Following a review of more than 200 submissions from interested\nfirms, Treasury selected AllianceBernstein L.P., FSI Group, LLC, and Piedmont\nInvestment Advisors, LLC for agreements valid until April 20, 2014.427 According\nto OFS, AllianceBernstein is a leading global investment management firm that\noffers \xe2\x80\x9chigh-quality research and diversified investment services to institutional\nclients, individuals and private clients in major markets around the world.\xe2\x80\x9d428 The\nfirm is, headquartered in New York City and employs more than 500 investment\nprofessionals with expertise in growth equities, value equities, fixed-income securi-\nties, blend strategies and alternative investments.429\n According to OFS, FSI Group operates a \xe2\x80\x9cmulti-strategy investment platform\nfocused on opportunities in the financial services sector.\xe2\x80\x9d430 The firm is based in\nCincinnati and specializes in financing and investing in banks, thrifts, insurance\ncompanies, Real Estate Investment Trusts (\xe2\x80\x9cREITs\xe2\x80\x9d), real estate operating compa-\nnies and other financial services firms.\n According to OFS, Piedmont Investment Advisors, LLC is a money manage-\nment firm specializing in \xe2\x80\x9ccore equity and fixed-income management.\xe2\x80\x9d431 The firm\nwas founded in August 2000 and is based in Durham, North Carolina.\n\nResponsibilities\nThe three asset management firms have each been assigned a representative\ncross-section of Treasury holdings, weighted towards the specialty of each firm.\nAllianceBernstein has been allocated assets relating to 390 of the 644 financial in-\nstitutions in OFS\xe2\x80\x99s portfolio, a broad mix of holdings diversified along institutional\nsize and geographic lines.432 FSI Group was allocated 184 institutions, weighted\ntowards small, publicly held, local institutions.433 Piedmont was allocated 70 insti-\ntutions, weighted towards the larger institutions, given their specialty in macro-level\nanalysis.434\n The firms will all employ a \xe2\x80\x9cbuy-and-hold\xe2\x80\x9d management approach, focusing on\nthe policy goal of market stability over the typical asset manager goals of diver-\nsification and return on investment.435 The asset managers will conduct analysis\nand ongoing valuation of the Treasury holdings in their portfolios on behalf of\nTreasury and the taxpayers, and advise Treasury on management of the accounts\nand \xe2\x80\x9cstrategy and optimal timing to execute warrants or monetize preferred shares\nand other equity securities or debt obligations, consistent with both the duty to the\ntaxpayer and the goal of market stability,\xe2\x80\x9d as well as strategies relating to corporate\nactions (i.e., proxies, disclosures, mergers/acquisitions, de-listings, etc.).436 However,\nthe managers will not execute any transactions unless specifically instructed by\nOFS.437 Should OFS request a trade or transaction, the asset managers will advise\nTreasury on its disposition strategy and negotiate with broker/dealers to achieve\n\x0c166 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n results \xe2\x80\x9cconsistent with best execution at the most favorable prices reasonably\n obtainable.\xe2\x80\x9d438\n Index Fund: Portfolio that tracks an Given their buy-and-hold strategy, OFS intends to compensate the asset manag-\n established index, and thus requires ers with fees consistent with an index fund manager. OFS will pay a fee of approxi-\n minimal research on the part of the mately 3 basis points (0.03%) of the asset manager\xe2\x80\x99s portfolio per quarter.439\n asset manager \xe2\x80\x94 typically providing a\n lower management fee structure.\n Key Deliverables and Compliance Roles\n Each of the asset managers will provide several deliverables as well as regular com-\n pliance information to OFS, including:440\n \xe2\x80\xa2 monthly valuations of preferred shares and warrants for the financial institu-\n tions assigned to the asset manager\n \xe2\x80\xa2 detailed cash flow projections for each security held\n \xe2\x80\xa2 monthly yield and maturity probability matrices\n \xe2\x80\xa2 IT security report\n \xe2\x80\xa2 annual certification\n \xe2\x80\xa2 annual SAS 70\n \xe2\x80\xa2 quarterly disclosure on organizational conflicts of interest\n \xe2\x80\xa2 quarterly disclosure on personal conflicts of interest\n \xe2\x80\xa2 certification of communications with Treasury employees\n \xe2\x80\xa2 quarterly confidentiality certification\n \xe2\x80\xa2 quarterly compliance reports\n \xe2\x80\xa2 quarterly disclosure of revenue-sharing agreements\n\n Conflict Mitigation\n Treasury has identified several potential conflicts of interest on the part of the asset\n managers, ranging from the potential of TARP institutions being clients of the as-\n set manager to the individual fund managers potentially owning shares of stock in\n institutions that have received TARP funds, among others, and has adopted mitiga-\n tion plans that address these conflicts. Treasury recognizes that its decisions to sell\n off portions of its portfolio represent material non-public information that cannot\n be shared by the particular individuals working on the Treasury portfolios with\n other members of the asset management firm. To address these concerns, Treasury\n has required each asset manager to \xe2\x80\x9cwall off\xe2\x80\x9d or segregate the employees who\n receive this information.441 These ethical walls are intended to keep Treasury\xe2\x80\x99s sell\n or warrant execution decisions confidential so that other parts of the firm are not\n made aware of, and therefore cannot profit from, this potentially market-moving\n information. To further segregate the TARP-related information, OFS has required\n an IT barrier that will prevent this confidential information from being electroni-\n cally accessed by others in the firm.442\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 167\n\n\n\n\nValuation Methodology\nThe asset managers will provide monthly valuation reports to OFS regarding\ntheir view of the fair market value of the assets in their respective portfolios. OFS Fair Market Value: The price that a\n knowledgeable buyer and a knowledge-\nwill also prepare audited annual financial statements that will use a net present\n able seller would be able to agree upon\nvalue (\xe2\x80\x9cNPV\xe2\x80\x9d) valuation of the assets, as is required for annual statements for\n in the open market, provided that both\nGovernment agencies under the Federal Credit Reform Act of 1990.443 The asset\n have access to sufficient information.\nmanagers are working with Treasury and each other to develop a uniform template\nin order for the valuations provided by each asset manager to be consistent and to Net Present Value (\xe2\x80\x9cNPV\xe2\x80\x9d): The present\nminimize any difference in approaches among the firms.444 value of the estimated future cash\n inflows minus the present value of the\n cash outflows.\nCONFLICTS OF INTEREST\nWithin the framework of TARP procurement and contracting, actual or potential\nconflicts of interest (\xe2\x80\x9cCOIs\xe2\x80\x9d) can exist at the organizational level or pertain to an\nindividual employee. EESA provides the Treasury Secretary the authority to issue\nregulations or guidelines necessary to address and manage, or to prohibit, COI that\ncan arise in connection with the administration and execution of TARP.445\n TARP-related COI may occur due to a variety of situations, such as when\nretained entities perform similar work for Treasury and other clients. In these situa-\ntions, contracted entities may find that their duty to certain clients may impair their\nobjectivity when advising Treasury or may affect their judgment about the proper\nuse of nonpublic information. Conflicts may also arise from the personal inter-\nests of individuals employed by retained entities. Accordingly, Treasury has issued\ninterim guidelines to address potential COI.446\n These interim COI rules require interested contractors to provide sufficient\ninformation to evaluate the potential for organizational COI and plans to mitigate\nthem.447 The mitigation plan then becomes a binding term of the contract ar-\nrangement. On potential personal COI, the provisions require that managers and\nemployees of a hired entity disclose any financial holdings or personal and familial\nrelationships that could impair their objectivity.448\n Financial agents and contractors have identified potential COI, and these\nparties have proposed solutions to mitigate the identified conflicts. In response to\nrecommendations made to Treasury by the Comptroller General,449 Treasury has\ntaken steps to formalize its oversight and monitoring of potential COI.450\n\x0c168 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0cS ECT I O N 5 SIGTARP RECOMMENDATIONS\n\x0c170 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 171\n\n\n\n\nOne of the responsibilities of the Office of the Special Inspector General for the\nTroubled Asset Relief Program (\xe2\x80\x9cSIGTARP\xe2\x80\x9d) is to provide recommendations to\nthe U.S. Department of the Treasury (\xe2\x80\x9cTreasury\xe2\x80\x9d) so that Troubled Asset Relief\nProgram (\xe2\x80\x9cTARP\xe2\x80\x9d) initiatives can be designed or modified to facilitate transparency\nand effective oversight and prevent fraud, waste, and abuse. SIGTARP has made\nsuch recommendations in both its Initial Report to Congress, dated February 6,\n2009 (the \xe2\x80\x9cInitial Report\xe2\x80\x9d), and its April Quarterly Report to Congress, dated April\n21, 2009 (the \xe2\x80\x9cApril Quarterly Report\xe2\x80\x9d). This section sets forth SIGTARP\xe2\x80\x99s new or\nongoing recommendations and summarizes Treasury\xe2\x80\x99s responses to prior recom-\nmendations. Appendix G sets forth Treasury\xe2\x80\x99s written responses to prior SIGTARP\nrecommendations.\n\n\nRECOMMENDATIONS RELATING TO THE\nPUBLIC-PRIVATE INVESTMENT PROGRAM\nThe Public-Private Investment Program (\xe2\x80\x9cPPIP\xe2\x80\x9d) is a program in which\nGovernment funds will be invested side-by-side with private investor equity to\npurchase legacy assets, including the \xe2\x80\x9ctoxic\xe2\x80\x9d assets widely believed to be one of the\nroot causes of the current financial crisis. The aspect of PPIP that has proceeded\nthe furthest toward implementation thus far is the Treasury-led Legacy Securities\nProgram. As discussed more fully in Section 2 of this report, under the Legacy\nSecurities Program, Treasury, through an application process, has pre-qualified\nfund managers to manage Public-Private Investment Funds (\xe2\x80\x9cPPIFs\xe2\x80\x9d). The fund\nmanagers will raise private capital for equity participation in the PPIF that will be\nmatched, dollar-for-dollar, with TARP funds. The PPIF will then be able either to\nobtain non-recourse financing in TARP funds of up to 100% of the amount of total\nequity or access even greater non-recourse financing from the Federal Reserve\nthrough the Term Asset-Backed Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d) for purchase of\nTALF-eligible assets. The fund manager, who earns a fee both from Treasury and\nfrom the private investors, will then use the money to purchase and manage legacy\nmortgage-backed securities (\xe2\x80\x9cMBS\xe2\x80\x9d).\n\nApril Quarterly Report Recommendations\nIn the April Quarterly Report, SIGTARP observed that many aspects of PPIP could\nmake it inherently vulnerable to fraud, waste, and abuse, identifying four areas of\nparticular vulnerability:\n\n\xe2\x80\xa2 Conflicts of Interest: PPIF managers might have a powerful incentive to make\n investment decisions that benefit themselves at the expense of the taxpayer. By\n their nature and design, including the availability of significant leverage, the\n PPIF transactions in these frozen markets will have a significant impact on how\n\x0c172 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n any particular asset is priced in the market. As a result, the increase in the price\n of such an asset will greatly benefit anyone who already owns or manages the\n same asset, potentially including the PPIF manager who is making the invest-\n ment decisions.\n \xe2\x80\xa2 Collusion: A closely related vulnerability is that PPIF managers might be\n persuaded, through kickbacks, quid pro quo transactions, or other collusive ar-\n rangements, to manage the PPIFs not for the benefit of the PPIF (and taxpay-\n ers), but rather for the benefit of themselves and their collusive partners. The\n significant non-recourse, Government-financed leverage presents a great incen-\n tive for collusion between the buyer and seller of the asset, or the buyer and\n other buyers, whereby the taxpayer may be exposed to a significant loss while\n others profit.\n \xe2\x80\xa2 Money Laundering: Because of the significant leverage available and the inher-\n ent imprimatur of legitimacy associated with PPIP and TALF, these programs\n present an ideal opportunity to money-laundering organizations, which are\n continually looking for opportunities to make their illicit proceeds appear to be\n legitimate, thereby \xe2\x80\x9claundering\xe2\x80\x9d those proceeds.\n \xe2\x80\xa2 Interaction with TALF: In announcing the details of PPIP, Treasury has indi-\n cated that PPIFs under the Legacy Securities Program could, in turn, use the\n leveraged PPIF funds to purchase legacy MBS through TALF, thereby greatly\n increasing Government exposure to losses with no corresponding increase of\n potential profits. This leverage upon leverage would magnify the incentives for\n conflicts of interest and collusion and could severely undermine the validity of\n the methodology that the Federal Reserve has used to build the haircut percent-\n ages in TALF.\n\n To address these vulnerabilities, SIGTARP made a series of recommendations\n in the April Quarterly Report. In summary form, SIGTARP recommended the\n following:\n\n \xe2\x80\xa2 Treasury should impose strict conflicts-of-interest rules upon PPIF managers\n that specifically address whether and to what extent the managers can (i) invest\n PPIF funds in legacy assets that they hold or manage on behalf of themselves or\n their clients or (ii) conduct PPIF transactions with entities in which they have\n invested on behalf of themselves or others.\n \xe2\x80\xa2 Treasury should mandate transparency with respect to the participation and\n management of PPIFs, including disclosure to Treasury of the beneficial owners\n of all of the private equity stakes in the PPIFs, public disclosure of all transac-\n tions undertaken in them, and reporting to Treasury on any and all holdings and\n transactions in the same types of legacy assets on their own behalf or on behalf\n of their clients.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 173\n\n\n\n\n\xe2\x80\xa2 Treasury should require PPIF managers to provide PPIF equity stakeholders\n (including TARP) \xe2\x80\x9cmost-favored-nations clauses,\xe2\x80\x9d requiring that the fund man- \xe2\x80\x9cMost-Favored-Nations Clause\xe2\x80\x9d: A\n agers treat the PPIFs on at least as favorable terms as given to all other parties clause in an agreement granting to one\n with whom they deal and acknowledge that they owe the PPIF investors \xe2\x80\x94 both entity the same terms as are then or\n the private investors and TARP \xe2\x80\x94 a fiduciary duty with respect to the manage- may thereafter be granted to any other\n ment of the PPIFs. entity.\n\xe2\x80\xa2 Treasury should require that all PPIF managers have stringent investor-screen-\n \xe2\x80\x9cKnow Your Customer\xe2\x80\x9d Requirements:\n ing procedures, including comprehensive \xe2\x80\x9cKnow Your Customer\xe2\x80\x9d requirements\n A money-laundering and terrorist-\n at least as rigorous as that of a commercial bank or retail brokerage operation,\n financing prevention measure requir-\n and require that the identities of all of the beneficial owners of the private in-\n ing institutions to obtain customer\n terests in the fund be disclosed to Treasury so that Treasury can do appropriate\n information beyond basic identification\n diligence to ensure that investors in the funds are legitimate. information.\n\xe2\x80\xa2 Treasury should not allow Legacy Securities PPIFs to invest in TALF unless\n significant mitigating measures are included to address the increased dangers\n presented by the interaction, such as prohibiting TARP lending if the PPIF in-\n vests through TALF or proportionately increasing haircuts for PPIFs that do so.\n\nDevelopments in the Design of the Legacy Securities\nProgram\nSince the April Quarterly Report, Treasury has consulted with SIGTARP, consistent\nwith Treasury\xe2\x80\x99s obligations under Section 402 of the Helping Families Save Their Section 402 of Helping Families Save\nHomes Act of 2009 (the \xe2\x80\x9cEnsign-Boxer Amendment\xe2\x80\x9d), as it developed the details Their Homes Act of 2009 (\xe2\x80\x9cEnsign-\nof the Legacy Securities Program. Among other things, Treasury conducted these Boxer Amendment\xe2\x80\x9d): Amendment to\nactivities: Helping Families Save Their Homes Act\n\xe2\x80\xa2 met with SIGTARP representatives to discuss the design of the Legacy of 2009 that calls for increased PPIP\n Securities Program on several occasions oversight and allocates an additional\n $15 million to SIGTARP with the direc-\n\xe2\x80\xa2 invited SIGTARP to observe its interviews with potential PPIF manager\n tion that these funds be prioritized for\n applicants\n performance audits and investigations\n\xe2\x80\xa2 at SIGTARP\xe2\x80\x99s suggestion, met and had multiple conversations with staff at the\n of recipients of non-recourse loans\n Federal Reserve Board (the \xe2\x80\x9cFederal Reserve\xe2\x80\x9d) and the Federal Reserve Bank\n under any EESA-funded program. See\n of New York (\xe2\x80\x9cFRBNY\xe2\x80\x9d) who manage Federal Reserve programs involving asset Section 1 of this report for a detailed\n managers in similar contexts description of the amendment.\n\xe2\x80\xa2 provided SIGTARP with drafts of the PPIP term sheets and ethical standards\n and conflicts-of-interest rules\n\n As a result of these consultations, SIGTARP provided Treasury with both oral\nfeedback and written recommendations, suggestions, and comments, as reflected\nin two letters dated June 10, 2009, and June 19, 2009 (collectively, the \xe2\x80\x9cSIGTARP\nLetters\xe2\x80\x9d).\n In the SIGTARP Letters, which are included in Appendix G, SIGTARP\nmade dozens of comments, ranging from recommendations concerning issues\n\x0c174 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n fundamental to the design of PPIP to potential contract terms and other drafting\n comments. As reflected in Treasury\xe2\x80\x99s response to SIGTARP\xe2\x80\x99s PPIP recom-\n mendations, also included in Appendix G, Treasury has incorporated many of\n the recommendations into the design of PPIP, and, as a result, the program has a\n significantly improved compliance and fraud-prevention regime than that initially\n proposed. The following are some of SIGTARP\xe2\x80\x99s recommendations implemented\n by Treasury:\n\n \xe2\x80\xa2 All of the PPIF managers will be required to be registered Investment Advisors\n Fiduciary Duty: A duty obligating a\n fiduciary (an individual or business in a with the Securities and Exchange Commission (\xe2\x80\x9cSEC\xe2\x80\x9d) pursuant to the\n position of authority who acts on behalf Investment Advisors Act of 1940. The fund managers therefore are subject to\n of another individual \xe2\x80\x94 an agent or provisions relating to fiduciary duty; certain antifraud protections; rules relating\n trustee) to act with loyalty and honesty to record keeping, advertising, custody of client funds and assets; and disclosure.\n and in a manner consistent with the \xe2\x80\xa2 Treasury is requiring PPIF managers to have and implement a range of policies\n best interests of the other individual. and procedures on ethics and conflicts of interest, including policies relating to\n valuation, trading allocation, arm\xe2\x80\x99s-length transactions, and personal trading.\n \xe2\x80\xa2 Treasury is requiring the PPIF managers to report to Treasury a list of all eligible\n assets held or under consideration for purchase by a manager in both PPIF and\n non-PPIF funds, including positions and valuations in all eligible assets across\n the manager firm. Treasury will thus be able to analyze and compare holdings,\n transactions, and valuations not only across all of the PPIFs but also across\n all of the non-PPIF funds managed by PPIF firms. If implemented well, this\n information could be a powerful tool to detect instances of conflicts of interest,\n collusion, and improper asset valuation across the Legacy Securities Program.\n \xe2\x80\xa2 As recommended in the April Quarterly Report, Treasury has taken into ac-\n count the leverage-on-leverage issues implicated by allowing PPIFs to access\n TALF lending. Although Treasury and the Federal Reserve are permitting PPIFs\n Leverage on Leverage: Refers to the to access TALF, the haircuts for TALF will be proportionally increased so that\n original design of PPIP in which a pri- the combination of Treasury- and TALF-supplied debt will not exceed the total\n vate investor could borrow Government amount of TALF debt that would be available to leverage the PPIP equity alone.\n debt through PPIP and then leverage This significant concession by Treasury adopts SIGTARP\xe2\x80\x99s recommendation and\n its equity and the Government debt effectively ameliorates the leverage-on-leverage and \xe2\x80\x9cskin-in-the-game\xe2\x80\x9d issues\n with more Government debt through that were raised in the April Quarterly Report.\n TALF.\n Although Treasury has implemented most of SIGTARP\xe2\x80\x99s suggestions, SIGTARP\n Skin in the Game: Equity stake in an believes that there remain some significant areas in which Treasury\xe2\x80\x99s plan for PPIP\n investment; down payment; the maxi-\n falls short. As discussed below, SIGTARP has ongoing recommendations about\n mum amount an investor can lose.\n PPIP, including areas that could threaten the credibility of the program. To sum\n up the substantial back-and-forth between Treasury and SIGTARP concerning the\n design of the PPIP compliance and anti-fraud regime since the April Quarterly\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 175\n\n\n\n\nReport, the following can be stated:\n1. Treasury has fulfilled its statutory obligation to consult with SIGTARP with\n respect to the design of the PPIP Legacy Securities Program and has engaged\n repeatedly with SIGTARP (and the Federal Reserve and FRBNY, for that mat-\n ter) on the design of the compliance and anti-fraud provisions of PPIP.\n2. Treasury has adopted a majority of SIGTARP\xe2\x80\x99s recommendations, and the\n design of the PPIP Legacy Securities Program has been vastly improved from a\n compliance and anti-fraud perspective as compared to when the program was\n initially described to SIGTARP.\n3. However, disagreements remain, and SIGTARP believes that there remain\n several fundamental vulnerabilities in the program on issues relating to conflicts\n of interest and collusion, transparency, performance measures, and anti-money\n laundering.\n\nOngoing Recommendations\nAlthough Treasury has already identified the nine PPIF managers and released\nterm sheets detailing the basic framework of the PPIFs, final agreements have yet\nto be drafted, and Treasury still has the opportunity to improve the program before\nit is finally implemented. To that end, SIGTARP makes the following ongoing\nand as yet unadopted recommendations regarding the design of the PPIP Legacy\nSecurities Program.\n\n\xe2\x80\xa2 PPIP Recommendation #1 \xe2\x80\x94 Strict Walls: SIGTARP continues to recom-\n mend that Treasury require the imposition of strict information barriers or\n \xe2\x80\x9cwalls\xe2\x80\x9d between the PPIF managers making investment decisions on behalf of\n the PPIF and those employees of the fund management company who man-\n age non-PPIF funds. Treasury\xe2\x80\x99s failure to do so thus far constitutes a material\n deficiency in the program.\n\n Treasury\xe2\x80\x99s stated goal for PPIP is to \xe2\x80\x9crestart\xe2\x80\x9d the substantially frozen legacy\nsecurities markets. By its design, PPIP will provide the PPIF managers significant\npower to set prices for the legacy securities that they purchase in what Treasury has\ndescribed as an illiquid market. Under these circumstances, the trading decisions\nof PPIF managers \xe2\x80\x94 using investment vehicles that are 75% funded by taxpayer\nmoney \xe2\x80\x94 constitute valuable, proprietary, market-moving information. This price-\nsetting power and access to information that is unavailable to other participants in\nthe market (i.e., knowing what the PPIF will buy and at what price) could create\nopportunities for several kinds of abuses by PPIF managers, including the incentive\nto overpay for securities already held in the manager\xe2\x80\x99s non-PPIP funds or to use\ninformation about upcoming trading in PPIP to benefit its non-PPIF funds to the\n\x0c176 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n detriment of the PPIF or to those participants in the market that were not selected\n by Treasury to manage PPIF funds.\n A common method of dealing with this situation in which proprietary informa-\n tion in one part of a business could lead to improper advantages in another part\n of the business is the imposition of strict information barriers or walls wherein\n the market-moving information is insulated, or walled off, from the rest of the\n firm through separation of employees, facilities, or technology and/or policies and\n procedures limiting dissemination of the information. Here, SIGTARP believes that\n the best practice would be to impose a wall similar to those imposed by FRBNY in\n several of its financial crisis-related programs that would separate those individuals\n making investment decisions for the PPIF from pertinent information concerning\n non-PPIF funds, and vice-versa, but allowing fund managers to access the more\n general expertise of the firm, such as market research. Such a wall should also\n include information technology barriers, strict policies forbidding the dissemination\n of PPIF information within the firm, and a rigorous compliance regime to ensure\n enforcement of those policies. Thus, it would prohibit individuals making invest-\n ment decisions for the PPIF from managing other funds involving eligible assets.\n Treasury has refused to require walls in PPIP despite the fact that such walls\n have been imposed upon asset managers in similar contexts in other Government\n bailout-related programs, including by Treasury itself in other TARP-related activi-\n ties. For example, walls between the asset managers working for the Government\n and the rest of their firms are required in at least the following programs:\n\n \xe2\x80\xa2 FRBNY\xe2\x80\x99s Agency MBS Purchase Program (involving Goldman Sachs, PIMCO,\n BlackRock, Wellington)\n \xe2\x80\xa2 FRBNY\xe2\x80\x99s Commercial Paper Funding Facility (PIMCO)\n \xe2\x80\xa2 FRBNY\xe2\x80\x99s management of the Maiden Lane I, II, and III portfolios (BlackRock)\n \xe2\x80\xa2 In TALF, ethical walls are required for the collateral monitor that is tasked\n with providing advice to FRBNY on MBS valuations, and primary dealers have\n submitted conflict remediation plans that confirm that they have imposed walls\n isolating their business units that interact with TALF\n \xe2\x80\xa2 Treasury\xe2\x80\x99s management of assets obtained in TARP generally through financial\n agents (AllianceBernstein, FSI, Piedmont)\n \xe2\x80\xa2 TARP\xe2\x80\x99s Unlocking Credit for Small Businesses Program (\xe2\x80\x9cUCSB\xe2\x80\x9d) (Earnest\n Partners)\n\n Indeed, of the nine asset managers selected by Treasury to manage PPIFs, one-\n third of them (BlackRock, Wellington, and AllianceBernstein) are already required\n to operate walls in connection with other Government programs.\n Notwithstanding the fact that walls are common when a firm has access to\n information that it could use to the unfair advantage of others (i) in the industry\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 177\n\n\n\n\ngenerally, (ii) in other Government bailout program contexts, (iii) in other TARP-\nrelated programs, and (iv) with respect to at least some of the very firms that were\nselected as PPIF managers, Treasury has \xe2\x80\x9cconcluded that such an arrangement is\nsimply not practical in the context of PPIP.\xe2\x80\x9d In supporting this statement, Treasury\nhas explained its positions, which SIGTARP summarizes below:\n\n1. Treasury first suggests that \xe2\x80\x9c[r]equiring a segregated investment team would be\n likely to reduce investment performance of the PPIF,\xe2\x80\x9d arguing in particular that\n a segregation would preclude the PPIF from gaining the expertise of a manager\xe2\x80\x99s\n \xe2\x80\x9cA Team\xe2\x80\x9d (the most experienced and talented managers at a company) and\n would hinder \xe2\x80\x9cteam-oriented\xe2\x80\x9d investment processes.\n\n In this argument, Treasury seems to be suggesting that it can obtain either\ntalented managers or managers without inherent conflicts, but not both. Although\nSIGTARP noted in the April Quarterly Report that there may be difficulty selecting\nan experienced manager that is also non-conflicted, SIGTARP believes that such a\ndichotomy offers a false choice. In light of the amount of taxpayer money being in-\nvested in the PPIFs, Treasury should have the negotiating power to obtain compe-\ntent and unconflicted management for the PPIFs. If a particular fund management\ncompany cannot accommodate that basic requirement, then Treasury should reject\nthat company and retain one that can. Moreover, even if the dichotomy were as\nTreasury describes, in light of the substantial risks that a non-segregated manager\npresents to the taxpayer, to the PPIF private equity investors, and to the market as a\nwhole, SIGTARP submits that the program may very well be better served by com-\npetent, non-conflicted personnel even if they do not fit into Treasury\xe2\x80\x99s definition of\nwhat would constitute an \xe2\x80\x9cA Team.\xe2\x80\x9d\n\n2. Treasury next suggests that requiring segregated investment teams would actu-\n ally increase risk \xe2\x80\x9cby limiting fund manager participation in the PPIP,\xe2\x80\x9d arguing\n in particular that: many fund managers have indicated that they would withdraw\n if required to use a segregated investment team and thus Treasury would have\n to concentrate its investments in the hands of a few fund managers; requiring\n segregation would \xe2\x80\x9cundermine protections against fund manager misconduct,\xe2\x80\x9d\n because the team approach provides \xe2\x80\x9cchecks and balances within the organi-\n zation;\xe2\x80\x9d and implementing a wall would be time consuming, costly, and not\n feasible for many firms.