[Senate Hearing 112-]
[From the U.S. Government Printing Office]



                                     


                     CONGRESSIONAL OVERSIGHT PANEL


                       JANUARY OVERSIGHT REPORT *

                               ----------                              

     AN UPDATE ON TARP SUPPORT FOR THE DOMESTIC AUTOMOTIVE INDUSTRY

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


                January 13, 2011.--Ordered to be printed

    * Submitted under Section 125(b)(1) of Title 1 of the Emergency 
        Economic Stabilization Act of 2008, Pub. L. No. 110-343
 
         CONGRESSIONAL OVERSIGHT PANEL JANUARY OVERSIGHT REPORT




                                     


                     CONGRESSIONAL OVERSIGHT PANEL

                       JANUARY OVERSIGHT REPORT *

                               __________

     AN UPDATE ON TARP SUPPORT FOR THE DOMESTIC AUTOMOTIVE INDUSTRY

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


                January 13, 2011.--Ordered to be printed

    * Submitted under Section 125(b)(1) of Title 1 of the Emergency 
        Economic Stabilization Act of 2008, Pub. L. No. 110-343



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                     CONGRESSIONAL OVERSIGHT PANEL
                             Panel Members
                       Sen. Ted Kaufman, Chairman
                           Richard H. Neiman
                             Damon Silvers
                           J. Mark McWatters
                             Kenneth Troske


                            C O N T E N T S

                              ----------                              
                                                                   Page
Executive Summary................................................     1
Section One:
    A. Introduction..............................................     4
    B. Overview of Government Intervention.......................     5
        1. Summary of Government Intervention in Auto 
          Manufacturing and Financing Industries.................     5
    C. Current State of the Domestic Automotive Industry.........    15
        1. Capacity Reductions...................................    15
        2. Lower Labor Costs.....................................    16
        3. Resiliency in Market Share............................    16
        4. Pricing...............................................    17
        5. Outlook...............................................    18
    D. General Motors............................................    20
        1. Context...............................................    20
        2. More Recent Developments..............................    23
        3. Outlook...............................................    29
        4. Treasury's Exit Strategy..............................    33
    E. Chrysler..................................................    38
        1. Context...............................................    38
        2. Outlook...............................................    48
        3. Analysis of the Government's Exit Strategy Based on 
          Likely Repayment Scenarios.............................    53
    F. GMAC/Ally Financial.......................................    57
        1. Context...............................................    57
        2. Outlook...............................................    66
        3. Analysis of Intended Exit Strategy....................    74
    G. Auto Supplier Support Program.............................    85
        1. Background............................................    85
        2. TARP Intervention.....................................    86
        3. Current Status of Auto Supplier Industry..............    86
    H. Analysis of Treasury's Interaction with all Three 
      Companies in Light of Government's Objectives..............    87
        1. Summary of Principles upon which Government Says it 
          Will Conduct its Involvement in Private Companies......    87
        2. Has Treasury Abided by its own Principles?............    88
        3. Has Treasury Used its Limited Authority Effectively?..    91
        4. Was Treasury Right in Establishing These Guidelines 
          for Itself?............................................    94
    I. Conclusions and Recommendations...........................    95
Section Two: Additional Views
    A. J. Mark McWatters and Professor Kenneth R. Troske.........   101
Section Three: TARP Updates Since Last Report....................   106
Section Four: Oversight Activities...............................   133
Section Five: About the Congressional Oversight Panel............   134
======================================================================




                        JANUARY OVERSIGHT REPORT

                                _______
                                

                January 13, 2011.--Ordered to be printed

                                _______
                                

                          EXECUTIVE SUMMARY *

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    * The Panel adopted this report with a 4-0 vote on January 12, 
2011.
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    Since the Panel's last comprehensive review of TARP support 
for the domestic automotive industry in September 2009, 
Treasury's automotive investments have, in financial terms, 
starkly improved. As of September 2009, the Congressional 
Budget Office (CBO) estimated that taxpayers would lose $40 
billion on their automotive investments. Today, CBO has reduced 
its loss estimate to $19 billion, and the three largest 
recipients of automotive bailout funds--General Motors (GM), 
Chrysler, and GMAC/Ally Financial--all appear to be on the path 
to financial stability.
    While it remains too early to tell whether Treasury's 
intervention in and reshaping of the U.S. automotive industry 
will prove to be a success, there can be no question that the 
government's ambitious actions have had a major impact and 
appear to be on a promising course. Even so, the companies that 
received automotive bailout funds continue to face uncertain 
futures, taxpayers remain at financial risk, concerns remain 
about the transparency and accountability of Treasury's 
efforts, and moral hazard lingers as a long-run threat to the 
automotive industry and the broader economy.
    Treasury is currently unwinding its stakes in GM, Chrysler, 
and GMAC/Ally Financial. Of those companies, GM is furthest 
along in the process of repaying taxpayers. It conducted an 
initial public offering (IPO) on November 18, 2010, and 
Treasury used the occasion to sell a portion of its GM holdings 
for $13.5 billion. This sale represents a major recovery of 
taxpayer funds, but it is important to note that Treasury 
received a price of $33.00 per share--well below the $44.59 
needed to be on track to recover fully taxpayers' money. By 
selling stock for less than this break-even price, Treasury 
essentially ``locked in'' a loss of billions of dollars and 
thus greatly reduced the likelihood that taxpayers will ever be 
repaid in full.
    Treasury has explained its decision to sell at a loss by 
saying that it wished to unwind government ownership of the 
automobile industry as quickly as possible. This justification 
may very well be reasonable, but it is difficult to evaluate. 
Because Treasury has cited different, conflicting goals for its 
automotive interventions at different times--saying, for 
example, that it wished to save American jobs, to produce the 
best possible return to taxpayers, or to return the company to 
private ownership as rapidly as possible--it is difficult for 
the Panel or any outside observer to judge whether Treasury's 
results in fact qualify as successful.
    The other major automotive manufacturer to receive 
government assistance, Chrysler, remains a private company. 
Because Treasury has already absorbed $3.5 billion in losses on 
loans made to the pre-bankruptcy Chrysler, the prospect for a 
full recovery of taxpayers' money depends upon Treasury's 
ability to sell its ownership of Chrysler at a profit. However, 
as Treasury owns only 10 percent of the company's stock, it has 
very limited ability to influence the timing of an eventual 
public offering. The remaining 90 percent of Chrysler was 
parceled out to several other parties, including the Italian 
automotive manufacturer Fiat, through the bankruptcy process--
but while this approach may have saved Chrysler from 
liquidation, the result is that Treasury has little authority 
to act in taxpayers' interests. Another source of concern is 
Treasury's hasty unwinding of its position in Chrysler 
Financial, in which taxpayer returns appear to have been 
sacrificed in favor of an unnecessarily accelerated exit, 
further compounded by apparently questionable due diligence.
    The final major recipient of automotive-related aid, GMAC/
Ally Financial, represents a curious case. GMAC/Ally Financial 
is a financial company, not a manufacturer; it operates in many 
fields entirely unrelated to the automotive industry. 
Traditionally, however, the company has provided the bulk of 
financing to GM car dealerships, as well as significant 
financing to individual purchasers of GM vehicles. As such, 
Treasury saw the survival of GMAC/Ally Financial as critical to 
its broader automotive rescue.
    Since the Panel's report on GMAC/Ally Financial in March 
2010, the company has experienced three consecutive quarters of 
profits and has reduced the risk in its mortgage portfolio. 
Even so, taxpayers likely will not begin to recover their 
investment until GMAC/Ally Financial conducts an IPO. Treasury 
has had significant leverage over the IPO's timing due to its 
preferred stock holdings, but regrettably, Treasury has been 
inconsistent in acknowledging this leverage. Treasury's 
reluctance to recognize its own influence may represent an 
effort to claim a coherent ``hands off'' shareholder approach, 
despite the unique circumstances that apply to GMAC/Ally 
Financial.
    The ``hands off'' approach may in itself raise questions. 
Treasury has asserted that, even if one of the automotive 
companies had announced an entirely unrealistic business plan, 
Treasury would not have intervened. In more practical terms, 
Treasury declined to block GM's purchase of AmeriCredit, a 
subprime financing company, even though AmeriCredit may 
ultimately compete against GMAC/Ally Financial and thus damage 
that company's ability to repay taxpayers. Although Treasury's 
``hands off'' approach may have reassured market participants 
about the limited scope of government intervention, it may also 
have forced Treasury to leave unexplored options that would 
have benefited the public.
    Treasury is now on course to recover the majority of its 
automotive investments within the next few years, but the 
impact of its actions will reverberate for much longer. 
Treasury's rescue suggested that any sufficiently large 
American corporation--even if it is not a bank--may be 
considered ``too big to fail,'' creating a risk that moral 
hazard will infect areas of the economy far beyond the 
financial system. Further, the fact that the government helped 
absorb the consequences of GM's and Chrysler's failures has put 
more competently managed automotive companies at a 
disadvantage. For these reasons, the effects of Treasury's 
intervention will linger long after taxpayers have sold their 
last share of stock in the automotive industry.


                              SECTION ONE:


                            A. Introduction

    In late 2008 and early 2009, the federal government 
undertook the unprecedented rescue of two of the three major 
U.S.-based automobile manufacturers, as well as a major 
automotive financing company. These interventions were 
accomplished using resources from the Troubled Asset Relief 
Program (TARP), a program that Congress created with passage of 
the Emergency Economic Stabilization Act (EESA) in October 2008 
and which was aimed primarily at preventing economic collapse 
by restoring stability in the financial sector. This month the 
Congressional Oversight Panel looks at what the TARP has 
accomplished in the automobile sector and the prospects for 
recovering the taxpayer's investments in the three rescued 
firms: General Motors, Chrysler, and GMAC/Ally Financial.\1\
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    \1\ Effective May 15, 2010, GMAC Financial Services changed its 
name to Ally Financial Inc. Except where the distinction is otherwise 
significant, this report refers to this company as ``GMAC/Ally 
Financial.''
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    The Panel first reviewed the actions of Treasury in 
rescuing GM and Chrysler in a September 2009 report. That 
report asked whether the actions taken to that point to rescue 
GM and Chrysler served merely to forestall a decision 
ultimately to liquidate those companies or to intervene with 
still more government assistance to make them viable. It 
remains too early to render a conclusive verdict on that 
question. But the events of the intervening 16 months allow a 
tentative judgment: GM and Chrysler are both more viable firms 
than they were in December 2008 with GM on a credible path to 
recovery but Chrysler's outlook more uncertain. Likewise, the 
degree to which Treasury will be successful in recovering the 
taxpayer's investment in these firms has become more apparent 
for GM than for Chrysler. The intervening time since the 
Panel's last report on the GM and Chrysler rescues has also 
allowed for some greater understanding of how Treasury would 
behave as an investor in both firms. What remains uncertain is 
whether the improvement in both companies is directly 
attributable to Treasury's intervention or to the more general 
improvement of the economy. In addition, there remains a great 
deal of uncertainty about the long-run impact of the 
government's significant intervention in the operations of 
these private firms.
    In its March 2010 report, the Panel examined the actions of 
Treasury, closely related to its investments in GM and 
Chrysler, in supporting the auto financing firm GMAC/Ally 
Financial. That report noted that there were lingering 
unresolved issues related to GMAC/Ally Financial's emerging 
business strategy. In the 10 months since that report was 
issued, the firm's operating performance has improved 
considerably, but Treasury's exit strategy remains unclear.
    The use of TARP resources to prevent the collapse of two of 
the three domestic automakers was and continues to be 
controversial. Policymakers confronting this situation in 
November and December 2008 had several courses of action, 
ranging from doing nothing to full adoption of the rescue plans 
proposed by the companies. It is possible that private sector 
financial firms, such as private equity funds or hedge funds, 
may have stepped up to provide financing for some of GM's or 
Chrysler's more desirable assets at a later date. However, it 
is unclear to what extent broad-based private sector emergency 
funding to buy both firms in their entirety was a feasible 
option in the midst of the credit market crisis during the fall 
of 2008. It was the judgment of the Bush Administration, a 
judgment confirmed by many knowledgeable market participants at 
the time, that such a private sector intervention was unlikely. 
Hence, the Bush Administration chose a middle-of-the-road 
option, providing the firms with TARP-financed loans sufficient 
to tide them over for a few months but leaving it to a new 
administration to make its own assessments as to the long-term 
viability of GM and Chrysler and ultimately to choose to put 
the firms through expedited bankruptcy proceedings.
    In contrast to its interventions in the financial sector, 
where assistance was provided to banks without requiring 
sweeping changes in their management and operations, government 
intervention in the auto sector has been noteworthy for the 
major restructuring that was required as a condition for 
receiving government financing. While it remains too early to 
tell whether Treasury's intervention in and reshaping of the 
U.S. auto industry will prove to be a success, there can be no 
question that the government's ambitious actions have had a 
major impact. Completion of an IPO of GM stock is an especially 
significant milestone that serves to highlight the timeliness 
of an updated assessment of the TARP's performance in rescuing 
the U.S. auto and auto financing industries. These favorable 
events, however, must be thoughtfully balanced against the 
moral hazard risks created by the taxpayer's bailout of the 
three institutions and the ongoing implicit guarantee of the 
government. By bailing out GM, Chrysler, and GMAC/Ally 
Financial, the government sent a powerful message to the 
marketplace--some institutions will be protected at all cost, 
while others must prosper or fail based upon their own business 
judgment and acumen. We regret that Treasury has focused solely 
on the apparent success of the GM IPO in assessing the rescues 
of the three institutions to the distinct exclusion of the 
moral hazard risks arising from the bailouts.

