SNL methodology details
To assess the profitability of the repurchases of the CPP and the TIP, SNL compiled the preferred stock redemptions, preferred dividends and warrant proceeds of companies that have fully redeemed their TARP preferred shares. SNL excluded other TARP programs, such as those relating to AIG, the automobile companies and home modification. SNL also excluded companies that have only partially redeemed their TARP
preferred stock.
Additionally, SNL did not factor in Citigroup’s redemption as the company still has outstanding common stock that it converted from $25 billion of its preferred stock issued under TARP.
SNL calculated the dividends as a percentage of the preferred stock investment and then annualized the percentage. SNL repeated the same process for the warrant proceeds. The annualized dividend and warrant percentages were then added together to give an estimated return for each company.
The annualization of the warrants may overstate the estimated return for companies that repurchased or auctioned the warrants in less than a year. Conversely, the annualization may understate the estimated return for companies that repurchased or auctioned the warrants after more than a year.
To approximate aggregate profitability, the returns for each company were weighted by the ratio of the amount each company received under TARP to the total amount received under TARP by all the companies being analyzed. These weighted returns were then added together to estimate aggregate return.
SNL also factored in losses for the three bankrupt companies that received funds from CPP. SNL declared losses for companies filing for bankruptcy or failing. Pacific Coast National and UCBH Holdings failed prior to filing for bankruptcy. Similar to the method for companies redeeming TARP, SNL estimated a return on investment for the losses on the preferred stock issued under TARP. The preferred dividends paid by the companies’ were included in the return on investment. However, the return on investments for losses was not annualized. SNL then weighted the return by the amount the Treasury invested.
For companies with multiple redemptions, SNL modified the dividend calculation by treating each preferred stock redemption as an individual investment. The redemption was annualized and then added together with other annualized redemptions. The cumulative dividends were then divided by the summation of these annualized redemptions.
SNL used the same methodology for the annualized dividend rate of Bank of America, which had multiple infusions from the Treasury. Bank of America’s annualized dividend rate is above 5% due to the company issuing $20 billion in TARP preferred stock with a dividend rate of 8%.
SNL’s examination did not include administration costs or other associated costs. The March 2 Treasury report states that TARP had budget obligations of $248 million for fiscal year 2009.