\n\n To the extent that Treasury suggests that segregation would decrease participa-\ntion and thus lead to increased reliance on a few managers, it is not convincing that\nTreasury cannot find sufficient numbers of non-conflicted management compa-\nnies to do the job. Again, Treasury, which has the power to adjust its eligibility\n\x0c178 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n requirements for fund managers, should have sufficient bargaining power to\n mandate appropriate segregation in a sufficient number of firms (more than one\n hundred companies initially applied), particularly in light of the fact that three\n of its nine PPIF managers already abide by such walls in connection with other\n Government programs. In any event, even if segregation would lead to using fewer\n or different kinds of firms, in light of the seriousness of the risks associated with\n non-segregation of managers, it may well be that the program would be better\n served by a substantially different mix of non-conflicted firms rather than the cur-\n rent group of firms that are apparently unwilling to mitigate fully their conflicts.\n To the extent that this argument suggests that a wall would somehow increase\n the risk of misconduct by limiting detection opportunities among the \xe2\x80\x9cteam,\xe2\x80\x9d\n SIGTARP believes that such argument is without merit. Walls limit information\n flow between investment decision makers on one side of the wall and investment\n decision makers on the other; nothing about the institution of a wall minimizes\n compliance scrutiny or general supervision. To accept Treasury\xe2\x80\x99s argument might\n suggest that Treasury and FRBNY are increasing the risk of misconduct in a whole\n series of Government programs in which they require walls, including TARP-\n related programs, a contention that SIGTARP squarely rejects. At their core, walls\n or information barriers are designed to prevent an unfair benefit to the firm as a\n whole; it is simply not persuasive to argue that wider dissemination of such confi-\n dential, market-moving information would somehow reduce, rather than increase,\n that risk.\n\n 3. Treasury suggests that requiring segregated investment teams is not neces-\n sary, arguing in particular that (i) the PPIF managers \xe2\x80\x9cwill not have material\n non-public information from Treasury,\xe2\x80\x9d that Treasury is nothing but a passive\n investor that will not be sharing its market views, and that the most analogous\n FRBNY program is TALF, which does not involve similar segregation for TALF\n borrowers; (ii) that the other mitigation procedures are sufficient; and (iii) that a\n wall will not completely eliminate the risks of misconduct.\n\n The first part of this argument does not address the core risks associated with\n the market power being conveyed upon the individual fund managers. Although\n there may be differences between the mechanics of some of the Government pro-\n grams in which walls are required, they are distinctions without a difference. PPIP\n is structured in such a way that its managers have the ability \xe2\x80\x94 through massive\n amounts of taxpayer funds \xe2\x80\x94 to move, indeed, to set, prices in illiquid markets,\n an ability they would not have absent the Government funds with which they are\n being entrusted. That, in turn, makes information about PPIP transactions (what\n securities will be bought, and for how much) extremely valuable, irrespective of\n whether the decisions are being made by the PPIF manager or by Treasury, and\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 179\n\n\n\n\nirrespective of whether the investment decision is based on the fund manager\xe2\x80\x99s\nanalysis, proprietary Treasury information, or for that matter, by random chance.\nRecently, a Treasury official, in explaining Treasury\xe2\x80\x99s decision to require a wall for\nthose asset managers working for Treasury in connection with the CPP program,\nstated that walls are commonly used when a party has access to \xe2\x80\x9cmarket-moving,\xe2\x80\x9d\nproprietary information, such as Treasury\xe2\x80\x99s decision to sell certain assets. In PPIP,\nthere can be no reasonable dispute that a PPIF manager\xe2\x80\x99s decision to buy a par-\nticular MBS at a particular price with hundreds of millions of dollars of taxpayer\nfunds is market-moving, proprietary information. Moreover, Treasury\xe2\x80\x99s argument\nthat the walls in other Government programs are designed to prevent the sharing\nof the Government\xe2\x80\x99s market views fails to address the strict walls that are required\nby FRBNY for BlackRock in the Maiden Lane portfolios in which BlackRock has\ndiscretion over the trading activities, much like the PPIF managers. Indeed, it is\nworth noting that Treasury\xe2\x80\x99s PPIP ethical standards recognize the value of this\ninformation by imposing a rule that individual PPIF managers may not share their\npurchase decisions with investors or other fund managers (even though the PPIF\nmanagers themselves are permitted to manage other funds while having access to\nthis same information). The most straightforward and comprehensive protection\nagainst the improper use of market-moving information is an effective wall.\n Treasury\xe2\x80\x99s citation to the fact that TALF borrowers need not establish walls is\nalso not persuasive. Individual TALF borrowers do not have the price-setting power\nthat PPIF managers will have, and TALF, unlike PPIF, was not designed so that any\nsingle market participant would have the ability to set prices in an illiquid market.\nA better comparison within TALF is the relationship with the new collateral moni-\ntor (which provides certain valuation services to FRBNY), which is required to\nmaintain appropriate walls.\n SIGTARP believes that Treasury\xe2\x80\x99s next point \xe2\x80\x94 that the alternative mitigation\nprovisions in the program are sufficient \xe2\x80\x94 both underestimates the efficacy of walls\nand overestimates the ability to predict the ways that a fund manager can devise\nto take advantage of proprietary information. As noted above, Treasury is imposing\nsome significant provisions to mitigate the absence of a wall; the allocation policy,\nfor example, if properly implemented, should diminish the risk of \xe2\x80\x9cfront running,\xe2\x80\x9d\ni.e., using the PPIF trading information to buy securities at a relatively cheap price\nbefore the PPIF purchases move the market in those securities. Similarly, requiring\nthe fund manager to have its own \xe2\x80\x9cskin in the game\xe2\x80\x9d will also help align its interests\nwith the taxpayers\xe2\x80\x99 to a certain degree. These alone, however, are not sufficient.\nImagine a PPIF manager who is deciding which of 10 similar residential mortgage- Front Running: Entering into a trade\nbacked securities (\xe2\x80\x9cRMBS\xe2\x80\x9d) the PPIF will purchase. The fund manager knows while taking advantage of advance\nthat the PPIF purchase will significantly increase the market price of whichever knowledge of pending orders from\nsecurity is selected. With a wall in place, the manager should have every incentive other investors.\nto purchase the best securities at the lowest prices. Without a wall, the manager\n\x0c180 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n may already be managing a fund with a substantial position in one of those 10\n RMBS, and thus the manager would have every incentive to buy only that security,\n irrespective of quality, and at a price as high as possible in order to drive up the\n non-PPIF fund performance and thus the manager\xe2\x80\x99s own personal compensation.\n There are currently no mitigation procedures to address this issue, and indeed,\n there is nothing in place that would prevent a pre-approved manager from using\n the time period between his selection and the launch of the program from building\n a position in a security in non-PPIF funds with the intent of later using taxpayer\n funds to drive up the price of the security (and therefore his personal compensa-\n tion). Only by imposing a wall, and fully aligning the manager\xe2\x80\x99s compensation with\n the PPIF\xe2\x80\x99s performance, can this danger be averted.\n Even more fundamentally, a wall may provide some protection against the\n myriad other ways in which information on one side of the wall or the other could\n be used to generate illicit gains in non-PPIF funds. Can a creative manager make\n a profit by trading in the equity of an institution from which a PPIF is purchasing\n MBS? If a manager knows that the PPIF will be investing heavily in a particular\n MBS, can that manager participate in a derivative transaction involving that same\n security and thereby reap profits? Is there a member of the firm on the non-PPIF\n side of the wall who is willing to sell proprietary PPIF trading information to an-\n other firm? No one can answer these questions definitively, but one thing is certain:\n a wall will likely decrease the risks of these and similar unpredictable bad scenarios.\n If nothing else, the reputational risk that Treasury and the program face if a\n PPIF manager generates massive profits in its non-PPIF funds as a result of an un-\n fair informational advantage justifies the imposition of a wall. If this occurs, failure\n to impose a wall, on the other hand, will leave Treasury vulnerable to an accusation\n that has already been leveled against it by members of Congress and the media \xe2\x80\x94\n that Treasury is using TARP to pick winners and losers and that, by granting certain\n firms the PPIF manager status, Treasury is benefiting a chosen few at the expense\n of the dozens of firms that were rejected, the market as a whole, and the American\n taxpayer. This reputational risk is not one that can be readily measured in dollars\n and cents, but is a risk that could jeopardize what is left of the fragile trust the\n American people have in TARP and, by extension, their Government. As FRBNY\n has learned through developing its own programs, imposition of a wall is a small\n price to pay to guard against such risk.\n\n \xe2\x80\xa2 PPIP Recommendation #2 \xe2\x80\x94 Disclosure of Trading Activities in the\n PPIFs: SIGTARP recommends that Treasury periodically disclose PPIF trading\n activity and require PPIF managers to disclose to SIGTARP, within seven days\n of the close of the quarter, all trading activity, holdings, and valuations so that\n SIGTARP may disclose such information, subject to reasonable protections, in\n its quarterly reports.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 181\n\n\n\n\n As a matter of basic transparency, in light of the billions of dollars of taxpayer\nequity and loans that provide the majority of funding for the PPIFs, the public\nshould be permitted to know, to the greatest extent possible, the activity and\nholdings in the PPIFs. Such transparency not only dissuades misconduct and\npromotes sound management, but also promotes a better public understanding\nof PPIP and thus enhances the credibility of PPIP and TARP more broadly. Even\nmore importantly, the most significant investors in each PPIF, the American tax-\npayers, have a right to know the status of their investments. The lack of transpar-\nency as to what use TARP funds were put by recipients in other TARP programs,\nin SIGTARP\xe2\x80\x99s view, has damaged the credibility of TARP and therefore may have\nthreatened its viability; Treasury should not repeat that apparent error with PPIP.\nMoreover, disclosure of the PPIF transactions, and in particular the price at which\nsuch transactions occur, would appear to be required to bring about the \xe2\x80\x9cprice\ndiscovery\xe2\x80\x9d that Treasury has claimed as one of the core purposes of PPIP. Failure\nto provide transparency on trading prices and valuations creates a \xe2\x80\x9ctree falling in\nthe woods problem:\xe2\x80\x9d without such transparency, the market (other than the PPIF\nmanagers themselves) is far less likely to \xe2\x80\x9cdiscover\xe2\x80\x9d market prices in a way that will\nfacilitate re-starting trading outside of Government-supported efforts.\n Unfortunately, Treasury has stated that it will not require such disclosure \xe2\x80\x9cas\nthis would [do] harm to the fund\xe2\x80\x99s operation by revealing competitive and propri-\netary information regarding the fund\xe2\x80\x99s investment positions and strategy.\xe2\x80\x9d Instead,\nTreasury intends to disclose no more than the bare minimum required by stat-\nute \xe2\x80\x94 disclosure of only the 10 largest positions held in each PPIF. SIGTARP is\ncognizant of the fact that certain trading information may have, for a time, signifi-\ncant proprietary value and is not advocating unreasonably premature disclosure.\nHowever, Treasury\xe2\x80\x99s default position should be in favor of disclosure in a manner\ndesigned to promote price discovery in the legacy securities markets and to pro-\nmote transparency. SIGTARP has expressed its willingness to work with Treasury\nto find the right balance among the proprietary interests of the PPIF managers,\nthe public\xe2\x80\x99s interests in transparency, and the broader market\xe2\x80\x99s interests in price\ndiscovery.\n In light of Treasury\xe2\x80\x99s refusal to publish this information, to meet a basic level\nof transparency, and to meet SIGTARP\xe2\x80\x99s statutory obligation to report to Congress\nfor the preceding quarter \xe2\x80\x9call purchases\xe2\x80\x9d of troubled assets, \xe2\x80\x9c[a] list of the troubled\nassets purchased,\xe2\x80\x9d and \xe2\x80\x9cthe profit or loss incurred on each sale\xe2\x80\x9d of such assets,\nSIGTARP intends to include in its quarterly report the identity of the securities\npurchased, the purchase price, the amounts held, the sale prices, and the value\nof the taxpayer\xe2\x80\x99s positions, redacted as appropriate to avoid the dissemination of\nany confidential information that could harm the PPIF investment.451 Although\nTreasury has designed PPIP so that the troubled assets are technically its interests\n\x0c182 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n in the PPIFs, and not the actual toxic assets they purchase, SIGTARP does not\n believe that this absolves it from complying with the spirit, if not the letter, of its\n EESA requirements. These categories of information are no different than that\n typically disclosed on a periodic basis by mutual funds, for example, in SEC Forms\n N-Q and N-CSR. To fulfill this role, and in order to keep constant SIGTARP\xe2\x80\x99s\n Quarterly Report production schedule of providing transparency with the shortest\n delay possible, SIGTARP would need such data, along with any claims of confi-\n dentiality, within seven days of the end of a quarter; Treasury has indicated that\n delivery within 15 days would be \xe2\x80\x9creasonable and consistent with industry prac-\n tice.\xe2\x80\x9d Such a 15-day delivery would force SIGTARP to alter its scheduled issuance\n of Quarterly Reports by more than a week. Unless delivery within seven days proves\n impossible, \xe2\x80\x9cindustry practice\xe2\x80\x9d should not interfere with timely transparency.\n\n \xe2\x80\xa2 PPIP Recommendation #3 \xe2\x80\x94 Performance Metrics and Removal of the\n Manager: SIGTARP recommends that appropriate metrics be defined and an\n evaluation system be put in place to monitor the effectiveness of the PPIF man-\n agers, both to ensure that they are fulfilling the terms of their agreements and\n to measure their performance. The conditions that would give Treasury \xe2\x80\x9ccause\xe2\x80\x9d\n to remove a manager should be expanded to include a manager\xe2\x80\x99s performance\n below a certain standard benchmark, or if Treasury concludes that the manager\n has materially violated compliance or ethical rules.\n\n Treasury has indicated that it is in the process of developing appropriate\n measurement metrics, and SIGTARP will monitor the progress on this issue. As\n drafted, however, the provision in the term sheet relating to the removal of the\n PPIF manager may significantly limit Treasury\xe2\x80\x99s ability to remove a manager for\n poor performance or even for other significant malfeasance. As drafted, for ex-\n ample, Treasury may, in essence, only remove a manager with the consent of a\n majority of the private equity interests or for \xe2\x80\x9ccause.\xe2\x80\x9d Cause includes a breach of\n the capital contribution requirement or a formal (i.e., judicial) finding of fraud,\n gross, negligence, bad faith or willful misconduct, securities law violation, or a con-\n viction or guilty plea of a felony.452 To use an extreme example, if a fund manager is\n arrested for stealing from Treasury\xe2\x80\x99s equity portion of the PPIF for the benefit of its\n private investors, Treasury could not remove that manager until the manager was\n convicted (which could take years) unless a majority of the private equity investors\n (who, in this example, are the beneficiaries of the crime) consent. In light of the\n very significant role of TARP funds in the PPIFs, Treasury should obtain the ability\n to remove managers unilaterally under appropriate circumstances.\n\n \xe2\x80\xa2 PPIP Recommendation #4 \xe2\x80\x94 Disclosure of Holdings and Transactions in\n Related Assets: SIGTARP recommends that Treasury require fund managers to\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 183\n\n\n\n\n disclose to Treasury, as part of the Watch List process outlined in the PPIP term\n sheet, not only information about holdings in eligible assets but also holdings in\n related assets or exposures to related liabilities.\n\n As discussed previously in this section, at SIGTARP\xe2\x80\x99s suggestion, Treasury is\nrequiring PPIF managers to disclose to Treasury information about holdings in\neligible assets not only in the PPIF but also in the managers\xe2\x80\x99 non-PPIF funds. This\nis a very substantial step in the right direction and will be, if implemented properly,\na powerful tool to detect issues arising from conflicts of interest, collusion, and im-\nproper valuation. Treasury, however, has so far refused to require reporting beyond\neligible assets, and SIGTARP views this as a significant limitation. There are many\nasset types or liability exposures that could be held in a manager\xe2\x80\x99s non-PPIF fund\nwhose value is predictably tied to eligible assets and thus should be disclosed. For\nexample, credit default swaps or other derivative products could change in value\nbased upon a manager\xe2\x80\x99s PPIF investment decisions. Treasury should require disclo-\nsure about any such assets or potential liabilities.\n\n\xe2\x80\xa2 PPIP Recommendation #5 \xe2\x80\x94 Beneficial Ownership Issues: Treasury should\n require PPIF managers to obtain and maintain information about the beneficial\n ownership of all of the private equity interests, and Treasury should have the\n unilateral ability to prohibit participation of private equity investors.\n\n To its credit, Treasury has adopted many of the anti-money laundering and\n\xe2\x80\x9cKnow Your Customer\xe2\x80\x9d suggestions made by SIGTARP. However, two significant\nissues remain. First, although PPIF managers must provide Treasury with all infor-\nmation in their possession with respect to beneficial ownership of the private equity\ninterests, those rights are meaningless unless managers are required to obtain and\nmaintain such information in the first instance. Treasury should make that obliga-\ntion explicit. Moreover, Treasury should insist upon the unilateral right to prohibit\nparticipation of certain private investors. The resources to screen investors that\nare available to the managers simply do not match the resources of Treasury. If the\nGovernment finds that a potential investor is the subject of a criminal investigation,\nfor example, that fact might not be discoverable by the manager or discloseable by\nTreasury. The terrible toll on the program resulting from participation by organized\ncrime, terrorists, or fraudsters mandates that Treasury have unilateral authority to\nprohibit participation without explanation.\n\x0c184 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n CONTINUED USE OF RATINGS AGENCIES IN TALF\n SIGTARP made a series of recommendations to Treasury with respect to its par-\n ticipation in the implementation of TALF in both its Initial Report and its April\n Quarterly Report. Because the recommendations impact the Federal Reserve and\n FRBNY as the primary implementers of TALF, since January, SIGTARP has been\n in regular contact with the Federal Reserve and FRBNY to discuss those recom-\n mendations and the TALF compliance and anti-fraud regime more generally. The\n Federal Reserve and FRBNY have engaged constructively in those discussions,\n have adopted many of the recommendations, and have independently developed\n additional protections. As a result, TALF\xe2\x80\x99s design is far better, from a compliance\n and anti-fraud perspective, than it was when the program was first announced.\n The status of the implementation of SIGTARP\xe2\x80\x99s recommendations is set forth\n in Table 5.1 later in this section, and two letters from the Federal Reserve to the\n Special Inspector General describing plans for bolstering the protections in con-\n nection with the expansion of TALF to commerical mortgage-backed securities\n (\xe2\x80\x9cCMBS\xe2\x80\x9d), dated May 5, 2009, and May 22, 2009, are included in Appendix G:\n \xe2\x80\x9cCorrespondance Regarding SIGTARP Recommendations.\xe2\x80\x9d\n In the April Quarterly Report, one of SIGTARP\xe2\x80\x99s recommendations was that,\n with respect to the potential expansion of TALF to legacy RMBS, rating agency\n determinations should be dispensed with and a security-by-security screening for\n each legacy RMBS be implemented instead. Although the decision of whether\n RMBS will be permitted to be used as collateral in TALF is still under consider-\n ation, the Federal Reserve and FRBNY have informed SIGTARP that, in designing\n the TALF provisions relating to CMBS, they have taken several steps to reduce the\n importance of ratings from the credit rating agencies in determining the eligibility\n of CMBS. For example, FRBNY has engaged a collateral monitor that will assist\n it in excluding high-risk CMBS regardless of its rating. Although these measures\n represent a significant improvement of TALF, ratings from credit rating agencies\n remain an important, although not exclusive, asset-eligibility prerequisite in TALF:\n newly issued ABS must receive a AAA rating from two of three credit rating agen-\n cies (Standard & Poor\xe2\x80\x99s, Moody\xe2\x80\x99s Investors Service, and Fitch Ratings) and not\n have a rating of less than AAA from the third agency. For newly issued CMBS, a\n AAA rating is required from two of five eligible agencies (adding DBRS Inc. and\n Realpoint LLC) and, again, no lower rating from the other three can exist.\n Since SIGTARP\xe2\x80\x99s April Quarterly Report, there have been several developments\n that raise additional concerns about TALF\xe2\x80\x99s use of ratings agencies. Most ratings\n agencies, by the nature of their business model, have inherent conflicts of interest\n \xe2\x80\x94 they are paid by the issuers of the very securities that they are rating. As a result,\n the agency has an incentive to issue a high rating to attract future business from\n that issuer. As one commentator recently characterized the conflict, it would be as\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 185\n\n\n\n\nif Hollywood studios paid movie critics to review their films: any individual critic\nwould have a strong incentive to give a particular film a good review, even if it was\nterrible, out of fear that the studio would not give the critic future business. This\ninherent conflict played out with disastrous consequences in the recent credit crisis\nin which AAA ratings for many MBS, in particular certain classes of RMBS, had\nlittle or no relation to the creditworthiness of the securities.\n Over the last quarter, there has been reporting that these conflicts may be\nimpacting TALF. For example, Moody\xe2\x80\x99s Investors Services (\xe2\x80\x9cMoody\xe2\x80\x99s\xe2\x80\x9d), one of the\nmajor agencies that has been qualified to rate all TALF securities, has complained\nof a \xe2\x80\x9crace to the bottom,\xe2\x80\x9d in which issuers are selecting other agencies to rate TALF\nsecurities because they are employing lower standards and therefore are more likely\nto give a potential TALF security the necessary AAA rating. Although SIGTARP has\nnot yet undertaken any independent review of Moody\xe2\x80\x99s claims, its complaints fur-\nther highlight the dangers of relying on these inherently conflicted institutions. The\nexpansion from three to five of the number of rating agencies from which the issuer\nmay obtain ratings with respect to newly issued CMBS (albeit with one, Realpoint,\nthat does not receive payment from issuers), without an increase in the number of\nAAA ratings required, has the potential of giving issuers more incentives and oppor-\ntunities to take advantage of the conflicts inherent in the ratings process.\n\nRecommendation\n\xe2\x80\xa2 SIGTARP recommends that Treasury and FRBNY examine Moody\xe2\x80\x99s assertions\n and develop mechanisms to ensure that acceptance of collateral in TALF is\n not unduly influenced by the improper incentives to overrate that exist among\n the rating agencies. This may include further limiting the importance of credit\n ratings in TALF eligibility decisions, continuing to develop alternative methods\n of evaluating the creditworthiness of TALF collateral, and/or proportionally\n increasing the number of required AAA ratings from credit agencies whenever\n there is an increase in the number of eligible agencies.\n\n In response to this recommendation, the Federal Reserve has indicated that it\nhas discussed these concerns with the rating agencies and will continue to develop\nand enhance its risk management tools and processes as it refines the design of the\nexpanded TALF.\n\x0c186 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n REQUIRING RECIPIENTS TO ACCOUNT FOR USE\n OF TARP FUNDS\n From its inception, SIGTARP has advocated that, as a matter of fundamental\n transparency, Treasury should require TARP recipients to disclose what they have\n been able to do with TARP funds, and SIGTARP has made formal recommenda-\n tions along these lines in both its Initial Report and its April Quarterly Report.\n With the exception of mandating such reporting in a few of the extraordinary as-\n sistance agreements \xe2\x80\x94 most notably the Citigroup and Bank of America Targeted\n Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d) agreements and Treasury\xe2\x80\x99s recent agreement with\n American International Group, Inc. (\xe2\x80\x9cAIG\xe2\x80\x9d) \xe2\x80\x94 Treasury has refused to adopt this\n recommendation, arguing that the fungible nature of money would make such\n reports not \xe2\x80\x9cmeaningful.\xe2\x80\x9d Treasury instead decided to track the effects of the TARP\n funds by measuring institutions\xe2\x80\x99 lending over time.\n As a result of Treasury\xe2\x80\x99s refusal to require reporting more broadly on actual\n TARP fund use, SIGTARP decided to undertake the task itself by conducting a\n survey of more than 360 institutions that had received TARP funds through the\n end of January 2009. The results of the survey demonstrate that, despite the inher-\n ent fungibility of money, financial institutions are capable of providing at least basic\n narrative descriptions of how they used TARP funds. Although most banks reported\n that they did not segregate or track TARP fund usage on a dollar-for-dollar basis,\n they were able to provide insights into their actual or planned use of TARP funds;\n indeed, more than 98% of survey recipients reported their actual uses of TARP\n funds. Moreover, the results show that institutions commonly have used TARP\n funds in ways that will not immediately or directly register on a bank\xe2\x80\x99s lending re-\n port. In addition to activities that would directly lead to lending, for example, banks\n reported that TARP funds have been used in these ways:\n\n \xe2\x80\xa2 to increase capital cushions to absorb unexpected losses\n \xe2\x80\xa2 to purchase mortgage-backed securities, thus not resulting in lending by the\n bank itself, but supporting lending by other institutions in the MBS pipeline\n \xe2\x80\xa2 to pay down debt, thus de-leveraging the bank\xe2\x80\x99s balance sheet and improving its\n ability to withstand further economic downturn\n \xe2\x80\xa2 to acquire other banks\n\n All of these activities could be, depending on the circumstances, considered\n commercially reasonable, yet would not necessarily be captured by Treasury\xe2\x80\x99s lend-\n ing surveys.\n\n Treasury\xe2\x80\x99s reasons for refusing to adopt this recommendation have been\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 187\n\n\n\n\nsquarely refuted by SIGTARP\xe2\x80\x99s audit results and are belied by Treasury\xe2\x80\x99s own\ninclusion of use of funds provisions in its agreements with AIG, Bank of America,\nand Citigroup. Further, the claim that the information provided by banks would be\n\xe2\x80\x9cunreliable\xe2\x80\x9d is contradicted both by the threat of criminal penalty should a bank\nbe untruthful to Treasury, and Treasury\xe2\x80\x99s reliance on self-reporting throughout its\ncompliance regime. Imposition of a condition designed to foster basic transparency\nshould not be used as a punitive measure required of only those institutions that\nare compelled to seek extraordinary assistance, but rather should be an integral\nfeature of TARP as a whole.\n\nOngoing Recommendation\n\xe2\x80\xa2 To improve transparency over the use of funds, SIGTARP continues to recom-\n mend that the Treasury Secretary require TARP recipients to submit periodic\n reports to Treasury on their use of funds, including what they were able to do\n with their TARP funds, such as lending, investments, acquisitions, and other\n activities that they could not have conducted without TARP funding. SIGTARP\n also recommends that the Treasury Secretary require TARP recipients to retain\n all supporting documentation in conjunction with any reporting requirement\n that Treasury may impose.