                 B. Overview of Government Intervention


1. Summary of Government Intervention in Auto Manufacturing and 
        Financing Industries

            a. Condition of the Domestic Auto Industry in 2008
    Even prior to the onset of the financial crisis, the 
domestic automotive industry was facing severe challenges and 
strains. Not only had foreign competitors steadily increased 
their market share, and rising fuel prices softened demand, but 
Chrysler and GM faced additional challenges posed by legacy 
costs and a series of poor strategic decisions.
    With the onset of the financial crisis, the challenges 
facing the auto industry--which now also included tightening 
credit markets, declining consumer confidence, decreased 
demand, and rising unemployment--became acute.\2\ The tightened 
credit market was especially significant not only because it 
impacted the automakers' access to debt market/bank financing, 
but also because 90 percent of consumers finance automobile 
purchases through loans, either directly from the 
manufacturers' financing arms or through third-party financial 
institutions, all of which experienced increased difficulty in 
late 2008 in raising capital to finance such loans.\3\ The 
particularly weak condition of Chrysler Financial and GMAC/Ally 
Financial exacerbated the plummeting sales at GM and Chrysler 
as the credit markets seized up.\4\ Ford did not need 
government assistance in large part because it conducted a 
massive refinancing in 2006, which provided the company with a 
credit facility that it could draw down as needed as the credit 
markets tightened considerably for other auto makers.
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    \2\ For a discussion of the factors leading up to the government's 
decision to support the automotive industry, see Congressional 
Oversight Panel, September Oversight Report: The Use of TARP Funds in 
the Support and Reorganization of the Domestic Automotive Industry, at 
7-23 (Sept. 9, 2009) (online at cop.senate.gov/documents/cop-090909-
report.pdf) (hereinafter ``September 2009 Oversight Report'').
    \3\ House Judiciary, Subcommittee on Administrative Law, Written 
Testimony of Ron Bloom, senior advisor, U.S. Department of the 
Treasury, Ramifications of Automotive Industry Bankruptcies, Part II, 
at 1 (July 21, 2009) (online at judiciary.house.gov/hearings/pdf/
Bloom090721.pdf).
    \4\ GMAC/Ally Financial and Chrysler Financial were spun off from 
their parents in 2006 and 2007, respectively, but their enduring 
operational and economic interdependence is illustrated by the largely 
stable share of GM dealer financing provided by GMAC/Ally Financial and 
Chrysler dealer financing provided by Chrysler Financial (until GMAC/
Ally Financial took over Chrysler Financial's floorplan business in May 
2009).
    Relying on outside industry estimates, Treasury stated that the 
impact of letting GMAC/Ally Financial and Chrysler Financial fail 
(together with credit conditions at the time) would likely have been a 
further immediate decline of 1.5 to 2.5 million domestic automobile 
sales, primarily because of these companies' roles in providing 
floorplan financing to GM and Chrysler dealers. Treasury believes that 
such a decline in sales would, in turn, have immediately threatened the 
economic viability of GM and Chrysler. Treasury conversations with 
Panel staff (Feb. 2, 2010); Congressional Oversight Panel, Joint 
Written Testimony of Ron Bloom, senior advisor to the Secretary of the 
Treasury, and Jim Millstein, chief restructuring officer, U.S. 
Department of the Treasury, COP Hearing on GMAC Financial Services, at 
3 (Feb. 25, 2010) (online at cop.senate.gov/documents/testimony-022510-
treasury.pdf).
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            b. Rescues of Chrysler and GM
    By the beginning of December 2008, GM and Chrysler could no 
longer secure the credit they needed to conduct their day-to-
day operations.\5\ The CEOs of Chrysler and GM appeared before 
Congress and appealed for government assistance to help them 
remain in business, but they were unable to muster sufficient 
congressional support to get a rescue bill through the Senate. 
Unless they could raise billions of dollars in new financing 
from private investors, they faced bankruptcy and probable 
liquidation.
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    \5\ Senate Committee on Banking, Housing and Urban Affairs, Written 
Testimony of Robert Nardelli, chairman and chief executive officer, 
Chrysler LLC, The State of the Domestic Automobile Industry, Part II 
(Dec. 4, 2008) (online at banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id=c41857b2-7253-4253-95e3-
5cfd7ea81393).
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    Typically, when a firm reaches a financial crisis as severe 
as the ones facing GM and Chrysler in the fall of 2008, the 
firm files for bankruptcy in federal court. This invokes a 
process where there are two possible courses of action: either 
the firm is salvaged but reorganized using interim debtor in 
possession (DIP) financing, or the firm is liquidated.\6\ But 
the circumstances in the global credit markets in November and 
December 2008 were unlike any the financial markets had seen in 
decades. U.S. domestic credit markets were frozen in the wake 
of the Lehman bankruptcy, and international sources of funding 
were extremely limited. Cross-border lending was decreasing due 
to a domestic bias in lending, concerns over cross-currency and 
foreign exchange swap markets, and higher regulatory capital 
charges.\7\ In September 2008, China had already reduced its 
holdings of U.S. subprime mortgage-backed securities by 
approximately $6 billion.\8\ Furthermore, several sovereign 
wealth funds that had stepped in to provide funding for U.S. 
firms were beginning to face losses on their investments. For 
example, the Abu Dhabi Investment Authority purchased $7.5 
billion worth of Citigroup convertible bonds in early November 
2007,\9\ only to see the share price plummet over the next 12 
months.\10\ Consequently, according to Treasury, bankruptcy 
with reorganization of the two auto companies using private DIP 
financing did not appear to be an option by late fall 2008, 
leaving liquidation of the firms as the more likely course of 
action absent a government rescue.
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    \6\ Debtor-in-possession financing is a loan made to a firm in 
bankruptcy to allow it to continue operating. The DIP loan is senior to 
the other claims on the firm in bankruptcy.
    \7\ International Monetary Fund, Global Financial Stability Report: 
Responding to the Financial Crisis and Measuring Systemic Risk, at 8 
(Apr. 2009) (online at www.imf.org/External/Pubs/FT/GFSR/2009/01/pdf/
text.pdf).
    \8\ As of June 30, 2007, the Bank of China Limited, a state-owned 
commercial bank, held $8.97 billion of U.S. subprime ABS. By the end of 
the third quarter 2008, this amount dropped to $3.3 billion. Bank of 
China Limited, Interim Report 2007, at 23 (online at www.boc.cn/en/
invester/ir3/200812/P020081212710228274350.pdf) (accessed Jan. 11, 
2011); Bank of China Limited, Report for the Third Quarter ended 30 
September 2008, at 9 (online at www.boc.cn/en/invester/ir3/200812/
P020081212712640132355.pdf) (accessed Jan. 11, 2011).
    \9\ Citigroup, Inc., Press Release: Citi to Sell $7.5 Billion of 
Equity Units to Abu Dhabi Investment Authority (Nov. 26, 2007) (online 
at www.citigroup.com/citi/press/2007/071126j.htm).
    \10\ Data accessed through Bloomberg Data Service (Jan. 11, 2011).
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    Facing the prospect of the collapse of GM and Chrysler, and 
with the option of a privately financed DIP bankruptcy 
proceeding foreclosed because of the extraordinary conditions 
in the credit markets, President George W. Bush on December 19, 
2008 announced a government-funded rescue package for the 
automotive industry--the Automotive Industry Financing Program 
(AIFP). The rescue package broadened the allocation of TARP 
assistance to the domestic automotive industry.\11\
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    \11\ Then-Secretary Paulson did not use the name ``Automotive 
Industry Financing Plan'' at the time of the announcement. See 
generally U.S. Department of the Treasury, Secretary Paulson Statement 
on Stabilizing the Automotive Industry (Dec. 19, 2008) (online at 
www.financialstability.gov/latest/hp1332.html) (hereinafter ``Secretary 
Paulson Statement on Stabilizing the Automotive Industry''). 
Nonetheless, the investments to GM and Chrysler were made under this 
program. See generally U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for Period Ending February 1, 2010, 
at 15 (Feb. 3, 2010) (online at www.financialstability.gov/docs/
transaction-reports/2-3-10%20Transactions%20Report%20as%20of%202-1-
10.pdf).
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    The White House estimated when it made the announcement 
that ``the direct costs of American automakers failing and 
laying off their workers in the near term would result in a 
more than 1 percent reduction in real GDP growth and about 1.1 
million workers losing their jobs, including workers for 
automotive suppliers and dealers.'' \12\ This estimate was 
produced by the Council of Economic Advisors and reflected the 
direct job losses at GM and Chrysler, their suppliers, and 
dealerships over the short term, i.e., roughly six months.\13\ 
Over the longer term, it is highly likely that the assets of 
these firms--particularly those related to the production of 
the more successful truck and minivan models--would have been 
brought back into production by competing firms such as Ford or 
the international auto manufacturers that build vehicles in the 
United States. Alternatively, the production capacity of the 
remaining firms might have been expanded to supply additional 
vehicles and employ additional workers. Likewise, while there 
would have been adjustments in supplier relationships and 
dealer networks, these changes would have created partially 
offsetting new employment, as those firms sought to fill the 
void created by the exit from the marketplace of two large auto 
manufacturers.
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    \12\ See George W. Bush White House Archives, Fact Sheet: Financing 
Assistance to Facilitate the Restructuring of Auto Manufacturers to 
Attain Financial Viability (Dec. 19, 2008) (online at georgewbush-
whitehouse.archives.gov/news/releases/2008/12/20081219-6.html) 
(hereinafter ``George W. Bush White House Archives Fact Sheet'').
    \13\ Panel conversations with Edward Lazear, Professor of 
Economics, Stanford University, and Chairman of the President's Council 
of Economic Advisors, 2006-2009 (Jan. 4, 2011).
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    The AIFP called for an investment of $13.4 billion in GM 
and Chrysler by mid-January 2009 and additional funding for GM 
of up to $4.0 billion.\14\ In announcing the plan, then-
Treasury Secretary Henry Paulson stated that EESA provided him 
with the authority to make the investment, even as he 
acknowledged that ``the purpose of [the TARP] program and the 
enabling legislation is to stabilize our financial sector.'' 
\15\ This marked a reversal of the Administration's previous 
stance that automakers were ineligible to receive TARP 
assistance.\16\
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    \14\ See U.S. Department of the Treasury, Indicative Summary of 
Terms for Secured Term Loan Facility [GM], at Appendix A (Dec. 19, 
2008) (online at www.treasury.gov/press-center/press-releases/
Documents/gm%20final%20term%20_%20appendix.pdf); U.S. Department of the 
Treasury, Indicative Summary of Terms for Secured Term Loan Facility 
[Chrysler], at Appendix A (Dec. 19, 2008) (online at www.treasury.gov/
press-center/press-releases/Documents/
chrysler%20final%20term%20_%20appendix.pdf).
    \15\ Secretary Paulson Statement on Stabilizing the Automotive 
Industry, supra note 11 (``Treasury will make these loans using 
authority provided for the Troubled Asset Relief Program. While the 
purpose of this program and the enabling legislation is to stabilize 
our financial sector, the authority allows us to take this action. 
Absent Congressional action, no other authorities existed to stave off 
a disorderly bankruptcy of one or more auto companies''); September 
2009 Oversight Report, supra note 2, at Section G.1.
    \16\ House Committee on Financial Services, Testimony of Henry M. 
Paulson, Jr., secretary, U.S. Department of the Treasury, Transcript: 
Oversight of Implementation of the Emergency Economic Stabilization Act 
of 2008 and of Government Lending and Insurance Facilities: Impact on 
the Economy and Credit Availability, at 18-19 (Nov. 18, 2008) (online 
at frwebgate.access.gpo.gov/cgi-bin/
getdoc.cgi?dbname=110_house_hearings&docid=f:46593.pdf) (stating that 
``[t]he TARP was aimed at the financial system. That is what the 
purpose is. That is what we talked about with the TARP . . . I don't 
see [preventing the failure of one or more automotive companies] as the 
purpose of the TARP. Congress passed legislation that dealt with the 
financial system's stability.'').
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    The terms of the loans required both Chrysler and GM to 
demonstrate to the government their ability to achieve 
financial viability, and both companies submitted their 
viability plans on February 17, 2009.\17\ The results of the 
Obama Administration's review of those plans were announced on 
March 30, 2009.\18\ Both companies ultimately entered 
bankruptcy and, with the active involvement of the federal 
government, underwent radical restructurings through ``363 
sales'' (conducted under Section 363(b) of the U.S. Bankruptcy 
Code), which allow a business to sell all or substantially all 
of its assets and leave only the remainder of the assets for 
distribution in a Chapter 11 plan.\19\ Following those 
restructurings and after eventually providing a total of $63.1 
billion in support, American taxpayers owned about 10 percent 
of what is now known as New Chrysler and 61 percent of New 
GM.\20\
---------------------------------------------------------------------------
    \17\ See George W. Bush White House Archives Fact Sheet, supra note 
12. The loans also imposed conditions related to operations, 
expenditures, and reporting.
    \18\ The Administration concluded that Chrysler could not achieve 
viability as a stand-alone company and that it would have to develop a 
partnership with another automotive company or face bankruptcy. As for 
GM, the Administration concluded that the automaker's financial 
viability plan relied on overly optimistic assumptions about the 
company and future economic developments.
    \19\ In GM's 363 sale, certain assets of Old GM (the automotive 
company that went into bankruptcy) were purchased by New GM (the 
company formed to buy the assets and financed by Treasury). As a part 
of this transaction, New GM also assumed certain liabilities of Old GM. 
Chrysler also engaged in a similar 363 sale.
    For a discussion of the details of the bankruptcy, see September 
2009 Oversight Report, supra note 2, at 7-8.
    \20\ As a result of the GM IPO on November 17, 2010, Treasury has 
reduced its ownership stake in GM to 33 percent. For further discussion 
concerning the government's exit strategy for GM, see Section D.4, 
infra.
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            c. Auto Suppliers and Warranties
    The TARP's assistance to the automotive industry includes 
two additional initiatives. First, as a result of the downturn 
in the economy, automotive suppliers had great difficulty 
accessing credit. Consequently, on March 19, 2009, Treasury 
announced the Auto Supplier Support Program (ASSP), under which 
the government agreed to guarantee payment for products shipped 
by participating suppliers, even if the buyers went out of 
business.\21\ Through the ASSP, Treasury committed $1.0 billion 
to Chrysler and $2.5 billion to GM, though each company drew 
down smaller amounts. Those funds have since been repaid. 
Second, the automotive companies' widely publicized 
vulnerability in late 2008 and early 2009 also raised concerns 
that consumers might not purchase Chrysler and GM automobiles 
for fear that the companies could not back their warranties. 
Accordingly, Treasury lent Chrysler $280 million and GM $361 
million to backstop their new vehicle warranties. Both Chrysler 
and GM have since repaid those loans.
---------------------------------------------------------------------------
    \21\ In order to unlock credit further, participating suppliers 
could also sell their receivables into the program (run through 
American automotive manufacturers that agreed to participate in the 
program) at a discount before maturity. The supplier would pay a small 
fee for the right to participate in the program. Although all domestic 
automotive manufacturers were eligible, only Chrysler and GM chose to 
participate.
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            d. Rescues of Chrysler Financial and GMAC/Ally Financial
    Treasury states that as it considered using TARP funds to 
rescue Chrysler and GM, it came to the conclusion that they 
could not survive without Chrysler Financial's and GMAC/Ally 
Financial's financial underpinning, respectively. Without 
access to ``floorplan financing''--that is, loans to auto 
dealers to allow them to purchase their inventories--many 
dealers would have been forced to close their doors. In 
addition, despite the relatively competitive retail lending 
environment, GM and Chrysler relied on GMAC/Ally Financial and 
Chrysler Financial, respectively, for a substantial portion of 
their consumer auto financing.\22\
---------------------------------------------------------------------------
    \22\ For further discussion concerning the relationship between GM 
and GMAC/Ally Financial and Chrysler and Chrysler Financial, see 
Congressional Oversight Panel, March Oversight Report: The Unique 
Treatment of GMAC Under the TARP, at 57-74 (Mar. 10, 2010) (online at 
cop.senate.gov/documents/cop-031110-report.pdf) (hereinafter ``March 
2010 Oversight Report'').
---------------------------------------------------------------------------
    GMAC/Ally Financial's need for assistance in late 2008 
arose from mortgage market investments that had incurred severe 
losses. On December 24, 2008, four days after President Bush 
announced the AIFP, the Federal Reserve Board approved GMAC/
Ally Financial's application to become a bank holding company 
(BHC).\23\ As part of this approval, the Federal Reserve 
required GMAC/Ally Financial to raise $7 billion in new equity. 
To satisfy this requirement, Treasury provided GMAC/Ally 
Financial with $5 billion in emergency funding under the AIFP 
on December 29, 2008, and GMAC/Ally Financial made an equity 
rights offering to its existing shareholders for $2 
billion.\24\
---------------------------------------------------------------------------
    \23\ Board of Governors of the Federal Reserve System, Order 
Approving Formation of Bank Holding Companies and Notice to Engage in 
Certain Nonbanking Activities, at 2 (Dec. 24, 2008) (online at 
www.federalreserve.gov/newsevents/press/orders/orders20081224a1.pdf).
    \24\ Treasury made a loan commitment to GM, which already owned a 
stake in GMAC/Ally Financial, of up to $1 billion in order to 
participate in the equity rights offering; however, only $884 million 
was drawn and used. U.S. Department of the Treasury, Troubled Asset 
Relief Program Transactions Report for the Period Ending December 30, 
2010, at 18-19 (Dec. 30, 2010) (online at www.financialstability.gov/
docs/transaction-reports/12-30-
10%20Transactions%20Report%20as%20of%2012-30-10.pdf) (hereinafter 
``Treasury Transactions Report'').
---------------------------------------------------------------------------
    Subsequently, GMAC/Ally Financial was one of 19 firms 
included in the government's ``stress tests.'' \25\ When the 
stress tests revealed that GMAC/Ally Financial needed to 
increase its capital, funding that it was unable to raise in 
the markets, the government extended further investments of 
$7.5 billion in May 2009 and $3.8 billion in December 2009.\26\ 
Treasury's investment in GMAC/Ally Financial now consists of 
73.8 percent of the company's common stock, $2.7 billion in 
trust-preferred securities, and $5.9 billion in mandatory 
convertible preferred (MCP) shares.
---------------------------------------------------------------------------
    \25\ The stress tests were designed to ensure that the nation's 
largest financial institutions could withstand a sharp economic 
downturn.
    \26\ Of the $7.5 billion investment provided in May 2009, $4.0 
billion was provided to GMAC/Ally Financial related to its partial 
acquisition of Chrysler Financial in May 2009. Treasury explained that 
it began to orchestrate the transfer of most of Chrysler Financial's 
business into GMAC/Ally Financial because it realized in the spring of 
2009 that by July 2009, Chrysler Financial would be unable to meet its 
financing requirements. Treasury conversations with Panel staff (Feb. 
2, 2010).
---------------------------------------------------------------------------
    The assistance to Chrysler and Chrysler Financial was 
interwoven due to the common ownership of those two entities. 
On January 16, 2009, Treasury made a $1.5 billion loan directly 
to Chrysler Financial, which has since been repaid.\27\ On 
January 2, 2009, as part of its broader assistance to Chrysler, 
Treasury provided a $4.0 billion loan to Chrysler Holding, an 
entity owned by Cerberus Management.\28\ Both Chrysler and 
Chrysler Financial were subsidiaries of Chrysler Holding at the 
time. In connection with the loan to Chrysler Holding, Treasury 
was entitled to the first $1.375 billion of proceeds from 
Chrysler Financial that would have flowed to Chrysler Holding 
and 40 percent of any additional proceeds that Chrysler 
Financial paid to Chrysler Holding after certain other 
distributions were made.\29\ As part of the bankruptcy process, 
$500 million of the $4.0 billion loan was assumed by New 
Chrysler, leaving Chrysler Holding with a $3.5 billion loan.
---------------------------------------------------------------------------
    \27\ Treasury Transactions Report, supra note 24, at 18-19.
    \28\ Treasury Transactions Report, supra note 24, at 18-19; 
Cerberus Capital Management, L.P., Company Profiles: Chrysler Holding 
LLC (online at webcache.googleusercontent.com/
search?q=cache:bcyLZouJF04J:www.cerberuscapital.com/profiles/
chrysler.html+cerberus+chrysler+holdings`cd=4`hl=en`ct=clnk`gl=us) 
(accessed Jan. 1, 2011).
    \29\ Treasury Transactions Report, supra note 24, at 18-19.
---------------------------------------------------------------------------
    On May 17, 2010, Treasury announced that it had settled 
with Chrysler Holding and extinguished the loan for $1.9 
billion in consideration for the government's 40 percent 
interest in Chrysler Financial, a settlement that it noted was 
above the valuation determined in an analysis by investment 
bank Keefe, Bruyette and Woods, but which would nevertheless 
result in a loss of $1.6 billion on the initial $3.5 billion 
loan.\30\ Seven months later, on December 21, 2010, TD Bank 
Group announced that it had agreed to purchase Chrysler 
Financial from Cerberus Management for approximately $6.3 
billion.\31\ Using this sale price, Treasury's right to 40 
percent of Chrysler Financial's equity would have been worth 
$2.5 billion, representing a $600 million difference from the 
$1.9 billion Treasury settled for in May 2010.
---------------------------------------------------------------------------
    \30\ U.S. Department of the Treasury, Chrysler Financial Parent 
Company Repays $1.9 billion in Settlement of Original Chrysler Loan 
(May 17, 2010) (online at www.financialstability.gov/latest/
pr_05172010c.html).
    \31\ Toronto-Dominion Bank, TD Bank Group to Acquire Chrysler 
Financial (Dec. 21, 2010) (online at mediaroom.tdbank.com/
index.php?s=43`item=271). The $6.3 billion sale price included $400 
million of goodwill.
---------------------------------------------------------------------------
    The rush to exit Chrysler Financial--compounded by 
incomplete due diligence--may have resulted in an unnecessarily 
subpar return for taxpayers, preventing Treasury from recouping 
more of its prior $1.6 billion loss. Presumably, Treasury's 
stance as a reluctant shareholder underscored the rationale for 
an expedited exit in this investment.\32\ However, such an 
approach was still in marked contrast to Treasury's longer-term 
(and generally successful) investment mentality in other 
instances (for example, GMAC/Ally Financial, Chrysler). 
Further, Treasury apparently conducted limited valuation due 
diligence, focusing on the merits of the offer from Cerberus in 
the context of an expected wind-down of the Chrysler Financial 
platform. Cerberus had operated Chrysler Financial in run-off 
mode, and Treasury had valued it as such in the context of the 
offer from Cerberus. While Treasury relied primarily on a 
valuation premised on the wind-down assumption, Treasury also 
states that they considered other inputs to evaluate fully the 
offer from Cerberus. However, aside from providing an 
accompanying net-present-value analysis in response to 
subsequent Panel requests, Treasury was unable to provide any 
documentation to support this claim of a multi-pronged 
valuation exercise that encompassed a potential bid from a 
strategic buyer.
---------------------------------------------------------------------------
    \32\ With GMAC/Ally Financial moving quickly into the business of 
providing Chrysler financing, Treasury announced in late 2009 that 
Chrysler Financial had begun to wind down the minimal portion of its 
operations not assumed by GMAC/Ally Financial and aimed to complete the 
process by December 31, 2011. See Letter from Kenneth R. Feinberg, 
special master for TARP executive compensation, to Tracy Hackman, vice 
president, general counsel and secretary, Chrysler Financial, Proposed 
Compensation Payments and Structures for Senior Executive Officers and 
Most Highly Compensated Employees, Annex A, at A5 (Oct. 22, 2009) 
(online at www.financialstability.gov/docs/
20091022%20Chrysler%20Financial%202009%20Top%2025%20Determination.pdf).
---------------------------------------------------------------------------
    After this settlement, Treasury no longer had any interest 
in or claim on Chrysler Financial, leaving Cerberus as the sole 
owner of the company. Cerberus, recognizing the inherent value 
of the Chrysler Financial platform to potential strategic 
bidders (i.e., other financial institutions seeking a foothold 
in the auto lending market), sought to cash in on the value of 
the franchise. Thomas Gilman, CEO of Chrysler Financial, 
explained that, ``During this time our origination engine was 
idling, but we knew we had a valuable franchise and so we 
continue[d] to make strategic investments in the core 
competencies of our operations in technology, process and 
talent.'' \33\
---------------------------------------------------------------------------
    \33\ Toronto-Dominion Bank, Acquisition of Chrysler Financial by 
Toronto-Dominion Bank (Dec. 21, 2010) (hereinafter ``Acquisition of 
Chrysler Financial by Toronto-Dominion Bank''). Transcript provided by 
SNL Financial.
    During a recent interview, Chrysler Financial CEO Tom Gilman said 
the company was in liquidation mode and winding down its loan portfolio 
for most of 2010. The company currently has 1,850 employees after 
eliminating over 50 percent of its staff (about 2,000 positions) during 
the last two years, and its loan portfolio balance declined from $50 
billion to under $10 billion as it generally stopped underwriting new 
loans over the past year. David Shepardson, TD Bank to buy Chrysler 
Financial, Detroit News (Dec. 21, 2010) (online at detnews.com/article/
20101221/AUTO01/12210375).
---------------------------------------------------------------------------
    Following Treasury's sale, Chrysler Financial benefited 
from the lifting of restrictions associated with the TARP 
assistance provided to Chrysler Holding, as well as capital 
investments Cerberus made in order to enhance further the 
strategic options for company going forward.\34\ As Mr. Gilman 
explained following the acquisition by TD Bank, ``the ultimate 
solution for Chrysler Financial is to find a strong partner 
that could provide stable and long-term financing to support 
the needs of our customers and our dealers.'' \35\
---------------------------------------------------------------------------
    \34\ Acquisition of Chrysler Financial by Toronto-Dominion Bank, 
supra note 33. Transcript provided by SNL Financial. (Thomas Gilman, 
Chrysler Financial CEO, said ``[W]e paid all debt and we paid all the 
U.S. government TARP funds that we received. Obviously, any 
restrictions related to TARP have now been lifted.''). Restriction 
associated with the loan included the limitation of new business lines 
and major investments. U.S. Department of the Treasury, Loan and 
Security Agreement By and Between The Borrower Listed on Appendix A as 
Borrower and The United States Department of the Treasury as Lender, at 
56 (Dec. 31, 2008) (online at www.financialstability.gov/docs/AIFP/
Chrysler%20LSA%20as%20of%2005-26-10.pdf) (``No Loan Party will engage 
to any substantial extent in any line or lines of business activity 
other than the businesses generally carried on by the Loan Parties as 
of the Effective Date or businesses reasonably related thereto.''); Id. 
at 58 (``No Loan Party intends to make any Investment, except Permitted 
Investments. If any Loan Party shall make a Permitted Investment not in 
the ordinary course of business in an amount greater than $100,000,000, 
such Loan Party shall comply with provisions'').
    \35\ Acquisition of Chrysler Financial by Toronto-Dominion Bank, 
supra note 33. Transcript provided by SNL Financial.
---------------------------------------------------------------------------
            e. Differences between Automotive Industry and Financial 
                    Institution Interventions
    The Administration has articulated a set of uniform 
principles to govern its ownership interests in financial and 
automotive companies. One such set of principles is that in 
``exceptional cases'' where the government feels it is 
necessary to respond to a company's request for substantial 
assistance, Treasury will reserve the right to establish 
upfront conditions as necessary including requirements for new 
viability plans as well as changes to boards of directors and 
management.\36\ Treasury determined that seven institutions--
AIG, Citigroup, Bank of America, GM, GMAC/Ally Financial, 
Chrysler, and Chrysler Financial--should be deemed 
``exceptional assistance'' recipients.
---------------------------------------------------------------------------
    \36\ Congressional Oversight Panel, Written Testimony of Ron Bloom, 
senior advisor, U.S. Department of the Treasury, COP Field Hearing on 
the Auto Industry (July 27, 2009) (online at cop.senate.gov/documents/
testimony-072709-bloom.pdf); The White House, Fact Sheet: Obama 
Administration Auto Restructuring Initiative General Motors 
Restructuring (June 30, 2009) (online at financialstability.gov/latest/
05312009_gm-factsheet.html) (hereinafter ``White House Fact Sheet on 
General Motors Restructuring'').
---------------------------------------------------------------------------
    In practice, however, there were clear differences between 
the treatment of banks and the automobile manufacturers that 
received TARP assistance, and even among those considered to be 
``exceptional cases.'' Both Chrysler and GM faced government-
mandated restructurings. In comparison, Treasury has generally 
not forced TARP recipient financial institutions to reorganize, 
nor, with the exception of AIG, has it changed their boards and 
managements.\37\ Treasury's assistance to Bank of America and 
Citigroup--two ``exceptional assistance'' recipients--was not 
conditioned on restructuring or management changes. Even in the 
case of GMAC/Ally Financial--a financial institution that, like 
GM and Chrysler, was assisted as part of the TARP's Auto 
Industry Financing Program--Treasury chose not to put the firm 
through bankruptcy.
---------------------------------------------------------------------------
    \37\ As with the automotive companies, some of AIG's management has 
been replaced and the company has undergone a restructuring that has 
resulted in two of its profitable foreign insurance divisions being 
spun-off and its financial products division significantly cut back. 
However, the Federal Reserve and Treasury chose not to use the 
Bankruptcy Code to restructure AIG.
---------------------------------------------------------------------------
    Moreover, while Treasury has not generally exercised a 
significant role in restructuring the management of most of the 
financial institutions that received TARP capital investments, 
it has done so with the largest and most distressed TARP 
recipients, and this is particularly true of those assisted 
under the AIFP--GM, GMAC/Ally Financial, and Chrysler. Of 
course, in the cases of GM, AIG, and GMAC/Ally Financial, 
Treasury's ability to effect management changes may have been 
at least facilitated by its majority ownership positions. In 
contrast to the treatment of Chrysler and GM shareholders, who 
were wiped out, those with equity stakes in AIG, Citigroup, and 
GMAC/Ally Financial have seen their positions severely diluted 
by the government, but they have not been wiped out. 
Furthermore, unlike many creditors of the automotive companies, 
who were wiped out, companies with contractual ties to AIG, for 
instance those that owned AIG-originated credit default swap 
(CDS) contracts, were made whole.
            f. Current State of Government's Investments
    There are currently $51.5 billion in TARP funds outstanding 
under the AIFP.\38\ Figure 1 shows the current state of TARP 
funds used to support the auto industry. In total, U.S. 
taxpayers spent $49.9 billion in support of GM, about $12.8 
billion in support of Chrysler, and $17.2 billion in support of 
GMAC/Ally Financial. The assistance to automotive suppliers 
accounts for approximately $3.5 billion of TARP commitments, 
bringing the gross TARP support for the U.S. domestic 
automotive industry to approximately $84.8 billion.
---------------------------------------------------------------------------
    \38\ This figure is composed of the $81.3 billion in total 
assistance provided to the automotive companies less the $26.4 billion 
in repayments and less the $3.5 billion in losses associated with the 
AIFP. Treasury Transactions Report, supra note 24, at 18-19.

                          FIGURE 1: AIFP ASSISTANCE BY COMPANY AS OF DECEMBER 30, 2010
                                           [Millions of dollars] \39\
----------------------------------------------------------------------------------------------------------------
                                                         % of                  % of                   Assistance
                                               Total     Total     Total    Investment   Total Lost    Currently
                                              Invested   AIFP     Repaid      Repaid    Extinguished   Obligated
----------------------------------------------------------------------------------------------------------------
GMAC/Ally Financial........................    $17,174      21           -           0            -   \40\ $17,1
                                                                                                              74
General Motors.............................     49,861      61   $(22,717)          46            -       27,144
Chrysler Financial.........................      1,500       2     (1,500)         100            -            -
Chrysler...................................     12,810      16     (2,180)          17     ($3,488)        7,142
                                            --------------------------------------------------------------------
    Total AIFP.............................    $81,345       -   ($26,397)           -     ($3,488)     $51,459
----------------------------------------------------------------------------------------------------------------
\39\ Treasury Transactions Report, supra note 24, at 18.
\40\ As of December 30, 2010, Treasury had converted $9.4 billion of its investment in GMAC/Ally Financial into
  common stock. For further information regarding these conversions, see Section F.2.b of this report.

    Figure 2 illustrates the proportion of TARP funds expended 
and repaid in support of the auto industry compared to the 
amounts used for other purposes.

 FIGURE 2: TARP FUNDS REPAID AS A PORTION OF TOTAL EXPENDED BY PROGRAM 
                               TYPE \41\

      
---------------------------------------------------------------------------
    \41\ The ``Foreclosure Prevention'' category includes the Home 
Affordable Modification Program (HAMP), the Hardest Hit Fund, and the 
Federal Housing Administration (FHA) Short Refinance program. It should 
be noted that these programs were not designed to solicit repayment. 
The ``Other Stability programs'' category includes the Term Asset-
Backed Loan Facility (TALF), the Public-Private Investment Partnership 
(PPIP), and the Small Business Administration 7(a) Securities Purchase 
Program.

[GRAPHIC] [TIFF OMITTED] T3381.001


    As shown above, a significant amount of the AIFP assistance 
remains outstanding, particularly in comparison to the bank 
recapitalizations conducted under the TARP. In addition, 
compared to the TARP bank recapitalization and other stability 
programs, it is generally taking Treasury a longer period of 
time to dispose of its AIFP investments. The longer disposition 
process is largely the result of the nature of Treasury's 
investments in each program. While most of Treasury's banking 
sector investments (with the exception of investments in 
Citigroup and a small number of other banks) were limited to 
purchases of senior preferred stock or subordinated debentures 
(the terms of which allowed the recipient the right to redeem 
at any time, subject to regulatory approval), Treasury's AIFP 
investments are a combination of loans, preferred stock, and 
common stock. Since common stock interests in GM, Chrysler, and 
GMAC/Ally Financial now form the majority of Treasury's 
remaining AIFP investments, the disposition of these ownership 
interests will depend on the condition of the equity capital 
markets, the state of the auto sector, and the broader economic 
outlook. As with the disposition of Treasury's investment in 
insurance giant AIG, the complete disposition of Treasury's 
AIFP investments could take place over several years.
    At this point, it is impossible to determine whether 
Treasury's assistance through the AIFP will have a long-term 
financial cost or gain. The Panel examines this issue, as well 
as the context for government assistance and likely exit 
strategies for each company, in more depth below.

          C. Current State of the Domestic Automotive Industry

    U.S. auto companies have significantly improved their 
operating performance over the past year, moving from losses to 
profits in recent quarters. Automakers restructured during the 
global recession by cutting brands, closing factories, and 
laying off workers, positioning themselves for higher profits 
once consumer demand increased. Since the automakers have 
recently demonstrated that they can generate profits at a much 
lower level of sales, the industry may be well positioned to 
exploit any increased demand.\42\ The industry's improved 
efficiency has allowed automakers to become more flexible and 
better able to meet changing consumer demands, while still 
remaining profitable. Improved production procedures and lower 
inventory have resulted in fewer discounts on new car sales, 
improving the profitability on each car sold. Investor 
enthusiasm for GM's IPO in November 2010 demonstrates a more 
favorable outlook for the auto companies since the 
restructurings of GM and Chrysler, in large part because of 
structural cost reductions, resulting in leaner and more 
efficient business models, and boosting optimism for the 
possibility of more sustainable profits over the long term.
---------------------------------------------------------------------------
    \42\ For further discussion concerning the outlook for the auto 
industry, see Section C.5, infra.
---------------------------------------------------------------------------
    These fundamental changes across the industry are outlined 
below. Restructuring efforts at the individual companies are 
outlined in more detail in the corresponding GM, Chrysler, and 
GMAC/Ally Financial sections of this report.

1. Capacity Reductions

    Restructuring during the economic downturn has resulted in 
increased factory and labor usage and reduced vehicle 
inventory. As Figure 3 below illustrates, the North American 
production capacity of the big three automakers steadily 
declined from 2001 to 2004, before declining more sharply in 
recent years. In comparison, the utilization rate, a metric 
that measures the degree to which companies exploit their 
existing production capacity, is projected to increase from a 
trough of 47 percent in 2009 to 80 percent in 2012. The 
reduction in production capacity, combined with a more 
efficient use of inputs, demonstrates that the nation's largest 
three automakers have taken steps to align their size and 
production with a more subdued market backdrop.

   FIGURE 3: NORTH AMERICAN CAPACITY OF BIG 3 AUTOMAKERS COMPARED TO 
                     CAPACITY UTILIZATION RATE \43\

      
---------------------------------------------------------------------------
    \43\ Capacity is defined here as two 8-hour work shifts per day 
times the average number of work days (240) per year at the maximum 
possible facility line rate (vehicles produced per hour). Utilization 
is production divided by capacity. Data provided by CSM.

[GRAPHIC] [TIFF OMITTED] T3381.002

2. Lower Labor Costs

    Industry-wide labor costs are also substantially lower, 
primarily due to the following:
      A reduction in the number of salaried employees; 
\44\
---------------------------------------------------------------------------
    \44\ For example, GM's U.S. salaried headcount is currently 24,000, 
versus 30,000 in 2008 and 34,000 in 2007 (down 20 percent and 29 
percent, respectively). GM's U.S. hourly workforce, which is almost 
completely made up of UAW members, is currently 46,000, down from 
62,000 in 2008 and 78,000 in 2007. (Deutsche Bank Investment Research).
---------------------------------------------------------------------------
      Salary declines resulting from the hiring of Tier 
2 workers, who are new hires with average wages of $33 per 
hour. Tier 1 employees, who have been employed for longer, have 
average wages of $58 per hour;
      A shift in responsibility for employee health-
care costs as a result of a 2007 agreement with the UAW; \45\ 
and
---------------------------------------------------------------------------
    \45\ In large part due to the shifting of healthcare costs to the 
UAW in the 2007 agreement, hourly labor costs within Chrysler, Ford, 
and GM have now declined to approximately $58 per hour, approaching the 
levels at U.S. plants operated by Japanese automakers and falling below 
historical levels of $65 per hour. Colin Langan, 10% Margins in the 
``New'' US Auto Industry, UBS Investment Research, at 5 (Nov. 15, 2010) 
(hereinafter ``UBS Investment Research Paper'').
---------------------------------------------------------------------------
      Streamlined job classifications, which help 
improve assembly line productivity.
    Overall, the cost bases at Chrysler, Ford, and GM are some 
35 percent lower in 2010 than they were in 2005 and 20 percent 
lower than they were in 2007.\46\
---------------------------------------------------------------------------
    \46\ Id. at 1. UBS states that automakers ``are now profitable at 
very low levels of utilization, which bodes well for operating leverage 
as sales demand continues to recover.''
---------------------------------------------------------------------------

3. Resiliency in Market Share

    Since the 1980s, American automakers have been losing 
ground in their home market, but they started to reverse that 
trend in 2010, at the expense of their Japanese rivals. This 
reflects gains in the U.S. auto market by Ford and a retreat by 
Toyota after a series of Toyota recalls over the past year. 
After shedding or eliminating four brands as part of its 
restructuring, GM's share has fallen from 19.7 percent in 2009 
to 18.3 percent at present,\47\ while Chrysler's share has 
slightly improved from 9.0 percent in 2009 to approximately 9.5 
percent. Chrysler's improvement in market share has been aided 
by a shift to lower-margin sales of ``fleet'' vehicles to 
rental car agencies and other commercial buyers.
---------------------------------------------------------------------------
    \47\ General Motors Company, Q3 2010 Results, at 6 (Nov. 10, 2010) 
(online at media.gm.com/content/dam/Media/gmcom/investor/2010/Q3-Chart-
Set.pdf) (hereinafter ``GM Q3 2010 Results'').
---------------------------------------------------------------------------

       FIGURE 4: BIG 3 TOTAL U.S. MARKET SHARE, 1980 TO 2010 \48\

      
---------------------------------------------------------------------------
    \48\ Data provided by Wards Auto.

    [GRAPHIC] [TIFF OMITTED] T3381.003
    
4. Pricing

    Finally, the industry has also benefited from a reduction 
in sales promotions (as its inventory management has improved, 
in line with a more sustainable utilization rate), which has 
resulted in a steadily higher average transaction price per 
vehicle sold. Figure 5 below shows the average transaction 
price per vehicle as a percentage of the Manufacturer Suggested 
Retail Price (MSRP). This measure reached a trough of 75 
percent in August of 2009 as the industry struggled to unload 
unsold inventory, but has since increased to 84 percent in 
October 2010, eclipsing pre-crisis levels.

        FIGURE 5: TRANSACTION PRICE AS A PERCENTAGE OF MSRP \49\

      
---------------------------------------------------------------------------
    \49\ Data compiled by CNW Research. MSRP is defined as Manufacturer 
Suggested Retail Price. The MSRP is the average sticker price of 
vehicles sold; Transaction Price excludes taxes, fees, and aftermarket 
products.

