The new estimate could lower the deficit forecast and provide more funds for economic stimulus programs.
WASHINGTON - The Treasury Department expects to recover all but $42 billion of the $370 billion it lent to ailing companies during the financial crisis last year, with the portion lent to banks actually showing a slight profit, according to a new Treasury report.
The latest assessment of the federal bailout program, provided by two Treasury officials on Sunday before a report to Congress on Monday, is vastly improved from the Obama administration's estimates just last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That estimate anticipated more bank crises that would require TARP aid.
The officials said the government could ultimately lose another $100 billion from the bailout program, if big banks need more loans or if the $700 billion TARP fund is extended to help small businesses or to avert home foreclosures.
Still, the new estimates could lower the administration's deficit forecast for the current fiscal year, which began in October, to about $1.3 trillion from $1.5 trillion.
The new estimates could make it easier for those in Congress who hope to use some of the TARP money for economic stimulus programs to reduce joblessness and home foreclosures. They could also tamp down some of the public anger that is roiling both parties as the midterm election approaches.
The improved picture is the result of higher-than-expected returns on the loans and the fact that, as the financial sector has recovered from last year's free fall, the government has not had to use much more of its $700 billion in lending authority this year, according to the Treasury officials, who declined to be identified discussing the report before it is presented to Congress.
Last week, Bank of America became the latest big bank to say that it was raising private capital and would soon repay its $45 billion bailout loan. Once that payment is made, Citigroup will be the last big bank tethered to the state.
The estimated $42 billion in TARP losses is a net figure that accounts for some profits to offset the losses. The Treasury officials said the government had lost about $60 billion, roughly half to Chrysler and General Motors and the other half to the insurance giant American International Group.
But the government is projecting a $19 billion profit and perhaps more on the $245 billion loaned to banks, through interest, dividends and the sale of warrants the government received as collateral.
Of course, the government's potential losses extend beyond the Treasury's bailout program. The Federal Reserve, for example, still holds a trillion-dollar portfolio of mortgage-backed securities whose market value is unknown.
Aside from the rare good news for the federal deficit, the latest TARP accounting could have political and legislative ramifications.
Politically, TARP has been unpopular ever since it was created in October 2008 by former President George W. Bush and a Congress controlled by Democrats, and it has only grown more reviled over time as a symbol for many Americans of the government's perceived favoritism toward Wall Street, which is making money, over Main Street, which continues to struggle and shed jobs.
An anti-Washington populism is roiling both parties as they approach a midterm election year, and some Republican lawmakers have drawn primary opponents largely because of their votes last year in favor of the bailout program. It is unclear how that climate might be altered as taxpayers realize they did not actually lose $700 billion to help big banks.
Democrats in Congress have already decided to divert about $70 billion from what is left in the bailout fund to the cost of additional road-building and other construction projects, credit to small business and further aid to state and local governments.
The administration had wanted to dedicate unspent TARP money to the deficit but signaled to congressional leaders late last week that it would not oppose their plans. President Obama is expected to touch on those ideas and others in an economic speech on Tuesday.