Some US Bank Bailout Holdings Down $8 Billion

"The markets are saying this plan isn't going to work for the banks," said Ross Levine, Tisch professor of economics at Brown University. "They're asking where this plan is going."

Interim Assistant Treasury Secretary Neel Kashkari addresses the Mortgage Bankers Association, Friday, Dec., 5, 2008, in Washington. (AP Photo/Lauren Victoria Burke)

(AP)

Potential losses among these common stocks include nearly $3 billion for the administration's biggest deal, a $45 billion injection into Citigroup Inc. The government gave the New York-based giant $25 billion on Oct. 28. Besides preferred stock worth $1,000 per share, the deal included warrants to pick up 210 million shares of common stock at $17.85. In late November, the White House put together a plan to give Citigroup another $20 billion. The deal also included warrants to pick up 254 million shares, with the price set at $10.61.

Citigroup stock has since fallen below $8.

The government would only earn a profit if the share price eventually exceeds the negotiated warrant price. Under the bailout plan, the common stock warrants — effectively treated as stock options for non-employees — would allow taxpayers to share the wealth as banks recover.

"We're not exercising the warrants today," said Treasury spokeswoman Brookly McLaughlin. "We have 10 years to exercise the warrants, so it's more accurate to look at what the market believes are the 10-year prospects for these banks."

The Treasury Department projects that the $180 billion in preferred stock will generate roughly $9 billion per year during the first five years and $16.2 billion per year afterward, assuming the banks remain solvent.

The preferred stock has a fixed value of $1,000 per share, and a 5 percent annual dividend for the first five years of the investment.

Treasury Secretary Henry M. Paulson Jr. describes the cash infusion as "an investment, not an expenditure."

So far, however, only four of the 53 bank deals can be considered a good investment.

The AP's analysis found that only HF Financial Corp. of Sioux Falls, S.D.; First Horizon National Corp. of Memphis, Tenn.; Associated Banc-Corp of Green Bay, Wis.; and First Niagara Financial Group of Lockport, N.Y., would make money for taxpayers if the common stock options were exercised today. These are small banks, far removed from the wheeling and dealing of federally insured giants that ravaged the global economy by making bad bets on subprime mortgages, according to records filed with the Securities and Exchange Commission.