[GRAPHIC] [TIFF OMITTED] T3381.004

5. Outlook

    Putting all of the aforementioned factors together, the 
industry's financial outlook has improved considerably over the 
past two years. Despite a historically weak backdrop of U.S. 
sales, the industry is now reporting strong profits. The 
combination of greatly reduced capacity, generally stable 
market share, and improved pricing has more than offset 
persistently weak (but improving) demand. Thus, many industry 
observers believe that an improvement in the economy will 
result in a disproportionate increase in profitability, as the 
industry will be able to increase production without incurring 
meaningful new investment costs. Meanwhile, sales outside the 
United States--particularly in the emerging markets of Brazil, 
Russia, India, and China--are pacing an improving long-term 
sales outlook, as these markets overtake the United States as 
the key driver of incremental industry demand.
    The auto industry's average U.S. seasonally adjusted annual 
rate (SAAR) for the year-to-date period through the end of 
December 2010 is 12.5 million sales. This compares to 11.1 
million in the corresponding year-ago period.\50\ However, this 
level is still 29 percent below the average SAAR of 16.3 
million in the 10 years preceding 2006. Nonetheless, the 
industry's lower cost base has made it possible for the auto 
companies to return to profitability at this level.\51\ 
Industry experts forecast improvements in sales of roughly one 
million units per year for both 2011 and 2012.\52\
---------------------------------------------------------------------------
    \50\ Bureau of Economic Analysis, Supplemental Data: Auto Vehicles 
(Instrument: Light Total--seasonally adjusted at annual rates 
(Millions)) (online at www.bea.gov/national/xls/gap_hist.xls) (accessed 
Jan. 11, 2011). Standard & Poor's views on the extent of the sales 
rebound are conservative given the sluggish economic recovery, but it 
expects sales to improve again in 2011 to approximately 12.8 million 
units. Despite the improvement, this figure is still below the 2008 
sales numbers. PricewaterhouseCoopers (PwC), while noting concerns 
about the ``waning strength'' of an economic recovery and ``dimming 
prospects for marked improvement in 2011,'' states that North America's 
light vehicle landscape has continued to produce ``convincing signs of 
near-term stability in terms of sales and assembly.'' 
PricewaterhouseCoopers, North America Analyst Briefing (Nov. 2010). For 
its part, Goldman Sachs is forecasting 2011 and 2012 sales at 13 
million and 14 million, respectively, as it believes that additional 
pent-up demand ``will help drive a steeper recovery in auto sales as 
some of these macro concerns abate.'' The Goldman Sachs Group, Inc., 
Americas: Automobiles: See Upside to 3Q Consensus Post Our Volume 
Driven Est. Revisions (Oct. 19, 2010) (hereinafter ``Goldman Sachs 
Estimate Revisions''). In late October, Goldman Sachs also projected a 
2013 SAAR estimate of 15 million. It is important to underscore, 
however, that these levels are still well below historic ``normalized'' 
sales.
    \51\ Standard & Poor's anticipates that recovering light vehicle 
sales and inventory rebuilding in the United States will boost 
production volumes by more than 10 percent in 2010. Standard & Poor's, 
Industry Report Card: Busy Production Lines Are Fueling Global 
Automakers' Operating Profits And Credit Quality (Oct. 4, 2010).
    \52\ An average of five analyst forecasts for SAAR improves from 
11.6 million vehicles sold in 2010 to 12.6 million in 2011. The same 
analysts estimate that the 2012 SAAR will be 13.8 million vehicles. 
Averages are comprised of forecasts from PricewaterhouseCoopers 
Autofacts, CSM Worldwide, IHS Global Insight, J.D. Power, and IRN. 
Original Equipment Suppliers Association, The State of the Supplier 
Industry, at 8 (Nov. 10, 2010) (hereinafter ``The State of the Supplier 
Industry'').
---------------------------------------------------------------------------

FIGURE 6: LIGHT VEHICLE SALES, AUTOS AND TRUCKS, MILLIONS OF UNITS SOLD 
                              (SAAR) \53\

      
---------------------------------------------------------------------------
    \53\ Bureau of Economic Analysis, Auto and Truck Seasonal 
Adjustment Data (Dec. 2, 2010) (online at bea.gov/national/xls/
gap_hist.xls); Shaded areas reflect periods of economic recession as 
defined by the National Bureau of Economic Research. See National 
Bureau of Economic Research, U.S. Business Cycle Expansions and 
Contractions (online at www.nber.org/cycles/cyclesmain.html) (accessed 
Jan. 11, 2011). 2011 and 2012 data is an average projection comprised 
of SAAR projections from PricewaterhouseCoopers Autofacts, CSM 
Worldwide, IHS Global Insight, J.D. Power & Associates, and IRN. The 
State of the Supplier Industry, supra note 52.

[GRAPHIC] [TIFF OMITTED] T3381.005


    As noted earlier, the auto industry is also benefitting 
from rising global sales. According to estimates by J.D. Power 
& Associates, worldwide light vehicle sales may rise to 71.1 
million vehicles, surpassing the previous record of 70.3 
million units in 2007. These forecasts highlight the importance 
of non-U.S. markets to the viability and profitability of the 
U.S. auto companies: GM sells far more cars outside the United 
States than it does domestically. While GM North America 
delivered 661,000 vehicles in the third quarter of 2010, GM 
delivered 567,000 vehicles in China alone, an additional 
391,000 in Europe, and another 447,000 in the rest of the 
globe. GM holds 18.3 percent of Brazil's market share, same as 
its U.S. market share.\54\ (However, earnings overall are still 
strongly driven by North America. GM reported in the third 
quarter of 2010 that $2.1 billion of its earnings before 
interest and taxes (EBIT) came from its North American branch, 
whereas its European branch lost $0.6 billion, and the rest of 
its international operations only earned $0.6 billion.) This 
global growth in sales has been paced by rapid increases in 
demand in Brazil, Russia, India, and China, which now account 
for 34 percent of industry sales, compared to 9 percent in 
2000.\55\ Within the next five years, the percentage of sales 
in these countries and other developing markets is forecast to 
outstrip that of mature markets (North America, Europe, and 
Japan).\56\
---------------------------------------------------------------------------
    \54\ GM Q3 2010 Results, supra note 47, at 6, 11, 15.
    \55\ UBS Investment Research, US (not BRIC) is Key NT Growth Market 
(Nov. 11, 2010) (hereinafter ``UBS Investment Research Paper on Growth 
Market'').
    \56\ As recently as 2006, the United States accounted for more than 
a quarter of the global market, whereas in 2010, the United States 
accounted for a mere 16.3 percent of global demand. J.D. Power & 
Associates, however, predicts that China's share of the world market 
will climb from 10 percent in 2006 to 21 percent in 2013. Efraim Levy, 
Industry Surveys: Autos & Auto Parts, Standard & Poor's Research, at 
15-16 (June 24, 2010).
---------------------------------------------------------------------------
    Some industry analysts are very bullish on the U.S. auto 
recovery, taking the view that improved capacity usage, reduced 
labor costs, and global platforms can produce sustainable 
profits.\57\ The global auto industry, however, is highly 
cyclical and sensitive to changes in consumer sentiment, 
employment, interest rates, gasoline prices, and general 
economic activity.\58\ In the absence of any improvements in 
the United States in employment, housing, credit-based 
spending, and the equity markets, a near-term recovery in 
demand for automobiles may be harder to achieve.\59\
---------------------------------------------------------------------------
    \57\ UBS points out that ``significant structural changes made by 
the U.S. auto market in the last year have already resulted in enhanced 
operating margins, despite the low levels of sales.'' While the United 
States has not historically been a profitable market for domestic 
automakers, UBS estimates profitability will be approximately 10 
percent for the industry going forward, based on the combination of 
capacity reductions, reduced labor costs, and improved outlook. In UBS' 
view, ``[c]ombined with the ongoing sales recovery, these cost cuts 
paint a very bright picture for the `new' North American auto industry 
over the next five years.'' UBS Investment Research Paper on Growth 
Market, supra note 55; UBS Investment Research Paper, supra note 45.
    \58\ Goldman Sachs concludes that the key risk for the auto sector 
``remains the pace of sales growth whose outlook is tied intimately to 
consumer sentiment and the outlook for housing and employment in the 
U.S.'' PricewaterhouseCoopers notes that while consumer credit has 
thawed substantially over the past year, and lending standards have 
eased, many consumers ``are voluntarily and involuntarily absent from 
the new vehicle market,'' due in large part to widespread deleveraging 
and lenders' limited capacity to extend financing to potential buyers 
with ``newly tarnished credit.'' Goldman Sachs Estimate Revisions, 
supra note 50. See also UBS Investment Research Paper, supra note 45.
    \59\ PricewaterhouseCoopers, North America Analyst Briefing (Nov. 
2010).
---------------------------------------------------------------------------

                           D. General Motors


1. Context

            a. Background and the Government Intervention
    One of America's largest and most storied corporations, GM 
enjoyed a highly profitable stretch during the 1990s. Its stock 
price peaked above $93 in April 2000, up from $27.50 in late 
1991. This decade of success was built largely on sales of GM's 
light trucks and sport utility vehicles (SUVs), as well as the 
high profit margins generated by GMAC/Ally Financial, a finance 
arm that initially focused on automobiles, but over time 
evolved into a more diversified financial services firm. By 
2005, though, GM was losing money. High gasoline prices had 
dampened consumer demand for its vehicles, which lagged behind 
competitors in fuel efficiency, and its market share declined. 
GM was also hurt by an unsustainable cost structure, largely 
due to the high cost of its retiree health care and pension 
benefits. GM's investment in automobile design lagged behind 
competitors, which led to further erosion in the company's 
market share. It all added up to a spiral of decline.
    In 2006, GM sold much of its ownership in GMAC/Ally 
Financial, which at the time remained profitable. The two firms 
remained highly interdependent under agreements that kept GMAC/
Ally Financial as the largest financier of GM automobile 
purchases. But the sale of GMAC/Ally Financial proved to be a 
stop-gap measure for GM, since in 2007 the automaker posted a 
staggering loss of more than $38 billion. The recession that 
began in December 2007 took a toll on all manufacturers in the 
highly cyclical auto industry, but GM, with its high fixed 
costs and increasingly uncompetitive vehicles, was particularly 
vulnerable. In the fall of 2008, amid the credit crisis, the 
firm was unable to fund its operations using private-sector 
lenders, and appealed to Congress for an emergency bailout.
    The Bush and Obama Administrations provided multiple rounds 
of TARP assistance to GM, culminating in a rapid bankruptcy 
restructuring in June 2009.\60\ Out of this process, a new 
company emerged: General Motors Company (New GM).\61\ This new 
entity shed Old GM's least valuable assets and most burdensome 
liabilities.\62\ To help achieve the transition to a new, 
leaner company, Treasury invested a total of $49.9 billion in 
GM.\63\
---------------------------------------------------------------------------
    \60\ September 2009 Oversight Report, supra note 2, at 3, 19.
    \61\ The company effectively came into being on July 10, 2009, when 
GM sold its ``good'' assets under Section 363 of the Code to a new, 
government-owned entity, General Motors Company (New GM). Order (I) 
Authorizing Sale of Assets Pursuant to Amended and Restated Master Sale 
and Purchase Agreement with NGMCO, Inc., a Treasury-Sponsored 
Purchaser; (II) Authorizing Assumption and Assignment of Certain 
Executory Contracts and Unexpired Leases in Connection with the Sale; 
and (III) Granting Related Relief, In Re General Motors Corp., S.D.N.Y. 
(No. 09-50026 (REG)) (July 5, 2009) (online at 
docs.motorsliquidationdocket.com/pdflib/2968_order.pdf). See also 
September 2009 Oversight Report, supra note 2, at 19.
    \62\ See White House Fact Sheet on General Motors Restructuring, 
supra note 36. For purposes of this report, the General Motors that 
existed prior to the 2009 restructuring is referred to as ``Old GM.'' 
Its formal name is now Motors Liquidation Company.
    \63\ This figure includes investments in both Old GM and New GM. 
Treasury Transactions Report, supra note 24, at 18-19. Foreign 
governments provided assistance as well. The governments of Canada and 
Ontario invested a net of $9.5 billion in loans to GM, resulting in an 
11.7 percent ownership stake. GM also arranged a revolving bridge 
facility with the German federal government with a commitment amount of 
=1.5 billion, equivalent at the time to $2.1 billion. That loan was 
repaid, in full, and extinguished on November 24, 2009. September 2009 
Oversight Report, supra note 2, at 31; General Motors Company, 
Amendment No. 9 to Form S-1: Preliminary Prospectus, at 61 (Nov. 17, 
2010) (online at www.sec.gov/Archives/edgar/data/1467858/
000119312510262471/ds1a.htm) (hereinafter ``GM Amendment No. 9 to Form 
S-1: Preliminary Prospectus'').
---------------------------------------------------------------------------
            b. Impact of Changes in Tax Rules
    Like certain other TARP recipients, GM may receive 
additional benefits from the government as a result of certain 
Treasury-issued guidance \64\ concerning the rules applicable 
to carrying forward net operating losses (NOLs).\65\ The 
ability to carry forward an NOL allows corporations to offset 
future taxable income with losses from prior years, thereby 
reducing future tax liabilities.\66\ However, the use of NOL 
carryforwards is subject to various limitations. One provision 
in the Internal Revenue Code limits the amount of taxable 
income that a corporation may offset in years following an 
ownership change.\67\
---------------------------------------------------------------------------
    \64\ The so-called EESA Notices, in reference to the law that 
established the TARP, include: Notice 2008-100, which concerned 
recipients of TARP funds under the Capital Purchase Program; Notice 
2009-14, which extended the guidance in Notice 2008-100 to instruments 
issued under the Targeted Investment Program and the Automotive 
Industry Financing Program; Notice 2009-38, which extended the prior 
guidance to the Asset Guarantee Program and the Systemically 
Significant Failing Institutions Program, among other actions; and 
Notice 2010-2, which in part provides guidance on the impact of 
Treasury's sale of stock that it was issued under the TARP programs 
covered by the prior guidance. In the American Recovery and 
Reinvestment Act of 2009, Congress provided an exception to the section 
382 limitations on loss carryovers for certain ownership changes of 
certain TARP recipients, including GM. See American Recovery and 
Reinvestment Act of 2009, Pub. L. No. 111-5, at Sec. 382(n) (2009).
    \65\ A net operating loss (NOL) is the excess of a corporation's 
deductions over its taxable income. The future benefit of an NOL is 
considered a deferred tax asset for financial accounting purposes.
    \66\ Under Section 172 of the Internal Revenue Code, a corporation 
is allowed to carry forward the amount of any unrecognized net 
operating loss in the current taxable year to be recognized in future 
taxable years. In general, Section 172 provides that a net operating 
loss for the current taxable year may be carried back two taxable 
years, and carried forward for up to 20 taxable years. For financial 
accounting purposes, limitations on the use of an NOL carryforward may 
reduce the amount a corporation is able to reflect as a deferred tax 
asset on its financial statements, and in turn could negatively affect 
value of such corporation.
    \67\ In general, an ownership change occurs if the percentage of a 
corporation's stock owned by one or more ``5-percent shareholders'' 
increases by more than 50 percentage points over the lowest percentage 
of stock of such corporation owned by such shareholders at any time 
during the three-year period that ends on the date of the triggering 
event. Some events that can increase the percentage of stock owned by a 
5-percent shareholder include a merger or acquisition of the 
corporation, sales of stock to 5-percent shareholders, redemptions, and 
new issuances of stock. A ``5-percent shareholder'' is any shareholder 
that owns 5 percent or more of the stock of the corporation. The stock 
owned by all shareholders who are not 5-percent shareholders is treated 
as being owned by one or more ``public groups,'' which may be treated 
as 5-percent shareholders.
---------------------------------------------------------------------------
    This limitation would have had a significant impact on 
numerous TARP recipients, since several of them experienced a 
change in ownership, as a result of government investments and 
the disposition of those investments. Treasury issued several 
notices that applied only to TARP recipients, and addressed the 
application of the ownership change rules in the context of the 
government's investment in TARP recipients.\68\ These notices 
established the definition of ``change in ownership'' as 
applied to TARP recipients, in general ignoring changes in the 
government's equity ownership in determining whether a ``change 
in ownership'' has occurred. GM was a beneficiary of the tax 
notices, while Chrysler and GMAC/Ally Financial did not benefit 
because they were limited liability companies at the time they 
received government funds and were treated as pass-through 
entities for federal income tax purposes.
---------------------------------------------------------------------------
    \68\ The Secretary possesses the authority to issue income tax 
notices under 12 U.S.C. Sec. 5211(c)(5). In addition, Section 382(m) 
specifically authorizes the Secretary to issue ``such regulations as 
may be necessary or appropriate to carry out the purposes of this 
section.'' 26 U.S.C. Sec. 382(m). See also Congressional Oversight 
Panel, January Oversight Report: Exiting TARP and Unwinding Its Impact 
on the Financial Markets, at 16-20 (Jan. 13, 2010) (online at 
cop.senate.gov/documents/cop-011410-report.pdf) (hereinafter ``January 
2010 Oversight Report'').
---------------------------------------------------------------------------
    GM has reported approximately $9.1 billion in U.S. federal 
and state NOL carry-forwards.\69\ The actual financial impact 
of Treasury's tax notices to GM is difficult to determine and 
will depend on the company's future income.\70\ Nonetheless, 
the favorable rules provided in the notices are likely to 
affect GM's value.
---------------------------------------------------------------------------
    \69\ Total operating loss and tax credit carryforwards as of 
December 31, 2009 were $18.9 billion, of which $9.1 billion related to 
U.S. federal and state net operating loss carryforwards. General Motors 
Company, Amendment No. 5 to Form S-1: Preliminary Prospectus, at F-123 
(Nov. 3, 2010) (online at www.sec.gov/Archives/edgar/data/1467858/
000119312510246019/ ds1a.htm) (hereinafter ``GM Amendment No. 5 to Form 
S-1: Preliminary Prospectus'').
    \70\ See January 2010 Oversight Report, supra note 68, at 16-22.
---------------------------------------------------------------------------
    It is important to note that the change-in-ownership 
restrictions were intended to prevent companies from buying 
other firms for the purpose of benefitting from their tax 
losses. GM's situation following the government rescue was a 
different case, since the government did not invest in GM with 
the purpose of benefitting from GM's tax losses. Nonetheless, 
the Panel has noted previously with respect to TARP-recipient 
banks that the favorable tax guidance pitted ``Treasury's 
responsibilities as TARP administrator, regulator, and tax 
administrator against one another,'' and that these notices 
fuel ``the perception that income tax flexibility is 
especially, and quickly, available for large financial 
institutions at a time of general economic difficulty.'' \71\ 
This observation would appear to apply with equal validity to 
Treasury's rescue of GM. On the other hand, it is possible that 
the favorable tax guidance will contribute to greater 
profitability and market value of GM, which will in turn 
enhance the value, and improve the recovery, of the taxpayers' 
investment.\72\
---------------------------------------------------------------------------
    \71\ January 2010 Oversight Report, supra note 68, at 22. The 
Special Inspector General for the Troubled Asset Relief Program 
(SIGTARP) has initiated an evaluation of Treasury's decision-making 
process in providing TARP recipients a waiver from the NOL carry-
forward rules. SIGTARP seeks to determine the rationale behind the 
waiver, whether Treasury was aware of any tax effect that might result 
from the waiver, the identity of the decision-makers involved in 
issuing the waiver, and the extent to which Treasury's policy to 
dispose of TARP investments in a timely manner factored into the 
decision to issue a waiver. Office of the Special Inspector General for 
the Troubled Asset Relief Program, Engagement Memo--Review of the 
Section 382 Limitation Waiver for Financial Instruments Held by 
Treasury (Aug. 10, 2010) (online at www.sigtarp.gov/reports/audit/2010/
Engagement%20Memo%20-%20Review%20 
of%20the%20Section%20382%20Limitation%20Waiver%20for%20Financial 
%20Instruments%20Held%20by%20Treasury.pdf).
    \72\ In addition, although the notices permit certain TARP 
recipients to enjoy a tax benefit that they would have otherwise been 
denied, other carry-forward benefits have been denied to TARP 
recipients. As discussed in more detail in the Panel's May 2010 report, 
TARP recipients were excluded from the extension of the NOL benefit 
that was included in the Worker, Homeownership, and Business Assistance 
Act of 2009. The Act permitted taxpayers with net operating losses in 
2008 and 2009 to apply those losses to tax payments made in five 
preceding tax years, rather than only to payments made in the two 
preceding tax years. As the Panel noted, this exclusion may have 
contributed to the development of the TARP ``stigma,'' as ``bank 
industry sources have stated that when banks accepted TARP funds, they 
had no reason to anticipate that their status as TARP recipients would 
cause them to be denied access to subsequent benefits afforded to their 
non-TARP competitors.'' Congressional Oversight Panel, May Oversight 
Report: The Small Business Credit Crunch and the Impact of the TARP, at 
71 (May 13, 2010) (online at cop.senate.gov/documents/cop-051310-
report.pdf). See also Internal Revenue Service, Questions and Answers 
for The Worker, Homeownership, and Business Assistance Act of 2009--
Section 13 5-year Net Operating Loss (NOL) Carryback (Feb. 24, 2010) 
(online at www.irs.gov/newsroom/ article /0,,id=217370,00.html).
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2. More Recent Developments

