The Treasury Department indicated Friday it expects taxpayers will lose billions less from the financial bailouts than earlier estimated. The problem is, its revised forecast assumes Treasury's shares of bailed-out companies are gaining value despite this week's plunge in stock prices.
Treasury predicts the bailouts will cost taxpayers $105.4 billion, according to a letter to lawmakers from Assistant Secretary Herb Allison.
That is also down $11.4 billion from a February projection by the Obama administration. In testimony to the Senate Finance Committee on May 4, Treasury Secretary Timothy Geithner said TARP costs would come down "probably lower than $100 billion."
Most of the expected cost savings depend on Treasury's ability to profit once it sells its stakes in Citigroup Inc., General Motors and Chrysler, Allison wrote. Treasury received those investments in exchange for pumping billions into the companies to rescue them.
Treasury's analysis is based on market conditions as of March 31. That was weeks before a European debt crisis roiled global markets. The broad tumble in stock prices makes Treasury's projected gains appear far less likely.
For example, Allison notes that Treasury's shares of Citigroup were worth $4.05 on March 31 — 80 cents more than Treasury paid for them. But by Thursday's close, Citigroup shares were trading at $3.63. At that price, Treasury's gain is only 38 cents per share.
If Treasury sold all its shares at Thursday's price, its estimate would undercount the cost of the bailouts by $924 million.
Treasury is one of several agencies that have produced conflicting estimates of the bailouts' cost. The Congressional Budget Office said in March that the final cost would be $109 billion. That was well below the White House budget office's number.
The new forecast assumes Treasury's stakes in the automakers will be worth more than earlier estimates because the auto industry has begun to recover.
Still, the biggest bailout losses will come from the rescues of the automakers and insurance giant American International Group Inc. Administration programs to help homeowners avoid foreclosure also will cost billions.
Treasury has made more money than it expected on dividends, fees and other proceeds from banks that took bailout money.
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