Tickers in this Article: HIG, DFS, MS, GS
Populist anger over the so-called bailout of banks has been boiling over the last year, stoked (as usual) by politicians and the mass media. Despite this anger, the latest report from the Congressional Budget Office (CBO) indicates that the government will turn a profit from part of that bailout. IN PICTURES: 8 Tips For Starting Your Own Business

In October, 2008, the government set up the Capital Purchase Program (CPP), as part of the Troubled Asset Relief Plan (TARP). These programs were authorized by the Emergency Economic Stabilization Act of 2008 in an attempt to stem the panic afflicting the U.S. banking system at the time. The CPP involved the U.S. Treasury, purchasing dividend paying preferred stock, along with warrants to buy stock in the future, from hundreds of banks.

There was so much panic at that time that large investment banks like Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS) even switched to a bank holding company structure so they would be eligible for the CPP. The U.S. Treasury ended up investing $205 billion in preferred stock issued through the CPP, and to date $130 billion has been redeemed by the banks that issued the securities.

CBO Report
The CBO estimates that, as of February 2010, the government has earned a profit of $2 billion on the CPP. Of course, this is just an estimate, as the CPP is not complete and outstanding preferred stock was valued on a present value basis, which can be notoriously inaccurate.

The CBO report said that the overall cost to the government of the entire TARP program is much higher, at $109 billion. However, a breakdown of this cost is interesting. American International Group, Inc. (NYSE:AIG) will cost the government $36 billion, and assistance to the automotive industry will cost $34 billion. Another $22 billion in costs comes from the Home Affordable Modification Program. This program was designed to help assist with people having trouble making mortgage payments.

CPP Buybacks
The latest two companies to buy back preferred shares issued under the CPP were Hartford Financial Services Group, Inc. (NYSE:HIG) and Discover Financial Services (NYSE:DFS).

Hartford Financial is conducting a dual offering of equity and debt to assist in the repurchase of $3.4 billion in preferred stock issued under the CPP. The offerings will consist of $1.95 billion of common and preferred stock, and $1.1 billion in senior notes. Hartford Financial will not redeem the warrants, and the U.S. Treasury will hold onto these securities for now.

Discover Financial Services announced that it had received regulatory permission from the U.S. Treasury to buy back $1.2 billion in preferred stock that was issued under the CPP. The company is raising $350 million in subordinated debt to help replace the capital.

The Bottom Line
Despite the rhetoric from pundits, the conclusion based on the latest TARP report from the CBO is that most of the costs of this program aren't even related to the banking system at all. (Take a look at how the crisis unfolded in An In-Depth Look At The Credit Crisis.)

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