    Following the formation of New GM, approximately $39.3 
billion of Treasury's original investment was converted into 
common equity, resulting in a government stake representing 
60.8 percent of GM's common equity.\73\ The remaining 
government investment was split between $7.1 billion in debt, 
$2.1 billion in New GM preferred stock, and $986 million in the 
form of a loan to Old GM. In a series of payments between July 
2009 and April 2010, GM repaid the $7.1 billion in debt that it 
owed to Treasury.\74\ New GM has also repurchased from Treasury 
the $2.1 billion in New GM preferred stock.\75\ The $986 
million government loan to Old GM remains outstanding.
---------------------------------------------------------------------------
    \73\ September 2009 Oversight Report, supra note 2, at 64, 69.
    \74\ Treasury Transactions Report, supra note 24, at 18-19.
    \75\ U.S. Department of the Treasury, General Motors Repays 
Taxpayers $2.1 Billion, Completing Repurchase of Treasury Preferred 
Stock (Dec. 15, 2010) (online at www.financialstability.gov/latest/
pr_12152010.html). The preferred stock was Series A fixed-rate 
cumulative perpetual, which paid a 9 percent dividend. General Motors 
Company, Form 10-Q for the Quarterly Period Ended September 30, 2010, 
at 36 (Nov. 10, 2010) (online at www.sec.gov/Archives/edgar/data/
1467858/000119312510255233/d10q.htm) (hereinafter ``GM Form 10-Q'').
---------------------------------------------------------------------------
    After GM's bankruptcy, Treasury officials played a 
significant role in the selection of a new CEO, Edward 
Whitacre, Jr., who was named to the position on December 1, 
2009.\76\ Treasury also appointed four members of the GM 
board.\77\ On August 12, 2010, GM announced that Mr. Whitacre 
would step down as CEO on September 1, 2010 and be replaced by 
Daniel Akerson, a Treasury-appointed member of GM's board of 
directors.\78\ As a recipient of ``exceptional financial 
assistance,'' GM is also subject to the executive compensation 
determinations of Patricia Geoghegan, Treasury's Special Master 
of TARP Executive Compensation, who replaced Kenneth Feinberg 
as ``pay czar.'' \79\
---------------------------------------------------------------------------
    \76\ See Steven Rattner, Overhaul, at 250 (2010).
    \77\ Following the bankruptcy proceedings, five new members were 
appointed to the 12-member board of New GM. Treasury's four 
appointments were Daniel Akerson (now GM's CEO), managing director of 
the private equity firm Carlyle Group; David Bonderman, co-founding 
partner of TPG Capital; Robert Krebs, retired chairman and chief 
executive of Burlington Northern Santa Fe railroad; and Patricia Russo, 
former chief executive of telecommunications company Alcatel-Lucent. To 
represent its stake, the Canadian government appointed Carol 
Stephenson, dean of Richard Ivey School of Business at the University 
of Western Ontario, to the Board. GM Amendment No. 9 to Form S-1: 
Preliminary Prospectus, supra note 63, at 196.
    \78\ Mr. Akerson had served on the board since July 2009 and had 
previously served as a managing director of the Carlyle Group. General 
Motors Company, GM Announces CEO Succession Process (Aug. 12, 2010) 
(online at media.gm.com/content/media/us/en/news/news_detail. 
brand_gm.html/content/Pages/news/us/en/2010/Aug/0812_transition).
    \79\ In addition, the Special Master will continue to oversee GM's 
compensation practices until the company repays all of the funds it 
received under the AIFP. See TARP Standards for Compensation and 
Corporate Governance, 31 CFR Sec. 30.1 (June 15, 2009) (online at 
ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr`sid=188bec27fb299 
580f359697139ae586a`rgn=div5`view=text`node=31:1.1.1.1.28`idno=31) 
(defining ``exceptional financial assistance'' as ``any financial 
assistance provided under the Programs for Systemically Significant 
Failing Institutions, the Targeted Investment Program, the Automotive 
Industry Financing Program, and any new program designated by the 
Secretary as providing exceptional financial assistance.''). The 
Special Master had authority to render individual compensation 
determinations for the top 25 most highly paid employees at GM, as well 
as to review compensation structures for the next 75 employees. On 
October 23, 2009, he released his determinations for the top 25, which 
reduced cash compensation by 31 percent compared to 2008 and by 46 
percent compared to 2007. Total direct compensation decreased by 24.7 
percent compared to 2008. Letter from Kenneth R. Feinberg, special 
master for TARP executive compensation, to Gregory E. Lau, executive 
director for Global Compensation, General Motors, Proposed Compensation 
Payments and Structures for Senior Executive Officers and Most Highly 
Compensated Employees, at Exh. 1 (Oct. 22, 2009) (online at 
www.financialstability.gov/docs/
20091022%20GM%202009%20Top%2025%20Determination.pdf).
---------------------------------------------------------------------------
    On July 22, 2010, GM announced the $3.5 billion acquisition 
of AmeriCredit, an automotive finance firm that specializes in 
subprime auto lending.\80\ Several of GM's competitors, such as 
Ford and Toyota, have in-house financing divisions, which are 
often called ``captive'' financing arms. And following GM's 
sale of GMAC/Ally Financial in 2006, industry analysts cited 
GM's lack of a captive financing arm as a competitive 
disadvantage.\81\ Now that GM has acquired AmeriCredit, GM says 
that it still considers GMAC/Ally Financial to be a key 
strategic partner, but that AmeriCredit provides GM with more 
financial alternatives, and that AmeriCredit provides an auto 
financing platform that GM can build out.\82\
---------------------------------------------------------------------------
    \80\ General Motors Company, GM to Acquire AmeriCredit (July 22, 
2010) (online at media.gm.com/content/media/us/en/news/
news_detail.brand_gm.html/content/Pages/news/us/ en/2010/July/
0722_americredit). The deal closed effective October 1, 2010. General 
Motors Company, General Motors Announced Its Acquisitions of 
AmeriCredit Corp. Will Close Effective October 1, 2010 (Sept. 29, 2010) 
(online at www.gm.com/investors/announcements-events/ 
event.jsp?id=3533539). SIGTARP has initiated an audit that will look at 
Treasury's role in reviewing, approving, or otherwise participating in 
GM's decision to acquire AmeriCredit. Office of the Special Inspector 
General for the Troubled Asset Relief Program, Engagement Memo--Review 
of Treasury's Investment in General Motors Company (Oct. 26, 2010) 
(online at www.sigtarp.gov/reports/audit/2010/Engagement%20Memo%20-
%20Review%20 
of%20Treasury%27s%20Investment%20in%20General%20Motors%20Company.pdf).
    \81\ See Congressional Oversight Panel, Testimony of Michael Ward, 
analyst, Soleil-Ward Transportation Research, Transcript: COP Hearing 
on GMAC Financial Services, at 87 (Feb. 25, 2010) (online at 
frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname 
=111_senate_hearings`docid=f:56723.pdf).
    \82\ General Motors Company conversations with Panel staff (Dec. 3, 
2010).
---------------------------------------------------------------------------
    Throughout much of 2010, GM was preparing for an initial 
public offering (IPO), a process that promised to allow 
Treasury to sell its stake in GM's common stock.\83\ The final 
underwriting agreement consisted of 35 underwriters, both large 
and small firms.\84\ Treasury negotiated an underwriting fee of 
0.75 percent, as opposed to a more customary figure of 2 or 3 
percent for an IPO of comparable size.\85\ Although the IPO was 
expected to price at a range of between $26 and $29, strong 
investor enthusiasm during the company's road show 
presentations resulted in the offering being six times 
oversubscribed.\86\ Subsequently, the price was increased to 
$33.\87\
---------------------------------------------------------------------------
    \83\ An initial public offering (IPO) occurs when a private company 
issues stock to the public for the first time. Prior to the IPO, the 
issuing institution works with an underwriting firm to determine the 
type of security to issue, the price, and the timing of the offering.
    \84\ Underwriters market shares to their clients. The underwriting 
syndicate included Morgan Stanley, J.P. Morgan, Merrill Lynch, 
Citigroup, Barclays Capital, Credit Suisse, Deutsche Bank, Goldman 
Sachs & Co., RBC Capital Markets, Banco Bradesco BBI, CIBC World 
Markets, Commerz Markets, BNY Mellon Capital Markets, ICBC 
International Securities, Itau BBA USA Securities, Lloyds TSB Bank, 
China International Capital Corporation HK Securities, Loop Capital 
Markets, Williams Capital Group, Soleil Securities Corporation, Scotia 
Capital (USA), Piper Jaffray & Co., SMBC Nikko Capital Markets, Sanford 
C. Bernstein & Co., Cabrera Capital Markets, Castle Oak Securities, CF 
Global Trading, C.L. King & Associates, FBR Capital Markets, Gardner 
Rich, Lebenthal & Co., M.R. Beal & Company, Muriel Siebert & Co. and 
Samuel A. Ramirez & Company. UBS was omitted from the final list amid 
reports that a sales analyst within the firm distributed an 
unauthorized e-mail to an institutional client regarding the valuation 
of GM. Morgan Stanley and J.P. Morgan Securities served as the primary 
book runners.
    \85\ Bill Canis, Baird Webel, and Gary Shorter, General Motors' 
Initial Public Offering: Review of Issues and Implications for TARP, 
Congressional Research Service, at 12-13 (Nov. 10, 2010) (online at 
www.crs.gov/Products/R/PDF/R41401.pdf) (hereinafter ``GM's Initial 
Public Offering: Implications for TARP'').
    \86\ GM Amendment No. 5 to Form S-1: Preliminary Prospectus, supra 
note 69. See General Motors Company, General Motors Announces Increase 
in Size of Public Offering of Common Stock (Nov. 17, 2010) (online at 
media.gm.com/content/media/us/en/news/news_detail.brand_gm.html/
content/Pages/news/global/en/2010/1117_amendment). See also GM's 
Initial Public Offering: Implications for TARP, supra note 85, at 12. 
According to press reports, in the run-up to the IPO, senior officials 
within the company marketed the IPO to a wide range of international 
investors in order to attract the broadest investor base possible. 
These investors included GM's partner in China--SAIC--as well as 
several sovereign wealth funds. See David Welch and Jeffrey McCracken, 
GM Said to Approach Sovereign Wealth Funds to Boost Stock Sale, 
Bloomberg News (Oct. 5, 2010) (online at www.bloomberg.com/news/2010-
10-05/gm-is-said-to-approach-sovereign-wealth-funds-to-boost-initial-
stock-sale.html); Clare Baldwin, Soyoung Kim, and Philipp Halstrick, GM 
IPO Multiple Times Oversubscribed, International Business Times (Nov. 
12, 2010) (online at www.ibtimes.com/articles/81505/20101112/gm-ipo- 
multiple-times-oversubscribed-sources.htm).
    \87\ General Motors Company, Amendment No. 8 to Form S-1: 
Preliminary Prospectus (Nov. 16, 2010) (online at www.sec.gov/Archives/
edgar/data/1467858/000119312510261467/ds1a.htm).
---------------------------------------------------------------------------
    The IPO took place on November 18, 2010, when GM common 
stock began trading under the ticker ``GM'' on the New York 
Stock Exchange (NYSE).\88\ Total funds generated in this 
offering were $23.1 billion, before accounting for underwriting 
fees and commissions.\89\ Based on total funds raised, the IPO 
was the largest IPO in U.S. history.\90\
---------------------------------------------------------------------------
    \88\ GM also began trading under ``GMM'' on the Toronto Stock 
Exchange.
    \89\ In addition to $18.1 billion in common equity, the company 
issued $5.0 billion in preferred stock. The preferred stock issuance 
consisted of Series B mandatory convertible junior preferred shares, 
which pay a dividend of 4.75 percent. Data accessed from Bloomberg on 
Nov. 19, 2010.
    \90\ While the GM common stock offering was second only to Visa's 
2008 IPO, the total funds raised by GM exceeded those raised by Visa. 
See Visa Investor Relations, Visa Inc., Largest IPO in US History (Mar. 
19, 2008) (online at phx.corporate-ir.net/
phoenix.zhtml?c=129145&p=irol-newsArticle&ID=1120295&highlight=).
---------------------------------------------------------------------------
    GM's stock performed well throughout its first day of 
trading, with the common stock settling at a price of 
$34.19.\91\ President Obama applauded the IPO, noting that 
``American taxpayers are now positioned to recover more than my 
administration invested in GM.'' \92\ He stated that because 
GM's management had made the ``tough decisions necessary to 
make themselves more competitive in the 21st century--the 
American auto industry--an industry that's been the proud 
symbol of America's manufacturing might for a century; an 
industry that helped to build our middle class--is once again 
on the rise.'' \93\
---------------------------------------------------------------------------
    \91\ Shares of preferred stock closed at $50.45. Data accessed from 
Bloomberg on November 19, 2010.
    \92\ The White House, Remarks by the President on General Motors 
(Nov. 18, 2010) (online at www.whitehouse.gov/the-press-office/2010/11/
18/remarks-president-general-motors).
    \93\ Id.
---------------------------------------------------------------------------
    On November 26, 2010, GM announced that its underwriters 
exercised in full their so-called over-allotment options to 
purchase an additional 71.7 million shares of common stock from 
the selling stockholders, for a total of $2.37 billion, plus an 
additional 13 million shares of mandatory convertible junior 
preferred stock from the company, for a total of $650 
million.\94\
---------------------------------------------------------------------------
    \94\ General Motors Company, General Motors Announces Underwriters' 
Exercise of Over-allotment Options (Nov. 26, 2010) (online at 
www.gm.com/news-article.jsp?id=/content/Pages/news/us/en/2010/Nov/
1126_exercise.html).
---------------------------------------------------------------------------
    Net proceeds from the sale of common stock for existing GM 
shareholders totaled $18.0 billion. Net proceeds from the sale 
of preferred stock were $4.9 billion, which compared favorably 
to GM's November 17 estimate of preferred stock proceeds of 
$3.9 billion-$4.4 billion,\95\ bringing the total net proceeds 
to $22.9 billion. Some of GM's proceeds from the sale of the 
preferred shares went to redeem Treasury's $2.1 billion in 
preferred stock holdings. GM anticipates that it will 
contribute $2.0 billion in common stock to its U.S. hourly and 
salaried pension plans, in addition to a $4.0 billion cash 
contribution to the pension plans that it announced on December 
2, 2010.\96\
---------------------------------------------------------------------------
    \95\ GM Amendment No. 9 to Form S-1: Preliminary Prospectus, supra 
note 63, at 9.
    \96\ GM anticipated that it would use approximately 43 percent of 
the preferred proceeds to purchase Treasury's Series A preferred 
holdings. It planned to use the remainder of the proceeds--supplemented 
with cash on hand--to make the cash pension contribution. See General 
Motors Company, Form 424B1: Final Common Prospectus, at 38 (Nov. 18, 
2010) (online at www.sec.gov/Archives/edgar/data/1467858/
000119312510263484/d424b1.htm) (hereinafter ``GM Form 424B1: Final 
Common Prospectus''); General Motors Company, GM Makes $4 Billion 
Pension Plan Contribution (Dec. 2, 2010) (online at www.gm.com/news-
article.jsp?id=/content/Pages/news/us/en/2010/Dec/1202_pension.html) 
(hereinafter ``GM Makes $4 Billion Pension Plan Contribution'').
---------------------------------------------------------------------------
    In total, the sales of GM stock produced $13.5 billion in 
receipts to the Treasury.\97\ Including exercise of the over-
allotment option, Treasury sold over 412 million shares of the 
total 550 million shares sold. Treasury still holds more than 
500 million shares, or 33.3 percent ownership of GM.\98\ During 
its first three weeks on the NYSE, GM's stock traded at between 
$33.17 and $34.89 per share. Figure 7 shows the amount and 
current status of the government's various investments in GM. 
Of the $49.9 billion in government assistance, $27.2 billion 
currently remains outstanding.
---------------------------------------------------------------------------
    \97\ U.S. Department of the Treasury, Taxpayers Receive Additional 
$1.8 Billion in Proceeds from GM IPO (Dec. 2, 2010) (online at 
www.financialstability.gov/latest/pr_12022010.html).
    \98\ An over-allotment option is an agreement between an issuer and 
its underwriter granting the underwriter the option to purchase and 
then resell additional shares to the investing public. Usually the 
over-allotment option is exercised by the underwriter if the demand 
before and after pricing is strong. Treasury's 33.3 percent ownership 
stake in GM is calculated on a basic--not fully diluted--share basis.

                                         FIGURE 7: TARP INVESTMENT IN GM
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
   Original      Original                                                           Cumulative
  Investment    Assistance      Original          Exchange           Current        Investment    Amount  Repaid
     Date          Amount    Investment Type                     Investment Type      Amount
----------------------------------------------------------------------------------------------------------------
12/29/2008....        $884  Loan............  Exchanged for     --                            --
                                               GMAC Equity.
12/31/2008....      13,400  Loan with         Old GM debt       New GM common            $13,400
                             additional        credit bid; New   equity.
                             notes.            GM equity
                                               received.
4/22/2009.....       2,000  Loan with         Old GM debt       New GM common              2,000
                             additional        credit bid; New   equity.
                             notes.            GM equity
                                               received.
5/20/2009.....       4,000  Loan with         Old GM debt       New GM common              4,000
                             additional        credit bid; New   equity.
                             notes.            GM equity
                                               received.
5/27/2009.....         361  Loan with         Old GM debt       New GM common                361            $361
                             additional        credit bid; New   equity.
                             notes.            GM equity
                                               received.
6/3/2009......      30,100  Loan with         ................  ................          30,100
                             additional
                             notes (see
                             breakdown
                             below).
                ..........  ................  Old GM debt       New GM common             19,942
                                               credit bid; New   equity.
                                               GM equity
                                               received.
                ..........  ................  Became New GM     New GM loan.....           7,072           6,712
                                               loan.
                ..........  ................  Became New GM     New GM preferred           2,100           2,139
                                               preferred stock.  stock.
                ..........  ................  Remained Old GM   Old GM loan.....             986
                                               loan.
               -------------------------------------------------------------------------------------------------
Total.........     $50,745  ................  ................  ................         $49,861      99 $22,717
----------------------------------------------------------------------------------------------------------------
\99\ This figure includes $13.5 billion in proceeds from the GM IPO that are not directly tied to a particular
  tranche of investment made in GM prior to its bankruptcy. Therefore, these funds are not accounted for as a
  line item, but instead are credited solely to the total line.

  [GRAPHIC] [TIFF OMITTED] T3381.006
  
3. Outlook

    While Treasury's investment in GM provided a backstop for a 
company on the brink of failure, the rescue forced taxpayers to 
bear considerable risk, risk they will continue to bear until 
Treasury disposes of the remainder of its investment in the 
company. This section examines the viability of GM, an issue 
that will impact the outcome of the government's investment in 
the company.
            a. GM's Emerging Business Model
    GM's strategy for improving its business model focuses on 
four key areas: (1) streamlining operations so as to improve 
capacity utilization; \100\ (2) reducing labor costs; (3) 
strengthening competitiveness in international markets; and (4) 
reducing financial leverage in order to improve the company's 
balance sheet.\101\
---------------------------------------------------------------------------
    \100\ The capacity utilization rate measures the amount of output 
currently being produced by the firm relative to the maximum amount of 
output it could produce given its current inputs.
    \101\ See General Motors Company, GM Retail Roadshow, at 5, 10, 17 
(Nov. 18, 2010) (online at cop.senate.gov/documents/gm-
publicoffering.pdf) (hereinafter ``GM Retail Roadshow''); GM 
conversations with Panel staff (Dec. 3, 2010). GM's CEO and CFO have 
stated in the media that their goal is to get GM to zero debt. See 
CNBC, GM Aiming for No Debt on Balance Sheet: CEO (Nov. 18, 2010) 
(online at classic.cnbc.com/id/40251271/). GM's CFO, Chris Liddell, 
stated that this goal could realistically be reached in three to five 
years. See The Inside Track with Deirdre Bolton & Erik Schatzker, 
Interview with GM CFO Chris Liddell, Bloomberg News (Nov. 18, 2010) 
(findarticles.com/ p/news-articles/ceo-wire/mi_8092/is_20101118/chris-
liddell-bloomberg- tv/ai_n56320173/?tag=content;col1).
---------------------------------------------------------------------------
            i. Streamlining Operations
    GM is taking a number of steps in order to streamline its 
operations. First, it plans to reduce the total number of 
plants it operates in the United States from the 47 it had in 
2008 to 34 by the end of 2010 and to 31 by 2012.\102\
---------------------------------------------------------------------------
    \102\ GM Form 424B1: Final Common Prospectus, supra note 96, at 55, 
60.
---------------------------------------------------------------------------
    Second, GM has reduced the number of brands it offers in 
the United States from eight to four. GM's four core brands are 
Chevrolet, GMC, Cadillac, and Buick, which is the fastest 
growing automotive brand in the United States.\103\ GM has 
discontinued or divested Pontiac, Saturn, Saab, and 
Hummer.\104\ October 2010 calendar-year-to-date retail sales 
for GM's four core brands were up 15 percent, and total sales 
were up 22 percent.\105\ Year-to-date through October, GM's 
four core brands sold 85,737 more units than its eight brands 
sold during the same period in 2009.\106\
---------------------------------------------------------------------------
    \103\ General Motors Company, Q2 2010 Results, at 6 (Aug. 12, 2010) 
(online at media.gm.com/content/dam/Media/gmcom/investor/2010/Q2-Chart-
Set.pdf) (hereinafter ``GM Q2 2010 Results'').
    \104\ GM Form 424B1: Final Common Prospectus, supra note 96, at 19.
    \105\ General Motors Company, Form 8-K for the Period Ended 
November 3, 2010, at 5 (Nov. 5, 2010) (online at www.sec.gov/Archives/ 
edgar/data/1467858/ 000119312510249908/d8k.htm).
    \106\ Id. at 5.
---------------------------------------------------------------------------
    Third, GM has also announced a goal of reducing its number 
of domestic dealerships from approximately 5,000 as of 
September 30, 2010 to 4,500 by the end of 2010. GM expects 
these reductions to produce cost savings over time, but it also 
recognizes that they could also have the effect of reducing 
GM's U.S. market share.\107\ Despite these closings, GM 
continues to maintain an independent international network of 
21,000 dealers.\108\
---------------------------------------------------------------------------
    \107\ GM Form 424B1: Final Common Prospectus, supra note 96, at 19. 
These closings are substantially fewer in number than GM initially 
announced. See Office of the Special Inspector General for the Troubled 
Asset Relief Program, Factors Affecting the Decisions of General Motors 
and Chrysler to Reduce Their Dealership Networks, at 1 (July 19, 2010) 
(SIGTARP 10-008) (online at www.sigtarp.gov/reports/ audit/2010/ 
Factors%20Affecting%20the%20 Decisions%20of%20 General%20Motors%20 
and%20 Chrysler%20to%20 Reduce%20Their%20 Dealership%20 
Networks%207_19_2010.pdf) (stating that GM announced on June 2, 2009 
that it planned to ``wind down'' 1,454 of its 5,591 dealerships by 
October 2010).
    \108\ GM maintains that the scale of this dealer network 
strengthens its ability to compete in markets outside the United 
States. See GM Form 424B1: Final Common Prospectus, supra note 96, at 
3.
---------------------------------------------------------------------------
    As a result of these efforts, as well as an underlying 
improvement in sales, UBS estimates that GM's capacity 
utilization, which measures the company's actual output as a 
percentage of its potential output, will improve from 43 
percent in 2009 to 74 percent in 2010.\109\ UBS expects GM's 
capacity utilization to fall in 2011 before rising again in 
2012 and beyond.\110\
---------------------------------------------------------------------------
    \109\ UBS Investment Research Paper, supra note 45, at 4.
    \110\ UBS Investment Research, General Motors Company: Why Buy Now? 
(Dec. 15, 2010) (hereinafter ``UBS Investment Research Paper'').
---------------------------------------------------------------------------
            ii. Reducing Labor Costs
    GM has sought to use the restructuring to reduce the cost 
of its hourly labor force.\111\ More specifically, it has 
reduced the number of its employees, restructured its labor 
agreement, and transferred its health care obligations to the 
UAW's Voluntary Employee Benefit Association (VEBA).\112\ 
Overall, GM states that it has reduced its U.S. hourly labor 
costs from $16 billion in 2005 to $5 billion in 2010.\113\ It 
also states that it has reduced the number of hourly employees 
in the United States from 111,000 in 2005 to 50,000 in 
2010.\114\ Since 2008, the company has reduced its global 
workforce by about 35,000 employees, including about 11,000 
hourly employees in United States,\115\ though the number of 
employees has risen since GM emerged from bankruptcy in 2009. 
The company believes, and industry analysts concur, that a more 
competitive cost structure will allow GM to compete better for 
market share.
---------------------------------------------------------------------------
    \111\ GM Form 424B1: Final Common Prospectus, supra note 96, at 3.
    \112\ GM Form 424B1: Final Common Prospectus, supra note 96, at 3.
    \113\ The 2010 labor cost figure is an estimate that GM used in its 
retail roadshow. GM Retail Roadshow, supra note 101, at slide 17. See 
also Moody's Investors Service, Credit Opinion: General Motors Company 
(Oct. 29, 2010) (hereinafter ``Moody's Credit Opinion: General Motors 
Company'') (``This shift in the industry's operating structure has been 
the result of significant headcount reductions, the elimination of 
excess capacity, and the implementation of a new UAW contract.'').
    \114\ The 2010 employee figure is an estimate that GM used in its 
retail roadshow. GM Retail Roadshow, supra note 101, at slide 17.
    \115\ UBS Investment Research Paper, supra note 110, at 6.
---------------------------------------------------------------------------
            iii. Improving International Competitiveness
    GM also states that it is enhancing its competitiveness in 
international markets. According to the presentation GM used in 
its retail road show,\116\ it is refocusing on emerging 
markets, with a particular focus on Brazil, Russia, India, and 
China.\117\ In 2009, 72 percent of GM's total sales volume came 
from outside the United States, including 39 percent from 
emerging markets.\118\ GM's market share in Brazil, Russia, 
India, and China grew from 9.8 percent in 2004 to 12.7 percent 
in 2009.\119\ It has the number one market share position in 
those four nations as a whole, and it occupies the top spot in 
China as well.\120\ GM projects that Brazil, Russia, India, and 
China have the largest growth potential of any markets in the 
world.\121\
---------------------------------------------------------------------------
    \116\ A roadshow is a presentation to potential institutional or 
retail investors prior to the initial stock offering.
    \117\ GM Retail Roadshow, supra note 101, at slide 10.
    \118\ GM Form 424B1: Final Common Prospectus, supra note 96, at 1.
    \119\ GM Form 424B1: Final Common Prospectus, supra note 96, at 3.
    \120\ In the BRIC countries, GM had a share of 13 percent in 2009, 
compared to 11 percent for Volkswagen, 4 percent for Toyota, and 3 
percent for Ford. The company's market share in China, specifically, 
was 13.3 percent in 2009. GM Retail Roadshow, supra note 101, at slide 
9; GM Form 424B1: Final Common Prospectus, supra note 96, at 3.
    \121\ GM Retail Roadshow, supra note 101, at slide 10.
---------------------------------------------------------------------------
            iv. Reducing Leverage
    GM is seeking to reduce its leverage in order to lower the 
cost of servicing its debt and become less vulnerable to the 
ups and downs of the automotive industry's business cycle.\122\ 
GM also intends to fund its pension plans fully. To that end, 
GM on December 2, 2010, announced the aforementioned voluntary 
$4 billion cash contribution to its U.S. pension plans.\123\ 
More broadly, the company stated in its November 2010 public 
offering presentation that it has $24 billion in available 
liquidity, as compared to about $35 billion in underfunded 
pension obligations, debt, and perpetual preferred shares.\124\ 
Reducing its debt burden should allow GM to strengthen its 
credit rating; the company is seeking to achieve a strong 
investment grade rating.\125\
---------------------------------------------------------------------------
    \122\ General Motors Company conversations with Panel staff (Dec. 
3, 2010).
    \123\ GM Makes $4 Billion Pension Plan Contribution, supra note 96.
    \124\ The $35 billion consists of $13 billion in underfunded U.S. 
pension obligations, $10 billion in underfunded non-U.S. pension 
obligations, $7 billion in perpetual preferred stock, and $5 billion in 
debt. GM Retail Roadshow, supra note 101, at slide 19.
    \125\ GM Retail Roadshow, supra note 101, at slide 19.
---------------------------------------------------------------------------
            b. Results
    GM's most recent financial statements provide four key 
indicators of improvement in overall performance: revenue and 
sales, credit ratings, market share, and access to 
financing.\126\ While it may be too soon in the business cycle 
to discern trends, GM's initial financial and operating ratios 
are improving. Both return on assets and return on sales have 
increased gradually through 2010.\127\ In total, GM sold 8.2 
million units worldwide during the 12-month period ending 
September 30, 2010.\128\ Net revenue totals for each of the 
first three quarters of 2010 were more than $30 billion.\129\ 
(These revenue totals are comparable to GM's revenue results in 
2009. In the second half of 2009, GM's total net sales and 
revenue were $57.5 billion.)\130\ However, as analysts have 
noted, the company is able to sell its products at higher 
prices and has improved its margins materially.\131\ In North 
America specifically, sales in the third quarter of 2010 were 
$21.5 billion versus $14.4 billion in the same quarter a year 
prior.\132\ In addition, GM expanded its North American 
operations by adding 3,000 employees between January 1 and 
September 30, 2010.\133\ On November 30, GM announced plans to 
hire an additional 1,000 engineers and researchers in 
Michigan.\134\
---------------------------------------------------------------------------
    \126\ In its presentation to retail investors for its upcoming IPO, 
the company presented guidance for the following metrics: earnings 
before interest and taxes (EBIT), EBIT margin, and free cash flow for 
both the middle of the business cycle and at the high end of the cycle. 
These projections provide insight into how management foresees GM's 
performance in 2011 and beyond. The company's EBIT mid-point 
projections are $12 billion at mid-cycle and $18 billion at high-cycle. 
The company's midpoint projections for free cash flow are $9 billion at 
mid-cycle and $15 billion at high cycle. GM Retail Roadshow, supra note 
101, at slide 18.
    \127\ See General Motors Company, Q3 Financial Highlights, at 6, 7 
(2010) (online at media.gm.com/content/dam/Media/gmcom/investor/2010/
Q3-Financial-Highlights.pdf); General Motors Company, Q2 Financial 
Highlights, at 6, 7 (2010) (online at media.gm.com/content/dam/Media/
gmcom/investor/2010/Q2-Financial-Highlights.pdf); GM Form 10-Q, supra 
note 75, at 1, 2. Return on assets is defined as net income divided by 
total assets. Profit margin is defined as net income divided by sales. 
These metrics are computed by taking the following data points from the 
quarterly filings: net income, total assets, and net sales.
    \128\ GM Retail Roadshow, supra note 101, at slide 9.
    \129\ GM Q3 2010 Results, supra note 47, at 2.
    \130\ General Motors Company, Form 10-K for the Fiscal Year Ended 
December 31, 2009, at 39 (Apr. 7, 2010) (online at www.sec.gov/
Archives/edgar/data/1467858/000119312510078119/d10k.htm).
    \131\ David Whiston, General Motors Company Has Reinvented Itself, 
Morningstar, at 5, 15 (Nov.18, 2010).
    \132\ Joseph Amaturo, A Lot of ``Old'' GM in the ``New'' GM, 
Buckingham Research Group, at 47 (Dec. 6, 2010) (hereinafter 
``Buckingham Research Group Paper'').
    \133\ GM Form 424B1: Final Common Prospectus, supra note 96, at 
190.
    \134\ General Motors Company, GM to Add 1,000 Electric Vehicle 
Engineering and Development Jobs in Michigan (Nov. 30, 2010) (online at 
media.gm.com/content/media/us/en/news/news_detail.brand_gm.html/
content/Pages/news/us/en/2010/Nov/1130_jobs.html).
---------------------------------------------------------------------------
    On October 6, 2010, the credit rating agency Fitch gave GM 
the Issuer Default Rating \135\ of BB-, non-investment grade or 
speculative, the same as Ford.\136\ While GM has considerably 
less debt than Ford, Fitch noted that GM's large pension 
obligations dwarf those of Ford. GM is rated as having a stable 
outlook by four different credit agencies.\137\ While it is not 
clear what GM's credit ratings would be absent government 
support, Standard & Poor's states that it does not give GM a 
ratings boost because of the government's investment.\138\
---------------------------------------------------------------------------
    \135\ The issuer default rating is an indicator given by credit 
rating agencies to potential investors of debt securities, which 
estimates the likelihood of default and relative creditworthiness of 
securities issued by a certain company.
    \136\ Fitch Ratings, Fitch Assigns Initial [BB-] IDR to General 
Motors (Oct. 6, 2010) (online at www.businesswire.com/news/home/
20101006006853/en/Fitch-Assigns-Initial-BB--IDR-General-Motors).
    \137\ The ratings agencies include DBRS, Fitch, Moody's, and 
Standard & Poor's. GM Form 424B1: Final Common Prospectus, supra note 
96, at 134.
    \138\ Standard & Poor's does, however, refer to GM as a government-
related entity, albeit one whose importance to the government is 
limited because of the expectation that the government will reduce its 
ownership in GM. Standard & Poor's, Global Credit Portal RatingsDirect: 
General Motors Co., at 2-3 (Nov. 11, 2010); E-mail from Standard & 
Poor's to Panel staff (Dec. 9, 2010).
---------------------------------------------------------------------------
    GM is seeking to lower its ``breakeven point,'' the number 
of cars that the company needs in order for its revenues to 
equal its costs. Doing so, will enable GM to remain profitable 
even at the bottom of the business cycle. In its U.S. 
operations, GM has reduced its break-even point from an 
industry-wide sales total of 15.5 million units in the third 
quarter of 2007 to less than 11 million units in the fall of 
2010.\139\ In 2007, GM needed a 25 percent market share, or 
roughly 3.88 million vehicles sold out of a market of 15.5 
million, in order to break even. Today, GM needs a market share 
of less than 19 percent, or approximately 2.09 million vehicles 
sold out of a market of 11 million.\140\ In sum, GM is now able 
to break even with a smaller share of a smaller market. This 
improvement has been driven in part by the reduction in labor 
costs, in addition to improvements in vehicle pricing.\141\ For 
example, average transaction prices for the Chevrolet Equinox 
are up $3,900 from 2009 to 2010, and Buick LaCrosse average 
transaction prices are up $7,500 over the same period.\142\
---------------------------------------------------------------------------
    \139\ GM Form 424B1: Final Common Prospectus, supra note 96, at 3. 
See also Moody's Credit Opinion: General Motors Company, supra note 
113, at 1 (``GM's Ba2 CFR reflects the company's strong position in 
developing markets, a competitive cost structure in North America, an 
improving domestic product portfolio, and a significantly stronger 
balance sheet and liquidity position as a result of the bankruptcy 
reorganization process.'').
    \140\ See GM Retail Roadshow, supra note 101, at slide 16.
    \141\ GM Q3 2010 Results, supra note 47, at 10.
    \142\ GM Retail Roadshow, supra note 101, at slide 6.
---------------------------------------------------------------------------
    GM's overall market share has been falling in both the 
United States and Europe. In the United States, GM's market 
share fell from 28.6 percent in 2002 to 22.2 percent in 2008, 
and then to an estimated 19.0 percent in 2010. In Europe, GM's 
market share fell from 10.2 percent in 2000 to 9.3 percent in 
2008, and then to 8.1 percent in 2010.\143\ GM's post-
bankruptcy declines in market share likely stem at least in 
part from the company's decision to discontinue certain brands 
and to reduce consumer incentives for vehicle purchases.
---------------------------------------------------------------------------
    \143\ UBS Investment Research Paper, supra note 110, at 11-15.
---------------------------------------------------------------------------