\n\n\n\nTRACKING THE IMPLEMENTATION OF\nRECOMMENDATIONS IN PREVIOUS REPORTS\nSIGTARP has now made dozens of individual recommendations, and updating\ncompliance of each one in narrative form is quickly becoming impractical. The\nfollowing table, Table 5.1, summarizes SIGTARP\xe2\x80\x99s prior recommendations, gives an\nindication of SIGTARP\xe2\x80\x99s view of the level of implementation to date, and provides\na brief explanation for that view where necessary. For more details on the recom-\nmendations, readers are directed to the Initial Report and April Quarterly Report.\nTreasury\xe2\x80\x99s views on the level of implementation of the recommendations are set\nforth in a letter to the Special Inspector General dated July 2, 2009, which is in-\ncluded in Appendix G: \xe2\x80\x9cCorrespondence Regarding SIGTARP Recommendations.\xe2\x80\x9d\n\x0cTABLE 5.1\n\nSIGTARP RECOMMENDATIONS TABLE 188\n Partially Not\n Recommendation Implemented Implemented In Process Implemented TBD Comments\n\n Treasury should include language in the automobile industry\n transaction term sheet acknowledging SIGTARP\xe2\x80\x99s oversight\n1\n role and expressly giving SIGTARP access to relevant docu-\n ments and personnel.\n X\n Treasury should include language in new TARP agreements\n to facilitate compliance and oversight. Specifically, SIGTARP\n recommends that each program participant should (1) ac-\n knowledge explicitly the jurisdiction and authority of SIGTARP\n and other oversight bodies, as relevant, to oversee compli- Although Treasury has made substantial ef-\n ance of the conditions contained in the agreement in question, forts to comply with this recommendation in\n2 (2) establish internal controls with respect to that condition, many of its agreements, there are exceptions,\n (3) report periodically to the Compliance department of the including in its agreements with servicers in\n Office of Financial Stability (\xe2\x80\x9cOFS-Compliance\xe2\x80\x9d) regarding the MHA.\n implementation of those controls and its compliance with\n the condition, and (4) provide a signed certification from an\n appropriate senior official to OFS-Compliance that such report\n is accurate. X\n Treasury agreed to do so in late January, but\n as of the drafting of this report, it has still\n SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n All existing TARP agreements, as well as those governing new not posted 220 CPP agreements as well as\n3 transactions, should be posted on the Treasury website as contracts with Bank of America (TIP) and TALF\n soon as possible. on its website listing of contracts. Treasury\n has stated that it will have all agreements on\n X its website by August 15, 2009.\n Treasury requires all TARP recipients to report on the actual\n4 See discussion in this section.\n use of TARP funds. X\n Treasury quickly determines its going-forward valuation meth-\n5\n odology. X\n Treasury begins to develop an overall investment strategy to\n6 address its portfolio of stocks and decide whether it intends to\n exercise warrants of common stock. X\n Although Treasury and the Federal Reserve\n In formulating the structure of TALF, Treasury should consider\n have not adopted minimum underwriting\n requiring, before committing TARP funds to the program, that\n standards in TALF, they have adopted other\n7 certain minimum underwriting standards and/or other fraud\n significant fraud prevention and credit protec-\n prevention mechanisms be put in place with respect to the\n tion measures. SIGTARP will continue to moni-\n ABS and/or the assets underlying the ABS used for collateral.\n X tor the effectiveness of these measures.\n Agreements with TALF participants should include an acknowl-\n edgement that: (1) they are subject to the oversight of OFS-\n Compliance and SIGTARP, (2) with respect to any condition im-\n8 posed as part of TALF, that the party on which the condition is\n imposed is required to establish internal controls with respect\n to each condition, report periodically on such compliance, and\n provide a certification with respect to such compliance. X\n Continued on next page.\n\x0cSIGTARP RECOMMENDATIONS TABLE (CONTINUED)\n Partially Not\n Recommendation Implemented Implemented In Process Implemented TBD Comments\n Treasury should give careful consideration before agreeing to Implementation is in process with respect to\n the expansion of TALF to include MBS without a full review of CMBS, as discussed earlier in this section,\n9\n risks that may be involved and without considering certain mini- but remains to be determined with regard to\n mum fraud protections. X RMBS.\n Treasury should oppose any expansion of TALF to legacy MBS Although expansion of TALF to legacy CMBS\n10 without significant modifications to the program to ensure a full is in process, no decision has been made with\n assessment of risks associated with such an expansion. X respect to including legacy RMBS.\n Although Treasury is in the process of\n developing a valuation strategy, it has not\n committed to making its estimate of the value\n Treasury should formalize its valuation strategy and begin\n11 of its investments public on more than the\n providing values of the TARP investments to the public.\n minimum required by statute \xe2\x80\x94 annually \xe2\x80\x94\n even though it is receiving monthly valuation\n X summaries from its asset managers.\n The Federal Reserve and Treasury continue to\n Treasury and the Federal Reserve should provide to SIGTARP, oppose this basic aspect of transparency in\n12 for public disclosure, the identity of the borrowers who sur- the TALF program. SIGTARP intends to revisit\n render collateral in TALF. this issue with the Federal Reserve once a\n X collateral surrender takes place.\n13 In TALF, Treasury should dispense with rating agency deter-\n minations and require a security-by-security screening for\n each legacy RMBS. Treasury should refuse to participate if\n the program is not designed so that RMBS, whether new or\n No decision has yet been made with respect\n legacy, will be rejected as collateral if the loans backing par-\n to expanding TALF to include RMBS.\n ticular RMBS do not meet certain baseline underwriting criteria\n or are in categories that have been proven to be riddled with\n fraud, including certain undocumented subprime residential\n mortgages. X\n14 In TALF, Treasury should require significantly higher haircuts Implementation is in process with respect to\n for all MBS, with particularly high haircuts for legacy RMBS, or CMBS, as discussed earlier in this section,\n other equally effective mitigation efforts. but remains to be determined with regard to\n X RMBS.\n15 Treasury should require additional anti-fraud and credit protec- Implementation is in process with respect to\n tion provisions, specific to all MBS, before participating in an CMBS, as discussed earlier in this section,\n expanded TALF, including minimum underwriting standards and but remains to be determined with regard to\n other fraud prevention measures. X RMBS.\n16 Treasury should design a robust compliance protocol with\n complete access rights to all TALF transaction participants for\n itself, SIGTARP, and other relevant oversight bodies. X\n17 Treasury should not allow Legacy Securities PPIFs to invest Term sheets indicate that Treasury will adopt\n in TALF unless significant mitigating measures are included to this recommendation through mitigating\n address these dangers. measures that address the concerns raised\n X by this recommendation.\n18 All TALF modeling and decisions, whether on haircuts or any\n QUARTERLY REPORT TO CONGRESS I JULY 21, 2009\n\n\n\n\n other credit or fraud loss mechanisms, should account for po-\n tential losses to Government interests broadly, including TARP\n funds, and not just potential losses to the Federal Reserve. X\n Continued on next page.\n 189\n\x0cSIGTARP RECOMMENDATIONS TABLE (CONTINUED) 190\n Partially Not\n Recommendation Implemented Implemented In Process Implemented TBD Comments\n19 Treasury should address the confusion and uncertainty on\n Although not immediate or final, Treasury did\n executive compensation by immediately issuing the required\n issue regulations on June 15, 2009.\n regulations. X\n20 Treasury should significantly increase the staffing levels of\n OFS-Compliance and ensure the timely development and imple-\n mentation of an integrated risk management and compliance\n program. X\n21 Treasury should require CAP participants to (1) establish an\n internal control to monitor their actual use of TARP funds, (2)\n provide periodic reporting on their actual use of TARP funds,\n (3) certify to OFS-Compliance, under the penalty of criminal Treasury has reported that in its draft docu-\n sanction, that the report is accurate, that the same criteria of ments it is including \xe2\x80\x9cmost of the suggestions\n internal controls and regular certified reports should be applied of SIGTARP,\xe2\x80\x9d but is refusing to adopt a use of\n to all conditions imposed on CAP participants, and (4) acknowl- funds reporting requirement.\n edge explicitly the jurisdiction and authority of SIGTARP and\n other oversight bodies, as appropriate, to oversee conditions\n contained in the agreement. X\n22 Treasury should impose strict conflicts-of-interest rules upon\n PPIF managers across all programs that specifically address\n whether and to what extent the managers can (i) invest PPIF\n SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n\n funds in legacy assets that they hold or manage on behalf of See discussion in this section.\n themselves or their clients or (ii) conduct PPIF transactions\n with entities in which they have invested on behalf of them-\n selves or others. X\n23 Treasury should require that all PPIF fund managers (1) have\n stringent investor-screening procedures, including comprehen-\n sive \xe2\x80\x9cKnow Your Customer\xe2\x80\x9d requirements at least as rigorous\n as that of a commercial bank or retail brokerage operation to\n prevent money laundering and the participation of actors prone See discussion in this section.\n to abusing the system, and (2) be required to provide Treasury\n with the identities of all of the beneficial owners of the private\n interests in the fund so that Treasury can do appropriate dili-\n gence to ensure that investors in the funds are legitimate. X\n24 Treasury should require most-favored-nation clauses, PPIF\n managers to acknowledge that they owe Treasury a fiduciary Term sheets indicate that Treasury will adopt\n duty, and that each manager adopt a robust ethics policy and this recommendation.\n compliance apparatus. X\n25 Treasury should require servicers in MHA to submit third-party Treasury is requiring servicers to obtain and\n verified evidence that the applicant is residing in the subject retain such information, which is a significant\n property before funding a mortgage modification. improvement, but is not requiring submission\n of such evidence prior to authorizing funding\n to the servicers. It is, however, considering\n protocols whereby an agent will obtain third-\n party verification of residence during the loan\n X review process.\n Continued on next page.\n\x0cSIGTARP RECOMMENDATIONS TABLE (CONTINUED)\n Partially Not\n Recommendation Implemented Implemented In Process Implemented TBD Comments\n26 In MHA, Treasury should require a closing-like procedure be\n conducted that would include (1) a closing warning sheet that\n would warn the applicant of the consequences of fraud; (2)\n the notarized signature and thumbprint of each participant; Treasury is not adopting a closing-like\n (3) mandatory collection, copying, and retention of copies of procedure or addressing many aspects of\n identification documents of all participants in the transaction; this recommendation. It is, however, requiring\n (4) verbal and written warnings regarding hidden fees and certain written requirements: (1) a fraud\n payments so that applicants are made fully aware of them; (5) warning sheet to each applicant, (2) warnings\n the benefits to which they are entitled under the program (to about fees, (3) requiring servicers to maintain\n prevent a corrupt servicer from collecting payments from the records of payment allocation.\n Government and not passing the full amount of the subsidies\n to the homeowners); and (6) the fact that no fee should be\n charged for the modification. X\n27 Additional anti-fraud protections should be adopted in MHA to\n verify the identity of the participants in the transaction and to\n Treasury has stated that it will take steps to\n address the potential for servicers to steal from individuals\n address this recommendation.\n receiving Government subsidies without applying them for the\n benefit of the homeowner. X\n28 In MHA, Treasury should require the servicer to compare the After refusing to adopt this recommendation,\n income reported on a mortgage modification application with Treasury has adopted an alternative method\n the income reported on the original loan application. of income verification at SIGTARP\xe2\x80\x99s\n X recommendation.\n29 In MHA, Treasury should require that verifiable, third-party in-\n formation be obtained to confirm an applicant\xe2\x80\x99s income before\n any modification payments are made. X\n30 In MHA, Treasury should defer payment of the $1,000 incen- Treasury has not addressed the deficiency\n tive to the servicer until after the homeowner has verifiably identified in SIGTARP\xe2\x80\x99s April Quarterly Report.\n made a minimum number of payments under the mortgage It continues to rely on servicer representa-\n modification program. tions that the homeowner has made three trial\n payments before entering the program, but\n does not require any minimum payments after\n X a mortgage enters the program.\n31 In MHA, Treasury should proactively educate homeowners\n about the nature of the program, warn them about modification\n rescue fraudsters, and publicize that no fee is necessary to\n participate in the program. X\n32 In MHA, Treasury should require its agents to keep track of the Treasury has refused to adopt this significant\n names and identifying information for each participant in each anti-fraud measure designed to detect insid-\n mortgage modification transaction and to maintain a database ers who are committing large-scale fraud.\n of such information. This represents a material deficiency in the\n X MHA anti-fraud regime.\n Continued on next page.\n QUARTERLY REPORT TO CONGRESS I JULY 21, 2009\n 191\n\x0c192 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 193\n\n\n\nENDNOTES\n1. Treasury, response to SIGTARP data call, 7/8/2009.\n2. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n3. Congress, \xe2\x80\x9cS. 896 As Amended; Helping Families Save Their Homes Act of 2009,\xe2\x80\x9d 5/6/2009, http://www.congress.org/congressorg/issues/votes/?votenum=185&chamber=S&congress=1111, accessed 6/29/2009.\n4. Helping Families Save Their Homes Act of 2009, P.L. 111-22, 5/20/2009.\n5. Congressional Budget Office, \xe2\x80\x9cThe Troubled Asset Relief Program: Report on Transactions Through June 17, 2009,\xe2\x80\x9d 6/2009, http://www.cbo.gov/ftpdocs/100xx/doc10056/TARP.pdf, accessed 6/29/2009.\n6. Helping Families Save Their Homes Act of 2009, P.L. 111-22, 5/20/2009.\n7. As of 6/30/2009, CPP repayments total $70.1 billion and AIFP loan repayments (Chrysler Financial) total $130.8 million.\n8. Treasury, response to SIGTARP data call, 7/8/2009.\n9. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.\n10. Treasury, response to SIGTARP data call, 7/8/2009.\n11. Treasury, \xe2\x80\x9cFactsheet on Capital Purchase Program,\xe2\x80\x9d 3/17/2009, http://www.financialstability.gov/roadtostability/CPPfactsheet.htm, accessed 6/8/2009.\n12. Source for funds invested and funds repaid is: Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009. Source for projected funding total is: Treasury,\n Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009.\n13. Treasury, \xe2\x80\x9cTreasury White Paper: The Capital Assistance Program and Its Role in the Financial Stability Plan,\xe2\x80\x9d no date, http://www.treas.gov/press/releases/reports/tg40_capwhitepaper.pdf, accessed 6/8/2009.\n14. Treasury, \xe2\x80\x9cTreasury White Paper: The Capital Assistance Program and Its Role in the Financial Stability Plan,\xe2\x80\x9d no date, http://www.treas.gov/press/releases/reports/tg40_capwhitepaper.pdf, accessed 6/8/2009.\n15. Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Overview of Results,\xe2\x80\x9d 5/7/2009, http://www.financialstability.gov/docs/SCAPresults.pdf, accessed 6/15/2009.\n16. Treasury, \xe2\x80\x9cPrograms,\xe2\x80\x9d 5/7/2009, http://www.financialstability.gov/roadtostability/programs.htm, accessed 6/8/2009.\n17. The $40 billion Series D cumulative preferred shares were effectively converted to $41.6 billion Series D non-cumulative preferred without any cash outlay by Treasury.\n18. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n19. Treasury, response to SIGTARP draft report, 7/9/2009.\n20. Treasury, \xe2\x80\x9cTargeted Investment Program,\xe2\x80\x9d 3/26/2009, http://www.financialstability.gov/roadtostability/targetedinvestmentprogram.html, accessed 6/8/2009.\n21. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n22. Treasury, Section 102 Report, 12/31/2008, http://www.treas.gov/press/releases/reports/0010208%20sect%20102.pdf, accessed 6/8/2009.\n23. Treasury Press Release, \xe2\x80\x9cU.S. Government Finalizes Terms of Citi Guarantee Announced in November,\xe2\x80\x9d 1/16/2009, http://www.financialstability.gov/latest/hp1358.html, accessed 6/8/2009.\n24. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n25. Treasury, SIGTARP meeting on Bank of America, 6/25/2009.\n26. Treasury, response to SIGTARP draft report, 7/9/2009.\n27. Treasury, response to SIGTARP data call, 7/8/2009.\n28. Federal Reserve Board, response to SIGTARP draft report, 7/9/2009.\n29. This number was calculated by summing the March, April, May, and June TALF loan subscriptions. Federal Reserve Bank of New York, \xe2\x80\x9cTerm Asset-Backed Securities Loan Facility,\xe2\x80\x9d no date, http://www.newyorkfed.org/markets/talf_operations.\n html, accessed 6/15/2009.\n30. Treasury, \xe2\x80\x9cPublic-Private Investment Program,\xe2\x80\x9d 4/6/2009, http://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 6/30/2009.\n31. FDIC Press Release, \xe2\x80\x9cFDIC Statement on the Status of the Legacy Loan Program,\xe2\x80\x9d 6/3/2009, http://www.fdic.gov/news/news/press/2009/pr09084.html, accessed 6/29/2009.\n32. Treasury, \xe2\x80\x9cPublic-Private Investment Program,\xe2\x80\x9d 4/6/2009, http://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 6/9/2009.\n33. Treasury, \xe2\x80\x9cUnlocking Credit for Small Businesses Fact Sheet,\xe2\x80\x9d 3/17/2009, http://www.financialstability.gov/roadtostability/unlockingCreditforSmallBusinesses.html, accessed 6/10/2009.\n34. Treasury, \xe2\x80\x9cGuidelines for Automotive Industry Financing Program,\xe2\x80\x9d no date, http://www.financialstability.gov/docs/AIFP/AIFP_guidelines.pdf, accessed 6/8/2009.\n35. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n36. Treasury, \xe2\x80\x9cAuto Supplier Support Program: Stabilizing the Auto Industry at a Time of Crisis, no date, http://www.treas.gov/press/releases/docs/supplier_support_program_3_18.pdf, accessed 6/15/2009.\n37. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n38. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n39. Treasury, Office of Financial Stability, Auto Team, GAO interview, 6/5/2009.\n40. Treasury Press Release, \xe2\x80\x9cRelief for Responsible Homeowners One Step Closer Under New Treasury Guidelines,\xe2\x80\x9d 3/4/2009, http://www.financialstability.gov/latest/tg48.html, accessed 6/10/2009.\n41. Treasury, \xe2\x80\x9cMaking Home Affordable: Updated Detailed Program Description,\xe2\x80\x9d 3/4/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 6/10/2009.\n42. Treasury, \xe2\x80\x9cMaking Home Affordable: Updated Detailed Program Description,\xe2\x80\x9d 3/4/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 6/10/2009.\n43. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/8/2009.\n44. Treasury, \xe2\x80\x9cInterim Assistant Secretary for Financial Stability Neel Kashkari Review of the Financial Market Crisis and the Troubled Asset Relief Program,\xe2\x80\x9d 1/13/2009, www.treas.gov, accessed 3/16/2009.\n45. Treasury, \xe2\x80\x9cTreasury Releases Capital Purchase Program Term Sheets for Mutual Holding Companies,\xe2\x80\x9d 4/7/2009, www.financialstability.gov/latest/tg-04072009.html, accessed 6/1/2009.\n46. Treasury, \xe2\x80\x9cTreasury Releases Capital Purchase Program Term Sheets for Mutual Banks,\xe2\x80\x9d 4/14/2009, www.financialstability.gov/latest/tg88.html, accessed 6/5/2009.\n47. Treasury, Tranche Report, 6/3/2009, www.financialstability.gov/docs/TrancheReports/7th_Tranche-Report-Appendix.pdf, accessed 6/5/2009.\n48. Treasury, \xe2\x80\x9cTreasury Releases Capital Purchase Program Term Sheets for Mutual Holding Companies,\xe2\x80\x9d 4/7/2009, www.financialstability.gov/latest/tg-04072009.html, accessed 6/1/2009.\n49. Treasury, \xe2\x80\x9cTreasury Releases Capital Purchase Program Term Sheets for Mutual Holding Companies,\xe2\x80\x9d 4/7/2009, www.financialstability.gov/latest/tg-04072009.html, accessed 6/1/2009.\n50. Treasury, \xe2\x80\x9cTreasury Releases Capital Purchase Program Term Sheets for Mutual Banks,\xe2\x80\x9d 4/14/2009, www.financialstability.gov/latest/tg88.html, accessed 6/5/2009.\n51. Treasury, \xe2\x80\x9cRemarks by Secretary Geithner before the Independent Community Bankers of America Annual Washington Policy Summit,\xe2\x80\x9d 5/13/2009, www.financialstability.gov/latest/tg127.html, accessed 6/1/2009.\n52. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transactions-reports/transactions-report-0702.pdf, accessed 7/2/2009.\n53. American Recovery and Reinvestment Act of 2009, P.L. 111-5, 2/17/2009.\n54. Treasury, \xe2\x80\x9cThe Treasury Capital Assistance Program and the Supervisory Capital Assessment Program,\xe2\x80\x9d 5/6/2009, http://www.financialstability.gov/latest/tg91.html, accessed 5/8/2009.\n55. Federal Reserve, \xe2\x80\x9cFederal Reserve outlines criteria it will use to evaluate applications to redeem U.S. Treasury capital,\xe2\x80\x9d 6/1/2009, www.federalreserve.gov, accessed 6/2/2009.\n56. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transactions-reports/transactions-report-0702.pdf, accessed 7/2/2009.\n57. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.\n58. Treasury, \xe2\x80\x9cTreasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,\xe2\x80\x9d 6/26/2009, http://www.financialstability.gov/latest/tg_06262009.html, accessed 6/26/2009.\n59. Treasury, CPP Securities Purchase Agreements, various dates; www.financialstability.gov, accessed 7/4/2009.\n60. American Recovery and Reinvestment Act of 2009, P.L. 111-5, 2/17/2009.\n61. Helping Families Save Their Homes Act of 2009, P.L.111-22, 5/20/2009.\n62. Treasury, \xe2\x80\x9cTreasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,\xe2\x80\x9d 6/26/2009, www.financialstability.gov/latest/tg_06262009.html, accessed 6/26/2009.\n63. Treasury, \xe2\x80\x9cTreasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,\xe2\x80\x9d 6/26/2009, www.financialstability.gov/latest/tg_06262009.html, accessed 6/26/2009.\n64. Treasury, CPP Securities Purchase Agreements, various dates; www.financialstability.gov, accessed 7/4/2009.\n65. Treasury, CPP Securities Purchase Agreements, various dates; www.financialstability.gov, accessed 7/4/2009.\n66. Treasury, \xe2\x80\x9cTreasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,\xe2\x80\x9d 6/26/2009, www.financialstability.gov/latest/tg_06262009.html, accessed 6/26/2009.\n67. Treasury, CPP Securities Purchase Agreements, various dates; www.financialstability.gov, accessed 7/4/2009.\n68. Congressional Oversight Panel, \xe2\x80\x9cJuly Oversight Report: TARP Repayments, Including the Repurchase of Stock Warrants,\xe2\x80\x9d 7/10/2009, http://cop.senate.gov/documents/cop-071009-report.pdf, accessed 7/13/2009.\n69. Treasury, CPP Securities Purchase Agreements, various dates; www.financialstability.gov, accessed 7/4/2009.\n70. Treasury, \xe2\x80\x9cTreasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,\xe2\x80\x9d 6/26/2009, www.financialstability.gov/latest/tg_06262009.html, accessed 6/26/2009.\n71. Congressional Oversight Panel, \xe2\x80\x9cJuly Oversight Report: TARP Repayments, Including the Repurchase of Stock Warrants,\xe2\x80\x9d 7/10/2009, http://cop.senate.gov/documents/cop-071009-report.pdf, accessed 7/13/2009.\n72. Treasury, CPP Securities Purchase Agreements, various dates; www.financialstability.gov, accessed 7/4/2009.\n73. Treasury, \xe2\x80\x9cTreasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,\xe2\x80\x9d 6/26/2009, www.financialstability.gov/latest/tg_06262009.html, accessed 6/26/2009.\n74. Treasury, \xe2\x80\x9cTreasury Announces Warrant Repurchase and Disposition Process for the Capital Purchase Program,\xe2\x80\x9d 6/26/2009, www.financialstability.gov/latest/tg_06262009.html, accessed 6/26/2009.\n75. Treasury, CPP Securities Purchase Agreements, various dates; www.financialstability.gov, accessed 7/4/2009.\n76. This does not include the $60 million warrant repurchase by State Street Corporation as of the drafting of this report.\n77. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transactions-reports/transactions-report-0702.pdf, accessed 7/2/2009.\n78. Treasury, Tranche Report, 6/3/2009, www.financialstability.gov/docs/TrancheReports/7th_Tranche-Report-Appendix.pdf, accessed 6/5/2009.\n79. Treasury, \xe2\x80\x9cTreasury Releases First Monthly Bank Lending Survey,\xe2\x80\x9d 2/17/2009, www.treas.gov, accessed 3/19/2009.\n80. Treasury, response to SIGTARP data call, 3/31/2009.\n81. Treasury, \xe2\x80\x9cTreasury Releases April Monthly Bank Lending Survey,\xe2\x80\x9d 6/15/2009, www.financialstability.gov/latest/06152009_banksurvey.html, accessed 6/16/2009.\n82. Treasury, \xe2\x80\x9cFinancial Stability Plan,\xe2\x80\x9d 2/10/2009, www.financialstability.gov/latest/tg21.html, accessed 6/5/2009.\n83. Treasury, \xe2\x80\x9cCapital Assistance Program,\xe2\x80\x9d 3/3/2009, www.financialstability.gov/roadtostability/capitalassistance.html, accessed 6/5/2009.\n84. Treasury, \xe2\x80\x9cTreasury White Paper: The Capital Assistance Program and Its Role in the Financial Stability Plan,\xe2\x80\x9d no date, www.treas.gov, accessed 3/25/2009.\n85. Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Overview of Results,\xe2\x80\x9d 5/7/2009, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf, accessed 7/2/2009.\n86. Treasury, \xe2\x80\x9cStatement from Treasury Secretary Tim Geithner Regarding the Treasury Capital Assistance Program and the Supervisory Capital Assessment Program,\xe2\x80\x9d 5/7/2009, www.fianncialstability.gov, accessed 5/7/2009.\n87. Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Design and Implementation,\xe2\x80\x9d 4/24/2009, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090424a1.pdf, 7/3/2009.\n88. Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Design and Implementation,\xe2\x80\x9d 4/24/2009, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090424a1.pdf, 7/3/2009.\n89. Treasury, Transactions Report, http://www.financialstability.gov/docs/transactions-reports/transactionreport-070209.pdf, accessed 7/8/2009.\n90. Treasury, Stress Test Briefing, 5/8/2009.\n91. Tier One Common is a regulatory standard while TCE is a commonly used market term; both terms refer to similar types of capital.\n92. Federal Reserve, response to SIGTARP draft report, 7/10/2009.\n93. Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Design and Implementation,\xe2\x80\x9d 4/24/2009, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090424a1.pdf, 7/3/2009.\n94. Department of Labor, \xe2\x80\x9cThe Employment Situation: May 2009,\xe2\x80\x9d 6/5/2009, www.bls.gov, accessed 6/30/2009.\n95. Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Design and Implementation,\xe2\x80\x9d 4/24/2009, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090424a1.pdf, 7/3/2009.\n96. Treasury, Stress Test Briefing, 5/8/2009.\n97. Federal Reserve Press Release, \xe2\x80\x9cBanking organizations have submitted capital plans to bolster their capital,\xe2\x80\x9d 6/8/2009, www.federalreserve.gov/newsevents/press/bcreg/20090608b.htm, accessed 6/8/2009.\n98. Federal Reserve Press Release, \xe2\x80\x9cBanking organizations have submitted capital plans to bolster their capital,\xe2\x80\x9d 6/8/2009, www.federalreserve.gov/newsevents/press/bcreg/20090608b.htm, accessed 6/8/2009.\n99. Treasury, \xe2\x80\x9cThe Treasury Capital Assistance Program and the Supervisory Capital Assessment Program,\xe2\x80\x9d 5/6/2009, www.financialstability.gov/latest/tg91.html, accessed 5/19/2009.\n100. Treasury, Stress Test Briefing, 5/8/2009.\n101. Treasury, Stress Test Briefing, 5/8/2009.\n102. Treasury, \xe2\x80\x9cPrograms,\xe2\x80\x9d 5/7/2009, www.financialstability.gov/roadtostability/programs.htm, accessed 6/9/2009.\n103. Treasury Press Release, \xe2\x80\x9cTreasury to Invest in AIG Restructuring Under the Emergency Economic Stabilization Act,\xe2\x80\x9d 11/10/2008, www.financialstability.gov/latest/hp1261.html, accessed 6/9/2009.\n104. Treasury Press Release, \xe2\x80\x9cU.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan,\xe2\x80\x9d 3/2/2009, www.financialstability.gov/latest/tg44.html, accessed 6/9/2009.\n105. Treasury, \xe2\x80\x9cSecurities Exchange Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.E.Securities.\n\x0c194 SPECIAL INSPECTOR GENERAL I TROUBLED ASSET RELIEF PROGRAM\n\n\n\n Exchange.Agreement.pdf, accessed 6/8/2009.\n 106. Treasury Press Release, \xe2\x80\x9cU.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan,\xe2\x80\x9d 3/2/2009, www.financialstability.gov/latest/tg44.html, accessed 6/9/2009.\n 107. American International Group, Inc., 10-Q, \xe2\x80\x9cQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,\xe2\x80\x9d 3/31/2009, www.sec.gov/Archives/edgar/data/5272/000095012309008272/y76976e10vq.htm, accessed\n 6/15/2009.\n 108. American International Group, Inc., 10-Q, \xe2\x80\x9cQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,\xe2\x80\x9d 3/31/2009, www.sec.gov/Archives/edgar/data/5272/000095012309008272/y76976e10vq.htm, accessed\n 6/15/2009.\n 109. Treasury, \xe2\x80\x9cSecurities Exchange Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.E.Securities.\n Exchange.Agreement.pdf, accessed 6/8/2009.