Some recent news in the financial industry are indicating that bailout banks that received taxpayer money after the 2007-08 financial crisis may be starting to show signals of recovery and paying back some of the investments made by federal governments.
Take Ally Financial for example. The auto loan firm that used to be known as GMAC, the financing arm of General Motor, has recently launched an IPO in the NYSE raising a total of $2.4 billion, the biggest IPO of the year so far. All of the shares offered in the IPO were sold by the U.S. Treasury, which had taken over the company from General Motors as part of the TARP (Troubled Asset Relief Program), in the aftermath of the financial crisis that crushed the mortgage arm of the firm.
Although Ally’s share did not fare very well in the first trading days – it ended the first day down 4 percent from the IPO price – the total capital raised was paid to the U.S. Treasury, who now has taken back an aggregate of $17.7 billion, which already gives the federal government – and the U.S. taxpayers – a small profit from the $17.2 billion investment made since the bailout. And since the government still owns a remaining stake of 17 percent in the company, taxpayers may still some positive results coming from Ally. According to Ally’s CEO, Mr. Michael Carpenter, the company will now be able to start “moving from defense to offense.”
The indications of recovery do not come solely from the United States. The Royal Bank of Scotland (R.B.S), which received £45 billion, or approximately $75.5 billion from the British government in bailout proceeds after the financial crisis, has recently come to an agreement with U.K. authorities that will likely put to an end to the government’s dividend priority program, which governed the way the bank paid dividends to its shareholders.
The program had been put into place after the British government acquired an 81 percent stake in the company in 2009 and basically set forth that the government had priority over other non-government shareholders with respect to dividend payments.
According to R.B.S.’s plans, the termination of this dividend priority program will make its stock more attractive to private investors, which will help the bank to regain its private ownership and confidence in the market. In the words of its CEO, Mr. Ross McEwan, the agreement was “a vote of confidence in the progress we have made in rebuilding R.B.S. and in our plan for the bank’s future.” The agreement is still subject to approval by R.B.S.’s minority shareholders.
Although these steps are far from determining a certain positive outcome for the controversial bailout programs that were put in place after the financial crisis, they certainly help to alleviate the worries with respect to the fate of taxpayers’ funds.