4. Treasury's Exit Strategy

    Between April and November 2010, Treasury interacted 
closely with GM in an attempt to ensure that Treasury had all 
relevant market demand information prior to the IPO to help 
determine how much of its stock it should sell and at what 
price.\144\ Treasury conducted due diligence, relying heavily 
on the input of its advisor, Lazard Ltd. Lazard also handled 
many of the direct interactions with the IPO's underwriters. In 
making determinations about the volume and price of its stock 
sales, Treasury states that it sought to abide by its 
shareholder principles, balancing the desire to exit as soon as 
practicable against its objective of maximizing the value of 
the taxpayers' investment. Consistent with these principles, 
according to Treasury, it sought to leave GM in charge of day-
to-day management decisions, including the selection of 
underwriters and timing of the IPO. Treasury also worked 
closely with the underwriters--rather than the company--to 
determine the timing and pricing of the government's sale of GM 
stock.\145\ GM states that it decided the timing of the IPO, 
though it did have discussions with Treasury about the issue. 
The company also states that Treasury's primary role was 
related to how many shares it would eventually choose to 
sell.\146\
---------------------------------------------------------------------------
    \144\ For a more detailed discussion of the government's 
shareholder principles and their implementation, see Section B, infra.
    \145\ Treasury conversations with Panel staff (Nov. 22, 2010).
    \146\ General Motors Company conversations with Panel staff (Dec. 
3, 2010).
---------------------------------------------------------------------------
    Treasury sold nearly 40 percent of its equity stake through 
the IPO. Despite the possibility that the value of GM's equity 
could increase within the next year as a result of a continued 
market recovery, the seasoning of GM's management, and a slate 
of new automobiles due to be released, Treasury maintains that 
it decided not to postpone the sale of its shares--or revise 
the amount being offered--for several reasons. While market 
risk and execution risk were two significant concerns, Treasury 
also said that it was important to signal to the market that 
the government intended to exit its investment and return the 
funding of the company to private hands.\147\
---------------------------------------------------------------------------
    \147\ See Moody's Investors Service, GM's IPO--A Better Balance 
Sheet and Maybe Even More Car Customers, at 1 (Nov. 22, 2010) 
(hereinafter ``Moody's Paper on GM's Balance Sheet''); Treasury 
conversations with Panel staff (Nov. 22, 2010). Treasury also expressed 
concern that shareholders from Old GM could disrupt the pricing process 
had they gained control of their shares before the IPO.
---------------------------------------------------------------------------
    After the offering, Treasury's total stake in the company 
fell from 60.8 percent to 36.9 percent. When the underwriters 
exercised their over-allotment option on November 26, 
Treasury's stake fell to 33.3 percent.\148\ As is customary for 
many IPOs, Treasury will be unable to begin selling the 
remainder of its investment for 180 days following the IPO. 
After this lock-up period ends, Treasury maintains that it will 
look to sell the remainder of its shares in accordance with its 
shareholder principles and subject to market events.\149\
---------------------------------------------------------------------------
    \148\ GM Form 424B1: Final Common Prospectus, supra note 96, at 
236.
    \149\ Treasury conversations with Panel staff (Nov. 22, 2010).
---------------------------------------------------------------------------
            a. Analysis of Treasury's Exit Strategy
    The strong investor demand for GM's IPO stands in stark 
contrast to the company's predicament in the fall of 2008. Yet 
despite the improvements that GM has achieved in a relatively 
short period of time, there is still uncertainty regarding the 
taxpayers' investment in GM. This section examines GM's efforts 
to transform itself into a far more viable entity. While the 
outlook is more positive than it was two years ago, the GM 
investment is still likely to result in an overall loss for 
taxpayers.
            i. GM Emerged from the Restructuring as a Far More Viable 
                    Business
    According to industry analysts, GM has emerged from the 
restructuring as a far more viable business, positioned to take 
advantage of its streamlined cost structure and a competitive 
labor situation to return to profitability.\150\ That GM is a 
much improved business is evidenced by its results from the 
first three quarters of 2010,\151\ as well as the strong demand 
for shares in the IPO.\152\ The company has successfully 
executed many of its core objectives for the restructuring: 
streamlining its capacity, shedding labor costs, and refocusing 
its efforts on high-growth international markets. Although, 
significant uncertainty remains for the company, the company's 
efforts to refocus its business strategy and shed costs have 
substantially increased the likelihood that taxpayers will 
suffer minimal losses on their investment, or perhaps even be 
repaid in full.
---------------------------------------------------------------------------
    \150\ See, e.g., Moody's Paper on GM's Balance Sheet, supra note 
147, at 1 (``This progress on the product portfolio front is supported 
by the IPO's positive messages about both the improving financial 
health of GM and the reduction in government ownership of the 
company.'').
    \151\ See Section D.3.b.
    \152\ See Section D.2.
---------------------------------------------------------------------------
            ii. Uncertainty Remains
    The Panel has identified three sources of uncertainty that 
could have a negative impact on GM's stock price: international 
markets, GM's long-term competitive viability, and GM's long-
term obligations and legacy liabilities. From the perspective 
of U.S. taxpayers, this uncertainty is important because 
Treasury is likely to continue to hold a stake in GM through 
most of 2011 and perhaps into 2012.
            International Markets
    The company still faces uncertainty with respect to certain 
operating units going forward, particularly in Europe, which 
accounts for 22 percent of the company's sales.\153\ GM has a 
restructuring plan for its European operations, similar to its 
U.S. plan, that seeks to cut European capacity by 20 percent, 
reduce labor costs by about $320 million per year, and improve 
the weak image of the Opel brand among European consumers.\154\ 
But GM's restructuring plans in Europe are lagging behind its 
American efforts--the company will not complete the European 
restructuring for at least a year.\155\ In the meantime GM is 
generating significant losses in Europe.\156\
---------------------------------------------------------------------------
    \153\ Buckingham Research Group Paper, supra note 132, at 2.
    \154\ See UBS Investment Research Paper, supra note 110, at 11-12.
    \155\ Moody's Credit Opinion: General Motors Company, supra note 
113, at 2.
    \156\ See Moody's Credit Opinion: General Motors Company, supra 
note 113, at 2.
---------------------------------------------------------------------------
    In addition, competition will likely increase in many of 
GM's higher growth markets. GM's market share in developing 
nations has been growing: the company is first in Chinese 
market share, third in Brazilian market share, and third in 
Russian market share. But analysts believe that GM's foothold 
in these markets is somewhat unstable, given the sharp 
competition, and they project that GM's market share in Brazil 
and China will decline by 2015.\157\ Early indicators suggest 
that this trend may have already begun, as reflected in a 
market share decline in Brazil from 19.9 percent to 18.3 
percent during 2010.\158\ Furthermore, the potential upside for 
GM in China is limited by the fact that it is required to 
operate as a joint venture that only takes a proportional share 
of the profits.\159\ On the other hand, GM starts from a strong 
position in China, Brazil, and Russia, and any future losses in 
market share may be more than offset by the growth of those 
markets.
---------------------------------------------------------------------------
    \157\ UBS Investment Research Paper on Growth Market, supra note 
55, at 11-12.
    \158\ GM Q3 2010 Results, supra note 47, at 15.
    \159\ See UBS Investment Research Paper on Growth Market, supra 
note 55, at 1.
---------------------------------------------------------------------------
            Competitive Viability
    There are also questions about the competitive viability of 
GM over both the short term and the long term. In the short 
term, the questions involve what is generally seen as a 
lackluster product launch schedule in 2011, particularly in the 
United States, where its market share faces pressure from 
Ford.\160\ GM launched 28 new vehicles in 2010, but just four 
of those launches were in the United States. The story for 2011 
is similar, with 27 product launches planned, of which four are 
for the United States. GM's product lineup is expected to 
improve in later years, with 37 product launches, including 15 
U.S. launches, planned for 2013.\161\
---------------------------------------------------------------------------
    \160\ See UBS Investment Research Paper, supra note 110, at 1-3.
    \161\ GM Retail Roadshow, supra note 101, at slide 13.
---------------------------------------------------------------------------
    Over the long term, there are still questions about GM's 
ability to develop new products that respond to--or drive--
market demand. In particular, the company must be able to 
compete in the development of fuel-efficient technologies. To 
that end, it is encouraging that the electric Chevrolet Volt 
was recently named Motor Trend's 2011 Car of the Year,\162\ but 
the outcome of GM's large investment in the Volt remains 
unclear. The Volt will compete against an increasingly crowded 
field of fuel-efficient vehicles, including the new Nissan 
Leaf. It is unclear whether the Volt, which uses lithium 
batteries that will eventually need to be replaced, will 
prevail over the hybrid technology being pursued by 
competitors.\163\
---------------------------------------------------------------------------
    \162\ Motor Trend, 2011 Motor Trend Car of the Year: Chevrolet Volt 
(online at www.motortrend.com/oftheyear/car/
1101_2011_motor_trend_car_of_the_year_chevrolet_volt/index.html).
    \163\ See Buckingham Research Group Paper, supra note 132, at 30-
31.
---------------------------------------------------------------------------
    Senior officials at GM expect the Chevrolet Cruze to become 
an alternative to the Ford Focus, Honda Civic, and Toyota 
Corolla in the small-car segment--traditionally a less 
profitable but rather large segment of U.S. car sales--but at 
this point the newly launched Cruze lacks a significant track 
record of sales in the United States. Moreover, while it is 
encouraging that average transaction prices have increased in 
GM's crossover segment--vehicles that combine elements of cars 
and SUVs--such increases have not been as widespread in GM's 
car and truck portfolios.\164\
---------------------------------------------------------------------------
    \164\ Average Transaction Price (ATP) increases are as follows: 
crossovers are 11 percent, cars are 9 percent, and trucks are 6 
percent. GM Q2 2010 Results, supra note 103, at 8.
---------------------------------------------------------------------------
            Long-Term Obligations and Legacy Liabilities
    While GM shed many of its most onerous liabilities during 
the restructuring, several long-term obligations remain. 
Estimates differ on how much money GM will need to contribute 
to underfunded pensions and other post-retirement employee 
benefits (OPEB) over the short and long term. The company has 
disclosed that as of September 30, 2010, its underfunded 
pension liability was $29.4 billon.\165\ At the same time, GM's 
underfunded OPEB stood at $9.4 billion.\166\ The company 
expects to disburse nearly $8.4 billion per year from 2011-2014 
in net benefit payments for its U.S. pension plans, plus $1.4 
billion per year for its non-U.S. pensions plans.\167\
---------------------------------------------------------------------------
    \165\ GM Q3 2010 Results, supra note 47, at 20.
    \166\ GM Q3 2010 Results, supra note 47, at 20.
    \167\ GM Form 424B1: Final Common Prospectus, supra note 96, at 
138.
---------------------------------------------------------------------------
    Old GM, whose remaining assets include unsold manufacturing 
plants and equipment, also has significant legacy liabilities 
that could eventually impose costs on taxpayers. Old GM has 
created four separate trusts to pay off environmental claims, 
unsecured creditors, asbestos claims, and litigation claims. 
More than 70,000 claims for more than $275 billion have been 
made against all four Old GM trusts, but more than $150 billion 
in claims have been resolved or eliminated.\168\ It is unclear 
what the recovery rate on claims will be. In August 2010, Old 
GM proposed a bankruptcy plan that would make $536 million 
available to handle environmental claims. In October 2010, Old 
GM agreed to a $773 million settlement to resolve its 
liabilities at 89 Old GM sites.\169\ The company anticipates 
the majority of the environmental remediation will be completed 
or under way in five years.\170\
---------------------------------------------------------------------------
    \168\ Motors Liquidation Company, Motors Liquidation Company Files 
Joint Chapter 11 Plan, at 1-2 (Aug. 31, 2010) (online at 
www.motorsliquidation.com/PressReleases.aspx) (hereinafter ``Motors 
Liquidation Company Files Joint Chapter 11 Plan'').
    \169\ U.S. Environmental Protection Agency, Motors Liquidation 
Company (f/k/a General Motors (GM) Corporation) Bankruptcy Settlement 
(Oct. 20, 2010) (online at www.epa.gov/compliance/resources/cases/
cleanup/cercla/mlc/index.html).
    \170\ Motors Liquidation Company Files Joint Chapter 11 Plan, supra 
note 168, at 2.
---------------------------------------------------------------------------
    In the event that there are more than $35.0 billion in 
unsecured claims against Old GM, New GM will be obligated to 
issue shares of its common stock to Old GM, diluting Treasury's 
and other shareholders' stakes in New GM.\171\ Treasury also 
continues to have direct exposure to Old GM as a result of its 
$986 million loan to the company.
---------------------------------------------------------------------------
    \171\ The $35.0 billion threshold refers specifically to unsecured 
claims that do not have a priority on Old GM's assets and are allowed 
as part of the bankruptcy proceeding. GM Amendment No. 5 to Form S-1: 
Preliminary Prospectus, supra note 69, at 11. Of course, the dilution 
to Treasury would occur only if Treasury remains a shareholder at that 
point.
---------------------------------------------------------------------------
            iii. Taxpayers Likely to Suffer Some Losses on Their 
                    Investment in GM
    To date, Treasury has provided only aggregate data on 
projected losses across the auto sector, and it has not yet 
provided data on projected losses by each individual 
institution. On September 30, 2010, Treasury estimated an 
overall loss of $14.7 billion to the government from federal 
support of GM, Chrysler, and GMAC/Ally Financial.\172\ Speaking 
more recently to the Automotive Press Association, Steven 
Rattner, former head of the Presidential Task Force on the Auto 
Industry, estimated Treasury's loss exposure on the entire 
automotive rescue at less than $10 billion.\173\ While it is 
not clear precisely how much Treasury expects to lose on its GM 
investment specifically, its aggregate projections suggest that 
it envisions at least some losses on GM.\174\
---------------------------------------------------------------------------
    \172\ U.S. Department of the Treasury, Office of Financial 
Stability Agency Financial Report: Fiscal Year 2010, at 11 (Nov. 15, 
2010) (online at www.financialstability.gov/docs/
2010%20OFS%20AFR%20Nov%2015.pdf) (hereinafter ``OFS Agency Financial 
Report'').
    \173\ See Christine Tierney, David Shepardson, and Christina 
Rogers, Rattner Predicts `Huge Success' for GM IPO, The Detroit News 
(Nov. 16, 2010) (online at detnews.com/article/20101116/AUTO01/
11160370/Rattner-predicts-%E2%80%98huge-success%E2%80%99-for-GM-IPO).
    \174\ Treasury maintains that it does not expect that the IPO will 
change the loss rate on the AIFP because Treasury had carried GM at 
book value on its books. Treasury conversations with Panel staff (Nov. 
22, 2010).
---------------------------------------------------------------------------
    Pricing the GM IPO far below the break-even price may have 
had the effect of greatly reducing the likelihood that 
taxpayers will be fully repaid, as full repayment will not be 
possible unless the government is able to sell its remaining 
shares at a far higher price. However, it is impossible to know 
if a longer-term investment horizon by the government (via an 
IPO at a later date) would have allowed Treasury to sell its 
shares at a more favorable price, closer to its break-even cost 
basis. Prior to the IPO, Treasury needed to sell each of its 
shares for an aggregate price of $44.59 in order to break 
even.\175\ After the initial public offering and the exercising 
of the over-allotment option by the underwriters, Treasury will 
need to sell its remaining stake--500,065,254 shares--for an 
average of $52.75 in order to recoup fully its investment.\176\ 
If one subtracts out the value of GM's various dividend and 
interest payments to Treasury, the break-even share price rises 
to $54.28.
---------------------------------------------------------------------------
    \175\ Panel staff estimates are derived from the amount of debt 
converted to equity divided by the common shares given to Treasury.
    \176\ Panel staff estimates. The break-even price includes 
underwriting commissions and discounts paid in order to sell Treasury's 
common shares in the initial public offering (IPO) of GM in November. 
The break-even price also includes dividend and interest payments on 
the debt and preferred stock portion of Treasury's investment, payments 
received from Motors Liquidation Company, GM Supplier program, and the 
premium paid to redeem its Series A preferred stock.
---------------------------------------------------------------------------
    However, the Panel recognizes that it is impossible to time 
the market, and that delaying the IPO would have exposed 
Treasury to the risk that the price that buyers were willing to 
pay for GM stock would fall. Moreover, as detailed in Section 
H.1, retaining the stock for a long period could have 
conflicted with the government's stated objective of disposing 
of its shares ``as soon as practicable.'' There was also the 
possibility that a delay would have resulted in uncertainty in 
the market, as Treasury was concerned about how Old GM 
bondholders--who received 10 percent of the stock in New GM--
would exercise their rights in the wake of the 
restructuring.\177\ Aside from a delay, Treasury had two 
additional alternatives: to sell a smaller percentage of its 
holdings in an IPO and a larger portion in subsequent secondary 
offerings, or to use the IPO to dispose of as many shares as 
possible, no matter the price.
---------------------------------------------------------------------------
    \177\ Treasury conversations with Panel staff (Nov. 22, 2010).
---------------------------------------------------------------------------
    While it is difficult to ascertain whether the government 
could have been more flexible in its timing, or whether a 
delayed timeline would have resulted in a higher return for 
taxpayers, the decision to sell a large number of shares below 
the break-even price decreased the chances that taxpayers will 
be repaid in full.\178\
---------------------------------------------------------------------------
    \178\ Estimating the likelihood and size of losses may be 
complicated by GM's reporting practices. In its recent regulatory 
filings, the company disclosed that internal controls relating to its 
financial reporting may present a risk going forward. It stated that 
``[w]e have determined that our disclosure controls and procedures and 
our internal control over financial reporting are currently not 
effective. The lack of effective internal controls could materially 
adversely affect our financial condition and ability to carry out our 
business plan.'' GM Form 424B1: Final Common Prospectus, supra note 96, 
at 30. Treasury maintains that it is comfortable with the sufficiency 
of the company's reporting, that investors did not raise concerns about 
this issue during the roadshow, and that the company's board and 
management are devoting time and energy to addressing the issue. 
Treasury conversations with Panel staff (Nov. 22, 2010).
---------------------------------------------------------------------------

                              E. Chrysler


1. Context

            a. Background and the Government Intervention
    Chrysler, long the smallest of the ``Big Three'' U.S. 
automakers, first faced bankruptcy and turned to the U.S. 
government for help in the late 1970s. At that time, Chrysler 
petitioned for and received $1.5 billion in federal government 
loan guarantees. The loans were then repaid in 1983, ahead of 
schedule. In 1984, Chrysler introduced the minivan, which has 
remained a major source of sales for the company ever since. In 
1987, Chrysler bought American Motors Corporation (AMC), 
including the Jeep brand, another important contributor to the 
company's sales.\179\ In 1997, following several years of 
strong performance, Chrysler was acquired by Daimler-Benz of 
Germany for $37 billion, in what was the largest foreign 
takeover of a U.S. firm to that date. In 2007, after several 
years of losses, Daimler effectively paid for Cerberus Capital, 
a U.S. private equity fund, to assume control of Chrysler, in 
an 80-20 partnership.
---------------------------------------------------------------------------
    \179\ Chrysler Group LLC, Chrysler Historical Timeline (online at 
www.media.chrysler.com/newsrelease.do?id=2210&mid=) (accessed Jan. 11, 
2011).
---------------------------------------------------------------------------
    Following several years of losses, Chrysler faced imminent 
bankruptcy in late 2008, having lost $5.3 billion in the first 
three quarters of that year alone.\180\ Chrysler's losses were 
due to its poor sales performance and high fixed costs. In 
December 2008, the Bush Administration announced that it would 
use the TARP to assist Chrysler.\181\ On January 2, 2009, 
Treasury loaned $4 billion to Chrysler Holdings, the parent of 
Old Chrysler,\182\ as a temporary measure, while Chrysler 
prepared a longer-term viability plan. The viability plan 
prepared by Chrysler was rejected by President Obama's Auto 
Task Force on March 30, 2009, which concluded that Chrysler 
required a partner to achieve long-term viability.\183\ Fiat, 
the Italian automobile manufacturer, was selected to take 
management control of Chrysler.\184\ As detailed further below, 
in order to entice Fiat to take control of Chrysler's 
management, Fiat was offered a path to majority ownership of 
the company through various agreements signed as part of the 
restructuring. Consequently, Fiat is very much in control of 
how Chrysler's continued viability and valuation will evolve.
---------------------------------------------------------------------------
    \180\ Data provided by Chrysler (Jan. 11, 2011).
    \181\ See Section B for a description of the initial decision to 
support the automakers.
    \182\ Old Chrysler is used to refer to the automaker before June 
10, 2009. The assets that did not carry over to New Chrysler, including 
the Chrysler name, remained in a company now known as Old Carco.
    \183\ The White House, Determination of Viability Summary: 
Chrysler, LLC (Mar. 30, 2009) (online at www.whitehouse.gov/assets/
documents/Chrysler_Viability_Assessment.pdf).
    \184\ The White House, Obama Administration New Path to Viability 
for GM & Chrysler (Mar. 30, 2009) (online at www.whitehouse.gov/assets/
documents/Fact_Sheet_GM_Chrysler.pdf).
---------------------------------------------------------------------------
    As part of Chrysler's pre-planned bankruptcy, Treasury 
provided financing that ultimately reached $3.8 billion, of 
which $1.9 billion was disbursed.\185\ To capitalize New 
Chrysler, which came into existence on June 10, 2009, Treasury 
provided an additional loan facility of $6.6 billion repayable 
in two tranches under the First Lien Credit Agreement.\186\ In 
addition, New Chrysler assumed $500 million of the $4 billion 
loaned to Chrysler Holdings, bringing the total face value of 
the Treasury loan exposure to New Chrysler to $7.1 billion. 
Treasury has effectively written off $3.5 billion associated 
with its Chrysler investment. This total includes the $1.6 
billion portion of the loan to Chrysler Holdings that was not 
assumed by New Chrysler due to bankruptcy law and financial 
reasons, as well as the entirety of the $1.9 billion in DIP 
financing.\187\ Treasury received a 9.8 percent equity stake in 
New Chrysler pursuant to the restructuring agreements.\188\
---------------------------------------------------------------------------
    \185\ Treasury Transactions Report, supra note 24. On April 29, 
2009, an additional $280,130,642 was lent to Chrysler Holdings to 
support a Special Purpose Vehicle (SPV) for Chrysler's warranties.
    \186\ Treasury Transactions Report, supra note 24; Chrysler Group 
LLC, Consolidated Financial Statements as of December 31, 2009 and for 
the Period from June 10, 2009 to December 31, 2009, at 20 (Apr. 21, 
2010) (online at www.chryslergroupllc.com/pdf/news/
2009_q4_year_end.pdf). Two billion dollars is due on December 10, 2011 
and pays an interest rate of the London Interbank Offered Rate (LIBOR) 
plus 5 percent; this is referred to as the Tranche B loan. Of the 
remaining $4.6 billion, half is due on June 10, 2016 and the remainder 
on June 10, 2017. This remainder pays an interest rate of LIBOR plus 
7.91 percent, and is referred to as the Tranche C Commitments.
    \187\ U.S. Department of the Treasury, First Lien Credit Agreement 
Between Chrysler Group LLC and the U.S. Department of the Treasury 
(June 10, 2009) (online at www.financialstability.gov/docs/AIFP/
New%20Chrysler%20through%20Fourth%20Amendment.pdf); Treasury 
conversations with Panel staff (Dec. 22, 2010); Treasury Transactions 
Report, supra note 24.
    \188\ U.S. Department of the Treasury, Amended and Restated Limited 
Liability Company Operating Agreement of Chrysler Group LLC, at 86 
(June 10, 2009) (online at www.financialstability.gov/docs/AIFP/
Binder1%20-
%20Chrysler%20redacted%20corporate%20docs%20as%20posted%2012-09.pdf) 
(hereinafter ``Chrysler LLC Operating Agreement'').
---------------------------------------------------------------------------
    As with its other AIFP investments, Treasury's current 
primary focus with respect to Chrysler is to recover the TARP 
funds it has provided to that firm. However, the manner in 
which the investment was structured limits Treasury's ability 
to control the course of events at Chrysler. In addition to 
Fiat and Treasury, there are two other participants in the 
Chrysler restructuring: the UAW's VEBA and the Canadian 
government. These actors have their own sets of interests and 
incentives, which adds an additional layer of complexity to the 
transaction and may further constrain Treasury's ability to 
exercise its rights fully. Moreover, as detailed below, the 
complex and interrelated contractual arrangements involving the 
various parties make it difficult to assess the level of 
recovery for the taxpayers under various possible future 
scenarios, including a potential Chrysler IPO.
    The government is likely to recover the TARP loans provided 
to Chrysler directly,\189\ but any additional recovery will 
depend on when and under what conditions Treasury will be able 
to sell its equity stake. This section examines the structure 
of the government's investment in Chrysler, as well as the most 
likely potential exit scenarios and their consequences.
---------------------------------------------------------------------------
    \189\ See Section E.3 for a detailed discussion.
---------------------------------------------------------------------------
    For a table summarizing the monies paid to the various 
Chrysler entities over time, see Figure 9 below.