\n 110. Treasury, American International Group, Inc. \xe2\x80\x9cTerm Sheet,\xe2\x80\x9d 3/2/2009, www.treas.gov/press/releases/reports/030209_aig_term_sheet.pdf, accessed 6/9/2009.\n 111. Treasury, \xe2\x80\x9cSecurities Exchange Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.E.Securities.\n Exchange.Agreement.pdf, accessed 6/8/2009.\n 112. Treasury, American International Group, Inc. \xe2\x80\x9cReplacement Capital Covenant,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Replacement%20Capital%20Covenant.pdf, accessed 6/9/2009.\n 113. American International Group, Inc., 10-Q, \xe2\x80\x9cQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,\xe2\x80\x9d 3/31/2009, www.sec.gov/Archives/edgar/data/5272/000095012309008272/y76976e10vq.htm, accessed\n 6/15/2009.\n 114. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 115. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009 between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 116. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 117. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 118. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 119. Treasury, response to SIGTARP draft report, 7/9/2009.\n 120. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 121. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 122. Treasury, \xe2\x80\x9cSecurities Purchase Agreement dated as of April 17, 2009, between American International Group, Inc. and United States Department of the Treasury,\xe2\x80\x9d 4/17/2009, www.financialstability.gov/docs/agreements/Series.F.Securities.\n Purchase.Agreement.pdf, accessed 6/8/2009.\n 123. American International Group, Inc. Press Release, \xe2\x80\x9cAIG Positioning AIA and ALICO as Independent Operations; Federal Reserve Bank of New York to Own Preferred Interests in AIA and ALICO SPVs; Upon Closing, Debt Owed by AIG to\n FRBNY To Be Reduced by $25 Billion,\xe2\x80\x9d 6/25/2009.\n 124. Treasury Press Release, \xe2\x80\x9cU.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan,\xe2\x80\x9d 3/2/2009, www.financialstability.gov/latest/tg44.html, accessed 6/9/2009.\n 125. Treasury Press Release, \xe2\x80\x9cU.S. Treasury and Federal Reserve Board Announce Participation in AIG Restructuring Plan,\xe2\x80\x9d 3/2/2009, www.financialstability.gov/latest/tg44.html, accessed 6/9/2009.\n 126. American International Group, Inc., 10-Q, \xe2\x80\x9cQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,\xe2\x80\x9d 3/31/2009, www.sec.gov/Archives/edgar/data/5272/000095012309008272/y76976e10vq.htm, accessed\n 6/8/2009.\n 127. American International Group, Inc., 10-Q, \xe2\x80\x9cQuarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,\xe2\x80\x9d 3/31/2009, www.sec.gov/Archives/edgar/data/5272/000095012309008272/y76976e10vq.htm, accessed\n 6/8/2009.\n 128. Treasury, \xe2\x80\x9cTreasury Releases Guidelines for Targeted Investment Program,\xe2\x80\x9d 1/2/2009, www.treas.gov, accessed 1/9/2009.\n 129. Treasury, \xe2\x80\x9cAsset Guarantee Program,\xe2\x80\x9d 3/2/2009, www.financialstability.gov/roadtostability/assetguaranteeprogram.htm, accessed 6/5/2009.\n 130. Treasury, \xe2\x80\x9cU.S. Government Finalizes Terms of Citi Guarantee Announced in November,\xe2\x80\x9d 1/16/2009, www.financialstability.gov/latest/hp1358.html, accessed 6/5/2009.\n 131. Citigroup, \xe2\x80\x9cCiti Announces Public Share Exchange Launch, Finalizes Definitive Agreement with U.S. Government,\xe2\x80\x9d 6/10/2009, www.citigroup.com/citi/press/2009/090610a.htm, accessed 6/10/2009.\n 132. Treasury Press Release, \xe2\x80\x9cTreasury Announces Participation in Citigroup\xe2\x80\x99s Exchange Offering,\xe2\x80\x9d 2/27/2009, http://www.financialstability.gov/latest/tg41.html, accessed 7/21/2009.\n 133. Citigroup, \xe2\x80\x9cCiti Announces Public Share Exchange Launch, Finalizes Definitive Agreement with U.S. Government,\xe2\x80\x9d 6/10/2009, www.citigroup.com/citi/press/2009/090610a.htm, accessed 6/10/2009.\n 134. Citigroup, 8-K, 6/9/2009, http://sec.gov/Archives/edgar/data/831001/000095010309001394/dp13784_8k.htm, accessed 6/10/2009.\n 135. Federal Reserve, \xe2\x80\x9cThe Supervisory Capital Assessment Program: Overview of Results,\xe2\x80\x9d 5/7/2009, http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090507a1.pdf, accessed 7/2/2009.\n 136. Citigroup, \xe2\x80\x9cCiti Announces Public Share Exchange Launch, Finalizes Definitive Agreement with U.S. Government,\xe2\x80\x9d 6/10/2009, www.citigroup.com/citi/press/2009/090610a.htm, accessed 6/10/2009.\n 137. Citigroup, Exchange Agreement, 6/9/2009, http://sec.gov/Archives/edgar/data/831001/000119312509128765/dex103.htm, accessed 6/10/2009.\n 138. 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Isaac Chairman, the Secura Group of LECG Former Chairman, Federal Deposit Insurance Corporation before the Subcommittee on Capital Markets, Insurance, and Government Sponsored\n Enterprises,\xe2\x80\x9d 3/12/2009, www.house.gov/apps/list/hearing/financialsvcs_dem/isaac031209.pdf, accessed 6/15/2009.\n 188. House of Representatives, \xe2\x80\x9cTestimony of Robert H. Herz, Chairman Financial Accounting Standards Board before the U.S. House of Representatives Financial Services Subcommittee On Capital Markets, Insurance, and Government Sponsored\n Entities,\xe2\x80\x9d 3/12/2009, www.fasb.org/testimony/03-12-09_prepared_statement.pdf, accessed 6/15/2009.\n 189. FASB Press Release, Fasb.org/news accessed 6/15/2009.\n 190. FASB Press Release, Fasb.org/news accessed 6/15/2009.\n 191. House of Representatives, \xe2\x80\x9cTestimony of Robert H. 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Herz, Chairman Financial Accounting Standards Board before the U.S. House of Representatives Financial Services Subcommittee On Capital Markets, Insurance, and Government Sponsored\n Entities,\xe2\x80\x9c 3/12/2009, www.fasb.org/testimony/03-12-09_prepared_statement.pdf, accessed 6/15/2009.\n194. House of Representatives, \xe2\x80\x9cTestimony of Robert H. Herz, Chairman Financial Accounting Standards Board before the U.S. House of Representatives Financial Services Subcommittee On Capital Markets, Insurance, and Government Sponsored\n Entities,\xe2\x80\x9c 3/12/2009, www.fasb.org/testimony/03-12-09_prepared_statement.pdf, accessed 6/15/2009.\n195. House of Representatives, \xe2\x80\x9cTestimony of Robert H. Herz, Chairman Financial Accounting Standards Board before the U.S. House of Representatives Financial Services Subcommittee On Capital Markets, Insurance, and Government Sponsored\n Entities,\xe2\x80\x9c 3/12/2009, www.fasb.org/testimony/03-12-09_prepared_statement.pdf, accessed 6/15/2009.\n196. Treasury, \xe2\x80\x9cPublic-Private Investment Program: Fact Sheet,\xe2\x80\x9d 3/23/2009, www.treas.gov, accessed 6/15/2009.\n197. FDIC Press Release, 6/3/2009, www.fdic.gov/news/news/press/2009/pr09084.html, accessed 6/3/2009.\n198. Treasury, \xe2\x80\x9cPublic-Private Investment Program: Fact Sheet,\xe2\x80\x9d 3/23/2009, www.treas.gov, accessed 6/15/2009.\n199. Treasury, \xe2\x80\x9cPublic-Private Investment Program: Fact Sheet,\xe2\x80\x9d 3/23/2009, www.treas.gov, accessed 6/15/2009.\n200. Treasury, \xe2\x80\x9cPublic-Private Investment Program: White Paper,\xe2\x80\x9d 3/23/2009, www.treas.gov, accessed 6/15/2009.\n201. 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Treasury, \xe2\x80\x9cLetter of Intent and Term Sheet,\xe2\x80\x9d 7/8/2009, www.financialstability.gov/docs/S-PPIP_LOI_Term-Sheets.pdf, accessed 7/8/2009.\n210. Treasury, \xe2\x80\x9cLetter of Intent and Term Sheet,\xe2\x80\x9d 7/8/2009, www.financialstability.gov/docs/S-PPIP_LOI_Term-Sheets.pdf, accessed 7/8/2009.\n211. Treasury, \xe2\x80\x9cLegacy Securities Public-Private Investment Program Compliance and Risk Management,\xe2\x80\x9d 7/2/2009.\n212. Treasury, \xe2\x80\x9cUnlocking Credit for Small Businesses Fact Sheet,\xe2\x80\x9d 3/16/2009, www.financialstability.gov/roadtostability/unlockingCreditforSmallBusinesses.html, accessed 3/17/2009.\n213. Small Business Administration, \xe2\x80\x9cQ&A for Small Business Owners,\xe2\x80\x9d no date, www.treas.gov/press/releases/reports/tg58_smallbiz_qa.pdf, accessed 6/30/2009.\n214. 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Treasury, \xe2\x80\x9cObama Administration\xe2\x80\x99s New Warranty Commitment Program,\xe2\x80\x9d 3/30/2009, www.financialstability.gov/docs/WarranteeCommitmentProgram.pdf, accessed 6/9/2009.\n226. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/2/2009.\n227. Treasury, Office of Financial Stability Auto Team, GAO interview, 6/5/2009.\n228. Newton, Grant W., Bankruptcy and Insolvency Accounting, Volume 1, Sixth Ed., New York: John Wiley & Sons, Inc., 2000.\n229. Marrama v. Citizens Bank, 549 U.S. 365, 367 (2007).\n230. Grogan v. Garner, 498 U.S. 279, 286 (1991) (citing Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934)).\n231. U.S. Courts, \xe2\x80\x9cThe Discharge in Bankruptcy \xe2\x80\x93 Bankruptcy Basics,\xe2\x80\x9d no date, www.uscourts.gov/bankruptcycourts/bankruptcybasics/discharge.html, accessed 6/9/2009.\n232. 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Under particular conditions, creditors and other parties in interest may also file a \xe2\x80\x9cplan of reorganization.\xe2\x80\x9d See 11 U.S.C. \xc2\xa7 1121(c).\n238. Mini Code Special Redlined Edition, United States Bankruptcy Code, 2006 Ed., Texas: AWHFY, L.P., 2005.\n239. U.S. Courts, \xe2\x80\x9cUnited States Bankruptcy Courts,\xe2\x80\x9d no date, www.uscourts.gov/bankruptcycourts.html, accessed 6/15/2009.\n240. If any creditors had objected, their objections would have been aired at the court hearing where they could either have been overruled by the court, or the court could have ordered Sample Company to address the concerns and submit a new\n plan. Further, if any creditors continued to disagree with the plan after 120 days from the petition, they could choose to submit their own plan or in fact propose to convert to a liquidating version of Chapter 11 or to Chapter 7.\n241. Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/docs/transaction-reports/transactions-report_070209.pdf, accessed 7/2/2009.\n242. Treasury, \xe2\x80\x9cChrysler February 17 Plan: Viability Determination,\xe2\x80\x9d 3/30/2009, www.financialstability.gov/docs/AIFP/Chrysler-Viability-Assessment.pdf, accessed 6/10/2009.\n243. Treasury, \xe2\x80\x9cObama Administration Auto Restructuring Initiative: Chrysler-Fiat Alliance,\xe2\x80\x9d 4/30/2009, www.financialstability.gov/docs/AIFP/Chrysler-restructuring-factsheet_043009.pdf, accessed 6/9/2009.\n244. Treasury, Office of Financial Stability Auto Team, GAO interview, 6/5/2009.\n245. Treasury, Office of Financial Stability Auto Team, GAO interview, 6/5/2009.\n246. Treasury, \xe2\x80\x9cObama Administration Auto Restructuring Initiative: Chrysler-Fiat Alliance,\xe2\x80\x9d 4/30/2009, www.financialstability.gov/docs/AIFP/Chrysler-restructuring-factsheet_043009.pdf, accessed 6/9/2009.\n247. 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Through JPMorgan Chase Bank, N.A.,\xe2\x80\x9d no date, www.federalreserve.gov/monetarypolicy/\n files/129bearstearnsbridgeloan.pdf, accessed 6/17/2009.\n 367. Federal Reserve, \xe2\x80\x9cReport Pursuant to Section 129 of the Emergency Economic Stabilization Act of 2008: Bridge Loan to The Bear Stearns Companies Inc. Through JPMorgan Chase Bank, N.A.,\xe2\x80\x9d no date, www.federalreserve.gov/monetarypolicy/\n files/129bearstearnsbridgeloan.pdf, accessed 6/17/2009.\n 368. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008, Section 135.\n 369. FDIC, \xe2\x80\x9cYour Insured Deposits,\xe2\x80\x9d www.fdic.gov/deposit/Deposits/insured/, accessed 6/23/2009.\n 370. FDIC, \xe2\x80\x9cYour Insured Deposits,\xe2\x80\x9d www.fdic.gov/deposit/Deposits/insured/, accessed 6/23/2009.\n 371. Congressional Budget Office, \xe2\x80\x9cThe Budget and Economic Outlook: Fiscal Years 2009-2019, 1/2009, p. 41, www.cbo.gov/doc.cfm?index=9957&type=3, accessed 5/14/2009.\n 372. GAO, \xe2\x80\x9cFinancial Audit: Federal Deposit Insurance Corporation Funds\xe2\x80\x99 2008 and 2007 Financial Statements,\xe2\x80\x9d 5/2009, www.gao.gov/new.items/d09535.pdf, accessed 7/2/2009.\n 373. FDIC, Chief Financial Officer\xe2\x80\x99s Report to the Board, First Quarter 2009, www.fdic.gov/about/strategic/corporate/cfo_report_1stqtr_09/exec_summary.html, accessed 7/10/2009.\n 374. FDIC, Press Release, 11/28/2008, www.fdic.gov/news/news/press/2008/pr08122.html, accessed 6/23/2009.\n 375. FDIC Press Release, 11/28/2008, www.fdic.gov/news/news/press/2008/pr08122.html, accessed 6/23/2009.\n 376. FDIC \xe2\x80\x9cYour Insured Deposits,\xe2\x80\x9d www.fdic.gov/deposit/Deposits/insured, accessed 6/23/2009.\n 377. FDIC, Press Release, 11/28/2008, www.fdic.gov/news/news/press/2008/pr08122.html, accessed 6/23/2009.\n 378. FDIC \xe2\x80\x9cAmendment of the Temporary Liquidity Guarantee Program To Extend the Debt Guarantee Program and To Impose Surcharges on Assessments for Certain Debt Issued on or After April 1, 2009,\xe2\x80\x9d 74 Federal Register 26,521\xe2\x80\x9326,525,\n 6/3/2009, www.fdic.gov/regulations/laws/federal/2009/09FinalAD37.pdf, accessed 6/24/2009.\n 379. FDIC, \xe2\x80\x9cYour Insured Deposits,\xe2\x80\x9d www.fdic.gov/deposit/Deposits/insured, accessed 6/23/2009.\n 380. FDIC, Financial Institution Letters, \xe2\x80\x9cPotential Extension of the Transaction Account Guarantee Program Notice of Proposed Rulemaking,\xe2\x80\x9d 6/23/2009, www.fdic.gov/news/news/financial/2009/fil09034.html, accessed 6/24/2009.\n 381. Treasury Press Release, \xe2\x80\x9cTreasury Announces Temporary Guarantee Program for Money Market Funds,\xe2\x80\x9d 9/29/2008, www.treas.gov/press/releases/hp1161.htm, accessed 6/24/2009.\n 382. Treasury Press Release, \xe2\x80\x9cTreasury Announces Temporary Guarantee Program for Money Market Funds,\xe2\x80\x9d 9/29/2008, www.treas.gov/press/releases/hp1161.htm, accessed 6/24/2009.\n 383. Treasury Press Release, \xe2\x80\x9cTreasury Announces Extension of Temporary Guarantee Program for Money Market Funds,\xe2\x80\x9d 3/31/2009, www.ustreas.gov/press/releases/tg76.htm, accessed 6/24/2009.\n 384. Treasury Press Release, \xe2\x80\x9cTreasury Announces Guaranty Program for Money Market Funds,\xe2\x80\x9d 9/18/2008, www.treasury.gov/press/releases/hp1147.htm, accessed 6/24/2009.\n 385. Federal Reserve Board Statistical Release Z.1, Flow of Funds Accounts of the United States, 6/11/2009, Table L.206, www.federalreserve.gov/release/z1/Current, accessed 6/11/2009.\n 386. House Financial Services Committee, \xe2\x80\x9cSummary of Housing and Economic Recovery Act of 2008,\xe2\x80\x9d www.financialservices.house.gov/FHA.html, accessed 6/25/2009.\n 387. White House, FY 2010 Budget, www.whitehouse.gov/omb/budget/fy2010/assets/gov.pdf, accessed 6/25/2009.\n 388. White House, FY 2010 Budget, www.whitehouse.gov/omb/budget/fy2010/assets/gov.pdf, accessed 6/25/2009.\n 389. Treasury, \xe2\x80\x9cBudget in Brief FY 2010,\xe2\x80\x9d www.ustreas.gov/offices/management/budget/budgetinbrief/fy2010/BIB-HousingGSE.pdf, accessed 6/25/2009.\n 390. House Financial Services Committee, Summary of Housing and Economic Recovery Act of 2008, financialservices.house.gov/FHA.html, accessed 6/25/2009; Treasury, \xe2\x80\x9cMBS Purchase Program Fact Sheet,\xe2\x80\x9d 9/7/2008, www.ustreas.gov/press/\n releases/reports/mbs_factsheet_090708hp1128.pdf, accessed 6/28/2009.\n 391. Treasury, \xe2\x80\x9cBudget in Brief FY 2010,\xe2\x80\x9d www.ustreas.gov/offices/management/budget/budgetinbrief/fy2010/BIB-HousingGSE.pdf, accessed 6/25/2009.\n 392. Treasury, \xe2\x80\x9cBudget in Brief FY 2010,\xe2\x80\x9d www.ustreas.gov/offices/management/budget/budgetinbrief/fy2010/BIB-HousingGSE.pdf, accessed 6/25/2009.\n 393. Treasury, \xe2\x80\x9cBudget in Brief FY 2010,\xe2\x80\x9d www.ustreas.gov/offices/management/budget/budgetinbrief/fy2010/BIB-HousingGSE.pdf, accessed 6/25/2009.\n 394. House Financial Services Committee, \xe2\x80\x9cSummary of Housing and Economic Recovery Act of 2008,\xe2\x80\x9d financialservices.house.gov/FHA.html, accessed 6/25/2009.\n 395. Federal Register, Vol. 74, No. 10, 1/15/2009, \xe2\x80\x9cNotices\xe2\x80\x9d pp. 2518\xe2\x80\x932522, www.federalstudentaid.ed.gov/ffelp/library/EA43FedReg.pdf, accessed 6/26/2009\n 396. Treasury, \xe2\x80\x9cFact Sheet: IMF Reforms and New Arrangements to Borrow,\xe2\x80\x9d 5/18/2009, www.treas.gov/press/releases/tg136.htm, accessed 6/25/2009.\n 397. Federal Housing Finance Agency, \xe2\x80\x9cAbout FHFA,\xe2\x80\x9d no date, www.fhfa.gov/Default.aspx?Page=4, accessed 6/28/09.\n 398. Congressional Budget Office, \xe2\x80\x9cFederal Subsidies and the Housing GSEs, Appendix A: Responses to Analyses of the Congressional Budget Office\xe2\x80\x99s 1996 Subsidy Estimates,\xe2\x80\x9d 5/2001, www.cbo.gov/doc.cfm?index=2841&type=0&sequence=7,\n accessed 7/1/2009.\n 399. Federal Reserve, \xe2\x80\x9cFlow of Funds Report,\xe2\x80\x9d 6/2009; Federal Housing Finance Agency, \xe2\x80\x9cThe Housing GSEs,\xe2\x80\x9d presentation by James B. Lockhart II, Chairman, 12/10/2008, www.fhfa.gov/webfiles/216/WHF121008webversion.pdf, accessed\n 6/28/2009.\n 400. Council of Federal Home Loan Banks, www.fhlbanks.com, accessed 7/14/2009.\n\x0c QUARTERLY REPORT TO CONGRESS I JULY 21, 2009 197\n\n\n401. Federal Housing Finance Agency, \xe2\x80\x9cThe Housing GSEs,\xe2\x80\x9d presentation by James B. Lockhart II, Chairman, 12/10/2008, www.fhfa.gov/webfiles/216/WHF121008webversion.pdf, accessed 6/28/2009.\n402. National Credit Union Administration, \xe2\x80\x9cAbout NCUA,\xe2\x80\x9d no date, www.ncua.gov, accessed 6/28/2009.\n403. National Credit Union Administration, \xe2\x80\x9cNational Credit Union Share Insurance Fund Preliminary Financial Highlights,\xe2\x80\x9d 3/31/2009, www.ncua.gov/Resources/Reports/ncusif/2009/Mar09PRELIMNETREPORT.pdf, accessed 6/28/2009.\n404. National Credit Union Administration, \xe2\x80\x9cTCCULFP Notice,\xe2\x80\x9d www.ncua.gov/news/press_releases/2008/FINAL%20TCCULGP%20Fed%20Reg%20Notice%2011-12-2008.pdf, accessed 6/28/2009; for extension, see www.ncua.gov/news/press_\n releases/2009/MA09-0521b.htm, accessed 6/28/2009.\n405. National Credit Union Administration Media Advisory, \xe2\x80\x9cFryzel Announces Extension of Temporary Corporate Credit Union Liquidity Guarantee Program,\xe2\x80\x9d 5/21/2009, www.ncua.gov/news/press_releases/2009/MA09-0521b.htm, accessed\n 6/29/2009.\n406. National Credit Union Administration Media Advisory, \xe2\x80\x9cCorporate Credit Union Share Guarantee Program Revised, Extended,\xe2\x80\x9d 4/21/2009, www.ncua.gov/news/press_releases/2009/MA09-0421.htm, accessed 6/29/2009.\n407. National Credit Union Administration Media Advisory, \xe2\x80\x9cFryzel Announces Mortgage Relief Program for Consumers,\xe2\x80\x9d 11/18/2008, www.ncua.gov/news/press_releases/2008/MA08-1118a.htm, accessed 6/29/2009.\n408. National Credit Union Administration, \xe2\x80\x9cTerm Sheet for Credit Union System Investment Program,\xe2\x80\x9d www.ncua.gov/Resources/CLF/CU%20SIP%20Notes%20Term%20Sheet%2012%2009%202008.pdf, accessed 6/28/2009.\n409. Government National Mortgage Association, \xe2\x80\x9cAbout GNMA,\xe2\x80\x9d no date, www.ginniemae.gov/about/about.asp?section=about, accessed 6/28/2009.\n410. Government National Mortgage Association, \xe2\x80\x9cReport to Congress, Fiscal Year 2008,\xe2\x80\x9d 11/7/2008, www.ginniemae.gov/reporttocongress, accessed 6/28/2009.\n411. Federal Housing Administration, \xe2\x80\x9cMessage from the Chief Financial Officer,\xe2\x80\x9d 11/17/2008, p. 323, fhasecure.gov/offices/cfo/reports/section3.pdf, accessed 6/28/2009.\n412. Department of Veterans Affairs, \xe2\x80\x9cAbout VA Home Mortgage,\xe2\x80\x9d no date, www.homeloans.va.gov, accessed 6/28/2009.\n413. White House, \xe2\x80\x9cBudget FY 2009 \xe2\x80\x93 Department of Veterans Affairs,\xe2\x80\x9d www.whitehouse.gov/omb/budget/fy2009/veterans.html, accessed 6/28/2009.\n414. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.\n415. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.\n416. Treasury, response to SIGTARP data call, 7/8/2009.\n417. Treasury, response to SIGTARP data call, 7/8/2009.\n418. Treasury, response to SIGTARP data call, 7/8/2009.\n419. GAO-09-504, \xe2\x80\x9cTroubled Asset Relief Program: March 2009 Status of Efforts to Address Transparency and Accountability Issues,\xe2\x80\x9d 3/31/2009.\n420. Congressional Budget Office Press Release, 9/28/2008, www.cbo.gov, accessed 1/15/2009.\n421. Treasury, response to SIGTARP data call, 4/8/2009.\n422. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.\n423. White House Press Release, \xe2\x80\x9cPresident Obama Announces More Key Treasury Appointments,\xe2\x80\x9d 4/17/2009, www.whitehouse.gov/the_press_office/President-Obama-Announces-More-Key-Treasury-Appointments, accessed 6/4/2009.\n424. White House Press Release, \xe2\x80\x9cPresident Obama Announces More Key Treasury Appointments,\xe2\x80\x9d 4/17/2009, www.whitehouse.gov/the_press_office/President-Obama-Announces-More-Key-Treasury-Appointments, accessed 6/4/2009.\n425. Treasury Press Release, \xe2\x80\x9cInterim Final Rule on TARP Standards for Compensation and Corporate Governance,\xe2\x80\x9d 6/10/2009, www.ustreas.gov/press/releases/tg165.htm, accessed 6/24/2009.\n426. Treasury Press Release, \xe2\x80\x9cInterim Final Rule on TARP Standards for Compensation and Corporate Governance,\xe2\x80\x9d 6/10/2009, www.ustreas.gov/press/releases/tg165.htm, accessed 6/24/2009.\n427. Treasury Press Release, 4/22/2009, www.financialstability.gov/latest/tg100.html, accessed 6/4/2009.\n428. Treasury Press Release, 4/22/2009, www.financialstability.gov/latest/tg100.html, accessed 6/4/2009.\n429. Treasury Press Release, 4/22/2009, www.financialstability.gov/latest/tg100.html, accessed 6/4/2009.\n430. Treasury Press Release, 4/22/2009, www.financialstability.gov/latest/tg100.html, accessed 6/4/2009.\n431. Treasury, response to SIGTARP draft, 7/10/2009.\n432. OFS, OFS Asset Manager briefing report, 7/6/2009, OFS conference call.\n433. OFS, OFS Asset Manager briefing report, 7/6/2009, OFS conference call.\n434. OFS, OFS Asset Manager briefing report, 7/6/2009, OFS conference call.\n435. OFS, OFS Asset Manager briefing report, 7/6/2009, OFS conference call.\n436. OFS, response to SIGTARP data call, 6/30/2009.\n437. OFS, OFS Asset Manager Briefing, 7/6/2009, OFS conference call 7/6/2009.\n438. OFS, response to SIGTARP data call, 6/30/2009.\n439. OFS, conference call 7/6/2009.\n440. OFS, OFS Asset Manager Briefing, 7/6/2009, OFS conference call.\n441. OFS, OFS Asset Manager Briefing, 7/6/2009, OFS conference call.\n442. OFS, OFS Asset Manager Briefing, 7/6/2009, OFS conference call.\n443. OFS, OFS Asset Manager Briefing, 7/6/2009, OFS conference call.\n444. OFS, OFS Asset Manager Briefing, 7/6/2009, OFS conference call.\n445. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.\n446. Treasury Press Release, 10/6/2008, www.treasury.gov, accessed 1/15/2009.\n447. TARP Conflicts of Interest, Interim Rule, Billing Code 4810-25-P, 1/21/2009.\n448. GAO-09-161, \xe2\x80\x9cTroubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency,\xe2\x80\x9d 12/2/2008.\n449. GAO-09-161, \xe2\x80\x9cTroubled Asset Relief Program: Additional Actions Needed to Better Ensure Integrity, Accountability, and Transparency,\xe2\x80\x9d 12/2/2008.\n450. Treasury, \xe2\x80\x9cSummary Response to Recommendations in December 2008 GAO Report,\xe2\x80\x9d 1/22/2009.\n451. Emergency Economic Stabilization Act of 2008, P.L. 110-343, 10/3/2008.\n452. Treasury, \xe2\x80\x9cLetter of Intent and Term Sheet,\xe2\x80\x9d 7/8/2009, www.financialstability.gov/docs/S-PPIP_LOI_Term-Sheets.pdf, accessed 7/8/2009.\n\nSources for Figure 2.1: Treasury, Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009; Treasury, Transactions Report, 7/2/2009, http://www.financialstability.gov/\ndocs/transaction-reports/transactions-report_070209.pdf, accessed 7/6/2009; Treasury, \xe2\x80\x9cAuto Supplier Support Program: Stabilizing the Auto Industry in a Time of Crisis,\xe2\x80\x9d 3/19/2009, http://www.treas.\ngov/press/releases/docs/supplier_support_program_3_18.pdf, accessed 3/19/2009; Treasury, \xe2\x80\x9cUnlocking Credit for Small Businesses Fact Sheet,\xe2\x80\x9d 3/17/2009, http://www.financialstability.gov/roadto-\nstability/unlockingCreditforSmallBusinesses.html, accessed 6/10/2009; Treasury, \xe2\x80\x9cTreasury, Federal Reserve, and FDIC Provide Assistance to Bank of America,\xe2\x80\x9d 1/16/2009, http://www.treas.gov/press/\nreleases/hp1356.htm, accessed 1/16/2009; Treasury Press Release, \xe2\x80\x9cU.S. Government Finalizes Terms of Citi Guarantee Announced in November,\xe2\x80\x9d 1/16/2009, http://www.financialstability.gov/latest/\nhp1358.html, accessed 6/8/2009; Treasury, \xe2\x80\x9cFinancial Stability Plan Fact Sheet,\xe2\x80\x9d 2/10/2009, http://www.financialstability.gov/docs/fact-sheet.pdf, accessed 6/8/2009; Treasury, \xe2\x80\x9cMaking Home Affordable:\nUpdated Detailed Program Description,\xe2\x80\x9d 3/4/2009, http://www.treas.gov/press/releases/reports/housing_fact_sheet.pdf, accessed 6/10/2009; Treasury, \xe2\x80\x9cPublic-Private Investment Program,\xe2\x80\x9d 4/6/2009,\nhttp://www.financialstability.gov/roadtostability/publicprivatefund.html, accessed 6/9/2009.\n\n\n\nAPPENDICES\nA. Glossary* \xe2\x80\x93\nB. Acronyms and Abbreviations* \xe2\x80\x93\nC. Reporting Requirements 198\nD. Transaction Detail 202\nE. Public Announcement of Audits* \xe2\x80\x93\nF. Key Oversight Reports and Testimonies* \xe2\x80\x93\nG. Correspondence Regarding SIGTARP Recommendations 222\nH. Organizational Chart 257\n\n*Visit www.sigtarp.gov to view Appendix A: Glossary, Appendix B: Acronyms and Abbreviations,\nAppendix E: Public Announcement of Audits, Appendix F: Key Oversight Reports and Testimonies,\nand for further reference material.\n\x0c198 APPENDIX C I CROSS-REFERENCE TO REPORTING REQUIREMENTS I JULY 21, 2009\n\n\n\n\n CROSS-REFERENCE TO REPORTING REQUIREMENTS\n This appendix provides Treasury\xe2\x80\x99s responses to data call questions regarding the reporting requirements of the\n Special Inspector General for the Troubled Asset Relief Program outlined in EESA Section 121, as well as a\n cross-reference to related data presented in this report. Italics style indicates relevant narrative taken verbatim\n from source documents.\n\n EESA EESA Reporting SIGTARP\n # Section Requirement Treasury Response to SIGTARP Data Call Report Section\n 1 Section A description of Treasury posts several documents on its public website that are responsive to this ques- Section 2:\n 121(c)(A) the categories of tion, available at http://www.financialstability.gov/latest/reportsanddocs.html. Specifically, \xe2\x80\x9cTARP Overview\xe2\x80\x9d\n troubled assets tranche reports and reports required under section 105(a) of the Emergency Economic\n purchased or Stabilization Act of 2008 (EESA) describe, at a high level, Treasury\xe2\x80\x99s programs and troubled Appendix D:\n otherwise procured asset purchases. The transaction reports describe these purchases in detail, including \xe2\x80\x9cTransaction\n by the Secretary. the type of asset purchased, the identity of the institution selling the asset, and the price Detail\xe2\x80\x9d\n Treasury paid for the asset. Other sources for this information are the determinations signed\n by the Secretary of the Treasury, designating certain financial instruments as \xe2\x80\x9ctroubled as-\n sets\xe2\x80\x9d under section 3(9)(B) of EESA. Troubled asset determinations signed by the Treasury\n Secretary since March 30, 2009 are provided in response to [#3].\n\n Below are program descriptions from Treasury\xe2\x80\x99s FinancialStability.gov website, as of\n 6/30/2009:\n CPP: Treasury created the Capital Purchase Program (CPP) in October 2008 to stabilize the\n financial system by providing capital to viable financial institutions of all sizes throughout the\n nation. With a strengthened capital base, financial institutions have an increased capacity to\n lend to U.S. businesses and consumers and to support the U.S. economy.\n CAP: The purpose of the CAP is to restore confidence throughout the financial system that\n the nation\xe2\x80\x99s largest banking institutions have a sufficient capital cushion against larger than\n expected future losses, should they occur due to a more severe economic environment, and\n to support lending to creditworthy borrowers.\n SSFI: Systemically Significant Failing Institution Program (SSFI) was established to provide\n stability and prevent disruptions to financial markets from the failure of institutions that are\n critical to the functioning of the nation\xe2\x80\x99s financial system.\n AGP: The Asset Guarantee Program (AGP) provides government assurances for assets held\n by financial institutions that are critical to the functioning of the nation\xe2\x80\x99s financial system,\n which face a risk of losing the critical confidence that is needed for them to continue to lend\n to other banks.\n TIP: Treasury created the Targeted Investment Program (TIP) to stabilize the financial system\n by making investments in institutions that are critical to the functioning of the financial sys-\n tem. This program focuses on the complex relationships and reliance of institutions within\n the financial system. Investments made through the TIP seek to avoid significant market\n disruptions resulting from the deterioration of one financial institution that can threaten other\n financial institutions and impair broader financial markets and pose a threat to the overall\n economy.\n TALF: The TALF is designed to increase credit availability and support economic activity by\n facilitating renewed issuance of consumer and small business ABS at more normal interest\n rate spreads\xe2\x80\xa6 Under the TALF, the Federal Reserve Bank of New York (FRBNY) will provide\n non-recourse funding to any eligible borrower owning eligible collateral... The U.S. Treasury\xe2\x80\x99s\n Troubled Assets Relief Program (TARP) will purchase $20 billion of subordinated debt in\n an SPV created by the FRBNY. The SPV will purchase and manage any assets received by\n the FRBNY in connection with any TALF loans. Residual returns from the SPV will be shared\n between the FRBNY and the U.S. Treasury.\n\x0c CROSS-REFERENCE TO REPORTING REQUIREMENTS I APPENDIX C I JULY 21, 2009 199\n\n\n\n EESA EESA Reporting SIGTARP\n# Section Requirement Treasury Response to SIGTARP Data Call Report Section\n PPIP: To address the challenge of legacy assets, Treasury \xe2\x80\x93 in conjunction with the Federal\n Deposit Insurance Corporation and the Federal Reserve \xe2\x80\x93 has announced the Public-Private\n Investment Program as part of its efforts to repair balance sheets throughout our financial\n system and ensure that credit is available to the households and businesses, large and\n small, that will help drive us toward recovery... Using $75 to $100 billion in TARP capital\n and capital from private investors, the Public-Private Investment Program will generate $500\n billion in purchasing power to buy legacy assets \xe2\x80\x93 with the potential to expand to $1 trillion\n over time.