Hedge Funds Score Big On TARP Auctions

Jan 28 2015 | 9:53am ET

Hedge funds and other private investors have benefited from a U.S. government program to divest itself of TARP investments in small banks—taxpayers, not so much.

The U.S. Treasury has held 185 auctions, according to a new new report from the special inspector general for the Troubled Asset Relief Program, in which TARP investments valued at $3.8 billion were sold for about $3 billion.

Hedge funds and other private investors snapped up 70% of the shares—in fact, three unnamed funds won almost half the shares available at auction, according to special inspector general Christy Romero's report.

The Treasury “set up this market where investors could come in quickly and flip and profit,” Romero told the Wall Street Journal.

The paper names Stamford, Conn.-based credit specialist Hildene Capital Management as one of the beneficiaries of the auctions: the hedge fund acquired about $250 million of the securities, sending one of its funds up about 18% last year.

Arlington, Va.-based EJF Capital also holds a significant stake in the TARP securities, according to investor documents reviewed by the WSJ.

The U.S. acquired a $204.9 billion stake in 707 banks between 2008-2009 as it attempted to save them from the financial crisis. Taxpayers have been repaid in full—and even made a profit, mostly thanks to repayments and dividends from the largest banks.

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