                                                         FIGURE 9: TARP INVESTMENTS IN CHRYSLER
                                                               [Millions of dollars] \190\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                         Original                                                                                  Cumulative
 Original  Investment   Assistance     Original  Investment            Exchange             Current  Investment    Investment    Amount    Amount  Lost
         Date             Amount               Type                                                Type              Amount      Repaid
--------------------------------------------------------------------------------------------------------------------------------------------------------
1/2/2009..............      $4,000  Debt Obligation w/         $500 million assumed by   Loan....................      $3,500     $1,900        $(1,600)
                                     Additional Note.           New Chrysler on 5/27/09.
4/29/2009.............         280  Debt Obligation w/         ........................  Loan....................         280        280
                                     Additional Note.
5/1/2009..............       1,888  Debt Obligation w/         ........................  Loan....................       1,888  .........   \191\ (1,888)
                                     Additional Note.
5/27/2009.............       6,642  Debt Obligation w/         $500 million assumed by   Loan....................  \192\ 7,14
                                     Additional Note.           New Chrysler on 5/27/09.                                    2
                       ---------------------------------------------------------------------------------------------------------------------------------
Total.................     $12,810  .........................  ........................  ........................     $12,810     $2,180        $(3,488)
--------------------------------------------------------------------------------------------------------------------------------------------------------
\190\ Treasury Transactions Report, supra note 24.
\191\ While Treasury does not account for this loan as a loss due to potential recoveries in the future, it has stated that it does not expect material
  returns. As of December 30, 2010, $48.1 million has been recovered from asset sales associated with this loan. Treasury Transactions Report, supra
  note 24.
\192\ As of September 30, 2010, $4.6 billion of this total has been drawn down and is outstanding. Chrysler Group LLC, Unaudited Interim Condensed
  Consolidated Financial Statements as of September 30, 2010 and for the Three and Nine Months Ended September 30, 2010, at 15 (Nov. 8, 2010) (online at
  www.chryslergroupllc.com/pdf/business/q3_2010_financial_statements.pdf) (hereinafter ``Chrysler Consolidated Financial Statements'').

  [GRAPHIC] [TIFF OMITTED] T3381.007
  
            b. Current Ownership Structure and Possible Changes
    Chrysler is currently owned by four parties: Treasury, the 
Canadian Government, the UAW's VEBA, and Fiat. Each of these 
parties contributed funds or resources to New Chrysler and 
received equity and/or debt claims on Chrysler in exchange for 
its contribution. Furthermore, several agreements between these 
four parties give specific parties the right to increase their 
equity stakes in Chrysler. In particular, Fiat has a variety of 
options to achieve majority ownership of the company.
    Fiat owns a 20 percent equity stake, along with management 
control of Chrysler, which it received in exchange for Chrysler 
gaining access to various Fiat technologies and Fiat's 
international distribution networks.\194\ Fiat did not make any 
cash contribution in exchange for this equity stake in 
Chrysler. The Canadian government invested in New Chrysler, 
through a $2.2 billion loan,\195\ and received 2.5 percent of 
the equity.\196\ Also as part of the restructuring, the UAW's 
VEBA took a note with a face value of $4.7 billion,\197\ and 
67.7 percent of the equity in New Chrysler,\198\ in exchange 
for various concessions on wages and benefits,\199\ and the 
assumption of responsibility for health care costs for retired 
UAW Chrysler workers. This initially left Treasury with the 
remaining 9.8 percent of equity.\200\
---------------------------------------------------------------------------
    \194\ This discussion does not reflect the impact of the January 
10, 2011 announcement that Chrysler has met one of three incentive 
goals and thereby Fiat has increased its equity ownership position from 
20 to 25 percent. Chrysler Group LLC, Chrysler Group LLC Meets First of 
Three Performance Events; Fiat Increases Ownership to 25 percent (Jan. 
10, 2011) (online at www.media.chrysler.com/
newsrelease.do?id=10453&mid=2) (hereinafter ``Chrysler Meets First of 
Three Performance Events'').
    \195\ U.S. Department of the Treasury, Obama Administration Auto 
Restructuring Initiative (Apr. 30, 2009) (online at 
www.financialstability.gov/latest/tg_043009.html). For every three U.S. 
dollars that Treasury loaned Chrysler, the Canadian government loaned 
one Canadian dollar to the company. The U.S. dollar amount of the 
Canadian government loan has fluctuated over time with changes in the 
exchange rate between the U.S. and Canadian dollars.
    \196\ Chrysler LLC Operating Agreement, supra note 188, at 86.
    \197\ Chrysler Consolidated Financial Statements, supra note 192, 
at 11.
    \198\ Chrysler LLC Operating Agreement, supra note 188, at 86.
    \199\ The White House, Obama Administration Auto Restructuring 
Initiative (Apr. 30, 2009) (online at www.whitehouse.gov/the-press-
office/obama-administration-auto-restructuring-initiative) (hereinafter 
``Obama Administration Auto Restructuring Initiative'').
    \200\ Chrysler LLC Operating Agreement, supra note 188, at 86.
---------------------------------------------------------------------------
    The four equity owners of Chrysler are all party to the 
Amended and Restated Limited Liability Company Operating 
Agreement of Chrysler Group LLC (Operating Agreement), which 
governs how Chrysler is currently being strategically 
managed.\201\ This agreement, signed on June 10, 2009,\202\ 
contains numerous clauses that can lead to a change in 
Chrysler's ownership structure. Several clauses give Fiat 
certain rights to increase its equity, while others grant 
certain rights to the other parties, including Treasury. These 
agreements work with each other, and actions by one party in 
some cases are necessary to trigger the right of other parties 
to exercise their respective options. Going forward, much will 
depend on whether and when a Chrysler IPO occurs.
---------------------------------------------------------------------------
    \201\ Chrysler LLC Operating Agreement, supra note 188, at 86.
    \202\ The Equity Subscription Agreement, The VEBA Call Option 
Agreement, The UST Call Option Agreement, The Equity Recapture 
Agreement, The Master Transaction Agreement, and The First Lien Credit 
Agreement were also signed on June 10, 2009 and collectively determine 
the interests, rights, and obligations of all the parties under the 
various possible scenarios.
---------------------------------------------------------------------------
            i. Fiat's Options to Increase its Equity Share
    Fiat may increase its equity ownership in Chrysler in a 
number of ways. It is important to note, however, that Fiat may 
only acquire a controlling interest after Chrysler repays all 
TARP and Canadian government loans extended to it. First, the 
Operating Agreement provides that Fiat's equity stake will 
increase by 5 percent if and when each of the following 
performance targets \203\ is met:
---------------------------------------------------------------------------
    \203\ These performance targets are referred to as ``Class B 
Events.'' See Chrysler LLC Operating Agreement, supra note 188, at 
Section 3.4.
---------------------------------------------------------------------------
      Chrysler builds a 40 mile-per-gallon (MPG) car in 
the United States;
      Chrysler builds a next-generation engine in a 
U.S. factory, based on Fiat technology; \204\
---------------------------------------------------------------------------
    \204\ This discussion does not reflect the impact of the January 
10, 2011 announcement that Chrysler has met one of three incentive 
goals and thereby Fiat has increased its equity ownership position from 
20 to 25 percent. Chrysler Meets First of Three Performance Events, 
supra note 194.
---------------------------------------------------------------------------
      Fiat sells Chrysler vehicles through its 
international distribution network.\205\
---------------------------------------------------------------------------
    \205\ Obama Administration Auto Restructuring Initiative, supra 
note 199.
---------------------------------------------------------------------------
    If all three targets are met, then Fiat's equity stake will 
increase by 15 percent, and it will own 35 percent of 
Chrysler's equity--without having to make any payments to the 
other equity holders. As Fiat's ownership share increases to 35 
percent, that of the other three owners will be diluted; the 
VEBA will then directly own 55 percent of the equity, Treasury 
8 percent, and the Canadian government 2 percent.\206\
---------------------------------------------------------------------------
    \206\ Chrysler LLC Operating Agreement, supra note 188, at 86.
---------------------------------------------------------------------------
    To date, the company has not met any of the targets that 
would trigger an increase in Fiat's equity stake of New 
Chrysler. However, it is generally expected that these targets 
will ultimately be reached.\207\
---------------------------------------------------------------------------
    \207\ This discussion does not reflect the impact of the January 
10, 2011 announcement that Chrysler has met this incentive goal and 
thereby Fiat has increased its equity ownership position from 20 to 25 
percent. Chrysler Meets First of Three Performance Events, supra note 
194.
    All analyst reports on Fiat reviewed in Section E.2.c., for 
example, assume Fiat's stake to be at least 35 percent. Chrysler has 
indicated that it believed the three targets would be reached. Chrysler 
Group LLC conversations with Panel staff (Dec. 8, 2010).
---------------------------------------------------------------------------
    In addition to meeting these performance targets, Fiat has 
other avenues to increase its equity ownership, providing the 
opportunity to gain majority control of Chrysler. The following 
options are available to Fiat:
      Fiat has the right to increase its equity stake 
by up to 16 percent, under certain conditions, diluting the 
other three parties proportionally (the Incremental Equity Call 
Option).\208\ The exercise of this option may occur before, 
simultaneous to, or after a Chrysler IPO, provided that 
Chrysler has repaid the TARP and Canadian government loans. The 
price for this option is set at a market-based formulaic price 
prior to the IPO or a market price after the IPO.
---------------------------------------------------------------------------
    \208\ Chrysler LLC Operating Agreement, supra note 188, at Section 
3.5.
---------------------------------------------------------------------------
      Fiat also has a right to buy up to 40 percent of 
the VEBA's equity stake at a market-based formulaic price prior 
to the IPO or a market price after the IPO, subject to an 
adjustment for taxes (the VEBA Call Option).\209\
---------------------------------------------------------------------------
    \209\ VEBA Call Option Agreement (June 10, 2010). This option gives 
Fiat the right to buy up to 4.4 percent of Chrysler's diluted equity 
(assuming all Class B events have occurred) no more than once every six 
months, starting July 1, 2012 and running until either (1) June 30, 
2016, (2) 22 percent of the equity has been so purchased, or (3) the 
Treasury exercises its right to call the VEBA's equity under the Equity 
Recapture Agreement.
---------------------------------------------------------------------------
      Fiat has a right to buy any and all equity 
interest that Treasury may have in Chrysler (the Treasury Call 
Option).\210\ This option may be exercised by Fiat during the 
12-month period following the repayment in full of all TARP 
loans at an exercise price equal to a market price in the event 
that a Chrysler IPO takes place, or using a ``dueling 
investment banks'' method to determine the price 
otherwise.\211\ Even though this agreement makes use of market 
prices in the event an IPO has happened, it nevertheless gives 
Fiat certain control over when Treasury could sell any 
remaining equity it might have. This could conflict with 
Treasury's ability to maximize its return from the investment, 
because Fiat controls the timing of the event.
---------------------------------------------------------------------------
    \210\ U.S. Department of the Treasury, UST Call Option Agreement 
Regarding Equity Securities of New Carco Acquisition LLC, at 183 (June 
10, 2009) (online at www.financialstability.gov/docs/AIFP/
Chrysler%20LLC%20Corporate%20as%20of%2012-01-10.pdf).
    \211\ Id. at 183. The ``dueling investment banks'' method is as 
follows: both the buyer and seller select an investment bank to value 
the claim. If the two valuations are within 10 percent of each other, 
then the average is taken as the sale price. If the two estimates 
differ by more than 10 percent, then a third investment bank is 
appointed and the average of the closest two valuations is used as the 
sale price.
---------------------------------------------------------------------------
            ii. Treasury's Rights
    The various options and rights granted to some of the 
parties in other agreements, beyond those mentioned above, mean 
that the current equity ownership percentages do not 
necessarily reflect the true economic interests of the various 
entities. One such agreement is the Equity Recapture Agreement, 
signed between Treasury and the UAW's VEBA on June 10, 2009. 
This agreement entitles Treasury to all proceeds from the sale 
of any of the VEBA's equity stake in Chrysler above a threshold 
amount, set at $4.25 billion and growing from January 1, 2010 
at 9 percent per year (Threshold Amount).\212\ The agreement 
also gives Treasury the right to acquire the entirety of the 
VEBA's equity stake for the then-applicable Threshold 
Amount.\213\ This means that if the equity valuation of 
Chrysler exceeds a certain level, then Treasury and not the 
VEBA would be the majority economic beneficiary of such an 
increase in valuation.\214\ As a practical matter, with the 
expiration of the TARP, Treasury does not currently have funds 
available to exercise its call option absent further 
congressional action to appropriate resources to Treasury's 
Auto Industry Financing Program.\215\ As described above, 
Treasury will still passively benefit from any sales by the 
VEBA of its equity above the Threshold Amount, but in this case 
the VEBA will control the timing and volume of any sales. 
Hence, the expiration of the TARP may effectively preclude 
Treasury from following a more aggressive course of action to 
maximize the taxpayer's return on their investment in Chrysler. 
A private investor would likely choose the more aggressive path 
to maximizing profits. However, as described further below, 
Treasury, as a government entity, is not merely an investor and 
has a number of competing policy priorities to take into 
consideration.\216\
---------------------------------------------------------------------------
    \212\ U.S. Department of the Treasury, Equity Recapture Agreement, 
at 161 (June 10, 2009) (online at www.financialstability.gov/docs/AIFP/
Chrysler%20LLC%20Corporate%20as%20of%2012-01-10.pdf) (hereinafter 
``Equity Recapture Agreement''). The Equity Recapture Agreement also 
gives Treasury the right to receive payments in 2014, 2016, and 2018 
from the VEBA based on the value of the option, if the Threshold Amount 
has not yet been reached at those dates.
    \213\ Under the terms of the agreement, Treasury can buy the asset, 
the VEBA's equity in Chrysler, at any time for the Threshold Amount, 
less any cash already received by the VEBA for Chrysler equity sold. 
However, an agreement between Treasury and the Canada Development 
Investment Corporation (CDIC) requires that 20 percent of any receipts 
to Treasury under the Equity Recapture Agreement be transferred to the 
CDIC. U.S. Department of the Treasury, April 30, 2009 Letter Agreement, 
at 178 (June 10, 2009) (online at www.financialstability.gov/docs/AIFP/
Chrysler%20LLC%20Corporate%20as%20of%2012-01-10.pdf).
    \214\ For example, if the equity valuation of Chrysler reaches a 
required multiple of the Threshold Amount (approximately $10 billion on 
January 1, 2012), then Treasury would be entitled to the benefit of 52 
cents for each subsequent dollar increase in Chrysler's valuation. In 
other words, should Chrysler succeed and be valued at such a level, or 
higher, Treasury would be the marginal beneficiary of 80 percent of the 
VEBA's 55 percent equity interest (with CDIC owning 20 percent of this 
interest), which would bring Treasury's total economic interest in 
Chrysler to 52 percent, a majority.
    \215\ U.S. Department of the Treasury, Troubled Asset Relief 
Program--Two year Retrospective (Oct. 2010) (online at 
www.financialstability.gov/docs/
TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf)
 (``October 3, 2010 marked the second anniversary of the Emergency 
Economic Stabilization Act that created the Troubled Asset Relief 
Program (TARP) and the end of the authority to make new financial 
commitments'').
    \216\ See analysis in Section E.
---------------------------------------------------------------------------
    The accompanying box shows the various claims on Chrysler 
and among the four parties at the present time. It also 
illustrates how Fiat and the other stakeholders are likely to 
exercise the options they hold going forward over the next two 
years.

[GRAPHIC] [TIFF OMITTED] T3381.008

[GRAPHIC] [TIFF OMITTED] T3381.009

2. Outlook

            a. Company Business Plan
    Chrysler has changed numerous aspects of its business as 
part of its emergence from bankruptcy and its new relationship 
with Fiat. It has restructured its brands, reduced its U.S. 
dealership network, introduced new models, improved its U.S. 
market share, reduced its capacity, and negotiated lower labor 
costs.\217\ Following initial cutbacks, Chrysler has recently 
begun to add employees. All of these actions, together, have 
returned Chrysler to operational profitability, although it 
continues to report net losses stemming from the interest 
expense on the TARP loans.\218\
---------------------------------------------------------------------------
    \217\ For exact figures, see Section E.
    \218\ Chrysler Consolidated Financial Statements, supra note 192, 
at 2.
---------------------------------------------------------------------------
    On November 4, 2009, Chrysler unveiled its five-year 
business plan.\219\ Chrysler stated that it plans to have four 
brands--Dodge, Ram Trucks, Jeep, and Chrysler--but to have them 
sold through unified dealerships. Ram had been a sub-brand of 
Dodge for nearly 30 years. Unlike GM, Chrysler has not closed 
any of its pre-bankruptcy brands, although Chrysler had only 
three brands pre-bankruptcy, compared to eight at GM.
---------------------------------------------------------------------------
    \219\ Chrysler Group LLC, Our Plan Presentation (Nov. 4, 2009) 
(online at www.chryslergroupllc.com/business/) (hereinafter ``Chrysler 
Plan Presentation'').
---------------------------------------------------------------------------
    Like GM, Chrysler has reduced its number of dealers in the 
United States. The logic is that with fewer dealers, the 
remaining dealers will sell more vehicles, reach a higher level 
of profitability, and so be able to afford a greater level of 
investment in their dealerships. This investment, which 
Chrysler is pushing under the name ``Project Genesis,'' aims to 
create more customer-friendly showrooms.\220\
---------------------------------------------------------------------------
    \220\ Chrysler Group LLC, Our Plan Presentation: Presentation 9--
U.S. Network Development (Nov. 4, 2009) (online at 
www.chryslergroupllc.com/pdf/business/us_network_development.pdf).
---------------------------------------------------------------------------
    Chrysler has introduced several new models since emerging 
from bankruptcy on June 10, 2009. The most significant from a 
revenue perspective has been the new Jeep Grand Cherokee 
introduced in May 2010.\221\ This model has sold 66 thousand 
units to date.\222\ Discussions have begun to use the same 
underlying platform to produce a luxury SUV under Fiat's 
Maserati brand.\223\ Chrysler is also preparing to launch the 
Chrysler 200, which will replace the Chrysler Sebring. The Ram 
truck brand has had some critical success, notably winning 
Texas Truck of the Year,\224\ but its sales performance has 
failed to match that of the GM and Ford pickup lines in 
2010.\225\ Overall truck sales for Chrysler are up 13 percent 
for the first 11 months of 2010 as compared to the same period 
in 2009. Equivalent sales, however, have increased 17 percent 
at GM and 22 percent at Ford for the same period.\226\ 
Chrysler's minivan segment saw a revamped model introduced for 
model year 2011.
---------------------------------------------------------------------------
    \221\ Chrysler Group LLC, Chrysler Group LLC Celebrates Production 
Launch of All-new 2011 Jeep Grand Cherokee at Detroit Plant; Announces 
Second Shift (May 21, 2010) (online at www.chryslergroupllc.com/news/
archive/2010/05/21/chrysler_celebrates_prod_launch_2011jgc_05212010).
    \222\ Data provided by Chrysler for full year 2010 worldwide sales 
(Jan. 10, 2011).
    \223\ Chrysler Plan Presentation, supra note 219.
    \224\ Chrysler Group LLC, Ram, Jeep Bring Home High Honors at Texas 
Truck Rodeo (Oct. 24, 2010) (online at blog.chryslergroupllc.com/
blog.do?id=1215&p=entry).
    \225\ UBS Investment Research, Retail & Fleet Registrations Q3 
2010, at 15 (Dec. 16, 2010).
    \226\ Automotive News, Data Center (Instrument: U.S. light-vehicle 
sales by nameplate, Nov. & YTD) (Dec. 1, 2010) (hereinafter 
``Automotive News Data Center'').
---------------------------------------------------------------------------
    Figure 11 below shows the evolution over the last eight 
years of Chrysler's sales in the United States, by far its 
largest market. The importance to Chrysler of the light truck 
segment, which includes the minivan, pickup, and SUVs, is 
clear, as this segment has consistently been responsible for 
the majority of Chrysler's sales in the United States. 
Chrysler's market share has seen a slight uptick in 2010 year-
to-date versus 2009, which has been driven by its performance 
in the car market.\227\ Additionally, Chrysler's average 
transaction price has increased $1,900 since March 2009.\228\
---------------------------------------------------------------------------
    \227\ Id. As of November, 2010, Chrysler's U.S. car market share 
was 5.1 percent, up from 4.3 percent in 2009. On the other hand, 
Chrysler's U.S. truck market share actually declined from 14.4 percent 
in 2009 to 14.1 percent as of November 2010.
    \228\ As of June 2010, the average transaction price was $27,300. 
Data provided by Chrysler (Jan. 10, 2011).
---------------------------------------------------------------------------

  FIGURE 11: CHRYSLER U.S. VEHICLE SALES BY SEGMENT, 2003 TO PRESENT 
                                 \229\

      
---------------------------------------------------------------------------
    \229\ The 2010 data includes information through November 2010. 
Automotive News Data Center, supra note 226.

[GRAPHIC] [TIFF OMITTED] T3381.010


    Operationally, Chrysler now has one fewer plant than it did 
prior to bankruptcy, but it should be noted that this reflects 
both the closure of four major plants offset by Chrysler's 
purchase of a bankrupt supplier's three factories.\230\ This 
capacity reduction, together with contractual changes that have 
reduced labor costs, has lowered the volume at which Chrysler 
breaks even to 1.65 million units.\231\
---------------------------------------------------------------------------
    \230\ Data provided by Chrysler (Jan. 10, 2011).
    \231\ Chrysler Group LLC, Our Plan Presentation: Presentation 16--
Financial Review (Nov. 4, 2009) (online at www.chryslergroupllc.com/
pdf/business/financial_review.pdf) (hereinafter ``Chrysler Plan 
Presentation: Presentation 16--Financial Review'').
---------------------------------------------------------------------------
    Fiat has also begun its efforts to re-enter the U.S. 
market. On November 17, 2010, Chrysler announced 130 
dealerships that have been selected to sell Fiat vehicles.\232\ 
These dealerships will be distinct from the dealerships that 
sell the Chrysler family of vehicles, although some Fiat 
dealerships were sold to existing Chrysler dealers. Chrysler 
began building the Fiat 500, also known as the Cinquecento, in 
the fourth quarter of 2010, and will start selling the vehicles 
in North America in 2011.
---------------------------------------------------------------------------
    \232\ Chrysler Group LLC, Chrysler Group LLC Selects Dealers to 
Represent Fiat Brand in the U.S. (Nov. 17, 2010) (online at 
www.media.chrysler.com/newsrelease.do?id=10325&mid=2).
---------------------------------------------------------------------------
    Since emerging from bankruptcy, Chrysler's financial 
performance has been burdened by the significant and costly 
debt it still carries, much of it related to the TARP.\233\ 
Figure 12 below shows several key financial and operational 
metrics for Chrysler and how they have evolved before and after 
bankruptcy.
---------------------------------------------------------------------------
    \233\ Chrysler's TARP loans have a weighted, based on carrying 
value, average effective interest rate of 9.36 percent. Chrysler 
Consolidated Financial Statements, supra note 192, at 12.

                FIGURE 12: CHRYSLER FINANCIAL AND OPERATIONAL RESULTS, MID-2007 TO Q3 2010 \234\
----------------------------------------------------------------------------------------------------------------
                                           Vehicles                                 Net        Cash    Employees
                                Vehicles    Sold,     Revenue   Modified EBITDA    Income      Flow    at end of
            Period                Sold       U.S.       (USD          (USD          (USD       (USD      Period
                                 (000s)     (000s)   millions)  millions) \235\  millions)  millions)    (000s)
----------------------------------------------------------------------------------------------------------------
8/4/07 to 12/31/07...........      1,081        828     26,561  ...............      (639)  .........         76
2008.........................      2,007      1,453     48,477  ...............   (16,844)  .........         56
1/1/09-6/30/09 \236\.........        656        471     11,082  ...............    (4,425)  .........         50
Q4 2009......................        318        216      9,434            398      (2,691)  .........         48
Q1 2010......................        334        235      9,687            787        (197)      1,498         50
Q2 2010......................        407        292     10,478            855        (172)        481         52
Q3 2010......................        401        293     11,018            937         (84)        419         52
----------------------------------------------------------------------------------------------------------------
\234\ Data provided by Chrysler (Jan. 11, 2011).
\235\ Chrysler Group LLC, Q3 2010 Results Review, at 4 (Nov. 8, 2010) (online at www.chryslergroupllc.com/ pdf/
  business/q3_2010_webcast_presentation.pdf).
\236\ The following metrics for this time period are as of June 9, 2009: vehicles sold, revenue, and net income
  data. Data provided by Chrysler (Jan. 11, 2011).