\n UCSB: The Treasury Department will begin making direct purchases of securities backed by\n SBA loans to get the credit market moving again, and it will stand ready to purchase new\n securities to ensure that community banks and credit unions feel confident in extending new\n loans to local businesses.\n AIFP: The objective of the Automotive Industry Financing Program (AIFP) is to prevent a sig-\n nificant disruption of the American automotive industry, which would pose a systemic risk to\n financial market stability and have a negative effect on the economy of the United States...\n Treasury has issued loans to the automobile industry and received warrants, which are a\n form of equity in a company, in return. Treasury\xe2\x80\x99s loans to the automobile industry are work-\n ing to stabilize the financial system by addressing these companies\xe2\x80\x99 short term needs, while\n providing them enough time to craft restructuring plans that will help them achieve viability.\n ASSP: [ASSP] will provide up to $5 billion in financing, giving suppliers the confidence they\n need to continue shipping parts, pay their employees and continue their operations.\n AWCP: The Treasury Department announced an innovative new program to give consumers\n who are considering new car purchases the confidence that even in this difficult economic\n period, their warrantees will be honored. This program is part of the Administration\xe2\x80\x99s\n broader program to stabilize the auto industry and stand behind a restructuring effort that\n will result in stronger, more competitive and viable American car companies.\n HAMP (a program under MHA): The Home Affordable Modification program has a simple\n goal: reduce the amount homeowners owe per month to sustainable levels to stabilize\n communities. This program will bring together lenders, investors, servicers, borrowers,\n and the government, so that all stakeholders share in the cost of ensuring that responsible\n homeowners can afford their monthly mortgage payments \xe2\x80\x93 helping to reach up to 3 to 4\n million at-risk borrowers in all segments of the mortgage market, reducing foreclosures, and\n helping to avoid further downward pressures on overall home prices.\n\n2 Section A listing of the Treasury posts transaction reports for all the troubled asset purchases on its public website Appendix D:\n 121(c)(B) troubled assets within two business days after each transaction. Information on all transactions is avail- \xe2\x80\x9cTransaction\n purchased in each able at http://www.financialstability.gov/impact/transactions.htm. Since the publication of Detail\xe2\x80\x9d\n such category the SIGTARP Report in April, Treasury has continued to invest funds in financial institutions\n described under across the United States through the Capital Purchase Program (CPP), and as of May 31,\n [Section 121(c)(A)]. 2009 more than $15 billion has been allocated towards the Making Home Affordable Pro-\n gram. Guidelines for all TARP programs, which explain each program\xe2\x80\x99s scope and purpose\n are also posted on Treasury\xe2\x80\x99s website at http://www.financialstability.gov/roadtostability/\n programs.htm. Additional information about these programs and related purchases is avail-\n able in tranche reports and Section 105(a) reports, which are posted on Treasury\xe2\x80\x99s website.\n Information is also available in the troubled asset determinations attached as part of the\n response to [#3].\n\n3 Section An explanation of Pursuant to Section (3)(9)(B) of EESA, the Secretary of the Treasury periodically designates Section 2:\n 121(c)(C) the reasons the financial instruments as \xe2\x80\x9ctroubled assets\xe2\x80\x9d and submits written determinations to appropriate \xe2\x80\x9cTARP Overview\xe2\x80\x9d\n Secretary deemed committees of Congress. Attached below are all troubled asset determinations signed by\n it necessary to pur- the Secretary of the Treasury since Treasury responded to SIGTARP\xe2\x80\x99s previous data call on\n chase each such April 8, 2009. [Treasury provided determinations for HAMP, AIFP, and SSFI (AIG)]. Additional\n troubled asset. information on the TARP programs associated with these \xe2\x80\x9ctroubled assets\xe2\x80\x9d , including each\n program\xe2\x80\x99s scope and purpose, can be found online at http://www.financialstability.gov/\n roadtostability/programs.htm.\n\n4 Section A listing of each See #2 above See #2\n 121(c)(D) financial institution\n that such troubled\n assets were pur-\n chased from.\n\x0c200 APPENDIX C I CROSS-REFERENCE TO REPORTING REQUIREMENTS I JULY 21, 2009\n\n\n\n\n EESA EESA Reporting SIGTARP\n # Section Requirement Treasury Response to SIGTARP Data Call Report Section\n 5 Section A listing of and As of June 30, 2009, four financial institutions have been selected as financial agents to pro- Section 4:\n 121(c)(E) detailed biographi- vide asset management services to the Treasury. EARNEST Partners was engaged on March \xe2\x80\x9cTARP Operations\n cal information on 16, 2009 to provide asset management services for the Small Business Administration and Administra-\n each person or (SBA) related loans and securities. Detailed biographical information on EARNEST Partners tion\xe2\x80\x9d\n entity hired to man- was provided [to SIGTARP for incorporation in its July 2009 Quarterly Report]... As of June\n age such troubled 30, 2009, the Treasury and EARNEST Partners had not acquired any assets under the Small Appendix C:\n assets. Business Support Program. Therefore, there are no assets assigned to the asset manager. \xe2\x80\x9cReporting\n Requirements\xe2\x80\x9d\n On April 21, 2009, the Treasury selected AllianceBernstein L.P., FSI Group, LLC, and Pied- of SIGTARP\xe2\x80\x99s\n mont Investment Advisors, LLC as financial agents to provide asset management services April 21, 2009\n for the portfolio of equity securities, warrants and senior subordinated securities issued to Quarterly Report\n the Treasury by financial institutions. to Congress\n\n AllianceBernstein is a leading global investment management firm that offers high-quality\n research and diversified investment services to institutional clients, individuals and private\n clients in major markets around the world. The firm, headquartered in New York City,\n employs more than 500 investment professionals with expertise in growth equities, value\n equities, fixed-income securities, blend strategies and alternative investments.\n\n FSI Group LLC operates a multi-strategy investment platform focused on opportunities in the\n financial services sector. The firm, based in Cincinnati, specializes in financing and investing\n in banks, thrifts, insurance companies, REITs, real estate operating companies and other\n financial services firms.\n\n Piedmont Investment Advisors is a professional money management firm specializing in core\n equity and fixed-income management. The firm was founded in August 2000 and is based in\n Durham, North Carolina.\n The three asset management firms discussed above are collectively assigned to manage\n the assets issued to the Treasury under the CPP, with participating financial institution as-\n signed a single lead asset manager that is the Treasury\xe2\x80\x99s primary representative with that\n institution.\n\n 6 Section A current estimate This information is contained in our transactions reports, which are posted on Treasury\xe2\x80\x99s Obligations by\n 121(c)(F) of the total amount website at http://www.financialstability.gov/latest/reportsanddocs.html. The most recent Program provided\n of troubled assets TARP transactions report (as of June 30, 2009) [was provided to SIGTARP]. The transactions in Table C.1 below\n purchased pursu- report captures the total obligation under each TARP program.\n ant to any program Section 2:\n established under \xe2\x80\x9cTARP Overview\xe2\x80\x9d\n section 101, the\n amount of troubled Appendix D:\n assets on the \xe2\x80\x9cTransaction\n books of the Trea- Detail\xe2\x80\x9d\n sury, the amount\n of troubled assets\n sold, and the profit\n and loss incurred\n on each sale or\n disposition of each\n such troubled\n asset.\n 7 Section A listing of the On January 16, 2009, TARP closed on the guarantee transaction with Citigroup, as an- Section 2:\n 121(c)(G) insurance con- nounced in a joint statement by the Treasury, Federal Reserve and FDIC on November 23, \xe2\x80\x9cTARP Overview\xe2\x80\x9d\n tracts issued under 2008. No other insurance contracts have been issued as of June 30, 2009.\n section 102.\n\x0c CROSS-REFERENCE TO REPORTING REQUIREMENTS I APPENDIX C I JULY 21, 2009 201\n\n\n\n EESA EESA Reporting SIGTARP\n # Section Requirement Treasury Response to SIGTARP Data Call Report Section\n 8 Section A detailed The extent of Treasury\xe2\x80\x99s appropriation for TARP is described in section 118 of EESA. Obligations by\n 121(f) statement of Treasury\xe2\x80\x99s authority to purchase troubled assets is described in section 115 of EESA. The Program provided\n all purchases, amount of troubled assets purchased, by institution and in the aggregate, is listed on Trea- in Table C.1 below\n obligations, expen- sury\xe2\x80\x99s transaction reports, which are published on Treasury\xe2\x80\x99s website. Treasury also reports\n ditures, and rev- the apportioned amount of TARP funds by program category in the FSP Budget report Section 2:\n enues associated provided [to SIGTARP]. \xe2\x80\x9cTARP Overview\xe2\x80\x9d\n with any program\n established by the Section 4:\n Secretary of the \xe2\x80\x9cTARP Operations\n Treasury under and Administra-\n sections 101 and tion\xe2\x80\x9d\n 102.\n Appendix D:\n \xe2\x80\x9cTransaction\n Detail\xe2\x80\x9d\n\n Note: TARP participation in TALF has increased to $80 billion according to Treasury Office of Financial Stability, Chief of Compliance and CFO, SIGTARP interview, 3/30/2009.\n\n Sources: Program descriptions: Treasury, \xe2\x80\x9cPrograms\xe2\x80\x9d webpage, 5/7/2009 (\xe2\x80\x9cUpdated\xe2\x80\x9d date), http://www.financialstability.gov/roadtostability/programs.htm, accessed 6/30/2009; ASSP: \xe2\x80\x9cTreasury\n Announces Auto Suppliers Support Program,\xe2\x80\x9d 3/19/2009, http://www.financialstability.gov/latest/auto3_18.html, accessed 6/30/2009; AWCP, \xe2\x80\x9cObama Administration\xe2\x80\x99s New Warrantee Commitment\n Program,\xe2\x80\x9d no date, http://www.financialstability.gov/docs/WarranteeCommitmentProgram.pdf, accessed 6/30/2009; TALF: Federal Reserve, \xe2\x80\x9cTerm Asset-Backed Securities Loan Facility (TALF)\n Frequently Asked Questions,\xe2\x80\x9d no date, http://www.federalreserve.gov/newsevents/press/monetary/monetary20090303a2.pdf, accessed 6/30/2009; Treasury, responses to SIGTARP data call,\n 6/30/2009 and 7/8/2009.\n\n\n\nTABLE C.1\n\n TOTAL AMOUNT OF TROUBLED ASSETS PURCHASED AND HELD ON TREASURY\xe2\x80\x99S BOOKS, AS OF 6/30/2009 ($ BILLIONS)\n Obligationsa Expendedb On Treasury\xe2\x80\x99s Booksc\n\n Capital Purchase Program (\xe2\x80\x9cCPP\xe2\x80\x9d) $203.2 $203.2 $203.2\n Systemically Significant Failing Institutions (\xe2\x80\x9cSSFI\xe2\x80\x9d) 69.8 41.2 41.2\n\n\n Targeted Investment Program (\xe2\x80\x9cTIP\xe2\x80\x9d) 40.0 40.0 40.0\n Automotive Industry Financing Program (\xe2\x80\x9cAIFP\xe2\x80\x9d) d\n 85.0 54.3 54.3\n Asset Guarantee Program (\xe2\x80\x9cAGP\xe2\x80\x9d)e 5.0 \xe2\x80\x94 \xe2\x80\x94\n Term Asset-Backed Securities Loan Facility (\xe2\x80\x9cTALF\xe2\x80\x9d) f\n 20.0 0.1 0.1\n Making Homes Affordable (MHA) 18.0 \xe2\x80\x94 \xe2\x80\x94\n Total $441.0 $338.7 $338.7\n\nNotes:\nNumbers affected by rounding.\na\n According to Treasury, \xe2\x80\x9cFrom a budgetary perspective, what Treasury has committed to spend (e.g. signed agreements with TARP recipients).\xe2\x80\x9d Based on \xe2\x80\x9cFace Value Obligations\xe2\x80\x9d from Treasury source docu-\nment (TARP/Financial Stability Plan Tracking Report).\nb\n According to Treasury, \xe2\x80\x9cRepresents TARP cash that has left the Treasury.\xe2\x80\x9d Based on \xe2\x80\x9cFace Value Disbursed/Outlays\xe2\x80\x9d from Treasury source document (TARP/Financial Stability Plan Tracking Report).\nc\n According to Treasury, \xe2\x80\x9cAll assets are currently carried at par value.\xe2\x80\x9d\nd\n According to Treasury, \xe2\x80\x9cThe face value obligations exceed the expected program usage amount for the AIFP because the final amount expected to be spent out of the Chrysler DIP and Exit financing is\nexpected to be lower than originally obligated.\xe2\x80\x9d\ne\n According to Treasury, \xe2\x80\x9cReflects negative subsidy of $750 million off of the total $301 billion Citigroup guarantee, not just the $5 billion portion guaranteed by Treasury via the TARP (Breakdown of $301B:\n$5B from the UST, $40B from Citi, $5B from the FDIC and $251B from the Federal Reserve).\xe2\x80\x9d\nf\n According to Treasury, \xe2\x80\x9cTerm Asset Backed Securities Loan Facility (TALF-1): Up to $20B may be disbursed as credit protection for the $200B Federal Reserve Loan Facility. TARP is temporarily carrying this\nat a 100 percent subsidy. Initial funding of $100M on 3/25/09.\xe2\x80\x9d\n\nSource: Treasury, response to SIGTARP data call, 7/8/2009.\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n 202\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n10/28/08 Bank of America Corporation (Charlotte, NC) Pref. Stock w/ Warr. $15,000,000,000 $13.20 $104,544 $30.79 73,075,674 73,075,674 $(17.59) $410,416,667\n\n10/28/08 Bank of New York Mellon Corporation (New Pref. Stock w/ Warr. $3,000,000,000 6/17/2009 4 $3,000,000,000 $0 $29.31 $35,039 $31.00 14,516,129 14,516,129 $(1.69) $95,416,667\n York, NY)\n\n10/28/08 Citigroup Inc. (New York, NY)11, 12 Pref. Stock w/ Warr. $25,000,000,000 $2.97 $16,315 $17.85 210,084,034 210,084,034 $(14.88) $684,027,778\n\n10/28/08 JPMorgan Chase & Co. (New York, NY) Pref. Stock w/ Warr. $25,000,000,000 6/17/2009 4 $25,000,000,000 $0 $34.11 $133,063 $42.42 88,401,697 88,401,697 $(8.31) $795,138,889\n\n10/28/08 Morgan Stanley (New York, NY) Pref. Stock w/ Warr. $10,000,000,000 6/17/2009 4 $10,000,000,000 $0 $28.51 $38,537 $22.99 65,245,759 65,245,759 $5.52 $318,055,555\n\n10/28/08 State Street Corporation (Boston, MA) Pref. Stock w/ Warr. $2,000,000,000 6/17/2009 5 $2,000,000,000 $0 $47.20 $22,944 $53.80 5,576,208 2,788,104 $(6.60) $63,611,111\n\n10/28/08 The Goldman Sachs Group, Inc. (New Pref. Stock w/ Warr. $10,000,000,000 6/17/2009 4 $10,000,000,000 $0 $147.44 $75,339 $122.90 12,205,045 12,205,045 $24.54 $318,055,555\n York, NY)\n\n10/28/08 Wells Fargo & Company (San Francisco, CA) Pref. Stock w/ Warr. $25,000,000,000 $24.26 $114,141 $34.01 110,261,688 110,261,688 $(9.75) $684,027,778\n\n11/14/08 1st FS Corporation (Hendersonville, NC) Pref. Stock w/ Warr. $16,369,000 $4.99 $25 $8.59 276,815 276,815 $(3.60) $411,499\n\n11/14/08 Bank of Commerce Holdings (Redding, CA) Pref. Stock w/ Warr. $17,000,000 $5.70 $50 $6.29 405,405 405,405 $(0.59) $427,361\n\n11/14/08 BB&T Corp. (Winston-Salem, NC) Pref. Stock w/ Warr. $3,133,640,000 6/17/2009 4 $3,133,640,000 $0 $21.98 $13,971 $33.81 13,902,573 13,902,573 $(11.83) $92,703,517\n\n11/14/08 Broadway Financial Corporation (Los Pref. Stock w/ Warr. $9,000,000 $6.25 $11 $7.37 183,175 183,175 $(1.12) $226,250\n Angeles, CA)\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n 4\n11/14/08 Capital One Financial Corporation (McLean, VA) Pref. Stock w/ Warr. $3,555,199,000 6/17/2009 $3,555,199,000 $0 $21.88 $9,882 $42.13 12,657,960 12,657,960 $(20.25) $105,174,638\n\n11/14/08 Comerica Inc. (Dallas, TX) Pref. Stock w/ Warr. $2,250,000,000 $21.15 $3,196 $29.40 11,479,592 11,479,592 $(8.25) $56,562,500\n\n11/14/08 First Horizon National Corporation (Memphis, TN) Pref. Stock w/ Warr. $866,540,000 $12.00 $2,579 $9.60 12,743,235 13,323,473 $2.40 $21,783,853\n\n11/14/08 Huntington Bancshares (Columbus, OH) Pref. Stock w/ Warr. $1,398,071,000 $4.18 $2,272 $8.90 23,562,994 23,562,994 $(4.72) $35,145,952\n\n11/14/08 KeyCorp (Cleveland, OH) Pref. Stock w/ Warr. $2,500,000,000 $5.24 $2,633 $10.64 35,244,361 35,244,361 $(5.40) $62,847,222\n\n11/14/08 Marshall & Ilsley Corporation (Milwaukee, WI) Pref. Stock w/ Warr. $1,715,000,000 $4.80 $1,693 $18.62 13,815,789 13,815,789 $(13.82) $43,113,194\n\n11/14/08 Northern Trust Corporation (Chicago, IL) Pref. Stock w/ Warr. $1,576,000,000 6/17/2009 4 $1,576,000,000 $0 $53.68 $12,814 $61.81 3,824,624 3,824,624 $(8.13) $46,623,333\n\n11/14/08 Provident Bancshares Corp. (Baltimore, MD) Pref. Stock w/ Warr. $151,500,000 NA d NA d $9.57 2,374,608 2,374,608 NA $3,808,542\n\n11/14/08 Regions Financial Corp. (Birmingham, AL) Pref. Stock w/ Warr. $3,500,000,000 $4.04 $4,667 $10.88 48,253,677 48,253,677 $(6.84) $87,986,111\n\n11/14/08 SunTrust Banks, Inc. (Atlanta, GA) Pref. Stock w/ Warr. $3,500,000,000 $16.45 $7,644 $44.15 11,891,280 11,891,280 $(27.70) $133,506,944\n\n11/14/08 TCF Financial Corporation (Wayzata, MN) Pref. Stock w/ Warr. $361,172,000 4/22/2009 4 $361,172,000 $0 $13.37 $1,713 $16.93 3,199,988 3,199,988 $(3.56) $7,925,719\n\n11/14/08 U.S. Bancorp (Minneapolis, MN) Pref. Stock w/ Warr. $6,599,000,000 6/17/2009 4 $6,599,000,000 $0 $17.92 $34,005 $30.29 32,679,102 32,679,102 $(12.37) $195,220,417\n\n11/14/08 UCBH Holdings, Inc. (San Francisco, CA) Pref. Stock w/ Warr. $298,737,000 $1.26 $152 $5.71 7,847,732 7,847,732 $(4.45) $7,509,920\n\n11/14/08 Umpqua Holdings Corp. (Portland, OR) Pref. Stock w/ Warr. $214,181,000 $7.76 $467 $14.46 2,221,795 2,221,795 $(6.70) $5,384,272\n\n11/14/08 Valley National Bancorp (Wayne, NJ) Pref. Stock w/ Warr. $300,000,000 6/3/2009 4 $75,000,000 $225,000,000 $11.70 $1,659 $18.66 2,297,090 2,411,945 $(6.96) $7,729,167\n\n11/14/08 Washington Federal Inc. (Seattle, WA) Pref. Stock w/ Warr. $200,000,000 5/27/2009 4 $200,000,000 $0 $13.00 $1,145 $17.57 1,707,456 1,707,456 $(4.57) $5,361,111\n\n11/14/08 Zions Bancorporation (Salt Lake City, UT) Pref. Stock w/ Warr. $1,400,000,000 $11.56 $1,333 $36.27 5,789,909 5,789,909 $(24.71) $35,194,444\n\n11/21/08 Ameris Bancorp (Moultrie, GA) Pref. Stock w/ Warr. $52,000,000 $6.32 $86 $11.48 679,443 679,443 $(5.16) $1,256,667\n\n11/21/08 Associated Banc-Corp (Green Bay, WI) Pref. Stock w/ Warr. $525,000,000 $12.50 $1,598 $19.77 3,983,308 3,983,308 $(7.27) $12,687,500\n\n11/21/08 Banner Corporation (Walla Walla, WA) Pref. Stock w/ Warr. $124,000,000 $3.82 $67 $10.89 1,707,989 1,707,989 $(7.07) $2,996,667\n\n11/21/08 Boston Private Financial Holdings, Inc. Pref. Stock w/ Warr. $154,000,000 $4.48 $304 $8.00 2,887,500 2,887,500 $(3.52) $3,721,667\n (Boston, MA)\n\n11/21/08 Cascade Financial Corporation (Everett, WA) Pref. Stock w/ Warr. $38,970,000 $2.16 $26 $6.77 863,442 863,442 $(4.61) $941,775\n\n11/21/08 Centerstate Banks of Florida Inc. (Davenport, FL) Pref. Stock w/ Warr. $27,875,000 $7.42 $93 $16.67 250,825 250,825 $(9.25) $673,646\n\n11/21/08 City National Corporation (Beverly Hills, CA) Pref. Stock w/ Warr. $400,000,000 $36.83 $1,880 $53.16 1,128,668 1,128,668 $(16.33) $9,666,667\n\n11/21/08 Columbia Banking System, Inc. (Tacoma, WA) Pref. Stock w/ Warr. $76,898,000 $10.23 $187 $14.49 796,046 796,046 $(4.26) $1,858,368\n\n11/21/08 First Community Bankshares Inc. (Bluefield, VA) Pref. Stock w/ Warr. $41,500,000 $12.84 $208 $35.26 176,546 176,546 $(22.42) $1,002,917\n\n11/21/08 First Community Corporation (Lexington, SC) Pref. Stock w/ Warr. $11,350,000 $6.90 $22 $8.69 195,915 195,915 $(1.79) $274,292\n\n11/21/08 First Niagara Financial Group (Lockport, NY) Pref. Stock w/ Warr. $184,011,000 5/27/2009 5 $184,011,000 $0 6/24/09 Warrants $2,700,000 $11.42 $1,710 $14.48 1,906,191 0 $(3.06) $4,753,618\n\n11/21/08 First PacTrust Bancorp, Inc. (Chula Vista, CA) Pref. Stock w/ Warr. $19,300,000 $6.86 $29 $10.31 280,795 280,795 $(3.45) $466,417\n\n11/21/08 Heritage Commerce Corp. (San Jose, CA) Pref. Stock w/ Warr. $40,000,000 $3.73 $44 $12.96 462,963 462,963 $(9.23) $966,667\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n11/21/08 Heritage Financial Corporation (Olympia, WA) Pref. Stock w/ Warr. $24,000,000 $11.56 $78 $13.04 276,074 276,074 $(1.48) $580,000\n\n11/21/08 HF Financial Corp. (Sioux Falls, SD) Pref. Stock w/ Warr. $25,000,000 6/3/2009 4 $25,000,000 $0 6/30/09 Warrants $650,000 $11.82 $48 $12.40 302,419 0 $(0.58) $666,667\n\n11/21/08 Nara Bancorp, Inc. (Los Angeles, CA) Pref. Stock w/ Warr. $67,000,000 $5.18 $136 $9.64 1,042,531 1,042,531 $(4.46) $1,619,167\n\n11/21/08 Pacific Capital Bancorp (Santa Barbara, CA) Pref. Stock w/ Warr. $180,634,000 $2.14 $100 $17.92 1,512,003 1,512,003 $(15.78) $2,107,397\n\n11/21/08 Porter Bancorp Inc. (Louisville, KY) Pref. Stock w/ Warr. $35,000,000 $15.15 $148 $17.51 299,829 299,829 $(2.36) $845,833\n\n11/21/08 Severn Bancorp, Inc. (Annapolis, MD) Pref. Stock w/ Warr. $23,393,000 $3.10 $31 $6.30 556,976 556,976 $(3.20) $565,331\n\n11/21/08 Taylor Capital Group (Rosemont, IL) Pref. Stock w/ Warr. $104,823,000 $6.85 $76 $10.75 1,462,647 1,462,647 $(3.90) $2,533,223\n\n11/21/08 Trustmark Corporation (Jackson, MS) Pref. Stock w/ Warr. $215,000,000 $19.32 $1,109 $19.57 1,647,931 1,647,931 $(0.25) $5,195,833\n\n11/21/08 Webster Financial Corporation (Waterbury, Pref. Stock w/ Warr. $400,000,000 $8.05 $425 $18.28 3,282,276 3,282,276 $(10.23) $9,666,667\n CT)\n\n11/21/08 Western Alliance Bancorporation (Las Pref. Stock w/ Warr. $140,000,000 $6.84 $466 $13.34 1,574,213 1,574,213 $(6.50) $3,383,333\n Vegas, NV)\n 4\n12/5/08 Bank of Marin Bancorp (Novato, CA) Pref. Stock w/ Warr. $28,000,000 3/31/2009 $28,000,000 $0 $26.95 $139 $27.23 154,242 154,242 $(0.28) $451,111\n\n12/5/08 Bank of North Carolina (Thomasville, NC) Pref. Stock w/ Warr. $31,260,000 $8.00 $59 $8.63 543,337 543,337 $(0.63) $694,667\n\n12/5/08 Blue Valley Ban Corp (Overland Park, KS) Pref. Stock w/ Warr. $21,750,000 $8.20 $23 $29.37 111,083 111,083 $(21.17) $211,458\n\n12/5/08 Cathay General Bancorp (Los Angeles, CA) Pref. Stock w/ Warr. $258,000,000 $9.51 $471 $20.96 1,846,374 1,846,374 $(11.45) $5,733,333\n\n12/5/08 Central Bancorp, Inc. (Somerville, MA) Pref. Stock w/ Warr. $10,000,000 $8.00 $13 $6.39 234,742 234,742 $1.61 $222,222\n\n12/5/08 Central Federal Corporation (Fairlawn, OH) Pref. Stock w/ Warr. $7,225,000 $2.92 $12 $3.22 336,568 336,568 $(0.30) $160,556\n\n12/5/08 Coastal Banking Company, Inc. (Fernandina Pref. Stock w/ Warr. $9,950,000 $3.55 $9 $7.26 205,579 205,579 $(3.71) $221,111\n Beach, FL)\n\n12/5/08 CVB Financial Corp (Ontario, CA) Pref. Stock w/ Warr. $130,000,000 $5.97 $497 $11.68 1,669,521 1,669,521 $(5.71) $2,888,889\n\n12/5/08 Eagle Bancorp, Inc. (Bethesda, MD) Pref. Stock w/ Warr. $38,235,000 $8.77 $112 $7.44 770,867 770,867 $1.33 $849,667\n\n12/5/08 East West Bancorp (Pasadena, CA) Pref. Stock w/ Warr. $306,546,000 $6.49 $416 $15.15 3,035,109 3,035,109 $(8.66) $6,812,133\n\n12/5/08 Encore Bancshares Inc. (Houston, TX) Pref. Stock w/ Warr. $34,000,000 $7.22 $74 $14.01 364,026 364,026 $(6.79) $755,556\n\n12/5/08 First Defiance Financial Corp. (Defiance, OH) Pref. Stock w/ Warr. $37,000,000 $13.00 $106 $10.08 550,595 550,595 $2.92 $822,222\n\n12/5/08 First Financial Holdings Inc. (Charleston, SC) Pref. Stock w/ Warr. $65,000,000 $9.40 $110 $20.17 483,391 483,391 $(10.77) $1,444,444\n\n12/5/08 First Midwest Bancorp, Inc. (Itasca, IL) Pref. Stock w/ Warr. $193,000,000 $7.31 $355 $22.18 1,305,230 1,305,230 $(14.87) $4,288,889\n\n12/5/08 FPB Bancorp, Inc. (Port St. Lucie, FL) Pref. Stock w/ Warr. $5,800,000 $2.50 $5 $4.75 183,158 183,158 $(2.25) $128,889\n\n12/5/08 Great Southern Bancorp (Springfield, MO) Pref. Stock w/ Warr. $58,000,000 $20.55 $275 $9.57 909,091 909,091 $10.98 $1,288,889\n\n12/5/08 Iberiabank Corporation (Lafayette ,LA ) Pref. Stock w/ Warr. $90,000,000 3/31/2009 5 $90,000,000 $0 5/20/09 Warrants 9 $1,200,000 $39.41 $636 $48.74 276,980 0 $(9.33) $1,450,000\n\n12/5/08 Manhattan Bancorp (El Segundo, CA) Pref. Stock w/ Warr. $1,700,000 $6.00 $24 $8.65 29,480 29,480 $(2.65) $37,778\n\n12/5/08 MB Financial Inc. (Chicago, IL) Pref. Stock w/ Warr. $196,000,000 $10.19 $360 $29.05 1,012,048 1,012,048 $(18.86) $4,355,556\n\n12/5/08 Midwest Banc Holdings, Inc. (Melrose Pref. Stock w/ Warr. $84,784,000 $0.75 $21 $2.97 4,282,020 4,282,020 $(2.22) $824,289\n Park, IL)\n\n12/5/08 Oak Valley Bancorp (Oakdale, CA) Pref. Stock w/ Warr. $13,500,000 $4.25 $33 $5.78 350,346 350,346 $(1.53) $300,000\n\n12/5/08 Old Line Bancshares, Inc. (Bowie, MD) Pref. Stock w/ Warr. $7,000,000 $5.90 $23 $7.40 141,892 141,892 $(1.50) $155,556\n\n12/5/08 Popular, Inc. (San Juan, PR) Pref. Stock w/ Warr. $935,000,000 $2.20 $620 $6.70 20,932,836 20,932,836 $(4.50) $20,777,778\n\n12/5/08 Sandy Spring Bancorp, Inc. (Olney, MD) Pref. Stock w/ Warr. $83,094,000 $14.70 $242 $19.13 651,547 651,547 $(4.43) $1,846,533\n\n12/5/08 South Financial Group, Inc. (Greenville, SC) Pref. Stock w/ Warr. $347,000,000 $1.19 $101 $5.15 10,106,796 10,106,796 $(3.96) $7,711,111\n\n12/5/08 Southern Community Financial Corp. Pref. Stock w/ Warr. $42,750,000 $2.71 $46 $3.95 1,623,418 1,623,418 $(1.24) $950,000\n (Winston-Salem, NC )\n\n12/5/08 Southern Missouri Bancorp, Inc. (Poplar Pref. Stock w/ Warr. $9,550,000 $9.95 $21 $12.53 114,326 114,326 $(2.58) $212,222\n Bluff, MO)\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n12/5/08 Southwest Bancorp, Inc. (Stillwater, OK) Pref. Stock w/ Warr. $70,000,000 $9.76 $143 $14.92 703,753 703,753 $(5.16) $1,555,556\n\n12/5/08 State Bancorp, Inc. (Jericho, NY) Pref. Stock w/ Warr. $36,842,000 $7.56 $110 $11.87 465,569 465,569 $(4.31) $818,711\n\n12/5/08 Sterling Financial Corporation (Spokane, WA) Pref. Stock w/ Warr. $303,000,000 $2.91 $152 $7.06 6,437,677 6,437,677 $(4.15) $6,733,333\n\n12/5/08 Superior Bancorp Inc. (Birmingham, AL) Pref. Stock w/ Warr. $69,000,000 $2.61 $26 $5.38 1,923,792 1,923,792 $(2.77) $1,533,333\n 203\n\n\n\n\n12/5/08 TIB Financial Corp (Naples, FL) Pref. Stock w/ Warr. $37,000,000 $2.80 $41 $5.12 1,063,218 1,084,589 $(2.32) $822,222\n\x0c 204\nCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n12/5/08 United Community Banks, Inc. (Blairsville, GA) Pref. Stock w/ Warr. $180,000,000 $5.99 $293 $12.47 2,132,701 2,165,638 $(6.48) $4,000,000\n\n12/5/08 Unity Bancorp, Inc. (Clinton, NJ) Pref. Stock w/ Warr. $20,649,000 $3.55 $25 $4.05 764,778 764,778 $(0.50) $458,867\n\n12/5/08 Wesbanco Bank Inc. (Wheeling, WV) Pref. Stock w/ Warr. $75,000,000 $14.54 $386 $25.61 439,282 439,282 $(11.07) $1,666,667\n\n12/12/08 Bank of the Ozarks, Inc. (Little Rock, AR) Pref. Stock w/ Warr. $75,000,000 $21.63 $365 $29.62 379,811 379,811 $(7.99) $1,593,750\n\n12/12/08 Capital Bank Corporation (Raleigh, NC) Pref. Stock w/ Warr. $41,279,000 $4.75 $54 $8.26 749,619 749,619 $(3.51) $877,179\n\n12/12/08 Center Financial Corporation (Los Angeles, CA) Pref. Stock w/ Warr. $55,000,000 $2.52 $42 $9.54 864,780 864,780 $(7.02) $1,168,750\n\n12/12/08 Citizens Republic Bancorp, Inc. (Flint, MI) Pref. Stock w/ Warr. $300,000,000 $0.71 $90 $2.56 17,578,125 17,578,125 $(1.85) $6,375,000\n\n12/12/08 Citizens South Banking Corporation Pref. Stock w/ Warr. $20,500,000 $5.15 $39 $7.17 428,870 428,870 $(2.02) $435,625\n (Gastonia, NC)\n\n12/12/08 Fidelity Bancorp, Inc. (Pittsburgh, PA) Pref. Stock w/ Warr. $7,000,000 $6.51 $20 $8.65 121,387 121,387 $(2.14) $148,750\n\n12/12/08 First Litchfield Financial Corporation Pref. Stock w/ Warr. $10,000,000 $5.70 $13 $7.53 199,203 199,203 $(1.83) $212,500\n (Litchfield, CT)\n\n12/12/08 HopFed Bancorp (Hopkinsville, KY) Pref. Stock w/ Warr. $18,400,000 $9.69 $35 $11.32 243,816 243,816 $(1.63) $391,000\n\n12/12/08 Independent Bank Corporation (Ionia, MI) Pref. Stock w/ Warr. $72,000,000 $1.32 $32 $3.12 3,461,538 3,461,538 $(1.80) $1,530,000\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n12/12/08 Indiana Community Bancorp (Columbus, IN) Pref. Stock w/ Warr. $21,500,000 $12.96 $44 $17.09 188,707 188,707 $(4.13) $456,875\n\n12/12/08 LNB Bancorp Inc. (Lorain, OH) Pref. Stock w/ Warr. $25,223,000 $6.35 $46 $6.74 561,343 561,343 $(0.39) $535,989\n\n12/12/08 LSB Corporation (North Andover, MA) Pref. Stock w/ Warr. $15,000,000 $10.18 $46 $10.74 209,497 209,497 $(0.56) $318,750\n\n12/12/08 National Penn Bancshares, Inc. (Boyertown, PA) Pref. Stock w/ Warr. $150,000,000 $4.61 $387 $15.30 1,470,588 1,470,588 $(10.69) $3,187,500\n\n12/12/08 NewBridge Bancorp (Greensboro, NC) Pref. Stock w/ Warr. $52,372,000 $2.07 $32 $3.06 2,567,255 2,567,255 $(0.99) $1,112,905\n\n12/12/08 Northeast Bancorp (Lewiston, ME) Pref. Stock w/ Warr. $4,227,000 $8.10 $19 $9.33 67,958 67,958 $(1.23) $89,824\n\n12/12/08 Old National Bancorp (Evansville, IN) Pref. Stock w/ Warr. $100,000,000 3/31/2009 4 $100,000,000 $0 5/8/09 Warrants $1,200,000 $9.82 $652 $18.45 813,008 0 $(8.63) $1,513,889\n\n12/12/08 Pacific International Bancorp (Seattle, WA) Pref. Stock w/ Warr. $6,500,000 $5.00 NA $7.63 127,785 127,785 $(2.63) $138,125\n\n12/12/08 Pinnacle Financial Partners, Inc. (Nashville, Pref. Stock w/ Warr. $95,000,000 $13.32 $423 $26.64 534,910 534,910 $(13.32) $2,018,750\n TN)\n\n12/12/08 Signature Bank (New York, NY) Pref. Stock w/ Warr. $120,000,000 3/31/2009 4 $120,000,000 $0 $27.27 $965 $30.21 595,829 595,829 $(2.94) $1,816,667\n\n12/12/08 Sterling Bancshares, Inc. (Houston, TX) Pref. Stock w/ Warr. $125,198,000 5/5/2009 4 $125,198,000 $0 $6.33 $510 $7.18 2,615,557 2,615,557 $(0.85) $2,486,571\n\n12/12/08 Susquehanna Bancshares, Inc (Lititz, PA) Pref. Stock w/ Warr. $300,000,000 $4.89 $422 $14.86 3,028,264 3,028,264 $(9.97) $6,375,000\n\n12/12/08 SVB Financial Group (Santa Clara, CA) Pref. Stock w/ Warr. $235,000,000 $27.22 $898 $49.78 708,116 708,116 $(22.56) $4,993,750\n\n12/12/08 The Bancorp, Inc. (Wilmington, DE) Pref. Stock w/ Warr. $45,220,000 $6.00 $87 $3.46 1,960,405 1,960,405 $2.54 $960,925\n\n12/12/08 TowneBank (Portsmouth, VA) Pref. Stock w/ Warr. $76,458,000 $14.00 $329 $21.31 538,184 538,184 $(7.31) $1,624,733\n\n12/12/08 Valley Financial Corporation (Roanoke, VA) Pref. Stock w/ Warr. $16,019,000 $4.41 $21 $6.97 344,742 344,742 $(2.56) $340,404\n\n12/12/08 Virginia Commerce Bancorp (Arlington, VA) Pref. Stock w/ Warr. $71,000,000 $2.30 $61 $3.95 2,696,203 2,696,203 $(1.65) $1,508,750\n\n12/12/08 Wilmington Trust Corporation (Wilmington, Pref. Stock w/ Warr. $330,000,000 $13.66 $947 $26.66 1,856,714 1,856,714 $(13.00) $7,012,500\n DE)\n\n12/12/08 Wilshire Bancorp, Inc. (Los Angeles, CA) Pref. Stock w/ Warr. $62,158,000 $5.75 $169 $9.82 949,460 949,460 $(4.07) $1,320,858\n\n12/19/08 Alliance Financial Corporation (Syracuse, NY) Pref. Stock w/ Warr. $26,918,000 5/13/2009 4 $26,918,000 $0 6/17/09 Warrants $900,000 $28.36 $130 $23.33 173,069 0 $5.03 $538,360\n\n12/19/08 AmeriServ Financial, Inc (Johnstown, PA) Pref. Stock w/ Warr. $21,000,000 $1.85 $39 $2.40 1,312,500 1,312,500 $(0.55) $425,833\n\n12/19/08 Bancorp Rhode Island, Inc. (Providence, RI) Pref. Stock w/ Warr. $30,000,000 $19.71 $91 $23.32 192,967 192,967 $(3.61) $608,333\n\n12/19/08 BancTrust Financial Group, Inc. (Mobile, AL) Pref. Stock w/ Warr. $50,000,000 $2.98 $53 $10.26 730,994 730,994 $(7.28) $1,013,889\n\n12/19/08 Berkshire Hills Bancorp, Inc. (Pittsfield, MA) Pref. Stock w/ Warr. $40,000,000 5/27/2009 4 $40,000,000 $0 6/24/09 Warrants $1,040,000 $20.78 $285 $26.51 226,330 0 $(5.73) $877,778\n 2\n12/19/08 Bridgeview Bancorp, Inc. (Bridgeview, IL) Pref. Stock w/ Ex. Warr. $38,000,000 $839,906\n\n12/19/08 Citizens First Corporation (Bowling Green, KY)Pref. Stock w/ Warr. $8,779,000 $5.50 $11 $5.18 254,218 254,218 $0.32 $178,019\n\n12/19/08 CoBiz Financial Inc. (Denver, CO) Pref. Stock w/ Warr. $64,450,000 $6.41 $150 $10.79 895,968 895,968 $(4.38) $1,306,903\n\n12/19/08 Community Bankers Trust Corporation (Glen Pref. Stock w/ Warr. $17,680,000 $3.70 $79 $3.40 780,000 780,000 $0.30 $358,511\n Allen, VA)\n\n12/19/08 Community Financial Corporation (Staunton, Pref. Stock w/ Warr. $12,643,000 $4.40 $19 $5.40 351,194 351,194 $(1.00) $256,372\n VA)\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n12/19/08 Community West Bancshares (Goleta, CA) Pref. Stock w/ Warr. $15,600,000 $2.10 $12 $4.49 521,158 521,158 $(2.39) $316,333\n\n12/19/08 Enterprise Financial Services Corp. (St. Pref. Stock w/ Warr. $35,000,000 $9.09 $117 $16.20 324,074 324,074 $(7.11) $709,722\n Louis, MO)\n\n12/19/08 Exchange Bank (Santa Rosa, CA)2 Pref. Stock w/ Ex. Warr. $43,000,000 $950,419\n\n12/19/08 FCB Bancorp, Inc. (Louisville, KY)2 Pref. Stock w/ Ex. Warr. $9,294,000 $205,435\n\n12/19/08 FFW Corporation (Wabash, IN)2 Pref. Stock w/ Ex. Warr. $7,289,000 $161,091\n\n12/19/08 Fidelity Financial Corporation (Wichita, KS)2 Pref. Stock w/ Ex. Warr. $36,282,000 $801,929\n\n12/19/08 Fidelity Southern Corporation (Atlanta, GA) Pref. Stock w/ Warr. $48,200,000 $2.90 $28 $3.16 2,266,458 2,289,179 $(0.26) $977,389\n\n12/19/08 First California Financial Group, Inc (Westlake Pref. Stock w/ Warr. $25,000,000 $6.17 $72 $6.26 599,042 599,042 $(0.09) $506,944\n Village, CA)\n\n12/19/08 Flushing Financial Corporation (Lake Pref. Stock w/ Warr. $70,000,000 $9.35 $203 $13.97 751,611 751,611 $(4.62) $1,419,444\n Success, NY)\n\n12/19/08 Hawthorn Bancshares, Inc. (Lee\xe2\x80\x99s Summit, Pref. Stock w/ Warr. $30,255,000 $9.90 $43 $18.49 245,443 245,443 $(8.59) $613,505\n MO)\n\n12/19/08 Heartland Financial USA, Inc. (Dubuque, IA) Pref. Stock w/ Warr. $81,698,000 $14.28 $233 $20.10 609,687 609,687 $(5.82) $1,656,654\n\n12/19/08 Horizon Bancorp (Michigan City, IN) Pref. Stock w/ Warr. $25,000,000 $16.25 $53 $17.68 212,104 212,104 $(1.43) $506,944\n\n12/19/08 Intermountain Community Bancorp Pref. Stock w/ Warr. $27,000,000 $3.40 $28 $6.20 653,226 653,226 $(2.80) $547,500\n (Sandpoint, ID)\n\n12/19/08 Marquette National Corporation (Chicago, IL)2 Pref. Stock w/ Ex. Warr. $35,500,000 $784,649\n\n12/19/08 Mid Penn Bancorp, Inc. (Millersburg, PA) Pref. Stock w/ Warr. $10,000,000 $15.80 $55 $20.52 73,099 73,099 $(4.72) $202,778\n\n12/19/08 Monadnock Bancorp, Inc. (Peterborough, Pref. Stock w/ Ex. Warr. $1,834,000 $40,547\n NH)2\n\n12/19/08 Monarch Financial Holdings, Inc. Pref. Stock w/ Warr. $14,700,000 $8.90 $52 $8.33 264,706 264,706 $0.57 $298,083\n (Chesapeake, VA)\n\n12/19/08 NCAL Bancorp (Los Angeles, CA)2 Pref. Stock w/ Ex. Warr. $10,000,000 $221,028\n\n12/19/08 OneUnited Bank (Boston, MA)3 Pref. Stock $12,063,000 $93,823\n\n12/19/08 Pacific City Financial Corporation (Los Pref. Stock w/ Ex. Warr. $16,200,000 $358,065\n Angeles, CA)2\n\n12/19/08 Patapsco Bancorp, Inc. (Dundalk, MD)2 Pref. Stock w/ Ex. Warr. $6,000,000 $132,617\n\n12/19/08 Patriot Bancshares, Inc. (Houston, TX)2 Pref. Stock w/ Ex. Warr. $26,038,000 $575,516\n\n12/19/08 Plains Capital Corporation (Dallas, TX)2 Pref. Stock w/ Ex. Warr. $87,631,000 $1,936,905\n\n12/19/08 Santa Lucia Bancorp (Atascadero, CA) Pref. Stock w/ Warr. $4,000,000 $11.80 $23 $16.06 37,360 37,360 $(4.26) $81,111\n\n12/19/08 Seacoast Banking Corporation of Florida Pref. Stock w/ Warr. $50,000,000 $2.43 $47 $6.36 1,179,245 1,179,245 $(3.93) $388,889\n (Stuart, FL)\n\n12/19/08 Security Federal Corporation (Aiken, SC) Pref. Stock w/ Warr. $18,000,000 $11.26 $28 $19.57 137,966 137,966 $(8.31) $365,000\n\n12/19/08 StellarOne Corporation (Charlottesville, VA) Pref. Stock w/ Warr. $30,000,000 $12.95 $294 $14.87 302,623 302,623 $(1.92) $608,333\n\n12/19/08 Summit State Bank (Santa Rosa, CA) Pref. Stock w/ Warr. $8,500,000 $6.75 $32 $5.33 239,212 239,212 $1.42 $172,361\n\n12/19/08 Synovus Financial Corp. (Columbus, GA) Pref. Stock w/ Warr. $967,870,000 $2.99 $988 $9.36 15,510,737 15,510,737 $(6.37) $19,626,253\n\n12/19/08 Tennessee Commerce Bancorp, Inc. Pref. Stock w/ Warr. $30,000,000 $4.76 $23 $9.75 461,538 461,538 $(4.99) $608,333\n (Franklin, TN)\n\n12/19/08 The Connecticut Bank and Trust Company Pref. Stock w/ Warr. $5,448,000 $5.15 $18 $4.65 175,742 175,742 $0.50\n (Hartford, CT)\n\n12/19/08 The Elmira Savings Bank, FSB (Elmira, NY) Pref. Stock w/ Warr. $9,090,000 $15.66 $30 $11.70 116,538 116,538 $3.96 $184,325\n\n12/19/08 Tidelands Bancshares, Inc (Mt. Pleasant, SC) Pref. Stock w/ Warr. $14,448,000 $2.90 $12 $3.79 571,821 571,821 $(0.89) $292,973\n\n12/19/08 Tri-County Financial Corporation (Waldorf, Pref. Stock w/ Ex. Warr. $15,540,000 $343,478\n MD)2\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n12/19/08 Union Bankshares Corporation (Bowling Pref. Stock w/ Warr. $59,000,000 $14.97 $204 $20.94 422,636 422,636 $(5.97) $1,196,389\n Green, VA)\n\n12/19/08 VIST Financial Corp. (Wyomissing, PA) Pref. Stock w/ Warr. $25,000,000 $6.61 $38 $10.30 364,078 364,078 $(3.69) $506,944\n\n12/19/08 Wainwright Bank & Trust Company (Boston, Pref. Stock w/ Warr. $22,000,000 $7.85 $57 $8.46 390,071 390,071 $(0.61) $446,111\n MA)\n 205\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n 206\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n12/19/08 Whitney Holding Corporation (New Orleans, Pref. Stock w/ Warr. $300,000,000 $9.16 $617 $17.10 2,631,579 2,631,579 $(7.94) $6,083,333\n LA)\n\n12/19/08 Wintrust Financial Corporation (Lake Pref. Stock w/ Warr. $250,000,000 $16.08 $385 $22.82 1,643,295 1,643,295 $(6.74) $5,069,444\n Forest, IL)\n\n12/23/08 1st Constitution Bancorp (Cranbury, NJ) Pref. Stock w/ Warr. $12,000,000 $8.50 $36 $8.56 200,222 210,233 $(0.06) $236,667\n\n12/23/08 BCSB Bancorp, Inc. (Baltimore, MD) Pref. Stock w/ Warr. $10,800,000 $8.10 $25 $8.83 183,465 183,465 $(0.73) $213,000\n\n12/23/08 Bridge Capital Holdings (San Jose, CA) Pref. Stock w/ Warr. $23,864,000 $6.15 $42 $9.03 396,412 396,412 $(2.88) $470,651\n\n12/23/08 Cache Valley Banking Company (Logan, UT)2 Pref. Stock w/ Ex. Warr. $4,767,000 $102,465\n\n12/23/08 Capital Bancorp, Inc. (Rockville, MD)2 Pref. Stock w/ Ex. Warr. $4,700,000 $101,037\n\n12/23/08 Capital Pacific Bancorp (Portland, OR)2 Pref. Stock w/ Ex. Warr. $4,000,000 $85,989\n\n12/23/08 Cecil Bancorp, Inc. (Elkton, MD) Pref. Stock w/ Warr. $11,560,000 $4.40 $16 $6.63 261,538 261,538 $(2.23) $227,989\n\n12/23/08 Central Jersey Bancorp (Oakhurst, NJ) Pref. Stock w/ Warr. $11,300,000 $5.50 $50 $6.31 268,621 268,621 $(0.81) $222,861\n\n12/23/08 Citizens Bancorp (Nevada City, CA)2 Pref. Stock w/ Ex. Warr. $10,400,000 $223,571\n\n12/23/08 Citizens Community Bank (South Hill, VA)2 Pref. Stock w/ Ex. Warr. $3,000,000 $64,492\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n12/23/08 Community Investors Bancorp, Inc. (Bucyrus, Pref. Stock w/ Ex. Warr. $2,600,000 $55,893\n OH)2\n\n12/23/08 Emclaire Financial Corp. (Emlenton, PA) Pref. Stock w/ Warr. $7,500,000 $18.00 $26 $22.45 50,111 50,111 $(4.45) $147,917\n\n12/23/08 Financial Institutions, Inc. (Warsaw, NY) Pref. Stock w/ Warr. $37,515,000 $13.66 $148 $14.88 378,175 378,175 $(1.22) $739,880\n\n12/23/08 First Community Bank Corporation of Pref. Stock w/ Warr. $10,685,000 $3.76 $16 $7.02 228,312 228,312 $(3.26) $210,732\n America (Pinellas Park, FL)\n\n12/23/08 First Financial Bancorp (Cincinnati, OH) Pref. Stock w/ Warr. $80,000,000 $7.53 $373 $12.90 930,233 930,233 $(5.37) $1,577,778\n\n12/23/08 First Sound Bank (Seattle, WA) Pref. Stock w/ Warr. $7,400,000 $3.00 NA $9.73 114,080 114,080 $(6.73) $145,944\n\n12/23/08 Fulton Financial Corporation (Lancaster, PA) Pref. Stock w/ Warr. $376,500,000 $5.19 $911 $10.25 5,509,756 5,509,756 $(5.06) $7,425,417\n\n12/23/08 Green Bankshares, Inc. (Greeneville, TN) Pref. Stock w/ Warr. $72,278,000 $4.48 $59 $17.06 635,504 635,504 $(12.58) $1,425,483\n\n12/23/08 HMN Financial, Inc. (Rochester, MN) Pref. Stock w/ Warr. $26,000,000 $3.51 $15 $4.68 833,333 833,333 $(1.17) $512,778\n\n12/23/08 International Bancshares Corporation Pref. Stock w/ Warr. $216,000,000 $10.31 $707 $24.43 1,326,238 1,326,238 $(14.12) $4,260,000\n (Laredo, TX)\n\n12/23/08 Intervest Bancshares Corporation (New Pref. Stock w/ Warr. $25,000,000 $3.50 $29 $5.42 691,882 691,882 $(1.92) $493,056\n York, NY)\n\n12/23/08 Leader Bancorp, Inc. (Arlington, MA)2 Pref. Stock w/ Ex. Warr. $5,830,000 $125,347\n\n12/23/08 M&T Bank Corporation (Buffalo, NY) Pref. Stock w/ Warr. $600,000,000 $50.93 $5,659 $73.86 1,218,522 1,218,522 $(22.93) $11,833,333\n\n12/23/08 Magna Bank (Memphis, TN)2 Pref. Stock w/ Ex. Warr. $13,795,000 $296,564\n\n12/23/08 Mission Valley Bancorp (Sun Valley, CA)3 Pref. Stock $5,500,000 $108,472\n\n12/23/08 MutualFirst Financial, Inc. (Muncie, IN) Pref. Stock w/ Warr. $32,382,000 $8.96 $63 $7.77 625,135 625,135 $1.19 $638,645\n\n12/23/08 Nicolet Bankshares, Inc. (Green Bay, WI)2 Pref. Stock w/ Ex. Warr. $14,964,000 $321,677\n\n12/23/08 Pacific Coast Bankers\xe2\x80\x99 Bancshares (San Pref. Stock w/ Ex. Warr. $11,600,000 $249,368\n Francisco, CA)2\n\n12/23/08 Pacific Commerce Bank (Los Angeles, CA)2 Pref. Stock w/ Ex. Warr. $4,060,000 $55,318\n\n12/23/08 Park National Corporation (Newark, OH) Pref. Stock w/ Warr. $100,000,000 $56.48 $789 $65.97 227,376 227,376 $(9.49) $1,972,222\n\n12/23/08 Parkvale Financial Corporation (Monroeville, Pref. Stock w/ Warr. $31,762,000 $8.99 $49 $12.66 376,327 376,327 $(3.67) $626,417\n PA)\n\n12/23/08 Peoples Bancorp of North Carolina, Inc. Pref. Stock w/ Warr. $25,054,000 $6.15 $34 $10.52 357,234 357,234 $(4.37) $494,121\n (Newton, NC)\n\n12/23/08 Saigon National Bank (Westminster, CA)2 Pref. Stock w/ Ex. Warr. $1,549,000\n\n12/23/08 Seacoast Commerce Bank (Chula Vista, CA)2 Pref. Stock w/ Ex. Warr. $1,800,000 $38,695\n\n12/23/08 Sterling Bancorp (New York, NY) Pref. Stock w/ Warr. $42,000,000 $8.35 $151 $12.19 516,817 516,817 $(3.84) $828,333\n\n12/23/08 TCNB Financial Corp. (Dayton, OH)2 Pref. Stock w/ Ex. Warr. $2,000,000 $42,994\n\n12/23/08 Tennessee Valley Financial Holdings, Inc. (Oak Pref. Stock w/ Ex. Warr. $3,000,000 $64,492\n Ridge, TN)2\n\n12/23/08 The Little Bank, Incorporated (Kinston, NC)2 Pref. Stock w/ Ex. Warr. $7,500,000 $161,230\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n12/23/08 Timberland Bancorp, Inc. (Hoquiam, WA) Pref. Stock w/ Warr. $16,641,000 $4.10 $29 $6.73 370,899 370,899 $(2.63) $328,198\n\n12/23/08 United Bancorporation of Alabama, Inc. Pref. Stock w/ Warr. $10,300,000 $15.50 NA $14.85 104,040 104,040 $0.65 $203,139\n (Atmore, AL)\n\n12/23/08 Uwharrie Capital Corp (Albemarle, NC)2 Pref. Stock w/ Ex. Warr. $10,000,000 $214,972\n\n12/23/08 Western Community Bancshares, Inc. (Palm Pref. Stock w/ Ex. Warr. $7,290,000 $156,733\n Desert, CA)2\n\n12/23/08 Western Illinois Bancshares Inc. (Monmouth, Pref. Stock w/ Ex. Warr. $6,855,000 $147,373\n IL)2\n\n12/31/08 CIT Group Inc. (New York, NY) Pref. Stock w/ Warr. $2,330,000,000 $2.15 $836 $3.94 88,705,584 88,705,584 $(1.79) $43,687,500\n\n12/31/08 Fifth Third Bancorp (Cincinnati, OH) Pref. Stock w/ Warr. $3,408,000,000 $7.10 $5,645 $11.72 43,617,747 43,617,747 $(4.62) $85,200,000\n\n12/31/08 First Banks, Inc. (Clayton, MO)2 Pref. Stock w/ Ex. Warr. $295,400,000 $6,037,238\n\n12/31/08 Hampton Roads Bankshares, Inc. (Norfolk, Pref. Stock w/ Warr. $80,347,000 $8.25 $180 $9.09 1,325,858 1,325,858 $(0.84) $1,506,507\n VA)\n\n12/31/08 SunTrust Banks, Inc. (Atlanta, GA) Pref. Stock w/ Warr. $1,350,000,000 $16.45 $7,644 $33.70 6,008,902 6,008,902 $(17.25) See note c\n\n12/31/08 The PNC Financial Services Group Inc. Pref. Stock w/ Warr. $7,579,200,000 $38.81 $17,275 $67.33 16,885,192 16,885,192 $(28.52) $142,110,000\n (Pittsburgh, PA)\n\n12/31/08 West Bancorporation, Inc. (West Des Pref. Stock w/ Warr. $36,000,000 $5.06 $88 $11.39 474,100 474,100 $(6.33) $675,000\n Moines, IA)\n\n1/9/09 American Express Company (New York, NY) Pref. Stock w/ Warr. $3,388,890,000 6/17/2009 4 $3,388,890,000 $0 $23.24 $27,136 $20.95 24,264,129 24,264,129 $2.29 $74,367,308\n\n1/9/09 American State Bancshares, Inc. (Great Pref. Stock w/ Ex. Warr. $6,000,000 $114,450\n Bend, KS)2\n\n1/9/09 Bank of America Corporation (Charlotte, NC)1 Pref. Stock w/ Warr. $10,000,000,000 $13.20 $104,544 $30.79 48,717,116 48,717,116 $(17.59) $175,000,000\n\n1/9/09 C&F Financial Corporation (West Point, VA) Pref. Stock w/ Warr. $20,000,000 $16.50 $50 $17.91 167,504 167,504 $(1.41) $350,000\n\n1/9/09 Cadence Financial Corporation (Starkville, Pref. Stock w/ Warr. $44,000,000 $2.23 $27 $5.76 1,145,833 1,145,833 $(3.53) $770,000\n MS)\n\n1/9/09 Carolina Bank Holdings, Inc. (Greensboro, NC) Pref. Stock w/ Warr. $16,000,000 $4.28 $14 $6.71 357,675 357,675 $(2.44) $280,000\n\n1/9/09 Center Bancorp, Inc. (Union, NJ) Pref. Stock w/ Warr. $10,000,000 $8.15 $106 $8.65 173,410 173,410 $(0.50) $175,000\n\n1/9/09 Central Pacific Financial Corp. (Honolulu, HI) Pref. Stock w/ Warr. $135,000,000 $3.75 $108 $12.77 1,585,748 1,585,748 $(9.02) $2,362,500\n\n1/9/09 Centrue Financial Corporation (St. Louis, MO) Pref. Stock w/ Warr. $32,668,000 $9.64 508,320 508,320 $(9.64) $571,690\n\n1/9/09 Codorus Valley Bancorp, Inc. (York, PA) Pref. Stock w/ Warr. $16,500,000 $6.30 $25 $9.38 263,859 263,859 $(3.08) $288,750\n\n1/9/09 Colony Bankcorp, Inc. (Fitzgerald, GA) Pref. Stock w/ Warr. $28,000,000 $7.11 $51 $8.40 500,000 500,000 $(1.29) $490,000\n\n1/9/09 Commerce National Bank (Newport Beach, Pref. Stock w/ Warr. $5,000,000 $5.75 $15 $8.60 87,209 87,209 $(2.85)\n CA)\n\n1/9/09 Community Trust Financial Corporation Pref. Stock w/ Ex. Warr. $24,000,000 $457,800\n (Ruston, LA)2\n\n1/9/09 Congaree Bancshares, Inc. (Cayce, SC)2 Pref. Stock w/ Ex. Warr. $3,285,000 $62,654\n\n1/9/09 Crescent Financial Corporation (Cary, NC) Pref. Stock w/ Warr. $24,900,000 $3.80 $37 $4.48 833,705 833,705 $(0.68) $435,750\n\n1/9/09 Eastern Virginia Bankshares, Inc. Pref. Stock w/ Warr. $24,000,000 $8.64 $51 $9.63 373,832 373,832 $(0.99) $420,000\n (Tappahannock, VA)\n\n1/9/09 F.N.B. Corporation (Hermitage, PA) Pref. Stock w/ Warr. $100,000,000 $6.19 $686 $11.52 1,302,083 1,302,083 $(5.33) $1,750,000\n\n1/9/09 Farmers Capital Bank Corporation (Frankfort, Pref. Stock w/ Warr. $30,000,000 $25.17 $185 $20.09 223,992 223,992 $5.08 $525,000\n KY)\n\n1/9/09 First Bancorp (Troy, NC) Pref. Stock w/ Warr. $65,000,000 $15.68 $261 $15.82 616,308 616,308 $(0.14) $1,137,500\n\n1/9/09 First Financial Service Corporation Pref. Stock w/ Warr. $20,000,000 $17.41 $83 $13.89 215,983 215,983 $3.52 $350,000\n (Elizabethtown, KY)\n\n1/9/09 First Security Group, Inc. (Chattanooga, TN) Pref. Stock w/ Warr. $33,000,000 $3.80 $62 $6.01 823,627 823,627 $(2.21) $577,500\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n1/9/09 FirstMerit Corporation (Akron, OH) Pref. Stock w/ Warr. $125,000,000 4/22/2009 4 $125,000,000 $0 5/27/09 Warrants $5,025,000 $17.00 $1,393 $19.69 952,260 0 $(2.69) $1,788,194\n\n1/9/09 GrandSouth Bancorporation (Greenville, SC)2 Pref. Stock w/ Ex. Warr. $9,000,000 $171,675\n\n1/9/09 Independence Bank (East Greenwich, RI)2 Pref. Stock w/ Ex. Warr. $1,065,000 $20,307\n 207\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n 208\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n1/9/09 Independent Bank Corp. (Rockland, MA) Pref. Stock w/ Warr. $78,158,000 4/22/2009 4 $78,158,000 $0 5/27/09 Warrants $2,200,000 $19.70 $412 $24.34 481,664 0 $(4.64) $1,118,094\n\n1/9/09 LCNB Corp. (Lebanon, OH) Pref. Stock w/ Warr. $13,400,000 $9.85 $66 $9.26 217,063 217,063 $0.59 $234,500\n\n1/9/09 MidSouth Bancorp, Inc. (Lafayette, LA) Pref. Stock w/ Warr. $20,000,000 $16.80 $114 $14.32 208,768 208,768 $2.48 $350,000\n\n1/9/09 Mission Community Bancorp (San Luis Pref. Stock $5,116,000 $89,530\n Obispo, CA)3\n\n1/9/09 New York Private Bank & Trust Corporation Pref. Stock w/ Ex. Warr. $267,274,000 $5,098,261\n (New York, NY)2\n\n1/9/09 North Central Bancshares, Inc. (Fort Pref. Stock w/ Warr. $10,200,000 $14.10 $19 $15.43 99,157 99,157 $(1.33) $178,500\n Dodge, IA)\n\n1/9/09 Peapack-Gladstone Financial Corporation( Pref. Stock w/ Warr. $28,685,000 $19.29 $160 $30.06 143,139 143,139 $(10.77) $501,988\n Gladstone, NJ)\n\n1/9/09 Redwood Financial Inc. (Redwood Falls, MN)2 Pref. Stock w/ Ex. Warr. $2,995,000 $57,138\n\n1/9/09 Rising Sun Bancorp (Rising Sun, MD)2 Pref. Stock w/ Ex. Warr. $5,983,000 $114,122\n\n1/9/09 Security Business Bancorp (San Diego, CA)2 Pref. Stock w/ Ex. Warr. $5,803,000 $110,688\n\n1/9/09 Security California Bancorp (Riverside, CA)2 Pref. Stock w/ Ex. Warr. $6,815,000 $130,005\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n1/9/09 Shore Bancshares, Inc. (Easton, MD) Pref. Stock w/ Warr. $25,000,000 4/15/2009 4 $25,000,000 $0 $17.94 $151 $21.68 172,970 172,970 $(3.74) $333,333\n\n1/9/09 Sound Banking Company (Morehead City, NC)2 Pref. Stock w/ Ex. Warr. $3,070,000 $58,576\n\n1/9/09 Sun Bancorp, Inc. (Vineland, NJ) Pref. Stock w/ Warr. $89,310,000 4/8/2009 4 $89,310,000 $0 5/27/09 Warrants $2,100,000 $5.18 $120 $8.27 1,543,376 0 $(3.09) $1,103,971\n\n1/9/09 Surrey Bancorp (Mount Airy, NC)2 Pref. Stock w/ Ex. Warr. $2,000,000 $38,150\n\n1/9/09 Texas National Bancorporation (Jacksonville, Pref. Stock w/ Ex. Warr. $3,981,000 $75,937\n TX)2\n\n1/9/09 The First Bancorp, Inc. (Damariscotta, ME) Pref. Stock w/ Warr. $25,000,000 $19.47 $189 $16.60 225,904 225,904 $2.87 $437,500\n\n1/9/09 The Queensborough Company (Louisville, Pref. Stock w/ Ex. Warr. $12,000,000 $228,900\n GA)2\n\n1/9/09 Valley Community Bank (Pleasanton, CA)2 Pref. Stock w/ Ex. Warr. $5,500,000 $104,913\n\n1/16/09 Bank of Commerce (Charlotte, NC)2 Pref. Stock w/ Ex. Warr. $3,000,000 $54,046\n\n1/16/09 Bar Harbor Bankshares/Bar Harbor Bank & Pref. Stock w/ Warr. $18,751,000 $30.85 $89 $26.81 104,910 104,910 $4.04 $309,913\n Trust (Bar Harbor, ME)\n\n1/16/09 BNCCORP, Inc. (Bismarck, ND)2 Pref. Stock w/ Ex. Warr. $20,093,000 $361,992\n\n1/16/09 Carver Bancorp, Inc (New York, NY )3 Pref. Stock $18,980,000 $313,697\n\n1/16/09 Centra Financial Holdings, Inc./Centra Bank, Pref. Stock w/ Ex. Warr. $15,000,000 3/31/2009 4 $15,000,000 $0 4/15/09 Preferred Stock2, 7 $750,000 $172,938\n Inc. (Morgantown, WV)2\n\n1/16/09 Citizens & Northern Corporation (Wellsboro, Pref. Stock w/ Warr. $26,440,000 $20.57 $185 $20.36 194,794 194,794 $0.21 $436,994\n PA)\n\n1/16/09 Community 1st Bank (Roseville, CA)2 Pref. Stock w/ Ex. Warr. $2,550,000 $34,755\n\n1/16/09 Community Bank of the Bay (Oakland, CA)3 Pref. Stock $1,747,000\n\n1/16/09 Dickinson Financial Corporation II (Kansas Pref. Stock w/ Ex. Warr. $146,053,000 $2,631,197\n City, MO)2\n\n1/16/09 ECB Bancorp, Inc./East Carolina Bank Pref. Stock w/ Warr. $17,949,000 $19.50 $55 $18.57 144,984 144,984 $0.93 $296,658\n (Engelhard, NC)\n\n1/16/09 First BanCorp (San Juan, PR) Pref. Stock w/ Warr. $400,000,000 $3.95 $366 $10.27 5,842,259 5,842,259 $(6.32) $6,611,111\n\n1/16/09 First Bankers Trustshares, Inc. (Quincy, IL)2 Pref. Stock w/ Ex. Warr. $10,000,000 $180,153\n\n1/16/09 First Manitowoc Bancorp, Inc. (Manitowoc, WI)2 Pref. Stock w/ Ex. Warr. $12,000,000 5/27/2009 4 $12,000,000 $0 5/27/09 Preferred Stock2, 7 $600,000 $237,983\n\n1/16/09 Home Bancshares, Inc. (Conway, AR) Pref. Stock w/ Warr. $50,000,000 $19.04 $379 $26.03 288,129 288,129 $(6.99) $826,389\n\n1/16/09 Idaho Bancorp (Boise, ID)2 Pref. Stock w/ Ex. Warr. $6,900,000 $124,306\n\n1/16/09 MainSource Financial Group, Inc.(Greensburg, Pref. Stock w/ Warr. $57,000,000 $7.42 $149 $14.95 571,906 571,906 $(7.53) $942,083\n IN)\n\n1/16/09 MetroCorp Bancshares, Inc. (Houston, TX) Pref. Stock w/ Warr. $45,000,000 $3.10 $34 $8.75 771,429 771,429 $(5.65) $743,750\n\n1/16/09 Morrill Bancshares, Inc. (Merriam, KS)2 Pref. Stock w/ Ex. Warr. $13,000,000 $234,199\n\n1/16/09 New Hampshire Thrift Bancshares, Inc. Pref. Stock w/ Warr. $10,000,000 $9.85 $57 $8.14 184,275 184,275 $1.71 $165,278\n (Newport, NH)\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n1/16/09 OceanFirst Financial Corp. (Toms River, NJ) Pref. Stock w/ Warr. $38,263,000 $11.97 $148 $15.07 380,853 380,853 $(3.10) $632,403\n\n1/16/09 Old Second Bancorp, Inc. (Aurora, IL) Pref. Stock w/ Warr. $73,000,000 $5.90 $82 $13.43 815,339 815,339 $(7.53) $1,206,528\n\n1/16/09 Pacific Coast National Bancorp (San Pref. Stock w/ Ex. Warr. $4,120,000 $18,088\n Clemente, CA)2\n\n1/16/09 Puget Sound Bank (Bellevue, WA)2 Pref. Stock w/ Ex. Warr. $4,500,000 $81,069\n\n1/16/09 Pulaski Financial Corp (Creve Coeur, MO) Pref. Stock w/ Warr. $32,538,000 $6.60 $68 $6.27 778,421 778,421 $0.33 $537,781\n\n1/16/09 Redwood Capital Bancorp (Eureka, CA)2 Pref. Stock w/ Ex. Warr. $3,800,000 $68,458\n\n1/16/09 S&T Bancorp (Indiana, PA) Pref. Stock w/ Warr. $108,676,000 $12.16 $336 $31.53 517,012 517,012 $(19.37) $1,796,173\n\n1/16/09 SCBT Financial Corporation (Columbia, SC) Pref. Stock w/ Warr. $64,779,000 5/20/2009 4 $64,779,000 $0 6/24/09 Warrants $1,400,000 $23.69 $299 $32.06 303,083 0 $(8.37) $1,115,639\n\n1/16/09 Somerset Hills Bancorp (Bernardsville, NJ) Pref. Stock w/ Warr. $7,414,000 5/20/2009 4 $7,414,000 $0 6/24/09 Warrants $275,000 $7.50 $39 $6.82 163,065 0 $0.68 $127,686\n\n1/16/09 Southern Bancorp, Inc. (Arkadelphia, AR)3 Pref. Stock $11,000,000 $181,806\n\n1/16/09 State Bankshares, Inc. (Fargo, ND)2 Pref. Stock w/ Ex. Warr. $50,000,000 $900,764\n\n1/16/09 Syringa Bancorp (Boise, ID)2 Pref. Stock w/ Ex. Warr. $8,000,000 $144,122\n\n1/16/09 TCB Holding Company, Texas Community Pref. Stock w/ Ex. Warr. $11,730,000 $211,335\n Bank (The Woodlands, TX)2\n 4\n1/16/09 Texas Capital Bancshares, Inc. (Dallas, TX) Pref. Stock w/ Warr. $75,000,000 5/13/2009 $75,000,000 $0 $15.47 $551 $14.84 758,086 758,086 $0.63 $1,218,750\n\n1/16/09 The Baraboo Bancorporation (Baraboo, WI)2 Pref. Stock w/ Ex. Warr. $20,749,000 $373,787\n\n1/16/09 Treaty Oak Bancorp, Inc. (Austin,TX)2 Pref. Stock w/ Ex. Warr. $3,268,000 $58,863\n\n1/16/09 United Bancorp, Inc. (Tecumseh, MI) Pref. Stock w/ Warr. $20,600,000 $6.10 $31 $9.92 311,492 311,492 $(3.82) $340,472\n\n1/16/09 United Financial Banking Companies, Inc. Pref. Stock w/ Ex. Warr. $5,658,000 $101,934\n (Vienna, VA)2\n\n1/16/09 Washington Banking Company/Whidbey Pref. Stock w/ Warr. $26,380,000 $9.42 $90 $8.04 492,164 492,164 $1.38 $436,003\n Island Bank (Oak Harbor, WA)\n\n1/16/09 Yadkin Valley Financial Corporation (Elkin, NC) Pref. Stock w/ Warr. $36,000,000 $6.91 $111 $13.99 385,990 385,990 $(7.08) $595,000\n\n1/23/09 1st Source Corporation (South Bend, IN) Pref. Stock w/ Warr. $111,000,000 $17.27 $418 $19.87 837,947 837,947 $(2.60) $1,726,667\n\n1/23/09 AB&T Financial Corporation (Gastonia, NC) Pref. Stock w/ Warr. $3,500,000 $5.25 $14 $6.55 80,153 80,153 $(1.30) $54,444\n\n1/23/09 Alarion Financial Services, Inc. (Ocala, FL)2 Pref. Stock w/ Ex. Warr. $6,514,000 $110,457\n\n1/23/09 BankFirst Capital Corporation (Macon, MS)2 Pref. Stock w/ Ex. Warr. $15,500,000 $262,812\n\n1/23/09 California Oaks State Bank (Thousand Pref. Stock w/ Ex. Warr. $3,300,000 $55,954\n Oaks, CA)2\n\n1/23/09 Calvert Financial Corporation (Ashland, MO)2 Pref. Stock w/ Ex. Warr. $1,037,000 $17,588\n\n1/23/09 CalWest Bancorp (Rancho Santa Margarita, Pref. Stock w/ Ex. Warr. $4,656,000 $78,951\n CA)2\n\n1/23/09 Commonwealth Business Bank (Los Angeles, Pref. Stock w/ Ex. Warr. $7,701,000 $25,648\n CA)2\n 2\n1/23/09 Crosstown Holding Company (Blaine, MN) Pref. Stock w/ Ex. Warr. $10,650,000 $180,591\n\n1/23/09 Farmers Bank (Windsor, VA)2 Pref. Stock w/ Ex. Warr. $8,752,000 $148,406\n\n1/23/09 First Citizens Banc Corp (Sandusky, OH) Pref. Stock w/ Warr. $23,184,000 $5.01 $39 $7.41 469,312 469,312 $(2.40) $360,640\n\n1/23/09 First ULB Corp. (Oakland, CA)2 Pref. Stock w/ Ex. Warr. $4,900,000 4/22/2009 4 $4,900,000 $0 4/22/09 Preferred Stock2, 7 $245,000 $66,021\n\n\n1/23/09 FPB Financial Corp. (Hammond, LA)2 Pref. Stock w/ Ex. Warr. $3,240,000 $54,936\n\n1/23/09 Fresno First Bank (Fresno, CA)2 Pref. Stock w/ Ex. Warr. $1,968,000\n\n1/23/09 Liberty Bancshares, Inc. (Jonesboro, AR)2 Pref. Stock w/ Ex. Warr. $57,500,000 $974,945\n\n1/23/09 Midland States Bancorp, Inc. (Effingham, IL)2 Pref. Stock w/ Ex. Warr. $10,189,000 $172,749\n\n1/23/09 Moscow Bancshares, Inc. (Moscow, TN)2 Pref. Stock w/ Ex. Warr. $6,216,000 $105,402\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n1/23/09 Pierce County Bancorp (Tacoma, WA)2 Pref. Stock w/ Ex. Warr. $6,800,000 $115,298\n\n1/23/09 Princeton National Bancorp, Inc. (Princeton, IL) Pref. Stock w/ Warr. $25,083,000 $14.60 $48 $24.27 155,025 155,025 $(9.67) $390,180\n\n1/23/09 Seaside National Bank & Trust (Orlando, FL)2 Pref. Stock w/ Ex. Warr. $5,677,000 $96,261\n\n1/23/09 Southern Illinois Bancorp, Inc. (Carmi, IL)2 Pref. Stock w/ Ex. Warr. $5,000,000 $84,778\n\n1/23/09 Stonebridge Financial Corp. (West Chester, PA)2 Pref. Stock w/ Ex. Warr. $10,973,000 $186,064\n 209\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n 210\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n1/23/09 WSFS Financial Corporation (Wilmington, DE) Pref. Stock w/ Warr. $52,625,000 $27.31 $169 $45.08 175,105 175,105 $(17.77) $818,612\n\n1/30/09 Adbanc, Inc (Ogallala, NE)2 Pref. Stock w/ Ex. Warr. $12,720,000 $202,195\n\n1/30/09 AMB Financial Corp. (Munster, IN)2 Pref. Stock w/ Ex. Warr. $3,674,000 $58,409\n\n1/30/09 Anchor BanCorp Wisconsin Inc. (Madison, WI) Pref. Stock w/ Warr. $110,000,000 $1.30 $28 $2.23 7,399,103 7,399,103 $(0.93)\n\n1/30/09 Annapolis Bancorp, Inc. (Annapolis, MD) Pref. Stock w/ Warr. $8,152,000 $3.80 $15 $4.08 299,706 299,706 $(0.28) $118,883\n\n1/30/09 Bankers\xe2\x80\x99 Bank of the West Bancorp, Inc. Pref. Stock w/ Ex. Warr. $12,639,000 $200,909\n (Denver, CO)2\n\n1/30/09 Beach Business Bank (Manhattan Beach, CA)2 Pref. Stock w/ Ex. Warr. $6,000,000 $95,375\n\n1/30/09 Central Bancshares, Inc. (Houston, TX)2 Pref. Stock w/ Ex. Warr. $5,800,000 $92,196\n\n1/30/09 Central Valley Community Bancorp (Fresno, CA) Pref. Stock w/ Warr. $7,000,000 $5.19 $40 $6.64 158,133 158,133 $(1.45) $102,083\n\n1/30/09 Central Virginia Bankshares, Inc. (Powhatan, VA) Pref. Stock w/ Warr. $11,385,000 $4.25 $11 $6.48 263,542 263,542 $(2.23) $166,031\n\n1/30/09 Community Partners Bancorp (Middletown, NJ) Pref. Stock w/ Warr. $9,000,000 $4.20 $29 $4.68 288,462 288,462 $(0.48) $131,250\n\n1/30/09 Country Bank Shares, Inc. (Milford, NE)2 Pref. Stock w/ Ex. Warr. $7,525,000 $119,610\n\n1/30/09 DNB Financial Corporation (Downingtown, PA) Pref. Stock w/ Warr. $11,750,000 $7.55 $20 $9.46 186,311 186,311 $(1.91) $171,354\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n1/30/09 Equity Bancshares, Inc. (Wichita, KS)2 Pref. Stock w/ Ex. Warr. $8,750,000 $139,102\n\n1/30/09 F & M Bancshares, Inc. (Trezevant, TN)2 Pref. Stock w/ Ex. Warr. $4,609,000 $73,252\n\n1/30/09 First Resource Bank (Exton, PA)2 Pref. Stock w/ Ex. Warr. $2,600,000 $41,330\n\n1/30/09 First Southern Bancorp, Inc. (Boca Raton, FL)2 Pref. Stock w/ Ex. Warr. $10,900,000 $173,264\n\n1/30/09 First United Corporation (Oakland, MD) Pref. Stock w/ Warr. $30,000,000 $11.25 $69 $13.79 326,323 326,323 $(2.54) $437,500\n\n1/30/09 Firstbank Corporation (Alma, MI) Pref. Stock w/ Warr. $33,000,000 $7.05 $54 $8.55 578,947 578,947 $(1.50) $481,250\n\n1/30/09 Flagstar Bancorp, Inc. (Troy, MI) Pref. Stock w/ Warr. $266,657,000 $0.68 $61 $0.62 64,513,790 64,513,790 $0.06 $3,888,747\n\n1/30/09 Goldwater Bank, N.A. (Scottsdale, AZ)2 Pref. Stock w/ Ex. Warr. $2,568,000 $40,810\n\n1/30/09 Greer Bancshares Incorporated (Greer, SC)2 Pref. Stock w/ Ex. Warr. $9,993,000 $158,856\n\n1/30/09 Guaranty Federal Bancshares, Inc. Pref. Stock w/ Warr. $17,000,000 $6.90 $18 $5.55 459,459 459,459 $1.35 $247,917\n (Springfield, MO)\n\n1/30/09 Hilltop Community Bancorp, Inc. (Summit, NJ)2 Pref. Stock w/ Ex. Warr. $4,000,000 $63,583\n\n1/30/09 Katahdin Bankshares Corp. (Houlton, ME)2 Pref. Stock w/ Ex. Warr. $10,449,000 $166,084\n\n1/30/09 Legacy Bancorp, Inc. (Milwaukee, WI)3 Pref. Stock $5,498,000 $80,179\n\n1/30/09 Metro City Bank (Doraville, GA)2 Pref. Stock w/ Ex. Warr. $7,700,000 $122,398\n\n1/30/09 Middleburg Financial Corporation (Middleburg, Pref. Stock w/ Warr. $22,000,000 $13.76 $65 $15.85 208,202 208,202 $(2.09) $320,833\n VA)\n\n1/30/09 Monument Bank (Bethesda, MD)2 Pref. Stock w/ Ex. Warr. $4,734,000 $75,258\n\n1/30/09 Northway Financial, Inc. (Berlin, NH)2 Pref. Stock w/ Ex. Warr. $10,000,000 $158,958\n\n1/30/09 Oak Ridge Financial Services, Inc. Pref. Stock w/ Warr. $7,700,000 $7.20 $13 $7.05 163,830 163,830 $0.15 $112,292\n (Oak Ridge, NC)\n\n1/30/09 Ojai Community Bank (Ojai, CA)2 Pref. Stock w/ Ex. Warr. $2,080,000 $33,063\n\n1/30/09 Parke Bancorp, Inc. (Sewell, NJ) Pref. Stock w/ Warr. $16,288,000 $9.16 $37 $8.15 299,779 299,779 $1.01 $237,533\n\n1/30/09 Peninsula Bank Holding Co. (Palo Alto, CA) Pref. Stock w/ Warr. $6,000,000 $9.25 $17 $11.02 81,670 81,670 $(1.77)\n\n1/30/09 Peoples Bancorp Inc. (Marietta, OH) Pref. Stock w/ Warr. $39,000,000 $17.05 $178 $18.86 313,505 313,505 $(1.81) $568,750\n\n1/30/09 Plumas Bancorp (Quincy, CA) Pref. Stock w/ Warr. $11,949,000 $4.99 $24 $7.54 237,712 237,712 $(2.55) $174,256\n\n1/30/09 PrivateBancorp, Inc. (Chicago, IL) Pref. Stock w/ Warr. $243,815,000 $22.24 $1,013 $28.35 1,290,026 1,290,026 $(6.11) $3,555,635\n\n1/30/09 Rogers Bancshares, Inc. (Little Rock, AR)2 Pref. Stock w/ Ex. Warr. $25,000,000 $397,396\n\n1/30/09 Stewardship Financial Corporation (Midland Pref. Stock w/ Warr. $10,000,000 $9.50 $53 $11.80 127,119 127,119 $(2.30) $145,833\n Park, NJ)\n\n1/30/09 UBT Bancshares, Inc. (Marysville, KS)2 Pref. Stock w/ Ex. Warr. $8,950,000 $142,334\n\n1/30/09 Valley Commerce Bancorp (Visalia, CA)2 Pref. Stock w/ Ex. Warr. $7,700,000 $122,398\n\n1/30/09 W.T.B. Financial Corporation (Spokane, WA)2 Pref. Stock w/ Ex. Warr. $110,000,000 $1,748,541\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n1/30/09 WashingtonFirst Bank (Reston, VA)2 Pref. Stock