            b. Government Exit Strategy
    Treasury currently has both debt and equity claims on 
Chrysler. Treasury's total outstanding debt claims on New 
Chrysler, including additional notes and payment-in-kind 
interest considerations, have a total face value of $5.8 
billion.\237\ Furthermore, Chrysler still retains the right to 
draw up to an additional $2.1 billion in funding pursuant to 
the original loan agreement.\238\ These loans are due to be 
paid back in tranches, with the last tranche due in 2017.\239\ 
Given Chrysler's efforts to refinance its TARP loans,\240\ its 
stated desire to repay the TARP loans by 2014,\241\ its pending 
application for loans from Department of Energy's Advanced 
Technology Vehicles Manufacturing Loan Program (ATVM),\242\ and 
the continued positive cash flow from the automotive 
business,\243\ it is likely that all the loans extended to 
Chrysler under the TARP will be repaid, possibly in advance of 
the contractual due dates. Therefore, most of the uncertainty 
regarding Treasury's financial return on the Chrysler 
intervention stems from the unpredictability of Treasury's 
ultimate recovery from its equity stake.
---------------------------------------------------------------------------
    \237\ Chrysler Consolidated Financial Statements, supra note 192, 
at 12.
    \238\ Chrysler Consolidated Financial Statements, supra note 192, 
at 15. In addition to the $500 million in debt New Chrysler assumed 
from Old Chrysler, the company has drawn $4.6 billion of the $6.6 
billion made available to the company on May 27, 2009, leaving $2.1 
billion available for the company to draw down.
    \239\ Chrysler Consolidated Financial Statements, supra note 192, 
at 12.
    \240\ Chrysler Plan Presentation, supra note 219.
    \241\ Chrysler Plan Presentation: Presentation 16--Financial 
Review, supra note 231.
    \242\ See footnote 259, infra, for a discussion of the ATVM loan 
program and Chrysler's application for funds from the program.
    \243\ Chrysler Consolidated Financial Statements, supra note 192, 
at 4.
---------------------------------------------------------------------------
    Plans for the sale of Treasury's equity stake have not been 
formally divulged. Chrysler is currently a privately held 
company with no publicly traded equity against which to value 
Treasury's equity stake.\244\ Sergio Marchionne, the CEO of 
Chrysler and Fiat, has publicly stated that he expects to take 
Chrysler public via an IPO sometime in 2011. How much, if any, 
of Treasury's stake could be sold at that point is unclear. The 
eventual monies received by Treasury for its investments in 
Chrysler will depend on Chrysler's financial and operational 
performance, if and when Chrysler's equity becomes publicly 
traded and, to a large degree, the actions of Fiat and the 
VEBA. If Chrysler's equity does not immediately become publicly 
traded after the TARP loans get repaid, then the return on 
investment will depend to an even bigger extent on the actions 
of Fiat and could be lower as a result.\245\ In his most recent 
comments, the Fiat CEO has indicated that he considers it 
possible that Fiat will go over the 50 percent ownership mark 
in 2011.\246\
---------------------------------------------------------------------------
    \244\ As of December 30, 2010, Treasury held 9.8 percent of the 
equity in Chrysler, but this will be diluted to 8 percent if and when 
Chrysler and Fiat meet the performance targets for Fiat's increased 
equity stake. Treasury also has an effective economic interest in 80 
percent of the VEBA's 55 percent equity stake, see Section E.1.b.ii for 
details.
    \245\ For analysis of Treasury's likely exit scenarios, see Section 
E.3, infra.
    \246\ Bloomberg Data Service, Fiat May Increase Chrysler Stake to 
51% Before IPO (Jan. 3, 2011) (hereinafter ``Bloomberg Data Service'') 
(``I think it is possible. I don't know whether it is likely, but it is 
possible that we'll go over the 50 percent mark if Chrysler decides to 
go to the markets in 2011,'' Sergio Marchionne, 58, told reporters at 
the Milan stock exchange today. ``It will be advantageous if that 
happens.'').
---------------------------------------------------------------------------
            c. Valuing Chrysler's Equity
    Determining an appropriate valuation for Chrysler's equity, 
in the absence of trading of its equity on a public exchange, 
is difficult and involves a large amount of subjective 
assessment. However, there are ways of estimating a value: (1) 
the Operating Agreement contains a pricing formula for several 
of Fiat's options to buy additional equity of Chrysler, and (2) 
equity research analysts who cover Fiat have estimated values 
for Fiat's stake in Chrysler. Under most of these valuations, 
Treasury's rights under the Equity Recapture Agreement have 
positive value.
    The Operating Agreement provides a valuation method to be 
used in the absence of public trading. The valuation is the 
product of the most recent four quarters' earnings and a 
market-assigned ``multiple,'' which relies on valuations of 
other comparable automobile manufacturers, and deducts the 
company's debt according to certain rules.\247\ Applying that 
valuation methodology to Chrysler's financial results for the 
third quarter of 2010 results in an estimate of Treasury's 
equity stake in Chrysler of $2.8 billion.\248\
---------------------------------------------------------------------------
    \247\ Chrysler LLC Operating Agreement, supra note 188 (see the 
Definitions Addendum).
    \248\ Calculations were done based on the formula in the Operating 
Agreement, using third quarter 2010 (Q3 2010) financial results for 
Chrysler and other automotive manufacturers, as subsequently described. 
The average EV/EBITDA T12M (Enterprise Value to Earnings Before 
Interest, Tax, Depreciation, and Amortization on a Trailing 12 Month 
basis) (the market ``multiple'') for all Reference Automotive 
Manufacturers is 7.96 through Q3 2010. Excluding the outliers, as per 
the Operating Agreement formula, lowers the figure to 6.84, which is 
still higher than the Fiat EV/EBITDA T12M Multiple of 4.68 as of the 
end of the third quarter of 2010. Bloomberg Financial Service.
    Chrysler's EBITDA in the 12 months prior to the end of the third 
quarter of 2010 were $2,977 million ($398 million + $787 million + $855 
million + $937 million). Chrysler Group LLC, Unaudited Interim 
Condensed Consolidated Financial Statements as of September 30, 2010 
and for the Three and Nine Months Ended September 30, 2010, at 15 (Nov. 
8, 2010) (online at www.chryslergroupllc.com/pdf/business/
q3_2010_financial_statements.pdf); Chrysler Group LLC, Chrysler Group 
LLC Reports Financial Results for the Period Ended March 31, 2010 (Apr. 
21, 2010) (online at www.chryslergroupllc.com/news/archive/2010/04/21/
2010_q1_press_release). Applying the 4.68 Fiat Multiple to Chrysler's 
EBITDA of $2,977 million yields an enterprise value of $13,932 million, 
less net debt of $3,766 million, which gives a total equity value for 
Chrysler of $10,166 million. The value to Treasury is the 9.8 percent 
of $10,166 million, or $1.0 billion for the direct equity, and 
approximately $1.8 billion for the proceeds to Treasury under the 
Equity Recapture Agreement.
---------------------------------------------------------------------------
    This result is very sensitive to the earnings period and 
the pool of comparable firms. In particular, earnings for the 
fourth quarter of 2009 were particularly bad for Chrysler.\249\ 
Further, the Operating Agreement provides that the multiple 
used for the valuation of Chrysler may not exceed Fiat's 
multiple,\250\ which is currently the lowest in the 
industry.\251\ This effectively limits the implied valuation of 
Chrysler. And according to analyst reports, certain plans 
announced by Fiat will further lower Fiat's--and in turn 
Chrysler's--multiple,\252\ for the purposes of assessing how 
much Fiat must pay to acquire additional equity in Chrysler 
using several of the options it has.
---------------------------------------------------------------------------
    \249\ Chrysler Group LLC, Chrysler Group LLC First Quarter (Q1) 
2010 Financial Results Analyst Webcast, at 2 (May 10, 2010) (online at 
www.chryslergroupllc.com/pdf/business/may10_presentation.pdf).
    \250\ Chrysler LLC Operating Agreement, supra note 188 (see the 
Definitions Addendum).
    \251\ Bloomberg Data Service.
    \252\ On April 21, 2010, Fiat announced its plans to ``demerge'' 
its industrial goods divisions from the automotive divisions. See 
Sergio Marchionne, Fiat Investor Day: The Five Year Plan (online at 
www.fiatgroup.com/en-us/mediacentre/press/Documents/2010/
THE%20FIVE%20YEAR%20PLAN%20-%20Adress%20from%20Sergio%20Marchionne.pdf) 
(accessed Jan. 11, 2011). Analysts predict this will further lower the 
overall multiple applied to Fiat. The Goldman Sachs Group, Inc., 
Breaking Up is Easy to Do; Reiterating Conviction Buy, at 32 (Sept. 24, 
2010) (hereinafter ``Goldman Sachs Paper on Fiat''). A lower multiple 
for Fiat would further limit the implied valuation of Chrysler under 
the Operating Agreement. Fiat's possible divestment of Ferrari would 
also lower the Fiat multiple. Barclays Capital, Fiat SPA--Crystallising 
Option Value--Move to 1-OW, at 8 (Dec. 7, 2010) (hereinafter ``Barclays 
Capital Paper on Fiat''). Treasury has not discussed this with any of 
the Operating Agreement parties, including Fiat. Treasury conversations 
with Panel staff (Nov. 28, 2010).
---------------------------------------------------------------------------
    Equity analysts who cover Chrysler provide another source 
of valuation estimates. Figure 13 below shows the values 
attributed to Fiat's stake in Chrysler in the most recent 
research notes published by four firms.

                             FIGURE 13: ANALYST EVALUATIONS OF CHRYSLER EQUITY VALUE
----------------------------------------------------------------------------------------------------------------
                                                                             Size of                  Valuation
                                                                              Fiat's     Valuation   of Chrysler
                   Firm                                  Date                 Equity     of Fiat's      Equity
                                                                              Stake     Stake  (USD      (USD
                                                                            (Percent)    millions)    millions)
----------------------------------------------------------------------------------------------------------------
Goldman Sachs \253\.......................  Sept. 24, 2010...............           35        2,857        8,162
Kepler \254\..............................  April 26, 2010...............           51        5,225       10,245
Credit Agricole \255\.....................  April 23, 2010...............           35        4,319       11,459
Deutsche Bank \256\.......................  April 22, 2010...............           35            0            0
----------------------------------------------------------------------------------------------------------------
\253\ Goldman Sachs Paper on Fiat, supra note 252, at 32. Figures converted from Euros to U.S. dollars using the
  U.S. Treasury's rate of exchange as of December 31, 2010. U.S. Department of the Treasury, Treasury Reporting
  Rates of Exchange (Instrument: Euro Zone--Euro) (accessed Jan. 11, 2011) (online at www.fms.treas.gov/
  intn.html#rates) (hereinafter ``Treasury Reporting Rates of Exchange'').
\254\ Kepler Research, Wishful Thinking, at 6 (Apr. 26, 2010).
\255\ Cheuvreux: Credit Agricole Group, A New Fiat in the Making, at 2 (Apr. 23, 2010) (online at
  www.borsaitaliana.it/bitApp/viewpdf.bit?location=/media/star/db/pdf/86353.pdf). Figures converted from Euros
  to U.S. dollars using the U.S. Treasury's rate of exchange as of December 31, 2010. Treasury Reporting Rates
  of Exchange, supra note 253.
\256\ Deutsche Bank, The Great Divide--Initial Thoughts, at 3 (Apr. 22, 2010) (online at www.borsaitaliana.it/
  media/star/db/pdf/88399.pdf).

    As for the debt owed by Chrysler, as part of the five-year 
business plan announced on November 4, 2009, Chrysler detailed 
its plan to repay its obligations to Treasury, as well as those 
owed to the Canadian government.\257\ Chrysler projected 
repaying all TARP loans by the end of 2014. This would be 
several years in advance of when the loans mature. Chrysler's 
desire to end its connection with the TARP ahead of time 
reflects its desire to achieve a cheaper source of financing 
going forward.\258\ However, the five-year business plan also 
projected that Chrysler would receive $3 billion in Department 
of Energy loans, $1 billion in each year from 2010 to 
2012.\259\
---------------------------------------------------------------------------
    \257\ Chrysler Plan Presentation: Presentation 16--Financial 
Review, supra note 231. Chrysler has reiterated this plan in 
conversations with Panel staff. Chrysler conversations with Panel staff 
(Dec. 10, 2010).
    \258\ Chrysler conversations with Panel staff (Dec. 10, 2010).
    \259\ The loans, under the Advanced Technology Vehicle 
Manufacturing (ATVM) program, charge an interest rate equivalent to 
Treasury's cost of funds, which is lower than interest on the TARP 
loans. See U.S. Department of Energy, Advanced Technology Vehicles 
Manufacturing Incentive Program, 73 Federal Register 66721 (Nov. 12, 
2008) (interim final rule). Based on the current difference between 
these interest rates, the cost savings to Chrysler, and the associated 
loss to Treasury, would be worth approximately $180 million per year. 
The ATVM loans have the potential to extend beyond 2017, the current 
date by which Chrysler must repay all of its obligations to the TARP.
---------------------------------------------------------------------------
    If Chrysler succeeds in meeting its five-year business 
plan, and with potential help from any Department of Energy 
loans extended to Chrysler, the TARP will have all the debt 
owed to it repaid by 2014, in advance of Chrysler's contractual 
obligations.\260\
---------------------------------------------------------------------------
    \260\ When Sergio Marchionne was asked about the use of ATVM funds 
on an analyst call he said: ``As you well know, cash is fungible. So to 
the extent that we produce cash from operations, cash can be used, not 
to be redeployed in the investment cycle, but to go back and repay 
existing indebtedness. So at the end of the day, we need to have those 
funds [ATVM loans] targeted for capital and engineering and development 
efforts, but in the scheme of things, they will all end up in the same 
pot and how we use that cash to repay who is really up to Chrysler.'' 
Chrysler Plan Presentation, supra note 219, at 61st minute. The Panel 
notes that if ATVM funds were used to repay TARP loans, this result 
would reflect policy choices made pursuant to the ATVM program and does 
not appear to violate either the terms of the ATVM program or the terms 
of EESA, even though it may raise concerns regarding Chrysler's 
financial health.
---------------------------------------------------------------------------

3. Analysis of the Government's Exit Strategy Based on Likely Repayment 
        Scenarios

    For a successful government exit to be carried out, all 
TARP loans would need to be repaid, and Treasury would need to 
divest its equity stake in Chrysler and recover sufficient 
value to compensate the taxpayer for the Chrysler-related 
losses of $3.5 billion. As noted earlier, much will depend on 
Treasury's ability to maximize its return from the sale of its 
equity stake and whether or not Chrysler has an IPO.
    Treasury currently has debt instruments outstanding to 
Chrysler with a total face value of $5.8 billion. Under the 
scenarios laid out above, Treasury is likely to recover the 
full amount of its outstanding TARP loans to Chrysler ahead of 
time whether or not an IPO occurs.\261\ In addition, Treasury 
has lost $3.5 billion on loans made to Old Chrysler. For 
Treasury to recover all the funds that it has invested in 
Chrysler, both Old and New, then all the loans have to be 
repaid, and Treasury's equity stake would have to yield at 
least $3.5 billion to make up for the losses to date. Based on 
just the 8 percent of Chrysler's equity that will be directly 
held by Treasury at the time of any potential sale, Chrysler 
would have to be valued at approximately $44 billion to cover 
the losses to date.\262\ This is roughly in line with the 
amount reported in the Panel's September 2009 report, which 
calculated the break-even valuation of Chrysler at $57.5 
billion.\263\ For comparison, when Chrysler was acquired by 
Daimler in 1998, it was valued at $37 billion, which adjusted 
for inflation would equate to $49 billion today.\264\ Prior to 
that acquisition, Chrysler had never been so highly 
valued.\265\
---------------------------------------------------------------------------
    \261\ See Section E.2.b, supra, for a discussion.
    \262\ This figure is derived as follows: ($3.5 billion (amount 
written off on Old Chrysler and Chrysler Holdings loans)/8 percent 
(Treasury's equity stake, assuming all three performance targets are 
met)). Consideration of the time value of money and/or the riskiness of 
the securities held by Treasury would push the break-even point higher.
    \263\ September 2009 Oversight Report, supra note 2, at 46. The 
difference is due to Chrysler-related losses being lower than were 
expected in 2009.
    \264\ This calculation uses Consumer Price Index data for May 1998 
and October 2010. U.S. Department of Labor, Consumer Price Index: All 
Urban Consumers (Nov. 17, 2010) (online at ftp://ftp.bls.gov/pub/
special.requests/cpi/cpiai.txt).
    \265\ Bloomberg Data Service.
---------------------------------------------------------------------------
    As discussed above, the Equity Recapture Agreement between 
Treasury and the VEBA may change the picture because of the 
additional economic interest it grants to Treasury. If Treasury 
were able to exercise fully its rights under this agreement, 
then Treasury's stake would be a considerably larger share of 
Chrysler. This in turn would mean that it would be possible for 
the valuation of Chrysler to be significantly lower in order 
for the TARP to recoup fully its investment and maximize return 
for the taxpayers.\266\ Exact calculations are difficult as 
they depend on the date of sale. Assuming a January 1, 2012 
sale date for the entire equity stakes of both Treasury and the 
VEBA, for example, Chrysler's equity would have to be valued at 
approximately $14.5 billion for Treasury to recoup the $3.5 
billion that it has lost on Chrysler-related loans to date, 
which would make it easier for Treasury to recover all of its 
investments in Chrysler.
---------------------------------------------------------------------------
    \266\ See Section E.1.b for an analysis of the various exit 
strategies and their respective costs and benefits to the taxpayers.
---------------------------------------------------------------------------
    As noted above, Treasury does not currently have the 
ability to appropriate funds to acquire the VEBA's equity. If 
Chrysler does well financially and the VEBA's sales of equity 
reach the Threshold Amount, then any equity sales above that 
level will benefit Treasury.\267\ In this case, however, the 
VEBA and not Treasury will have control over the timing and 
execution of these sales. In addition, Fiat's ability to 
control the timing of the exercise of its option to buy 
Treasury's entire equity stake in Chrysler after repayment of 
the TARP loans could limit the ability of Treasury to recoup 
the maximum possible amount from its equity stake and its 
claims to the VEBA's equity stake.
---------------------------------------------------------------------------
    \267\ For a discussion of Treasury's rights to the VEBA's equity, 
see Section E.1.b, supra.
---------------------------------------------------------------------------
    Figure 14 below includes the key dates when the various 
rights take effect to facilitate the following discussion of 
possible repayment scenarios.

                     95FIGURE 14: CHRYSLER TIMELINE
------------------------------------------------------------------------
         Date                      Event                   Source
------------------------------------------------------------------------
12/10/2011............  $2.08 billion of loan to    Chrysler Group LLC
                         Chrysler from Treasury is   financial
                         due; $500 million CAD       statements.
                         from Canadian loan is
                         also due.
7/1/2012..............  VEBA Call Option            VEBA Call Option
                         activates, allowing Fiat    Agreement.
                         to purchase up to 40
                         percent of VEBA's equity
                         stake in Chrysler..
1/1/2013..............  Fiat's Class B rights, the  Operating Agreement.
                         performance targets,
                         expire; after this date
                         Fiat may acquire a stake
                         equivalent to that it
                         could have acquired under
                         the Class B rights, but
                         by paying a price
                         equivalent to that of the
                         Incremental Equity Call
                         Option--this is the
                         Alternative Call Option.
1/1/2013..............  Starting on this date, a    Operating Agreement.
                         simple majority, 51
                         percent, of Chrysler's
                         equity holders can force
                         an IPO.
6/10/2016.............  Half of the remaining       Chrysler Group LLC
                         balance on Treasury loans   financial
                         to Chrysler are due.        statements.
7/1/2016..............  VEBA Call Option expires..  VEBA Call Option
                                                     Agreement.
6/10/2017.............  Remaining balance on        Chrysler Group LLC
                         Treasury loans to           financial
                         Chrysler are due.           statements.
------------------------------------------------------------------------

            a. Possible Scenarios for a Sale of Treasury's Equity Stake
    It appears that Treasury has a chance to recover some or 
all of the previously lost amounts through gains on the equity 
stake. Treasury is guided by a number of different principles 
for its involvement in private companies and, as with GM, it 
needs to balance its desire to exit as soon as practicable 
against its objective of maximizing the value of the taxpayers' 
investment.\268\ The level of return Treasury can realize for 
the taxpayers, however, is uncertain at this point. In addition 
to unpredictable market developments, the complex nature of the 
restructuring transaction and the competing and potentially 
conflicting sets of interests among the parties may constrain 
Treasury's freedom to act in the best interest of the 
taxpayers. As noted earlier, much will depend on the conditions 
under which Treasury and the VEBA will be able to dispose of 
their equity stakes. Two possible scenarios are described 
below.
---------------------------------------------------------------------------
    \268\ See a summary of Treasury's principles in Section H.1, infra.
---------------------------------------------------------------------------
            i. Large IPO Exit Scenario
    As discussed above, repayment in full of Chrysler's 
government loans is a pre-condition for Fiat to gain majority 
control of the company. An IPO may happen whether or not Fiat 
has a majority ownership of Chrysler's shares, but if Fiat can 
reach a 51 percent equity stake in Chrysler before January 1, 
2013, it will have sole control over the timing of a Chrysler 
IPO.\269\ In Fiat's second quarter 2010 analyst call, its CEO 
stated that the priority for the IPO was to allow the VEBA to 
sell its stake in Chrysler for cash that it can use to invest 
and meet its obligations for the health care of the retired UAW 
workers.\270\ Chrysler also expects the other equity owners 
eventually to sell their stakes.\271\
---------------------------------------------------------------------------
    \269\ Chrysler LLC Operating Agreement, supra note 188, at Section 
14.1. Starting January 1, 2013 a simple majority of Chrysler's equity 
owners can force the company to have an IPO.
    \270\ Chrysler Plan Presentation, supra note 219.
    \271\ Chrysler Group LLC conversations with Panel staff (Dec. 9, 
2010).
---------------------------------------------------------------------------
    An IPO would likely take place in late 2011 or 2012.\272\ 
Fiat would have the option to increase its equity stake to a 
majority by exercising the Incremental Equity Call Option 
either prior to or concurrently with the IPO. For this to 
happen, Chrysler would need to have repaid all of its 
government loans by that time. In a large IPO package scenario 
Fiat would exercise its option simultaneously with the IPO, and 
Treasury would be able to sell its entire direct equity stake 
at that time. The ultimate level of recovery for Treasury would 
depend on the market for Chrysler's shares and, to some degree, 
on the VEBA's actions.\273\
---------------------------------------------------------------------------
    \272\ Chrysler Group LLC conversations with Panel staff (Dec. 9, 
2010).
    \273\ The VEBA is unlikely to be able to dispose of its entire 
equity stake at once, but since Treasury gets the benefit of the VEBA 
sales above the Threshold Amount, it will be affected by the volume and 
timing of these sales. For a discussion see Section E.1.b. Treasury's 
right to receive income from such sales survives its exit as a 
shareholder of Chrysler. Moreover, as noted above, if Treasury did 
increase its equity stake by exercising its rights under the VEBA 
option agreement, Treasury could realize a higher return on its 
investment. VEBA's actions are not under Treasury's control, but the 
Panel notes that the lack of resources for Treasury to exercise fully 
its rights may limit the level of return to the taxpayer.
---------------------------------------------------------------------------
            ii. Delayed IPO
    As discussed earlier, Fiat has a number of ways to increase 
its equity stake to a majority position, which can precede a 
Chrysler IPO.\274\ The main reason why Fiat may prefer to delay 
an IPO is to be able to have Chrysler repay its loans \275\ and 
so allow Fiat to exercise the entire Incremental Equity Call 
Option more cheaply prior to an IPO.\276\ This would save Fiat 
a significant amount of money because instead of paying 
Chrysler market price for the new equity, it would be able to 
purchase the stake (and dilute the other shareholders) at a far 
lower cost based on a valuation methodology tied to inputs that 
could artificially lower Chrysler's value as opposed to what 
the equity might sell for in an IPO.\277\ According to 
analysts, exercising the option prior to an IPO would mean up 
to a $2 billion savings for Fiat,\278\ which would translate 
into a corresponding loss for Chrysler. This in turn would 
lower the value of the company in a subsequent IPO and result 
in a loss for the other owners of Chrysler, including 
Treasury.\279\ The Fiat CEO's most recent remarks implying that 
his company may go beyond a 50 percent ownership of Chrysler in 
2011 has reinforced analyst opinions that Fiat would try to 
save money and acquire majority ownership by exercising the 
Incremental Equity Call Option prior to an IPO.\280\
---------------------------------------------------------------------------
    \274\ See Section E.1.b, supra.
    \275\ To prepay the TARP and Canadian government loans, Chrysler 
would need the approval of a simple majority of its Board of Directors. 
Assuming that all three performance targets are met, Fiat would only 
need the agreement of one more director, either the VEBA director, the 
Canadian director, or one of the three Treasury directors. Chrysler LLC 
Operating Agreement, supra note 188, at Sections 5.1 and 5.8.
    \276\ Chrysler LLC Operating Agreement, supra note 188, at Section 
3.5. This gives Fiat the right to buy 16 percent of the equity using 
either a public market price or the valuation formula described in 
E.2.c. This option can only be exercised once Chrysler has repaid the 
monies borrowed from the TARP and from the Canadian Government. Funds 
received by Chrysler for the Incremental Equity Call Option can be used 
simultaneously to repay the TARP loans. Recent reports from analysts 
covering Fiat indicate that Fiat may float some of its interest in 
Ferrari and Marelli, a parts supplier, ahead of a Chrysler flotation. A 
possible explanation for floating these two components of Fiat is to 
raise the necessary funds to exercise the Incremental Equity Call 
Option.
    \277\ As described in Section E.2.c, supra, the Operating 
Agreement's formula for the valuation of Chrysler uses a market 
``multiple'' tied to that of Fiat, which is the lowest in the industry, 
to calculate the value of Chrysler. See footnote 248, supra, for a 
detailed discussion on the calculation of market multiples.
    \278\ Barclays Capital Paper on Fiat, supra note 252, at 8. (``We 
estimate a pre-IPO transaction could save Fiat between $1.0bn and 
$2.7bn compared to a post IPO deal. Adjusted for debt assumed by Fiat, 
we calculate ROI in a 40-100% range.''); UBS Investment Research, 
Chrysler: Pre vs Post IPO Take-over, at 1 (Dec. 15, 2010) (hereinafter 
``UBS Investment Research Paper on IPO'').
    \279\ A similar logic applies to Fiat's rights under the VEBA Call 
Option Agreement. VEBA Call Option Agreement (June 10, 2010). This also 
has implication for Treasury's return due the Equity Recapture 
Agreement. Equity Recapture Agreement, supra note 212, at 161.
    \280\ Bloomberg Data Service, supra note 246 (``It looks cheaper 
for Fiat to get 51 percent of Chrysler before the IPO,'' said Philippe 
Houchois, a London-based analyst at UBS AG, who estimates that Fiat 
could save $1 billion to $2.7 billion if it exercises the option before 
a Chrysler listing. ``It's a positive scenario for Fiat shares.''). For 
analysis, see UBS Investment Research Paper on IPO, supra note 278, at 
1.
---------------------------------------------------------------------------
    The exit options available to Treasury underlie the fact 
that Treasury's intervention in Chrysler was done in a distinct 
manner within the TARP by giving Fiat significant rights and 
benefits at the outset. The Panel notes that this may have 
saved Chrysler from dissolution, but the conflicting interests 
inherent in the structure of the intervention going forward may 
restrict Treasury's ability to maximize return for the 
taxpayers as it unwinds the government's ownership position.