w/ Ex. Warr. $6,633,000 $105,446\n\n2/6/09 Alaska Pacific Bancshares, Inc. (Juneau, AK) Pref. Stock w/ Warr. $4,781,000 $4.05 $3 $4.08 175,772 175,772 $(0.03) $65,739\n\n2/6/09 Banner County Ban Corporation (Harrisburg, Pref. Stock w/ Ex. Warr. $795,000 $11,921\n NE)2\n\n2/6/09 Carolina Trust Bank (Lincolnton, NC) Pref. Stock w/ Warr. $4,000,000 $7.24 $11 $6.90 86,957 86,957 $0.34 $55,000\n\n2/6/09 CedarStone Bank (Lebanon, TN)2 Pref. Stock w/ Ex. Warr. $3,564,000 $53,411\n\n2/6/09 Centrix Bank & Trust (Bedford, NH)2 Pref. Stock w/ Ex. Warr. $7,500,000 $112,406\n\n2/6/09 Citizens Commerce Bancshares, Inc. Pref. Stock w/ Ex. Warr. $6,300,000 $94,421\n (Versailles, KY)2\n\n2/6/09 Community Holding Company of Florida, Inc. Pref. Stock w/ Ex. Warr. $1,050,000 $15,676\n (Miramar Beach, FL)2\n\n2/6/09 F & M Financial Corporation (Salisbury, NC)2 Pref. Stock w/ Ex. Warr. $17,000,000 $254,788\n\n2/6/09 First Bank of Charleston, Inc. (Charleston, Pref. Stock w/ Ex. Warr. $3,345,000 $50,127\n WV)2\n\n2/6/09 First Express of Nebraska, Inc. (Gering, NE)2 Pref. Stock w/ Ex. Warr. $5,000,000 $74,938\n\n2/6/09 First Market Bank, FSB (Richmond, VA)2 Pref. Stock w/ Ex. Warr. $33,900,000 $508,076\n\n2/6/09 First Western Financial, Inc. (Denver, CO)2 Pref. Stock w/ Ex. Warr. $8,559,000 $128,279\n\n2/6/09 Georgia Commerce Bancshares, Inc. Pref. Stock w/ Ex. Warr. $8,700,000 $130,391\n (Atlanta, GA)2\n 2\n2/6/09 Hyperion Bank (Philadelphia, PA) Pref. Stock w/ Ex. Warr. $1,552,000 $23,271\n\n2/6/09 Lakeland Bancorp, Inc. (Oak Ridge, NJ) Pref. Stock w/ Warr. $59,000,000 $8.99 $212 $9.32 949,571 949,571 $(0.33) $811,250\n\n2/6/09 Liberty Financial Services, Inc. (New Orleans, Pref. Stock $5,645,000 $77,619\n LA)3\n\n2/6/09 Lone Star Bank (Houston, TX)2 Pref. Stock w/ Ex. Warr. $3,072,000\n\n2/6/09 Mercantile Capital Corp. (Boston, MA)2 Pref. Stock w/ Ex. Warr. $3,500,000 $52,456\n\n2/6/09 MidWestOne Financial Group, Inc. (Iowa Pref. Stock w/ Warr. $16,000,000 $7.81 $67 $12.08 198,675 198,675 $(4.27) $220,000\n City, IA)\n\n2/6/09 Monarch Community Bancorp, Inc. Pref. Stock w/ Warr. $6,785,000 $6.10 $12 $3.90 260,962 260,962 $2.20 $93,294\n (Coldwater, MI)\n 2\n2/6/09 Pascack Community Bank (Westwood, NJ) Pref. Stock w/ Ex. Warr. $3,756,000 $56,298\n\n2/6/09 PGB Holdings, Inc. (Chicago, IL)3 Pref. Stock $3,000,000 $41,250\n\n2/6/09 Stockmens Financial Corporation (Rapid Pref. Stock w/ Ex. Warr. $15,568,000 $233,316\n City, SD)2\n\n2/6/09 The Bank of Currituck (Moyock, NC)2 Pref. Stock w/ Ex. Warr. $4,021,000 $60,264\n\n2/6/09 The First Bancshares, Inc. (Hattiesburg, MS) Pref. Stock w/ Warr. $5,000,000 $7.50 $22 $13.71 54,705 54,705 $(6.21) $68,750\n\n2/6/09 The Freeport State Bank (Harper, KS)2 Pref. Stock w/ Ex. Warr. $301,000 $4,510\n\n2/6/09 Todd Bancshares, Inc. (Hopkinsville, KY)2 Pref. Stock w/ Ex. Warr. $4,000,000 $59,950\n\n2/6/09 US Metro Bank (Garden Grove, CA)2 Pref. Stock w/ Ex. Warr. $2,861,000 $42,878\n\n2/13/09 1st Enterprise Bank (Los Angeles, CA)2 Pref. Stock w/ Ex. Warr. $4,400,000 $61,282\n\n2/13/09 BankGreenville (Greenville, SC)2 Pref. Stock w/ Ex. Warr. $1,000,000 $13,928\n\n2/13/09 Bern Bancshares, Inc. (Bern, KS)2 Pref. Stock w/ Ex. Warr. $985,000 $13,736\n\n2/13/09 Carrollton Bancorp (Baltimore, MD) Pref. Stock w/ Warr. $9,201,000 $5.56 $14 $6.72 205,379 205,379 $(1.16) $117,568\n\n2/13/09 ColoEast Bankshares, Inc. (Lamar, CO)2 Pref. Stock w/ Ex. Warr. $10,000,000 $139,278\n\n2/13/09 Corning Savings and Loan Association Pref. Stock w/ Ex. Warr. $638,000 $8,888\n (Corning, AR)2\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n2/13/09 DeSoto County Bank (Horn Lake, MS)2 Pref. Stock w/ Ex. Warr. $1,173,000 $16,345\n\n2/13/09 F&M Financial Corporation (Clarksville, TN)2 Pref. Stock w/ Ex. Warr. $17,243,000 $240,153\n\n2/13/09 Financial Security Corporation (Basin, WY)2 Pref. Stock w/ Ex. Warr. $5,000,000 $69,639\n\n2/13/09 First Choice Bank (Cerritos, CA)2 Pref. Stock w/ Ex. Warr. $2,200,000 $30,641\n\n2/13/09 First Menasha Bancshares, Inc. (Neenah, WI)2 Pref. Stock w/ Ex. Warr. $4,797,000 $66,815\n 211\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n 212\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n2/13/09 FNB United Corp. (Asheboro, NC) Pref. Stock w/ Warr. $51,500,000 $2.48 $28 $3.50 2,207,143 2,207,143 $(1.02) $658,055\n\n2/13/09 Gregg Bancshares, Inc. (Ozark, MO)2 Pref. Stock w/ Ex. Warr. $825,000 $11,485\n\n2/13/09 Hometown Bancshares, Inc. (Corbin, KY)2 Pref. Stock w/ Ex. Warr. $1,900,000 $26,463\n\n2/13/09 Liberty Bancshares, Inc. (Springfield, MO)2 Pref. Stock w/ Ex. Warr. $21,900,000 $305,018\n\n2/13/09 Meridian Bank (Devon, PA)2 Pref. Stock w/ Ex. Warr. $6,200,000 $86,352\n\n2/13/09 Midwest Regional Bancorp, Inc. (Festus, MO)2 Pref. Stock w/ Ex. Warr. $700,000 $9,749\n\n2/13/09 Northwest Bancorporation, Inc. (Spokane, WA)2 Pref. Stock w/ Ex. Warr. $10,500,000 $146,242\n\n2/13/09 Northwest Commercial Bank (Lakewood, WA)2 Pref. Stock w/ Ex. Warr. $1,992,000 $27,753\n\n2/13/09 Peoples Bancorp (Lynden, WA)2 Pref. Stock w/ Ex. Warr. $18,000,000 $250,700\n\n2/13/09 PremierWest Bancorp (Medford, OR) Pref. Stock w/ Warr. $41,400,000 $3.39 $84 $5.70 1,038,462 1,090,385 $(2.31) $529,000\n\n2/13/09 QCR Holdings, Inc. (Moline, IL) Pref. Stock w/ Warr. $38,237,000 $10.00 $45 $10.99 521,888 521,888 $(0.99) $488,584\n\n2/13/09 Regional Bankshares, Inc .(Hartsville, SC)2 Pref. Stock w/ Ex. Warr. $1,500,000 $20,892\n\n2/13/09 Reliance Bancshares, Inc. (Frontenac, MO)2 Pref. Stock w/ Ex. Warr. $40,000,000 $557,111\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n2/13/09 Santa Clara Valley Bank, N.A. (Santa Paula, Pref. Stock w/ Ex. Warr. $2,900,000 $40,391\n CA)2\n\n2/13/09 Security Bancshares of Pulaski County, Inc. Pref. Stock w/ Ex. Warr. $2,152,000 $29,982\n (Waynesville, MO)2\n\n2/13/09 State Capital Corporation (Greenwood, MS)2 Pref. Stock w/ Ex. Warr. $15,000,000 $208,917\n\n2/13/09 The Bank of Kentucky Financial Corporation Pref. Stock w/ Warr. $34,000,000 $28.00 $157 $18.56 274,784 274,784 $9.44 $434,444\n (Crestview Hills, KY)\n\n2/13/09 Westamerica Bancorporation (San Rafael, CA) Pref. Stock w/ Warr. $83,726,000 $49.61 $1,448 $50.92 246,640 246,640 $(1.31) $1,069,832\n\n2/20/09 BancPlus Corporation (Ridgeland, MS)2 Pref. Stock w/ Ex. Warr. $48,000,000 $617,666\n\n2/20/09 CBB Bancorp (Cartersville, GA)2 Pref. Stock w/ Ex. Warr. $2,644,000 $34,019\n\n2/20/09 Central Community Corporation (Temple, TX)2 Pref. Stock w/ Ex. Warr. $22,000,000 $283,097\n\n2/20/09 Crazy Woman Creek Bancorp, Inc. (Buffalo, Pref. Stock w/ Ex. Warr. $3,100,000 $39,891\n WY)2\n\n2/20/09 First BancTrust Corporation (Paris, IL)2 Pref. Stock w/ Ex. Warr. $7,350,000 $94,591\n\n2/20/09 First Merchants Corporation (Muncie, IN) Pref. Stock w/ Warr. $116,000,000 $8.03 $169 $17.55 991,453 991,453 $(9.52) $1,369,444\n\n2/20/09 First Priority Financial Corp. (Malvern, PA)2 Pref. Stock w/ Ex. Warr. $4,579,000 $58,924\n\n2/20/09 Florida Business BancGroup, Inc. (Tampa, FL)2 Pref. Stock w/ Ex. Warr. $9,495,000 $122,188\n\n2/20/09 Guaranty Bancorp, Inc. (Woodsville, NH)2 Pref. Stock w/ Ex. Warr. $6,920,000 $89,047\n\n2/20/09 Hamilton State Bancshares (Hoschton, GA)2 Pref. Stock w/ Ex. Warr. $7,000,000 $90,077\n\n2/20/09 Hometown Bancorp of Alabama, Inc. Pref. Stock w/ Ex. Warr. $3,250,000 $41,832\n (Oneonta, AL)2\n\n2/20/09 Lafayette Bancorp, Inc. (Oxford, MS)2 Pref. Stock w/ Ex. Warr. $1,998,000 $25,712\n\n2/20/09 Liberty Shares, Inc. (Hinesville, GA)2 Pref. Stock w/ Ex. Warr. $17,280,000 $222,360\n\n2/20/09 Market Bancorporation, Inc. (New Market, MN)2 Pref. Stock w/ Ex. Warr. $2,060,000 $26,508\n\n2/20/09 Mid-Wisconsin Financial Services, Inc. Pref. Stock w/ Ex. Warr. $10,000,000 $128,681\n (Medford, WI)2\n\n2/20/09 Northern States Financial Corporation Pref. Stock w/ Warr. $17,211,000 $5.33 $22 $4.42 584,084 584,084 $0.91 $203,185\n (Waukegan, IL)\n\n2/20/09 Premier Service Bank (Riverside, CA)2 Pref. Stock w/ Ex. Warr. $4,000,000\n\n2/20/09 Royal Bancshares of Pennsylvania, Inc. Pref. Stock w/ Warr. $30,407,000 $1.87 $25 $4.13 1,104,370 1,104,370 $(2.26) $358,971\n (Narberth, PA)\n\n2/20/09 Security State Bancshares, Inc.(Charleston, Pref. Stock w/ Ex. Warr. $12,500,000 $160,850\n MO)2\n\n2/20/09 Sonoma Valley Bancorp (Sonoma , CA)2 Pref. Stock w/ Ex. Warr. $8,653,000 $111,354\n\n2/20/09 The Private Bank of California (Los Angeles, Pref. Stock w/ Ex. Warr. $5,450,000 $70,142\n CA)2\n\n2/20/09 United American Bank (San Mateo, CA)2 Pref. Stock w/ Ex. Warr. $8,700,000\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n2/20/09 White River Bancshares Company Pref. Stock w/ Ex. Warr. $16,800,000 $216,183\n (Fayetteville, AR)2\n 2\n2/27/09 Avenue Financial Holdings, Inc. (Nashville, TN) Pref. Stock w/ Ex. Warr. $7,400,000 $87,382\n\n2/27/09 BNC Financial Group, Inc. (New Canaan, CT)2 Pref. Stock w/ Ex. Warr. $4,797,000 $56,647\n\n2/27/09 California Bank of Commerce (Lafayette, CA)2 Pref. Stock w/ Ex. Warr. $4,000,000 $47,233\n\n2/27/09 Catskill Hudson Bancorp, Inc (Rock Hill, NY)2 Pref. Stock w/ Ex. Warr. $3,000,000 $35,425\n\n2/27/09 Central Bancorp, Inc. (Garland, TX)2 Pref. Stock w/ Ex. Warr. $22,500,000 $265,688\n\n2/27/09 Columbine Capital Corp. (Buena Vista, CO)2 Pref. Stock w/ Ex. Warr. $2,260,000 $26,687\n\n2/27/09 Community Business Bank (West Pref. Stock w/ Ex. Warr. $3,976,000 $46,954\n Sacramento, CA)2\n 2\n2/27/09 Community First Inc. (Columbia, TN) Pref. Stock w/ Ex. Warr. $17,806,000 $210,253\n\n2/27/09 D.L. Evans Bancorp (Burley, ID)2 Pref. Stock w/ Ex. Warr. $19,891,000 $234,889\n\n2/27/09 First Gothenburg Bancshares, Inc. Pref. Stock w/ Ex. Warr. $7,570,000 $89,399\n (Gothenburg, NE)2\n\n2/27/09 First M&F Corporation (Kosciusko, MS) Pref. Stock w/ Warr. $30,000,000 $4.07 $37 $8.77 513,113 513,113 $(4.70) $325,000\n\n2/27/09 First State Bank of Mobeetie (Mobeetie, TX)2 Pref. Stock w/ Ex. Warr. $731,000 $8,641\n\n2/27/09 FNB Bancorp (South San Francisco, CA)2 Pref. Stock w/ Ex. Warr. $12,000,000 $141,700\n\n2/27/09 Green Circle Investments, Inc. (Clive, IA)2 Pref. Stock w/ Ex. Warr. $2,400,000 $28,340\n\n2/27/09 Green City Bancshares, Inc. (Green City, MO)2 Pref. Stock w/ Ex. Warr. $651,000 $7,696\n\n2/27/09 Howard Bancorp, Inc. (Ellicott City, MD)2 Pref. Stock w/ Ex. Warr. $5,983,000 $70,646\n\n2/27/09 Integra Bank Corporation (Evansville, IN) Pref. Stock w/ Warr. $83,586,000 $1.15 $24 $1.69 7,418,876 7,418,876 $(0.54) $905,515\n\n2/27/09 Lakeland Financial Corporation (Warsaw, IN) Pref. Stock w/ Warr. $56,044,000 $19.00 $236 $21.20 396,538 396,538 $(2.20) $607,143\n\n2/27/09 Medallion Bank (Salt Lake City, UT)2 Pref. Stock w/ Ex. Warr. $11,800,000 $139,338\n\n2/27/09 Midtown Bank & Trust Company (Atlanta, GA)2 Pref. Stock w/ Ex. Warr. $5,222,000 $61,662\n\n2/27/09 National Bancshares, Inc. (Bettendorf, IA)2 Pref. Stock w/ Ex. Warr. $24,664,000 $291,237\n\n2/27/09 Private Bancorporation, Inc. (Minneapolis, MN)2 Pref. Stock w/ Ex. Warr. $4,960,000 $58,569\n\n2/27/09 PSB Financial Corporation (Many, LA)2 Pref. Stock w/ Ex. Warr. $9,270,000 $109,473\n\n2/27/09 Regent Capital Corporation (Nowata, OK)2 Pref. Stock w/ Ex. Warr. $2,655,000 $31,356\n\n2/27/09 Ridgestone Financial Services, Inc. Pref. Stock w/ Ex. Warr. $10,900,000 $128,711\n (Brookfield, WI)2\n\n2/27/09 Southern First Bancshares, Inc. (Greenville, SC) Pref. Stock w/ Warr. $17,299,000 $6.99 $21 $7.85 330,554 330,554 $(0.86) $187,406\n\n2/27/09 The Victory Bank (Limerick, PA)2 Pref. Stock w/ Ex. Warr. $541,000 $6,388\n\n2/27/09 TriState Capital Holdings, Inc. (Pittsburgh, PA)2 Pref. Stock w/ Ex. Warr. $23,000,000 $271,592\n\n3/6/09 AmeriBank Holding Company (Collinsville, OK)2 Pref. Stock w/ Ex. Warr. $2,492,000 $26,038\n\n3/6/09 Blue Ridge Bancshares, Inc. (Independence, MO)2Pref. Stock w/ Ex. Warr. $12,000,000 $125,350\n\n3/6/09 Blue River Bancshares, Inc. (Shelbyville, IN)2 Pref. Stock w/ Ex. Warr. $5,000,000 $52,230\n\n3/6/09 BOH Holdings, Inc. (Houston, TX)2 Pref. Stock w/ Ex. Warr. $10,000,000 $104,458\n\n3/6/09 Citizens Bancshares Corporation (Atlanta, GA)3 Pref. Stock $7,462,000 $71,511\n\n3/6/09 Community Bancshares of Kansas, Inc. Pref. Stock w/ Ex. Warr. $500,000 $5,223\n (Goff, KS)2\n\n3/6/09 Farmers & Merchants Bancshares, Inc. Pref. Stock w/ Ex. Warr. $11,000,000 $114,905\n (Houston, TX)2\n\n3/6/09 First Busey Corporation (Urbana, IL) Pref. Stock w/ Warr. $100,000,000 $7.35 $263 $13.07 1,147,666 1,147,666 $(5.72) $958,333\n\n3/6/09 First Federal Bancshares of Arkansas, Inc. Pref. Stock w/ Warr. $16,500,000 $3.93 $19 $7.69 321,847 321,847 $(3.76) $158,125\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n (Harrison, AR)\n\n3/6/09 First Reliance Bancshares, Inc. (Florence, SC)2 Pref. Stock w/ Ex. Warr. $15,349,000 $160,326\n\n3/6/09 First Southwest Bancorporation, Inc. Pref. Stock w/ Ex. Warr. $5,500,000 $57,452\n (Alamosa, CO)2\n\n3/6/09 First Texas BHC, Inc. (Fort Worth,TX)2 Pref. Stock w/ Ex. Warr. $13,533,000 $141,369\n 213\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n 214\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n3/6/09 Germantown Capital Corporation, Inc. Pref. Stock w/ Ex. Warr. $4,967,000 $51,878\n (Germantown, TN)2\n\n3/6/09 HCSB Financial Corporation (Loris, SC) Pref. Stock w/ Warr. $12,895,000 $12.60 $48 $21.09 91,714 91,714 $(8.49) $123,577\n\n3/6/09 Highlands Independent Bancshares, Inc. Pref. Stock w/ Ex. Warr. $6,700,000 $69,987\n (Sebring, FL)2\n\n3/6/09 ICB Financial (Ontario, CA)2 Pref. Stock w/ Ex. Warr. $6,000,000 $62,675\n\n3/6/09 Marine Bank & Trust Company (Vero Beach, FL)2 Pref. Stock w/ Ex. Warr. $3,000,000 $31,338\n\n3/6/09 Merchants and Planters Bancshares, Inc. Pref. Stock w/ Ex. Warr. $1,881,000 $19,648\n (Toone, TN)2\n\n3/6/09 Park Bancorporation, Inc. (Madison, WI)2 Pref. Stock w/ Ex. Warr. $23,200,000 $242,343\n\n3/6/09 PeoplesSouth Bancshares, Inc. (Colquitt, GA)2 Pref. Stock w/ Ex. Warr. $12,325,000 $128,741\n\n3/6/09 Pinnacle Bank Holding Company, Inc. (Orange Pref. Stock w/ Ex. Warr. $4,389,000 $45,839\n City, FL)2\n\n3/6/09 Regent Bancorp, Inc. (Davie, FL)2 Pref. Stock w/ Ex. Warr. $9,982,000 $104,269\n\n3/13/09 1st United Bancorp, Inc. (Boca Raton, FL)2 Pref. Stock w/ Ex. Warr. $10,000,000 $93,861\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n3/13/09 BancIndependent, Inc. (Sheffield, AL)2 Pref. Stock w/ Ex. Warr. $21,100,000 $198,047\n\n3/13/09 Bank of George (Las Vegas, NV)2 Pref. Stock w/ Ex. Warr. $2,672,000 $25,086\n\n3/13/09 Blackhawk Bancorp, Inc. (Beloit, WI)2 Pref. Stock w/ Ex. Warr. $10,000,000 $93,861\n\n3/13/09 Butler Point, Inc. (Catlin, IL)2 Pref. Stock w/ Ex. Warr. $607,000 $5,692\n\n3/13/09 Discover Financial Services (Riverwoods, IL) Pref. Stock w/ Warr. $1,224,558,000 $10.27 $4,947 $8.96 20,500,413 20,500,413 $1.31 $10,544,804\n\n3/13/09 First American International Corp. (Brooklyn, Pref. Stock $17,000,000 $146,389\n NY)3\n 2\n3/13/09 First Intercontinental Bank (Doraville, GA) Pref. Stock w/ Ex. Warr. $6,398,000 $60,054\n\n3/13/09 First National Corporation (Strasburg, VA)2 Pref. Stock w/ Ex. Warr. $13,900,000 $130,467\n\n3/13/09 First Northern Community Bancorp (Dixon, CA) Pref. Stock w/ Warr. $17,390,000 $5.76 $52 $7.39 352,977 352,977 $(1.63) $149,747\n\n3/13/09 First Place Financial Corp. (Warren, OH) Pref. Stock w/ Warr. $72,927,000 $3.11 $53 $2.98 3,670,822 3,670,822 $0.13 $627,982\n\n3/13/09 Haviland Bancshares, Inc. (Haviland, KS)2 Pref. Stock w/ Ex. Warr. $425,000 $3,986\n\n3/13/09 IBW Financial Corporation (Washington, DC)2 Pref. Stock w/ Ex. Warr. $6,000,000 $56,317\n\n3/13/09 Madison Financial Corporation (Richmond, KY)2 Pref. Stock w/ Ex. Warr. $3,370,000 $31,639\n\n3/13/09 Moneytree Corporation (Lenoir City, TN)2 Pref. Stock w/ Ex. Warr. $9,516,000 $89,321\n\n3/13/09 Provident Community Bancshares, Inc. (Rock Pref. Stock w/ Warr. $9,266,000 $3.30 $6 $7.77 178,880 178,880 $(4.47) $79,791\n Hill, SC)\n\n3/13/09 Salisbury Bancorp, Inc. (Lakeville, CT) Pref. Stock w/ Warr. $8,816,000 $24.31 $41 $22.93 57,671 57,671 $1.38 $75,916\n\n3/13/09 Sovereign Bancshares, Inc. (Dallas, TX)2 Pref. Stock w/ Ex. Warr. $18,215,000 $170,972\n\n3/13/09 St. Johns Bancshares, Inc. (St. Louis, MO)2 Pref. Stock w/ Ex. Warr. $3,000,000 $28,158\n\n3/20/09 Citizens Bank & Trust Company (Covington, LA)2 Pref. Stock w/ Ex. Warr. $2,400,000 $19,983\n\n3/20/09 Community First Bancshares Inc. (Union Pref. Stock w/ Ex. Warr. $20,000,000 $166,528\n City, TN)2\n\n3/20/09 Farmers & Merchants Financial Corporation Pref. Stock w/ Ex. Warr. $442,000 $3,679\n (Argonia, KS)2\n 2\n3/20/09 Farmers State Bankshares, Inc. (Holton, KS) Pref. Stock w/ Ex. Warr. $700,000 $5,897\n\n3/20/09 First Colebrook Bancorp, Inc. (Colebrook, NH)2 Pref. Stock w/ Ex. Warr. $4,500,000 $37,469\n\n3/20/09 First NBC Bank Holding Company (New Pref. Stock w/ Ex. Warr. $17,836,000 $148,512\n Orleans, LA)2\n\n3/20/09 Heritage Oaks Bancorp (Paso Robles, CA) Pref. Stock w/ Warr. $21,000,000 $6.25 $48 $5.15 611,650 611,650 $1.10 $160,416\n\n3/20/09 Kirksville Bancorp, Inc. (Kirksville, MO)2 Pref. Stock w/ Ex. Warr. $470,000 $3,920\n\n3/20/09 Peoples Bancshares of TN, Inc (Madisonville, Pref. Stock w/ Ex. Warr. $3,900,000 $32,473\n TN)2\n\n3/20/09 Premier Bank Holding Company (Tallahassee, Pref. Stock w/ Ex. Warr. $9,500,000 $79,100\n FL)2\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n3/27/09 Alpine Banks of Colorado (Glenwood Springs, Pref. Stock w/ Ex. Warr. $70,000,000 $508,666\n CO)2\n\n3/27/09 CBS Banc-Corp. (Russellville, AL)2 Pref. Stock w/ Ex. Warr. $24,300,000 $176,580\n\n3/27/09 Clover Community Bankshares, Inc. (Clover, Pref. Stock w/ Ex. Warr. $3,000,000 $21,800\n SC)2\n\n3/27/09 Colonial American Bank (West Conshohocken, Pref. Stock w/ Ex. Warr. $574,000 $4,175\n PA)2\n\n3/27/09 CSRA Bank Corp. (Wrens, GA)2 Pref. Stock w/ Ex. Warr. $2,400,000 $17,440\n\n3/27/09 IBT Bancorp, Inc. (Irving, TX)2 Pref. Stock w/ Ex. Warr. $2,295,000 $16,680\n\n3/27/09 Maryland Financial Bank (Towson, MD)2 Pref. Stock w/ Ex. Warr. $1,700,000 $12,353\n\n3/27/09 MS Financial, Inc. (Kingwood, TX)2 Pref. Stock w/ Ex. Warr. $7,723,000 $56,119\n\n3/27/09 Naples Bancorp, Inc. (Naples, FL)2 Pref. Stock w/ Ex. Warr. $4,000,000 $29,067\n\n3/27/09 Pathway Bancorp (Cairo, NE)2 Pref. Stock w/ Ex. Warr. $3,727,000 $27,079\n\n3/27/09 SBT Bancorp, Inc. (Simsbury, CT)2 Pref. Stock w/ Ex. Warr. $4,000,000 $29,067\n\n3/27/09 Spirit BankCorp, Inc. (Bristow, OK)2 Pref. Stock w/ Ex. Warr. $30,000,000 $218,000\n\n3/27/09 Triad Bancorp, Inc. (Frontenac, MO)2 Pref. Stock w/ Ex. Warr. $3,700,000 $26,887\n\n3/27/09 Trinity Capital Corporation (Los Alamos, NM)2 Pref. Stock w/ Ex. Warr. $35,539,000 $258,251\n\n4/3/09 BancStar, Inc. (Festus, MO)2 Pref. Stock w/ Ex. Warr. $8,600,000 $54,682\n\n4/3/09 BCB Holding Company, Inc. (Theodore, AL)2 Pref. Stock w/ Ex. Warr. $1,706,000 $10,845\n\n4/3/09 Community First Bancshares, Inc. (Harrison, Pref. Stock w/ Ex. Warr. $12,725,000 $80,907\n AR)2\n\n4/3/09 First Capital Bancorp, Inc. (Glen Ellen, VA) Pref. Stock w/ Warr. $10,958,000 $8.00 $24 $6.55 250,947 250,947 $1.45 $63,922\n\n4/3/09 Fortune Financial Corporation (Arnold, MO)2 Pref. Stock w/ Ex. Warr. $3,100,000 $19,711\n\n4/3/09 Millennium Bancorp, Inc. (Edwards, CO)2 Pref. Stock w/ Ex. Warr. $7,260,000 $46,162\n\n4/3/09 Prairie Star Bancshares, Inc. (Olathe, KS)2 Pref. Stock w/ Ex. Warr. $2,800,000 $17,803\n\n4/3/09 Titonka Bancshares, Inc (Titonka, IA)2 Pref. Stock w/ Ex. Warr. $2,117,000 $13,462\n\n4/3/09 Tri-State Bank of Memphis (Memphis, TN)2, 3 Pref. Stock $2,795,000 $16,304\n\n4/3/09 TriSummit Bank (Kingsport, TN)2 Pref. Stock w/ Ex. Warr. $2,765,000 $17,578\n\n4/10/09 Capital Commerce Bancorp, Inc. (Milwaukee, Pref. Stock w/ Ex. Warr. $5,100,000 $27,023\n WI)2\n\n4/10/09 City National Bancshares Corporation Pref. Stock $9,439,000 $45,884\n (Newark, NJ)3\n\n4/10/09 First Business Bank, N.A. (San Diego, CA)2 Pref. Stock w/ Ex. Warr. $2,211,000 $11,719\n\n4/10/09 Metropolitan Capital Bancorp, Inc. (Chicago, IL)2 Pref. Stock w/ Ex. Warr. $2,040,000 $10,810\n\n4/10/09 SV Financial, Inc. (Sterling, IL)2 Pref. Stock w/ Ex. Warr. $4,000,000 $21,194\n\n4/17/09 Bank of the Carolinas Corporation Pref. Stock w/ Warr. $13,179,000 $5.00 $19 $4.16 475,204 475,204 $0.84 $51,252\n (Mocksville, NC)\n\n4/17/09 BNB Financial Services Corporation (New Pref. Stock w/ Ex. Warr. $7,500,000 $31,792\n York, NY)2\n\n4/17/09 Omega Capital Corp. (Lakewood, CO)2 Pref. Stock w/ Ex. Warr. $2,816,000 $11,938\n\n4/17/09 Patterson Bancshares, Inc (Patterson, LA)2 Pref. Stock w/ Ex. Warr. $3,690,000 $15,645\n\n4/17/09 Penn Liberty Financial Corp. (Wayne, PA)2 Pref. Stock w/ Ex. Warr. $9,960,000 $42,219\n\n4/17/09 Tifton Banking Company (Tifton, GA)2 Pref. Stock w/ Ex. Warr. $3,800,000 $16,108\n\n4/24/09 Allied First Bancorp, Inc. (Oswego, IL)2 Pref. Stock w/ Ex. Warr. $3,652,000 $11,613\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n4/24/09 Birmingham Bloomfield Bancshares, Inc Pref. Stock w/ Ex. Warr. $1,635,000 $5,200\n (Birmingham, MI)2\n\n4/24/09 Business Bancshares, Inc. (Clayton,MO)2 Pref. Stock w/ Ex. Warr. $15,000,000 $47,688\n\n4/24/09 Frontier Bancshares, Inc. (Austin,TX)8 Sub. Debent. w/ Ex. Warr. $3,000,000\n\n4/24/09 Grand Capital Corporation (Tulsa,OK)2 Pref. Stock w/ Ex. Warr. $4,000,000 $12,717\n 215\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n 216\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n4/24/09 Indiana Bank Corp. (Dana, IN)2 Pref. Stock w/ Ex. Warr. $1,312,000 $4,174\n\n4/24/09 Mackinac Financial Corporation/mBank Pref. Stock w/ Warr. $11,000,000 $4.50 $15 $4.35 379,310 379,310 $0.15 $32,083\n (Manistique, MI)\n\n4/24/09 Oregon Bancorp, Inc. (Salem, OR)2 Pref. Stock w/ Ex. Warr. $3,216,000 $10,225\n\n4/24/09 Peoples Bancorporation, Inc. (Easley, SC)2 Pref. Stock w/ Ex. Warr. $12,660,000 $40,248\n\n4/24/09 Standard Bancshares, Inc. (Hickory Hills, IL)2 Pref. Stock w/ Ex. Warr. $60,000,000 $190,750\n\n4/24/09 Vision Bank - Texas (Richardson, TX)2 Pref. Stock w/ Ex. Warr. $1,500,000 $4,769\n\n4/24/09 York Traditions Bank (York, PA)2 Pref. Stock w/ Ex. Warr. $4,871,000 $15,488\n\n5/1/09 CenterBank(Milford, OH)2 Pref. Stock w/ Ex. Warr. $2,250,000\n\n5/1/09 Georgia Primary Bank(Atlanta, GA)2 Pref. Stock w/ Ex. Warr. $4,500,000\n\n5/1/09 HPK Financial Corporation (Chicago, IL)2 Pref. Stock w/ Ex. Warr. $4,000,000\n\n5/1/09 OSB Financial Services, Inc. (Orange, TX)8 Sub. Debent. w/ Ex. Warr. $6,100,000\n\n5/1/09 Security State Bank Holding-Company Sub. Debent. w/ Ex. Warr. $10,750,000\n (Jamestown, ND)8\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n5/1/09 Union Bank & Trust Company (Oxford, NC)2 Pref. Stock w/ Ex. Warr. $3,194,000\n\n5/1/09 Village Bank and Trust Financial Corp Pref. Stock w/ Warr. $14,738,000 $4.70 $20 $4.43 499,029 499,029 $0.27\n (Midlothian, VA)\n\n5/8/09 Freeport Bancshares, Inc. (Freeport, IL)8 Sub. Debent. w/ Ex. Warr. $3,000,000\n\n5/8/09 Gateway Bancshares, Inc. (Ringgold, GA)2 Pref. Stock w/ Ex. Warr. $6,000,000\n\n5/8/09 Highlands State Bank (Vernon, NJ)2 Pref. Stock w/ Ex. Warr. $3,091,000\n\n5/8/09 Investors Financial Corporation of Pettis Sub. Debent. w/ Ex. Warr. $4,000,000\n County, Inc. (Sedalia, MO)8\n\n5/8/09 One Georgia Bank (Atlanta, GA)2 Pref. Stock w/ Ex. Warr. $5,500,000\n\n5/8/09 Premier Bancorp, Inc. (Wilmette, IL)3, 8 Sub. Debent. $6,784,000\n\n5/8/09 Sword Financial Corporation (Horicon, WI)8 Sub. Debent. w/ Ex. Warr. $13,644,000\n\n5/15/09 Boscobel Bancorp, In c(Boscobel, WI)8 Sub. Debent. w/ Ex. Warr. $5,586,000\n\n5/15/09 Brogan Bankshares, Inc. (Kaukauna, WI)8 Sub. Debent. w/ Ex. Warr. $2,400,000\n\n5/15/09 Community Financial Shares, Inc. (Glen Pref. Stock w/ Ex. Warr. $6,970,000\n Ellyn, IL)2\n\n5/15/09 Deerfield Financial Corporation (Deerfield, WI)8 Sub. Debent. w/ Ex. Warr. $2,639,000\n\n5/15/09 First Community Bancshares, Inc (Overland Pref. Stock w/ Ex. Warr. $14,800,000\n Park, KS)2\n\n5/15/09 Foresight Financial Group, Inc. (Rockford, IL)2 Pref. Stock w/ Ex. Warr. $15,000,000\n\n5/15/09 IBC Bancorp, Inc. (Chicago, IL)3, 8 Sub. Debent. $4,205,000\n\n5/15/09 Market Street Bancshares, Inc. (Mt. Vernon, IL)8 Sub. Debent. w/ Ex. Warr. $20,300,000\n\n5/15/09 Mercantile Bank Corporation (Grand Rapids, MI) Pref. Stock w/ Warr. $21,000,000 $3.30 $28 $5.11 616,438 616,438 $(1.81)\n\n5/15/09 Northern State Bank (Closter, NJ)2 Pref. Stock w/ Ex. Warr. $1,341,000\n\n5/15/09 Riverside Bancshares, Inc. (Little Rock, AR)8 Sub. Debent. w/ Ex. Warr. $1,100,000\n\n5/15/09 Southern Heritage Bancshares, Inc. Pref. Stock w/ Ex. Warr. $4,862,000\n (Cleveland, TN)2\n\n5/15/09 Western Reserve Bancorp, Inc (Medina, OH)2 Pref. Stock w/ Ex. Warr. $4,700,000\n\n5/15/09 Worthington Financial Holdings, Inc. Pref. Stock w/ Ex. Warr. $2,720,000\n (Huntsville, AL)2\n\n5/22/09 Blackridge Financial, Inc. (Fargo, ND)2 Pref. Stock w/ Ex. Warr. $5,000,000\n\n5/22/09 Commonwealth Bancshares, Inc.(Louisville, KY)8 Sub. Debent. w/ Ex. Warr. $20,400,000\n\n5/22/09 Diamond Bancorp, Inc. (Washington, MO)8 Sub. Debent. w/ Ex. Warr. $20,445,000\n\n5/22/09 F & C Bancorp, Inc. (Holden, MO)8 Sub. Debent. w/ Ex. Warr. $2,993,000\n\n5/22/09 First Advantage Bancshares Inc. (Coon Pref. Stock w/ Ex. Warr. $1,177,000\n Rapids, MN)2\n\x0cCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n5/22/09 Fort Lee Federal Savings Bank (Fort Lee, NJ)2 Pref. Stock w/ Ex. Warr. $1,300,000\n\n5/22/09 Franklin Bancorp, Inc. (Washington, MO)2 Pref. Stock w/ Ex. Warr. $5,097,000\n\n5/22/09 Illinois State Bancorp, Inc. (Chicago, IL)2 Pref. Stock w/ Ex. Warr. $6,272,000\n\n5/22/09 Premier Financial Corp (Dubuque, IA)8 Sub. Debent. w/ Ex. Warr. $6,349,000\n\n5/22/09 The Landrum Company (Columbia, MO)2 Pref. Stock w/ Ex. Warr. $15,000,000\n\n5/22/09 United Bank Corporation (Barnesville, GA)8 Sub. Debent. w/ Ex. Warr. $14,400,000\n\n5/22/09 Universal Bancorp (Bloomfield, IN)2 Pref. Stock w/ Ex. Warr. $9,900,000\n\n5/29/09 American Premier Bancorp (Arcadia ,CA)2 Pref. Stock w/ Ex. Warr. $1,800,000\n\n5/29/09 CB Holding Corp. (Aledo, IL)2 Pref. Stock w/ Ex. Warr. $4,114,000\n\n5/29/09 Chambers Bancshares, Inc. (Danville, AR)8 Sub. Debent. w/ Ex. Warr. $19,817,000\n\n5/29/09 Citizens Bancshares Co. (Chillicothe, MO)2 Pref. Stock w/ Ex. Warr. $24,990,000\n\n5/29/09 Community Bank Shares of Indiana, Inc. (New Pref. Stock w/ Warr. $19,468,000 $7.51 $24 $7.56 386,270 386,270 $(0.05)\n Albany, IN)\n 8\n5/29/09 Fidelity Bancorp, Inc (Baton Rouge, LA) Sub. Debent. w/ Ex. Warr. $3,942,000\n\n5/29/09 Grand Mountain Bancshares, Inc. (Granby, Pref. Stock w/ Ex. Warr. $3,076,000\n CO)2\n 2\n5/29/09 Two Rivers Financial Group (Burlington, IA) Pref. Stock w/ Ex. Warr. $12,000,000\n\n6/5/09 Covenant Financial Corporation (Clarksdale, MS)2 Pref. Stock w/ Ex. Warr. $5,000,000\n\n6/5/09 First Trust Corporation (New Orleans, LA)8 Sub. Debent. w/ Ex. Warr. $17,969,000\n\n6/5/09 OneFinancial Corporation (Little Rock, AR)8, 10 Sub. Debent. w/ Ex. Warr. $17,300,000\n\n6/12/09 Berkshire Bancorp, Inc. (Wyomissing, PA)2 Pref. Stock w/ Ex. Warr. $2,892,000\n\n6/12/09 Enterprise Financial Services Group, Inc. Pref. Stock w/ Ex. Warr. $4,000,000\n (Allison Park, PA)2\n\n6/12/09 First Financial Bancshares, Inc. (Lawrence, Sub. Debent. w/ Ex. Warr. $3,756,000\n KS)8, 10\n\n6/12/09 First Vernon Bancshares, Inc. (Vernon, AL)2, 10 Pref. Stock w/ Ex. Warr. $6,000,000\n\n6/12/09 River Valley Bancorporation, Inc. (Wausau, WI)8 Sub. Debent. w/ Ex. Warr. $15,000,000\n\n6/12/09 SouthFirst Bancshares, Inc. (Sylacauga, AL)2 Pref. Stock w/ Ex. Warr. $2,760,000\n\n6/12/09 Virginia Company Bank (Newport News, VA)2, 10 Pref. Stock w/ Ex. Warr. $4,700,000\n\n6/19/09 Biscayne Bancshares, Inc. (Coconut Grove, Sub. Debent. w/ Ex. Warr. $6,400,000\n FL)8,10\n\n6/19/09 Century Financial Services Corporation (Santa Sub. Debent. w/ Ex. Warr. $10,000,000\n Fe, NM)8\n\n6/19/09 Duke Financial Group, Inc. (Minneapolis, MN)8 Sub. Debent. w/ Ex. Warr. $12,000,000\n\n6/19/09 Farmers Enterprises, Inc. (Great Bend, KS)8 Sub. Debent. w/ Ex. Warr. $12,000,000\n\n6/19/09 Manhattan Bancshares, Inc. (Manhattan, IL)8 Sub. Debent. w/ Ex. Warr. $2,639,000\n\n6/19/09 Merchants and Manufacturers Bank Pref. Stock w/ Ex. Warr. $3,510,000\n Corporation (Joliet, IL)2\n\n6/19/09 NEMO Bancshares Inc. (Madison, MO)8 Sub. Debent. w/ Ex. Warr. $2,330,000\n\n6/19/09 RCB Financial Corporation (Rome, GA)2, 10 Pref. Stock w/ Ex. Warr. $8,900,000\n\n6/19/09 Suburban Illinois Bancorp, Inc. (Elmhurst, IL)8 Sub. Debent. w/ Ex. Warr. $15,000,000\n\n6/19/09 University Financial Corp, Inc. (St. Paul, MN)3, 8 Sub. Debent. $11,926,000\n\n6/26/09 Alliance Bancshares, Inc. (Dalton, GA) Pref. Stock w/ Ex. Warr. $2,986,000\n\n6/26/09 Alliance Financial Services Inc. (Saint Paul, Sub. Debent. w/ Ex. Warr. $12,000,000\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\n MN)8\n\n6/26/09 FC Holdings, Inc. (Houston, TX)2 Pref. Stock w/ Ex. Warr. $21,042,000\n\n6/26/09 Fidelity Resources Company (Plano, TX)2 Pref. Stock w/ Ex. Warr. $3,000,000\n\n6/26/09 First Alliance Bancshares, Inc. (Cordova, TN)2 Pref. Stock w/ Ex. Warr. $3,422,000\n\n6/26/09 Fremont Bancorporation (Fremont, CA)8 Sub. Debent. w/ Ex. Warr. $35,000,000\n 217\n\x0c 218\nCPP TRANSACTION DETAIL, AS OF 6/30/2009\n Seller Purchase Details Capital Repayment Details Final Disposition Warrant and Market Data for Publicly Traded Companies\n\n Number of Current Amt. \xe2\x80\x9cIn the\n Capital Capital Remaining Final Disposition Final Market Warrants Number of Money\xe2\x80\x9d / Dividend\n Investment Investment Repayment Repayment Capital Disposition Investment Disposition Current Capitalization Strike Originally Outstanding \xe2\x80\x9cOut of the Payments to\nDate Name of Institution Description Amount Date Amount6 Amount Date Description Proceeds Stock Price (in millions) Pricea Issued Warrants Money\xe2\x80\x9d e Treasury\n\n6/26/09 Gold Canyon Bank (Gold Canyon, AZ)2,10 Pref. Stock w/ Ex. Warr. $1,607,000\n\n6/26/09 Gulfstream Bancshares, Inc. (Stuart, FL)2 Pref. Stock w/ Ex. Warr. $7,500,000\n\n6/26/09 Hartford Financial Services Group, Inc. Pref. Stock w/ Warr. $3,400,000,000 $11.87 $3,863 $9.79 52,093,973 52,093,973 $2.08\n (Hartford, CT)\n\n6/26/09 M&F Bancorp, Inc. (Durham, NC)2,3,10 Pref. Stock $11,735,000\n\n6/26/09 Metropolitan Bank Group, Inc. (Chicago, IL)2 Pref. Stock w/ Ex. Warr. $71,526,000\n\n6/26/09 NC Bancorp, Inc. (Chicago, IL)2 Pref. Stock w/ Ex. Warr. $6,880,000\n\n6/26/09 Security Capital Corporation (Batesville, MS)2,10 Pref. Stock w/ Ex. Warr. $17,388,000\n\n6/26/09 Signature Bancshares, Inc. (Dallas, TX)8 Sub. Debent. w/ Ex. Warr. $1,700,000\n\n6/26/09 Stearns Financial Services, Inc.(St. Cloud, Sub. Debent. w/ Ex. Warr. $24,900,000\n MN)8\n\n6/26/09 Waukesha Bankshares, Inc. (Waukesha, WI)2,10 Pref. Stock w/ Ex. Warr. $5,625,000\n\n Total Purchase Amount $203,193,201,000 Total Capital Repayment Amount: $70,124,589,000\n\n Total Treasury CPP Investment Amount: $133,068,612,000\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury\xe2\x80\x99s 7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n This transaction was included in previous Transaction Reports with Merrill Lynch & Co., Inc. listed as the qualifying institution and a 10/28/2008 transaction date, footnoted to indicate that settlement was deferred pending merger. The purchase of Merrill Lynch by Bank of America was completed on 1/1/2009, and\n this transaction under the CPP was funded on 1/9/2009.\n2\n Privately-held qualified financial institution; Treasury received a warrant to purchase additional shares of preferred stock (unless the institution is a CDFI), which it exercised immediately.\n3\n To promote community development financial institutions (CDFIs), Treasury does not require warrants as part of its investment in certified CDFIs when the size of the investment is $50 million or less.\n4\n Repayment pursuant to Title VII, Section 7001(g) of the American Recovery and Reinvestment Act of 2009.\n5\n Redemption pursuant to a qualified equity offering.\n6\n This amount does not include accrued and unpaid dividends, which must be paid at the time of capital repayment.\n7\n The proceeds associated with the disposition of this investment do not include accrued and unpaid dividends.\n8\n Subchapter S corporation; Treasury received a warrant to purchase additional subordinated debentures (unless the institution is a CDFI), which it exercised immediately.\n9\n In its qualified equity offering, this institution raised more capital than Treasury\xe2\x80\x99s original investment, therefore, the number of Treasury\xe2\x80\x99s shares underlying the warrant was reduced by half.\n10\n This institution participated in the expansion of CPP for small banks.\n11\n Treasury has three separate investments in Citigroup Inc. (\xe2\x80\x9cCitigroup\xe2\x80\x9d) under CPP, TIP, and AGP for a total of $50 billion. On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange up to $12.5 billion of Treasury\xe2\x80\x99s investment in Fixed Rate Cumulative Perpetual Preferred Stock, Series H (CPP\n Shares) \xe2\x80\x9cdollar for dollar\xe2\x80\x9d in Citigroup\xe2\x80\x99s Private Exchange Offering. The closing of the Exchange is contingent on specified closing conditions, including regulatory approvals or waivers and the concurrent consummation of the other private shareholders\xe2\x80\x99 exchange. Treasury will initially exchange the CPP shares for\n Series M Common Stock Equivalent (\xe2\x80\x9cInterim Stock\xe2\x80\x9d) and a warrant to purchase shares of common stock. Series M automatically converts to common stock and the associated warrant terminates upon receipt of certain shareholder approvals.\n12\n As stated in Footnote 11, on 6/9/2009, Treasury entered into an agreement with Citigroup to exchange Treasury\xe2\x80\x99s total investment. In addition to the conditions in Footnote 11, Treasury\xe2\x80\x99s investment in Fixed Rate Cumulative Perpetual Preferred Stock, Series H (CPP Shares) will be exchanged \xe2\x80\x9cdollar for dollar\xe2\x80\x9d up\n to $25 billion as a result of Citigroup\xe2\x80\x99s Private and Public Exchange Offerings. The closing of the Public Exchange is contingent on specified closing conditions, including regulatory approvals or waivers and the concurrent consummation of the other public shareholders\xe2\x80\x99 exchange. Treasury will initially exchange the\n CPP shares for Series M Common Stock Equivalent (\xe2\x80\x9cInterim Stock\xe2\x80\x9d) and a warrant to purchase shares of common stock. Series M automatically converts to common stock and the associated warrant terminates upon receipt of certain shareholder approvals. If any CPP Shares remain following the Private and Public\n Exchanges, Treasury will exchange those remaining CPP shares \xe2\x80\x9cdollar for dollar\xe2\x80\x9d for Trust Preferred Securities.\na\n According to Treasury, \xe2\x80\x9cIf a Share Dividend is declared on a common stock of a bank in which Treasury holds outstanding warrants, Treasury is entitled to additional warrants. The \xe2\x80\x98Update\xe2\x80\x99 netted is the amount of new warrant shares that have been received as a result of the corporate action.\xe2\x80\x9d Strike price and current\n number of outstanding warrants reflect these updates.\nb\n Also according to Treasury, First Niagara Corporation, Iberiabank Corporation, and State Street Corporation executed Qualified Equity Offerings which \xe2\x80\x9creduce the number of outstanding warrants held by Treasury.\xe2\x80\x9d\nc\n Treasury made two investments in SunTrust. Since the dividends could not be allocated between the transactions, they are presented with the first investment for purposes of this schedule.\nd\n According to Treasury, \xe2\x80\x9cProvident was purchase by M&T Bank (a public institution). Treasury is currently in the process of swapping the warrants issued by Provident for warrants issued by M&T Bank.\xe2\x80\x9d\ne\n When a warrant\xe2\x80\x99s current market price rises above the strike price, it is considered \xe2\x80\x9cIn the Money,\xe2\x80\x9d otherwise it is considered \xe2\x80\x9cOut of the Money.\xe2\x80\x9d For this table, the stock price and market capitalization are as of 6/30/2009. Negative number indicates \xe2\x80\x9cOut of the Money.\xe2\x80\x9d\n\nSources:\nTreasury, Transactions Report, response to SIGTARP data call, 6/30/2009.\nTreasury, Transactions Report, 7/2/2009, www.treas.gov, accessed 7/6/2009.\nMarket Data: Capital IQ, Inc. (a division of Standard & Poor\xe2\x80\x99s), www.capitaliq.com, accessed 7/6/2009.\nYahoo Finance, http://finance.yahoo.com, accessed 7/7/2009.\nWarrants data: Treasury, CPP Pipeline Report, response to SIGTARP data call, 6/30/2009.\nTreasury, response to SIGTARP data call, 7/8/2009, Treasury, response to SIGTARP draft, 7/14/2009.\n\x0cSSFI TRANSACTION DETAIL, AS OF 6/30/2009\n Transaction Details Exchange Details Warrants and Market Data\n Amount \xe2\x80\x9cIn\n Market the Money\xe2\x80\x9d\n Capitalization as of Strike Price as Number of or \xe2\x80\x9cOut of the\n Investment Investment Transaction Investment Investment Stock Price as 6/30/2009 Stated in the Warrants Money\xe2\x80\x9d as of Payment\nDate Seller Description Amount Date Type Description Amount of 6/30/2009 (in millions) Agreements Received 6/30/2009b to Treasury\n11/25/2008 AIGa (New York, NY) Preferred Stock w/ $40,000,000,000 4/17/2009 Exchange Preferred Stock $40,000,000,000 $23.20 $3,123 $50.00 2,689,938 ($26.80) -0-\n Warrants w/ Warrants1\n4/17/2009 AIGa (New York, NY)2,3 Preferred Stock w/ $29,835,000,000 $23.20 $3,123 $0.000020 150 $23.20 -0-\n Warrants\n Total: $69,835,000,000\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury\xe2\x80\x99s 7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n On 4/17/2009, Treasury exchanged its Series D Fixed Rate Cumulative Preferred Shares for Series E Fixed Rate Non-Cumulative Preferred Shares with no change to Treasury\xe2\x80\x99s initial investment amount. In addition, in order for AIG to fully redeem the Series E\nPreferred Shares, it has an additional obligation to Treasury of $1,604,576,000 to reflect the cumulative unpaid dividends for the Series D Preferred Shares due to Treasury through and including the exchange date.\n2\n The investment price reflects Treasury\xe2\x80\x99s commitment to invest up to $30 billion less a reduction of $165 million representing retention payments AIG Financial Products made to its employees in March 2009.\n3\n This transaction does not include AIG\xe2\x80\x99s commitment fee of an additional $165 million scheduled to be paid from its operating income in three equal installments over the five-year life of the facility.\na\n AIG executed a 1 for 20 reverse stock split on 6/30/2009, therefore the market data and warrant data reflects this adustment.\nb\n When a warrant\xe2\x80\x99s current market price rises above the strike price, it is considered \xe2\x80\x9cIn the Money,\xe2\x80\x9d otherwise it is considered \xe2\x80\x9cOut of the Money.\xe2\x80\x9d\nSources: Treasury, response to SIGTARP data call, 6/30/2009; Treasury, response to SIGTARP draft, 7/9/2009; Market Data: Treasury, response to SIGTARP draft, 7/14/2009; Capital IQ, Inc. (a division of Standard & Poor\xe2\x80\x99s), www.capitaliq.com, accessed\n7/6/2009.\n\n\n\n\nTIP TRANSACTION DETAIL, AS OF 6/30/2009\n Purchase Details Warrants and Market Data\n Market Strike Price Amount \xe2\x80\x9cIn the\n Stock Capitalization as of as Stated Number of Money\xe2\x80\x9d or \xe2\x80\x9cOut\n Transaction Investment Investment Price as of 6/30/2009 in the Warrants of the Money\xe2\x80\x9d as In or Out of Dividend Payment\n a\nDate Seller Type Description Amount 6/30/2009 (in millions) Agreements Received of 6/30/2009 a the Money? to Treasury\n12/31/2008 Citigroup Inc. (New York, NY)1 Purchase Preferred $2.97 $16,315 $10.61 188,501,414 ($7.64) Out $600,000,000\n Stock w/ $20,000,000,000\n Warrants\n1/16/2009 Bank of America Corporation Purchase Preferred $13.20 $104,544 $13.30 150,375,940 ($0.10) Out $528,888,889\n (Charlotte, NC) Stock w/ $20,000,000,000\n Warrants\n Total: $40,000,000,000\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury\xe2\x80\x99s 7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n Treasury has three separate investments in Citigroup Inc. (\xe2\x80\x9cCitigroup\xe2\x80\x9d) under CPP, TIP, and AGP for a total of $50 billion. On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange all of Treasury\xe2\x80\x99s investments. Following\nthe Private Exchange and the Public Exchange (see footnotes 11 and 12 in the CPP section), Treasury will exchange Fixed Rate Cumulative Perpetual Preferred Stock, Series I (TIP) \xe2\x80\x9cdollar for dollar\xe2\x80\x9d for Trust Preferred Securities.\na\n When a warrant\xe2\x80\x99s current market price rises above the strike price, it is considered \xe2\x80\x9cIn the Money,\xe2\x80\x9d otherwise it is considered \xe2\x80\x9cOut of the Money.\xe2\x80\x9d\nSources: Treasury, response to SIGTARP data call, 6/30/2009; Treasury, Transactions Report, 7/2/2009; Market Data: Capital IQ, Inc. (a division of Standard & Poor\xe2\x80\x99s), www.capitaliq.com, accessed 7/6/2009.\n\n\n\nAGP TRANSACTION DETAIL, AS OF 6/30/2009\n Transaction Details Warrants and Market Data\n Market Strike Price Amount \xe2\x80\x9cIn the\n Stock Capitalization as of as Stated Number of Money\xe2\x80\x9d or \xe2\x80\x9cOut\n Price as of 6/30/2009 in the Warrants of the Money\xe2\x80\x9d as In or Out of Dividend Payment\nDate Seller Investment Description Guarantee Limit 6/30/2009 (in millions) Agreements Received of 6/30/2009a the Money?a to Treasury\n Second-Loss Guarantee on\n1/16/2009 Citigroup Inc. (New York, NY)1 Asset Pool $5,000,000,000 $2.97 $16,315 $10.61 66,531,728 ($7.64) Out $107,573,333\n Total: $5,000,000,000\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury\xe2\x80\x99s 7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n Treasury has three separate investments in Citigroup Inc. (\xe2\x80\x9cCitigroup\xe2\x80\x9d) under CPP, TIP, and AGP for a total of $50 billion. On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange all of Treasury\xe2\x80\x99s investments. Fol-\nlowing the Private Exchange and the Public Exchange (see Footnotes 11 and 12 in the CPP section), Treasury will exchange Fixed Rate Cumulative Perpetual Preferred Stock Series G (AGP), received as premium with the AGP agreement,\n\xe2\x80\x9cdollar for dollar\xe2\x80\x9d for Trust Preferred Securities.\na\n When a warrant\xe2\x80\x99s current market price rises above the strike price, it is considered \xe2\x80\x9cIn the Money,\xe2\x80\x9d otherwise it is considered \xe2\x80\x9cOut of the Money.\xe2\x80\x9d\nb\n AGP transaction is a guarantee, not a purchase. Treasury received a premium including preferred stock and warrants as part of this transaction.\nSources: Treasury, response to SIGTARP data call, 6/30/2009; Treasury, Transactions Report, 7/2/2009; Market Data: Capital IQ, Inc. (a division of Standard & Poor\xe2\x80\x99s), www.capitaliq.com, accessed 7/6/2009.\n\n\n\n\nTALF TRANSACTION DETAIL, AS OF 6/30/2009\nDate Seller Investment Description Investment Amount\n3/3/2009 TALF LLC (New York, NY)1 Debt Obligation w/ Additional Note $20,000,000,000\n Total $20,000,000,000\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n\n\n\n\nNote: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury\xe2\x80\x99s\n7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n The loan was funded through TALF LLC, a special purpose vehicle created by The Federal Reserve Bank\nof New York. The amount of $20,000,000,000 represents the maximum loan amount. The loan will be\nincrementally funded.\nSource: Treasury, response to SIGTARP data call, 6/30/2009; Treasury, Transactions Report, 7/2/2009.\n 219\n\x0cAIFP TRANSACTION DETAIL, AS OF 6/30/2009 220\n Purchase Details Exchange Details Warrant and Market Data for Publicly Traded Companies Payments to Treasury\n Market Amount \xe2\x80\x9cIn\n Capitaliza- Strike Price the Money\xe2\x80\x9d\n Stock tion as of as Stated Number of or \xe2\x80\x9cOut of the\n Transaction Investment Investment Transaction Investment Investment Price as of 6/30/2009 in the Warrants Money\xe2\x80\x9d as of In or Out of Dividend Interest Principal\nDate Seller Type Description Amount Date Type Description Amount 6/30/2009 (in millions) Agreements Received 6/30/2009c the Money?c Paymenta Paymenta Paymenta\n12/29/2008 GMAC LLC (Detroit, MI) Purchase Preferred Stock w/ $5,000,000,000 $159,611,111\n Exercised Warrants\n12/29/2008 General Motors Corporation Purchase Debt Obligation $884,024,131 5/29/2009 Exchange Equity Interest $884,024,131 $666 see note a\n (Detroit, MI)1 in GMAC12\n12/31/2008 General Motors Corporation Purchase Debt Obligation w/ $13,400,000,000 $1.09 $666 $3.47 122,035,597 ($2.38) Out $143,526,108\n (Detroit, MI) Warrants and Ad-\n ditional Note\n1/2/2009 Chrysler Holding LLC Purchase Debt Obligation w/ $4,000,000,000 $52,152,222\n (Auburn Hills, MI)14 Additional Note\n1/16/2009 Chrysler Financial Services Purchase Debt Obligation w/ $1,500,000,000 $6,036,837 $130,802,971\n Americas LLC Additional Note\n (Farmington Hills, MI)2\n4/22/2009 General Motors Corporation Purchase Debt Obligation w/ $2,000,000,000 $666\n (Detroit, MI)3 Additional Note\n4/29/2009 Chrysler Holding LLC Purchase Debt Obligation w/ $500,000,000\n (Auburn Hills, MI)4,5 Additional Note\n4/29/2009 Chrysler Holding LLC Purchase Debt Obligation w/ $280,130,642\n (Auburn Hills, MI)4,6 Additional Note\n5/1/2009 Chrysler LLC (Wilmington, DE)7 Purchase Debt Obligation w/ $3,043,143,000\n Additional Note\n5/20/2009 Chrysler LLC (Wilmington, DE)8 Purchase Debt Obligation w/ $756,857,000\n Additional Note\n APPENDIX D I TRANSACTION DETAIL I JULY 21, 2009\n\n\n\n\n5/20/2009 General Motors Corporation Purchase Debt Obligation w/ $4,000,000,000 $666\n (Detroit, MI)9 Additional Note see note a\n5/21/2009 GMAC LLC (Detroit, MI) Purchase Preferred Stock w/ $7,500,000,000\n Exercised Warrants\n5/27/2009 New CarCo Acquisition LLC Purchase Debt Obligation w/ $6,642,000,000\n (Wilmington, DE)10 Additional Note, Equity\n Interest\n5/27/2009 General Motors Corporation Purchase Debt Obligation w/ $360,624,198 $666\n (Detroit, MI)11 Additional Note\n6/3/2009 General Motors Corporation Purchase Debt Obligation w/ $30,100,000,000 $666\n (Detroit, MI)13 Additional Note\n Total: $79,966,778,971\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury\xe2\x80\x99s 7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n Treasury committed to lend General Motors Corporation up to $1,000,000,000. The ultimate level of funding was dependent upon the level of investor participation in GMAC LLC\xe2\x80\x99s rights offering. The amount has been updated to reflect the final level of funding.\n2\n The loan was funded through Chrysler LB Receivables Trust, a special purpose vehicle created by Chrysler Financial. The amount of $1,500,000,000 represents the maximum loan amount. The loan will be incrementally funded.\n3\n This transaction is an amendment to Treasury\xe2\x80\x99s 12/31/2008 agreement with General Motors Corporation, which brought the total loan amount to $15,400,000,000.\n4\n This transaction is an amendment to Treasury\xe2\x80\x99s 1/2/2009 agreement with Chrysler Holding LLC, increasing the total loan amount to $4,780,130,642.\n5\n The loan may be incrementally funded.\n6\n The loan will be used to capitalize Chrysler Warranty SPV LLC, a special purpose vehicle created by Chrysler LLC.\n7\n The terms of this transaction, first reported based on a binding term sheet fully executed on 5/1/2009 but made effective as of 4/30/2009, are now finalized and reflected in a credit agreement fully executed on 5/5/2009. Under the terms of the credit agreement, all commitment amounts were adjusted as follows:\nTreasury\xe2\x80\x99s commitment amount is $3.04 billion of the total $4.1 billion debtor-in-possession (DIP) credit facility. The amount of $1.4 billion, of which Treasury\xe2\x80\x99s share is $1.04 billion, is available in weekly disbursements under the terms of the Bankruptcy Court\xe2\x80\x99s interim order approving the DIP credit facility; the balance will be\navailable in weekly disbursements after certain Bankruptcy Court milestones are met.\n8\n This transaction is an amendment to Treasury\xe2\x80\x99s DIP credit agreement with Chrysler LLC dated 5/5/2009 and increases Treasury\xe2\x80\x99s commitment to $3,800,000,000. The amendment was fully executed on 5/20/2009, but was made effective as of 5/15/2009.\n9\n This transaction is an amendment to Treasury\xe2\x80\x99s 12/31/2008 agreement with General Motors Corporation, which brought the total loan amount to $19,400,000,000, including the 4/22/2009 amendment.\n10\n The terms of this transaction, first reported based on a term sheet fully executed on 5/27/2009 for an amount up to $6.943 billion, are now finalized and reflected in a credit agreement fully executed on 6/10/2009. Under the terms of the credit agreement, Treasury made a new commitment to New CarCo Acquisition\nLLC (renamed Chrysler Group LLC on or about 6/10/2009) of up to $6.642 billion. The total loan amount is up to $7.142 billion including $500 million of debt assumed from Treasury\xe2\x80\x99s 1/2/2009 credit agreement with Chrysler Holding LLC. The debt obligations will be secured by a first priority lien on the assets of New CarCo\nAcquisition LLC (the company that purchased Chrysler LLC\xe2\x80\x99s assets in a sale pursuant to section 363 of the Bankruptcy Code).\n11\n This transaction is an amendment to Treasury\xe2\x80\x99s 12/31/2008 agreement with General Motors Corporation, which brings the total loan amount to $19,760,624,198, including the 4/22/2009 and 5/20/2009 amendments. The $360 million loan will be used to capitalize GM Warranty LLC, a special purpose vehicle created by\nGeneral Motors Corporation.\n12\n Pursuant to its rights under the loan agreement with General Motors Corporation (GM) reported on 12/29/2009, Treasury exchanged its $884 million loan to GM for a portion of GM\xe2\x80\x99s common equity interest in GMAC LLC. As a result of the exchange, Treasury holds a 35.4% common equity interest in GMAC LLC.\n13\n Under the terms of the $33.3 billion debtor-in-possession (DIP) credit agreement, Treasury\xe2\x80\x99s commitment amount is $30.1 billion. Up to $15 billion is available pursuant to the interim order the Bankruptcy Court entered approving the DIP credit facility, of which Treasury\xe2\x80\x99s share is $12.8 billion; the balance will be available\nshortly after the Bankruptcy Court\xe2\x80\x99s final and non-appealable order approving the DIP credit facility.\n14\n Pursuant to the agreement originally reported on 5/27/2009 and fully executed on 6/10/2009 (explained in Footnote 10), $500 million of this deal\xe2\x80\x99s debt will be assumed under that fully executed agreement.\na\n The information provided by Treasury on principal, income, and dividends was not broken out by transaction. For purposes of this table, it is presented in aggregate under one transaction for each AIFP participant.\nb\n This table include AWCP transactions. See notes 6 and 11.\nc\n When a warrant\xe2\x80\x99s current market price rises above the strike price, it is considered \xe2\x80\x9cIn the Money,\xe2\x80\x9d otherwise it is considered \xe2\x80\x9cOut of the Money.\xe2\x80\x9d\nSources: Treasury, response to SIGTARP data call, 6/30/2009; Treasury, Transactions Report, 7/2/2009; Market Data: Capital IQ, Inc. (a division of Standard & Poor\xe2\x80\x99s), www.capitaliq.com, accessed 7/6/2009.\n\n\nASSP TRANSACTION DETAIL, AS OF 6/30/2009\n Purchase Details\nDate Seller Transaction Type Investment Description Investment Amount Interest Payment to Treasury\n4/9/2009 GM Supplier Receivables LLC (Wilmington, DE)1 Purchase Debt Obligation w/ Additional Note $3,500,000,000 $114,521\n4/9/2009 Chrysler Receivables SPV LLC (Wilmington, DE)2 Purchase Debt Obligation w/ Additional Note $1,500,000,000 $594,349\n\n Total: $5,000,000,000\n\nNote: Numbers affected by rounding. Data as of 6/30/2009. Numbered notes taken from Treasury\xe2\x80\x99s 7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n The loan was funded through GM Supplier Receivables, LLC, a special purpose vehicle created by General Motors Corporation. The amount of $3,500,000,000 represents the maximum\nloan amount. The loan will be incrementally funded. The agreement was fully executed on 4/9/2009, but was made effective as of 4/3/2009.\n2\n The loan was funded through Chrysler Receivables SPV LLC, a special purpose vehicle created by Chrysler LLC. The amount of $1,500,000,000 represents the maximum loan amount. The\nloan will be incrementally funded. The agreement was fully executed on 4/9/2009, but was made effective as of 4/7/2009.\nSource: Treasury, response to SIGTARP data call, 6/30/2009.\n\x0cHAMP TRANSACTION DETAIL, AS OF 6/30/2009\n Cap of Incentive\n Servicer Modifying Borrowers\xe2\x80\x99 Loans Payments on Behalf Adjustment Details Market\n of Borrowers and to Capitalization as of\nTransaction Servicers & Lenders/ Cap Adjustment 6/30/2009\nDate Name of Institution Investment Description Investors (Cap)1 Adjustment Date Amount Adjusted Cap Reason for Adjustment (in millions)\n4/13/2009 Select Portfolio Servicing Financial Instrument for $376,000,000 6/12/2009 $284,590,000 $660,590,000 Updated portfolio data\n (Salt Lake City, UT) Home Loan Modifications from servicer\n4/13/2009 CitiMortgage, Inc. (O\xe2\x80\x99Fallon, MO) Financial Instrument for $2,071,000,000 6/12/2009 $(991,580,000) $1,079,420,000 Updated portfolio data\n Home Loan Modifications from servicer\n4/13/2009 Wells Fargo Bank, NA (Des Financial Instrument for $2,873,000,000 6/17/2009 $(462,990,000) $2,410,010,000 Updated portfolio data $114,141\n Moines, IA) Home Loan Modifications from servicer\n4/13/2009 GMAC Mortgage, Inc. (Ft. Wash- Financial Instrument for $633,000,000 6/12/2009 $384,650,000 $1,017,650,000 Updated portfolio data\n ington, PA) Home Loan Modifications from servicer\n4/13/2009 Saxon Mortgage Services, Inc. Financial Instrument for $407,000,000 6/17/2009 $225,040,000 $632,040,000 Updated portfolio data\n (Irving, TX) Home Loan Modifications from servicer\n4/13/2009 Chase Home Finance, LLC Financial Instrument for $3,552,000,000\n (Iselin, NJ) Home Loan Modifications\n4/16/2009 Ocwen Financial Corporation, Inc. Financial Instrument for $659,000,000 6/12/2009 $(105,620,000) $553,380,000 Updated portfolio data $875\n (West Palm Beach, FL) Home Loan Modifications from servicer\n4/17/2009 Bank of America, N.A. (Simi Financial Instrument for $798,900,000 6/12/2009 $5,540,000 $804,440,000 Updated portfolio data $104,544\n Valley, CA) Home Loan Modifications from servicer\n4/17/2009 Countrywide Home Loans Financial Instrument for $1,864,000,000 6/12/2009 $3,318,840,000 $5,182,840,000 Updated portfolio data\n Servicing LP (Simi Valley, CA) Home Loan Modifications from servicer\n4/20/2009 Home Loan Services, Inc. Financial Instrument for $319,000,000 6/12/2009 $128,300,000 $447,300,000 Updated portfolio data\n (Pittsburgh, PA) Home Loan Modifications from servicer\n4/20/2009 Wilshire Credit Corporation Financial Instrument for $366,000,000 6/12/2009 $87,130,000 $453,130,000 Updated portfolio data\n (Beaverton, OR) Home Loan Modifications from servicer\n4/24/2009 Green Tree Servicing LLC Financial Instrument for $156,000,000 6/17/2009 $(64,990,000) $91,010,000 Updated portfolio data\n (Saint Paul, MN) Home Loan Modifications from servicer\n4/27/2009 Carrington Mortgage Services, Financial Instrument for $195,000,000 6/17/2009 $(63,980,000) $131,020,000 Updated portfolio data\n LLC (Santa Ana, CA) Home Loan Modifications from servicer\n5/1/2009 Aurora Loan Services, LLC Financial Instrument for $798,000,000 6/17/2009 $(338,450,000) $459,550,000 Updated portfolio data\n (Littleton, CO) Home Loan Modifications from servicer\n5/28/2009 Nationstar Mortgage LLC Financial Instrument for $101,000,000 6/12/2009 $16,140,000 $117,140,000 Updated portfolio data\n (Lewisville, TX) Home Loan Modifications from servicer\n6/12/2009 Residential Credit Solutions Financial Instrument for $19,400,000\n (Fort Worth, TX) Home Loan Modifications\n6/17/2009 CCO Mortgage (Glen Allen, VA) Financial Instrument for $16,520,000\n Home Loan Modifications\n6/17/2009 RG Mortgage Corporation Financial Instrument for $57,000,000\n (San Juan, PR) Home Loan Modifications\n6/19/2009 First Federal Savings and Loan Financial Instrument for $770,000\n (Port Angeles, WA) Home Loan Modifications\n6/19/2009 Wescom Central Credit Union Financial Instrument for $540,000\n (Anaheim, CA) Home Loan Modifications\n6/26/2009 Citizens First Wholesale Mortgage Financial Instrument for $30,000\n Company (The Villages, FL) Home Loan Modifications\n6/26/2009 Technology Credit Union (San Financial Instrument for $70,000\n Jose, CA) Home Loan Modifications\n6/26/2009 National City Bank Financial Instrument for $294,980,000\n (Miamisburg, OH) Home Loan Modifications\n Total Initial Cap: $15,558,210,000 Total Cap Adjustments: $2,422,620,000\n TOTAL CAP: $17,980,830,000\n\nNotes: Numbers affected by rounding. Data as of 6/30/2009. Numbered note taken from Treasury\xe2\x80\x99s 7/2/2009 Transactions Report containing data as of 6/30/2009.\n1\n The Cap of Incentive Payments represents the potential total amount allocated to each servicer and includes the maximum amount allotted for all payments on behalf of borrowers and payments to servicers and lenders/\ninvestors. The Cap is subject to adjustment based on the total amount allocated to the program and individual servicer usage for borrower modifications. Each adjustment to the Cap is reflected under Adjustment Details.\n\nSources: Treasury, Transactions Report, response to SIGTARP data call, 6/30/2009; Market Data: Treasury, response to SIGTARP draft, 7/14/2009; Capital IQ, Inc. (a division of Standard & Poor\xe2\x80\x99s), www.capitaliq.com,\naccessed 7/15/2009.\n TRANSACTION DETAIL I APPENDIX D I JULY 21, 2009\n 221\n\x0c222 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\n\n\n\n CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS\n This appendix provides copies of the following correspondence:\n\n CORRESPONDENCE\n Date From To Regarding\n 5/5/2009 Federal Reserve SIGTARP TALF Fraud Mitigation Factors\n 5/22/2009 Federal Reserve SIGTARP TALF Fraud Mitigation Factors\n 6/10/2009 SIGTARP Treasury PPIP Recommendations\n 6/19/2009 SIGTARP Treasury PPIP Recommendations\n Response to SIGTARP\xe2\x80\x99s 6/10/2009 and\n 7/2/2009 Treasury SIGTARP\n 6/19/2009 PPIP Recommendations\n Response to recommendations contained in\n 7/2/2009 Treasury SIGTARP\n SIGTARP\xe2\x80\x99s April Quarterly Report\n Additional response to SIGTARP\n 7/15/2009 Treasury SIGTARP\n recommendations\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 223\n\x0c224 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 225\n\x0c226 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 227\n\x0c228 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 229\n\x0c230 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 231\n\x0c232 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 233\n\x0c234 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 235\n\x0c236 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 237\n\x0c238 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 239\n\x0c240 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 241\n\x0c242 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 243\n\x0c244 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 245\n\x0c246 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 247\n\x0c248 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 249\n\x0c250 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 251\n\x0c252 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 253\n\x0c254 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0cCORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I APPENDIX G I JULY 21, 2009 255\n\x0c256 APPENDIX G I CORRESPONDENCE REGARDING SIGTARP RECOMMENDATIONS I JULY 21, 2009\n\x0c ORGANIZATIONAL CHART I APPENDIX H I JULY 21, 2009 257\n\n\n\n\nORGANIZATIONAL CHART\n\n Special Inspector General\n Neil Barofsky\n\n\n Deputy Special\n Inspector General\n Kevin Puvalowski\n\n Acting Chief of Staff Chief Counsel\n Kevin Puvalowski Bryan Saddler\n\n\n\n\n Deputy Chief Communications Director of\n of Staff Director Congressional Affairs\n Cathy Alix Kristine Belisle Lori Hayman\n\n\n\n\n Deputy SIG\xe2\x80\x93 Deputy SIG\xe2\x80\x93 Deputy SIG\xe2\x80\x93\n Investigations Audit Operations\n Chris Sharpley Barry Holman Dr. Eileen Ennis\n\n\n\n\n Chief Investigative Special Agent\n Desk Officer -- SSA Director Director Principal ADSIG ADSIG -- HR ADSIG -- CFO/CIO\n Counsel in Charge\n Paul Conlon Mike Kennedy Jim Shafer Lynn Perkoski Deborah Mason **AJ Germek\n Richard Rosenfeld Scott Rebein\n\n Hotline Supervisor\n Attorney Advisors Investigators Auditors Auditors\n Minh-Tu Nguyen\n\n\n Analysts\n\n\n\n\nNote: SIGTARP organizational chart as of 6/30/2009.\n\n**Detailee\n\x0c SIGTARP: Quarterly Report to Congress | July 21, 2009\n CT\n INSPE OR GE\n AL N\n CI\n\n\n\n\n ER\n E\n SP\n\n\n\n\n A L\n TRO\n\n\n\n\n M\n RA\n UB\n\n\n\n\n OG\n LE\n D\n ASS PR\n E T R ELIEF\n\n\n\n\nSIGTARP\nSIG-QR-09-03\n Q3\n 2009\n SIGTARP Office of the Special Inspector General\n for the Troubled Asset Relief Program\n Advancing Economic Stability Through Transparency, Coordinated Oversight and Robust Enforcement\n\n\n202.622.1419\nHotline: 877.SIG.2009 Quarterly Report to Congress\nSIGTARP@do.treas.gov July 21, 2009\nwww.SIGTARP.gov\n\x0c'