                         F. GMAC/Ally Financial


1. Context

            a. Brief History of the Company
    For most of its history, GMAC Financial Services/Ally 
Financial was a wholly owned subsidiary of GM. As GM's captive 
finance arm, GMAC/Ally Financial provided GM dealers with the 
financing necessary to acquire and maintain automobile 
inventories and to provide customers with a means to finance 
automobile purchases.\281\ Over time, the company's operations 
expanded and diversified to include insurance, mortgages, 
commercial finance, and online banking.\282\ However, the 
decline in the last decade in GM's credit rating negatively 
impacted GMAC/Ally Financial's credit ratings and increased the 
cost of financing GM automobile sales. These circumstances, 
coupled with GMAC/Ally Financial's branching out into other 
lending sectors outside the auto industry, called into question 
GMAC/Ally Financial's ownership and governance structure. As a 
result, on November 30, 2006, GM sold 51 percent of the equity 
in GMAC/Ally Financial to an investment consortium led by 
Cerberus Capital Management, L.P. (Cerberus) for about $14 
billion. GMAC/Ally Financial emerged as an independent global 
financial services company, but GMAC/Ally Financial's 
operations continued to have many attributes of a captive 
finance arm's relationship with an automaker.\283\
---------------------------------------------------------------------------
    \281\ Captive financing organizations can be structured as legally 
separate subsidiaries or distinct business lines, but they exist 
primarily as extensions of their corporate parents. Their purpose is to 
facilitate the parent corporation's sale of goods or services by 
providing debt and/or lease financing to the parent's customers. See 
Standard & Poor's, Captive Finance Operations (Apr. 17, 2009) (online 
at www2.standardandpoors.com/spf/pdf/media/
Captive_Finance_Operations.pdf).
    \282\ For further discussion concerning GMAC/Ally Financial's 
diversification efforts, see March 2010 Oversight Report, supra note 
22, at 11-13.
    \283\ While GMAC/Ally Financial may no longer be a captive in the 
legal sense after it became an independent finance company in 2006, it 
maintains close ties with GM in many ways as a result of the 
contractual codification of its historical relationship with GM. For 
example, as part of the 2006 sale, GMAC/Ally Financial and GM entered 
into several service agreements that codified the mutually beneficial 
historic relationship between the companies. One of these agreements 
was the United States Consumer Financing Services Agreement (USCFSA), 
which, among other things, provided that GM would use GMAC/Ally 
Financial exclusively whenever it offered vehicle financing and leasing 
incentives to customers. (As described below, this agreement was 
modified when GMAC/Ally Financial became a bank holding company in 
December 2008.) For further discussion of the USCFSA, see Section 
F.3.b, infra. GMAC/Ally Financial also remains the leading floorplan 
finance franchise for GM dealers.
---------------------------------------------------------------------------
            b. What Precipitated Government Assistance?
    A combination of factors led to the government's decision 
to provide assistance to GMAC/Ally Financial.\284\ GMAC/Ally 
Financial reported a net loss of $2.5 billion for the third 
quarter of 2008,\285\ bringing its losses over five consecutive 
quarters to $7.9 billion. By late 2008, Residential Capital, 
LLC (ResCap), GMAC/Ally Financial's global real estate finance 
business, was incurring debilitating losses due to the downturn 
in the housing market, especially due to its significant 
subprime mortgage exposure. Its automotive financing operations 
were severely weakened by the financial crisis and GM's 
precarious situation, both of which constricted credit, sharply 
reduced demand, and moved GMAC/Ally Financial closer toward 
insolvency.\286\
---------------------------------------------------------------------------
    \284\ For further discussion concerning the factors that 
precipitated government assistance, see March 2010 Oversight Report, 
supra note 22, at 11-17, 32-42.
    \285\ GMAC LLC, GMAC Financial Services Reports Preliminary Third 
Quarter 2008 Financial Results (Nov. 5, 2008) (online at 
media.gmacfs.com/index.php?s=43&item=286).
    \286\ For further discussion concerning GMAC/Ally Financial's 
business and why it was failing, see March 2010 Oversight Report, supra 
note 22, at 11-17, 32-42.
---------------------------------------------------------------------------
    As detailed in the Panel's March 2010 report, Treasury 
presents a two-fold justification for its intervention in GMAC/
Ally Financial. First, Treasury states that it acted because of 
GMAC/Ally Financial's significance to the automotive industry 
and to GM and Chrysler in particular. As Treasury considered 
using funds from the TARP to rescue GM and Chrysler in December 
2008, it quickly came to the conclusion that GM could not 
survive without GMAC/Ally Financial's financial underpinning. 
In particular, GMAC/Ally Financial provided GM dealers with 
almost all of their ``floorplan financing''--that is, loans to 
purchase their inventory. Without access to this credit, many 
dealers would have been forced to close their doors. Second, 
Treasury states that it acted because of GMAC/Ally Financial's 
inclusion in the stress tests, pursuant to which Treasury 
committed to provide funds for bank holding companies that 
could not raise funds privately.\287\ Over time, Treasury 
states that it approached the issue of continuing to support 
GMAC/Ally Financial from the position that it must follow 
through on its commitments, even if the commitments are not 
legally enforceable, in order to maintain the credibility of 
the federal government. These rationales are circular, since 
GMAC/Ally Financial would not have been included in the stress 
tests had the government not intervened in December 2008 by 
expediting the company's application for bank holding company 
status in order to prevent General Motors from liquidating.
---------------------------------------------------------------------------
    \287\ See March 2010 Oversight Report, supra note 22, at 57-78.
---------------------------------------------------------------------------
    The particular issues associated with GMAC/Ally Financial's 
near-collapse make this government intervention unique. As the 
Panel discussed in its March 2010 report, the solvency issue 
that the company faced in late 2008 owed to poor management 
decisions related to mortgage market investments that rapidly 
collapsed once the housing market downturn began. Furthermore, 
unlike the legacy shareholders and creditors of GM and 
Chrysler--companies that underwent restructuring via the 
bankruptcy process--the legacy stakeholders of GMAC/Ally 
Financial (for example, Cerberus) were rescued along with the 
company because the government opted not to place GMAC/Ally 
Financial into bankruptcy.
            c. Government Support Efforts
    The U.S. government has spent a total of $17.2 billion to 
support GMAC/Ally Financial under the TARP. Currently, after 
Treasury's December 2010 conversion of $5.5 billion of its 
$11.4 billion in mandatory convertible preferred stock in Ally 
Financial into common stock, Treasury's remaining investment 
consists of $2.7 billion in trust preferred securities (TruPS), 
$5.9 billion in mandatory convertible preferred stock, and a 
73.8 percent common equity ownership stake.\288\ Conversion of 
Treasury's remaining MCPs would increase the government's 
equity ownership in the company to approximately 82 percent.
---------------------------------------------------------------------------
    \288\ U.S. Department of the Treasury, Treasury Converts Nearly 
Half of Its Ally Preferred Shares to Common Stock (Dec. 30, 2010) 
(online at www.treasury.gov/press-center/press-releases/Pages/
tg1014.aspx) (hereinafter ``Treasury Converts Ally Preferred Shares to 
Common Stock'').
---------------------------------------------------------------------------
    GMAC/Ally Financial received funds on three separate 
occasions: in December 2008, May 2009, and December 2009.\289\ 
The government's support efforts are illustrated in Figure 15 
below.
---------------------------------------------------------------------------
    \289\ For further discussion concerning the government's ``staged'' 
investments in GMAC/Ally Financial, see March 2010 Oversight Report, 
supra note 22, at 42-57.
    On December 29, 2008, Treasury purchased $5 billion in GMAC/Ally 
Financial Senior Preferred Stock and also received warrants for an 
additional $250 million in preferred equity. Second, Treasury made an 
additional purchase of $7.5 billion of GMAC/Ally Financial Mandatory 
Convertible Preferred Stock on May 21, 2009, increasing its investment 
to $12.5 billion. Additionally, on May 29, 2009, Treasury accepted Old 
GM's 35.4 percent equity stake in GMAC/Ally Financial in exchange for 
the $884 million loan given to Old GM in December 2008. Finally, 
Treasury authorized an additional investment of $3.8 billion in the 
form of $2.54 billion of Trust Preferred Securities (TruPs) and $1.25 
billion of MCPs on December 30, 2009. At this time, $3 billion of the 
initial December 2008 investment was converted to common stock, 
bringing Treasury's control of GMAC/Ally Financial to 56.3 percent.
    In May 2009, the terms of the MCPs specified that GMAC/Ally 
Financial could convert the stock at any time, but if the conversion 
would result in Treasury owning more than 49 percent of the company, 
then GMAC/Ally Financial would need Treasury's approval or an order 
from the Federal Reserve. The terms of this MCP were revised in 
exchange for Treasury's additional investment in December 2009. After 
the December 2009 investment, GMAC/Ally Financial could only convert 
the MCPs if it received prior written approval from Treasury or an 
order from the Federal Reserve. As part of the terms of its December 
2009 investment, Treasury also acquired ``a `reset' feature on the 
entirety of its MCP holdings such that the conversion price under which 
its MCPs can be converted into common equity will be adjusted in 2011, 
if beneficial to Treasury, based on the market price of private capital 
transactions occurring in 2010.'' U.S. Department of the Treasury, 
Treasury Announces Restructuring of Commitment To GMAC (Jan. 5, 2010) 
(online at www.financialstability.gov/latest/pr_1052010.html) 
(hereinafter ``Treasury Announces Restructuring of Commitment To 
GMAC''). See also U.S. Department of the Treasury, Contract [GMAC], at 
482 (May 21, 2009) (online at www.financialstability.gov/docs/AIFP/
Posted%20to%20AIFP%20Website%20-%20GMAC%202009.pdf) (``The Series F-2 
shall be convertible to common stock, in whole or in part, at the 
applicable Conversion Rate at the option of the holder upon specified 
corporate events, including any public offering of GMAC's common stock, 
certain sales, mergers or changes of control at GMAC''). This feature 
preserves Treasury's ability to assess whether it is advantageous to 
Treasury to convert considering all the facts and circumstances 
available at the time.
    On December 30, 2010, Treasury announced it is converting $5.5 
billion of its MCP holdings in GMAC/Ally Financial into common stock. 
See Treasury Converts Ally Preferred Shares to Common Stock, supra note 
288.

                                FIGURE 15: TARP INVESTMENT IN GMAC/ALLY FINANCIAL
                                           [Millions of dollars] \290\
----------------------------------------------------------------------------------------------------------------
                                                                                Cumulative
   Original      Original       Original                           Current                    Amount     Amount
  Investment    Assistance   Investment Type      Exchange     Investment Type  Investment    Repaid      Lost
     Date          Amount                                                          Amount
----------------------------------------------------------------------------------------------------------------
12/29/2008....       5,000  Preferred Stock   Exchange for     Convertible      \291\ $5,2
                             w/Exercised       convertible      Preferred               50
                             Warrants.         preferred        Stock.
                                               stock.
12/29/2008....         884  Loan to General   Extinguished in  Common Stock...         884
                             Motors.           consideration
                                               for 35.4
                                               percent of
                                               GMAC/Ally
                                               Financial
                                               common stock.
5/21/2009.....       7,500  Convertible       $3 billion       Convertible      \292\ 7,87
                             Preferred Stock   exchanged for    Preferred                5
                             w/Exercised       common stock.    Stock.
                             Warrants.
12/30/2009....       2,540  Trust Preferred   ...............  Trust Preferred       2,667
                             Securities w/                      Securities w/
                             Exercised                          Exercised
                             Warrants.                          Warrants.
12/30/2009....       1,250  Convertible       ...............  Convertible           1,313
                             Preferred Stock                    Preferred
                             w/Exercised                        Stock w/
                             Warrants.                          Exercised
                                                                Warrants.
               -------------------------------------------------------------------------------------------------
Total.........     $17,174  ................  ...............  ...............    $17,989
----------------------------------------------------------------------------------------------------------------
\290\ Treasury Transactions Report, supra note 24, at 18-19.
\291\ Includes exercised warrants.
\292\ Includes exercised warrants.

 [GRAPHIC] [TIFF OMITTED] T3381.011

     FIGURE 17: TREASURY'S INVESTMENTS IN GMAC/ALLY FINANCIAL \294\

      
---------------------------------------------------------------------------
    \294\ Warrants for MCPs and Preferred Equity were immediately 
exercised and are included. Treasury Announces Restructuring of 
Commitment To GMAC, supra note 289; Treasury Transactions Report, supra 
note 24, at 18-19.

[GRAPHIC] [TIFF OMITTED] T3381.012

    While Treasury holds a controlling interest in GMAC/Ally 
Financial, lesser interests are held by General Motors, the GM 
Trust (which was established as part of GM's bankruptcy and is 
managed by an independent trustee), the private equity company 
Cerberus, and third party investors, who purchased a portion of 
Cerberus' legacy stake.\295\ The current ownership composition 
of GMAC/Ally Financial is illustrated in Figure 18 below.
---------------------------------------------------------------------------
    \295\ Although the third-party investors received their share in 
distributions from Cerberus, they are not Cerberus affiliates and will 
not necessarily act in concert with Cerberus. As part of the conditions 
to the approval of the BHC application, none of these third-party 
investors own, hold, or control more than 5 percent of the voting 
shares or 7.5 percent of the total equity of GMAC/Ally Financial. The 
Federal Reserve describes them as sophisticated investors who are 
independent of Cerberus and each other. Board of Governors of the 
Federal Reserve System, GMAC LLC; IB Finance Holding Company, LLC: 
Order Approving Formation of Bank Holding Companies and Notice to 
Engage in Certain Nonbanking Activities, Federal Reserve Bulletin, Vol. 
95, Legal Developments: Fourth Quarter, 2008 (May 29, 2009) (online at 
www.federalreserve.gov/pubs/bulletin/2009/legal/q408/order6.htm). As 
private equity investors, none of these parties are required to 
disclose their identities publicly under applicable law, and Cerberus 
generally avoids the spotlight whenever possible. Cerberus 
Institutional Partners, L.P., Letter to Investors, at 6 (Jan. 22, 2008) 
(online at online.wsj.com/public/resources/documents/WSJ-LB-
cerberus080214.pdf).
---------------------------------------------------------------------------

FIGURE 18: GMAC/ALLY FINANCIAL'S CURRENT OWNERSHIP STRUCTURE (as of 12/
                             30/2010) \296\

      
---------------------------------------------------------------------------
    \296\ Ally Financial Inc., Ally Financial Announces Conversion of 
Certain U.S. Treasury Investments into Common Equity (Dec. 30, 2010) 
(online at media.ally.com/index.php?s=43&item=438).
[GRAPHIC] [TIFF OMITTED] T3381.013

            d. Current Company Structure
    Since the beginning of 2010, GMAC/Ally Financial's 
operations have centered on three business segments:
      Dealer and retail automotive financing services 
(including insurance for consumers, automotive dealerships, and 
other businesses);
      Mortgage activities focusing primarily on the 
residential real estate market in the United States, with some 
international operations; this segment includes the operations 
of ResCap; and
      Commercial finance activities that provide 
secured lending products and other financing.

  FIGURE 19: THIRD QUARTER 2010 GMAC/ALLY FINANCIAL GROSS REVENUE BY 
                             SEGMENT \297\

      
---------------------------------------------------------------------------
    \297\ Not reflected in this pie chart is the fact that the 
Corporate Segment recorded a $535 million loss for the third quarter of 
2010. The Corporate segment is composed of the Commercial Finance 
Group, certain equity investments, other corporate activities, the 
residual impacts from corporate funds transfer pricing and treasury 
asset liability management activities, and reclassifications and 
eliminations between the reportable operating segments. Ally Financial 
Inc., Form 10-Q For the Quarterly Period Ended September 30, 2010, at 
80 (Nov. 9, 2010) (online at www.sec.gov/Archives/edgar/data/40729/
000119312510252419/d10q.htm) (hereinafter ``Ally Financial Form 10-
Q'').
[GRAPHIC] [TIFF OMITTED] T3381.014

            e. Recent Developments
    GMAC/Ally Financial is one of the world's largest financial 
services companies with approximately $173.2 billion of assets 
as of September 30, 2010.\298\ The third quarter of 2010 marked 
the third straight profitable quarter for GMAC/Ally Financial 
(net income of $278 million), with all segments and entities 
profitable, including ResCap and Ally Bank, which is GMAC/Ally 
Financial's online bank.\299\
---------------------------------------------------------------------------
    \298\ Id. at 79.
    \299\ Id. at 82, 94.
---------------------------------------------------------------------------
    According to its most recent quarterly earnings report, 
GMAC/Ally Financial has made progress on several important 
fronts since the Panel last provided an in-depth examination of 
the company in its March 2010 oversight report.\300\ These 
recent developments are discussed in more detail below.
---------------------------------------------------------------------------
    \300\ Ally Financial Inc., 3Q10 Earnings Review, at 3 (Nov. 3, 
2010) (online at phx.corporate-ir.net/External.File?item= 
UGFyZW50SUQ9MzQ2Nzg3NnxDaGlsZElEPTQwMjMzOHxUeXBlPTI=&t=1) (hereinafter 
``Ally Financial 3Q10 Earnings Review'').
---------------------------------------------------------------------------
    First, GMAC/Ally Financial's core auto finance business has 
now seen seven consecutive profitable quarters, primarily due 
to general improvement in the auto market and GMAC/Ally 
Financial's increased penetration of both GM and Chrysler 
consumer auto originations.\301\
---------------------------------------------------------------------------
    \301\ While GMAC/Ally Financial's share of GM-subvented financing 
has declined from 76 percent in 2006 to 20 percent as of the third 
quarter of 2010, GMAC/Ally Financial's share of Chrysler-subvented 
financing has increased since 2009, along with its shares of GM and 
Chrysler direct-to-consumer loans.
---------------------------------------------------------------------------
    As Chrysler is also now increasing its U.S. market share in 
the wake of the Toyota recalls and a downsized GM, GMAC/Ally 
Financial has potential for further growth in this market. On 
April 30, 2009, GMAC/Ally Financial entered into a legally 
binding term sheet with Chrysler to provide automotive 
financing products and services to Chrysler dealers and 
customers, which made GMAC/Ally Financial the ``preferred 
provider of new wholesale financing for Chrysler dealer 
inventory.'' \302\ On August 6, 2010, GMAC/Ally Financial 
entered into another agreement with Chrysler, which replaced 
and superseded the April 2009 term sheet. GMAC/Ally Financial 
is Chrysler's preferred provider of new wholesale financing for 
dealer inventory in the United States, Canada, Mexico, and 
other international markets. Chrysler is obligated to provide 
GMAC/Ally Financial with certain exclusivity privileges, 
including the use of GMAC/Ally Financial for designated minimum 
threshold percentages of certain of Chrysler's retail financing 
subvention programs. (A subvented loan is one where the auto 
manufacturer provides an incentive to the lender to offer a 
lower interest rate than it would otherwise offer.) The 
agreement extends through April 30, 2013, with automatic one-
year renewals unless either GMAC/Ally Financial or Chrysler 
provides sufficient notice of nonrenewal. In addition, GMAC/
Ally Financial was named the preferred lender for Fiat in the 
United States on September 30, 2010 (owing to its existing 
relationship with Chrysler).\303\
---------------------------------------------------------------------------
    \302\ GMAC LLC, GMAC Financial Services Enters Agreement to Provide 
Financing for Chrysler Dealers and Customers (Apr. 30, 2009) (online at 
gmacfs.mediaroom.com/index.php?s=43&item=324). The April 2009 term 
sheet contemplated a more definitive agreement.
    \303\ Ally Financial 3Q10 Earnings Review, supra note 300, at 3.
---------------------------------------------------------------------------
    While its North American operations have continued to drive 
results, the performance of GMAC/Ally Financial's international 
operations has also improved. GMAC/Ally Financial is 
experiencing strong auto loan originations in China, Brazil, 
and the United Kingdom.\304\ With a continued focus on 
streamlining its auto business, GMAC/Ally Financial's 
International Automotive Finance segment sold its Argentina 
auto finance business and signed an agreement to sell its 
Ecuador auto finance business during the third quarter of 2010.
---------------------------------------------------------------------------
    \304\ Ally Financial 3Q10 Earnings Review, supra note 300, at 17.
---------------------------------------------------------------------------
    Second, after recognizing approximately $18.3 billion in 
mortgage-related losses during the 2007-2009 period, GMAC/Ally 
Financial continues to make progress in liquidating legacy 
mortgage assets at levels above their sharply reduced carrying 
value. During the third quarter of 2010, ResCap sold 
approximately $11.0 billion worth of European mortgage assets 
and businesses to affiliates of hedge fund and private equity 
firm Fortress Investment Group.\305\ This transaction means 
that GMAC/Ally Financial has effectively exited the European 
mortgage market. As of November 3, 2010, GMAC/Ally Financial 
sold $1.9 billion of held-for-sale legacy mortgage assets at 
gains. The company's management believes that it has 
``effectively de-risked the mortgage business.'' \306\ GMAC/
Ally Financial has stated that it is considering a number of 
strategic alternatives with respect to ResCap, including asset 
sales, spin-offs, or other potential transactions.\307\
---------------------------------------------------------------------------
    \305\ Ally Financial Inc., Ally Financial Completes Sales of 
European Mortgage Assets and Operations (Oct. 1, 2010) (online at 
media.ally.com/index.php?s=43&item=419).
    \306\ Ally Financial Inc., Transcript: Q3 2010 Earnings Call, at 5 
(Nov. 3, 2010) (hereinafter ``Ally Financial Transcript: Q3 2010 
Earnings Call'').
    \307\ Ally Financial Inc., Form 10-Q for the Quarterly Period Ended 
June 30, 2010, at 10 (Aug. 6, 2010) (online at www.sec.gov/Archives/
edgar/data/40729/000119312510181437/d10q.htm); Ally Financial Form 10-
Q, supra note 297, at 10-11. It does not appear, however, that GMAC/
Ally Financial will completely dispose of ResCap, since it plans to 
shift its mortgage operations to focus on agency servicing and 
originations.
---------------------------------------------------------------------------
    In response to questions concerning irregularities in 
foreclosure document procedures, which have raised questions 
about the validity of foreclosures and led to new uncertainties 
in the mortgage industry, GMAC/Ally Financial states that it 
continues to monitor closely delinquency and claims trends as 
well as new repurchase requests, entered into settlements with 
Freddie Mac and Fannie Mae in 2010 under which it made one-time 
payments to the GSEs for the release of repurchase obligations, 
and increased its reserve for mortgage repurchases during the 
third quarter of 2010.
    Finally, GMAC/Ally Financial continues to make progress in 
accessing the capital markets, improving its funding profile 
and reducing legacy costs. Ally Bank has taken on a more 
prominent funding role within the company. The bank's deposits 
and certificate of deposit (CD) retention rate have increased, 
and the overall firm's cost of funds has declined by over 100 
basis points, or 1 percentage point, since becoming a bank 
holding company.\308\
---------------------------------------------------------------------------
    \308\ See Ally Financial 3Q10 Earnings Review, supra note 300, at 
3; Ally Financial Inc., 2Q10 Earnings Review, at 26 (Aug. 3, 2010) 
(online at phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9MzI0MjM1M3xDaGlsZElEPTM5MTY3NXxUeXBlPTI=&
t=1) (hereinafter ``Ally Financial 2Q10 Earnings Review''); GMAC 
Financial Services, Preliminary 2010 First Quarter Results (May 3, 
2010) (online at phx.corporate-ir.net/
External.File?item=UGFyZW50SUQ9NDQxMjF8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1); 
GMAC Financial Services, Preliminary 2009 Fourth Quarter Results (Feb. 
4, 2010) (online at phx.corporate-ir.net/External.File?item= 
UGFyZW50SUQ9MjkzNTh8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1).
---------------------------------------------------------------------------

2. Outlook

            a. Company Strategy/Business Plan
    A greatly improved market backdrop and a longer-term 
investment mentality on the part of Treasury, GMAC/Ally 
Financial's principal shareholder, have facilitated a strategy 
aimed at repaying the government and cultivating a sustainable 
independent business strategy. At the beginning of 2010 
(several months into the tenure of new CEO Michael A. 
Carpenter), GMAC/Ally Financial announced six objectives for 
the company, which include becoming the leading global auto 
finance provider for dealers and consumers, improving its 
liquidity position and access to the capital markets, reducing 
the risk in its mortgage operations, improving cost structure, 
and transitioning fully into a bank holding company.\309\
---------------------------------------------------------------------------
    \309\ Ally Financial 2Q10 Earnings Review, supra note 308, at 28. 
Ally Financial Transcript: Q3 2010 Earnings Call, supra note 306, at 1. 
During the third quarter 2010 earnings call, Mr. Carpenter stated that 
the company believes it has ``become a fully-fledged bank holding 
company,'' so it will no longer report on its progress relating to that 
objective anymore.
---------------------------------------------------------------------------
    At a high level, GMAC/Ally Financial's business plan is 
focused on achieving these six objectives, which are designed 
to position the company toward profitability and stability 
through a combination of higher earnings, reductions in balance 
sheet risk, the shedding of unproductive businesses, and 
improved access to the capital markets (at a lower cost of 
capital). The status of the company's progress on each of these 
fronts is discussed in more detail below.
    Auto Finance. GMAC/Ally Financial has become the number one 
U.S. new car lender (according to AutoCount, an automotive 
industry data source), and the company expects to maintain that 
position.\310\ GMAC/Ally Financial's auto finance franchise 
also has nearly three times the market share of its five 
largest competitors.\311\
---------------------------------------------------------------------------
    \310\ Ally Financial Transcript: Q3 2010 Earnings Call, supra note 
306, at 1. This statistic reflects data for the first half of 2010.
    \311\ Ally Financial 3Q10 Earnings Review, supra note 300, at 6.
---------------------------------------------------------------------------
    GMAC/Ally Financial's U.S. penetration for the third 
quarter of 2010 currently stands as follows: \312\
---------------------------------------------------------------------------
    \312\ Ally Financial 3Q10 Earnings Review, supra note 300, at 6.
---------------------------------------------------------------------------
      84 percent of GM dealer stock (as compared to 73 
percent for the third quarter of 2009);
      76 percent of Chrysler dealer stock (as compared 
to 67 percent for the third quarter of 2009);
      34 percent of GM consumer sales (as compared to 
32 percent for the third quarter of 2009); and
      49 percent of Chrysler consumer sales (as 
compared to 21 percent for the third quarter of 2009).
    While GMAC/Ally Financial is a leader in floorplan finance 
(as evidenced by the figures listed above), it states that it 
is also repositioning its auto finance franchise balance sheet 
to both reduce the scope of its subvented business with GM and 
to focus on a more balanced origination and leasing mix. See 
Figure 20 below.\313\ GMAC/Ally Financial has also increased 
its lending to consumers with super-prime and prime credit 
ratings, while reducing its near-prime and non-prime 
exposures.\314\ Going forward, one of GMAC/Ally Financial's 
major focuses will be to expand its presence in the used 
vehicle market, which is approximately twice the size of the 
new vehicle market in terms of volume,\315\ but where borrowers 
generally have weaker credit quality.
---------------------------------------------------------------------------
    \313\ General Motors may elect to sponsor incentive programs (on 
both retail contracts and leases) by supporting financing rates below 
standard rates at which GMAC/Ally Financial purchases retail contracts. 
Subvention is the manner in which GM pays for exclusive promotions 
offered through GMAC/Ally Financial. This practice is akin to a 
marketing expense.
    \314\ Ally Financial Transcript: Q3 2010 Earnings Call, supra note 
306, at 9.
    \315\ Ally Financial Transcript: Q3 2010 Earnings Call, supra note 
306, at 3.
---------------------------------------------------------------------------

FIGURE 20: GMAC/ALLY FINANCIAL CONSUMER AUTO FINANCING VOLUME BY SECTOR 
                                 \316\

      
---------------------------------------------------------------------------
    \316\ Ally Financial Form 10-Q, supra note 297.

    [GRAPHIC] [TIFF OMITTED] T3381.015
    
    Access to Capital Markets. A core component of GMAC/Ally 
Financial's viability going forward (and a precursor to an IPO) 
is its ability to access the capital markets. For calendar year 
2010, GMAC/Ally Financial had completed approximately $36 
billion of new secured, unsecured funding and asset-backed 
securities (ABS) transactions in 2010 (and excluding growth in 
deposits).\317\
---------------------------------------------------------------------------
    \317\ Ally Financial 3Q10 Earnings Review, supra note 300, at 3.
---------------------------------------------------------------------------
    Mortgage Operations. The company has completed a strategic 
review of its mortgage operations. Since it marked $2.0 billion 
in mortgage assets to fair value in the fourth quarter of 2009 
(due to the reclassification of certain international mortgage 
assets and businesses and domestic mortgage assets from held-
for-investment (HFI) to held-for-sale (HFS), and management's 
intent to sell certain mortgage-related assets and thereby 
reduce volatility in GMAC/Ally Financial's financial results), 
GMAC/Ally Financial has made continued progress in reducing its 
legacy mortgage risk. The remaining mortgage assets are 
predominantly non-economic exposures and assets supporting its 
agency origination and servicing business.\318\ As reflected in 
Figure 21 below, the total assets in GMAC/Ally Financial's 
mortgage operations portfolio have declined from $147 billion 
to $41 billion (with $20.5 billion remaining at ResCap) between 
2006 and the end of the third quarter of 2010, while the slight 
uptick seen in asset values over the course of 2010 reflects 
the improved market backdrop for mortgage assets.\319\
---------------------------------------------------------------------------
    \318\ Ally Financial 3Q10 Earnings Review, supra note 300, at 8.
    \319\ Ally Financial 3Q10 Earnings Review, supra note 300, at 8.
---------------------------------------------------------------------------

         FIGURE 21: RESCAP AND MORTGAGE OPERATIONS ASSETS \320\

      
---------------------------------------------------------------------------
    \320\ Ally Financial Form 10-Q, supra note 297.
    [GRAPHIC] [TIFF OMITTED] T3381.016
    

    Ally Bank. With respect to increasing the importance of 
Ally Bank within the overall company's funding structure, Ally 
Bank increased its deposit base by $1.8 billion in the third 
quarter (a 29 percent increase, year-over-year) and achieved an 
88 percent CD retention rate. Banking operations now comprise 
29 percent of GMAC/Ally Financial's total funding.\321\ GMAC/
Ally Financial expects that Ally Bank will continue to expand 
to represent a greater proportion of GMAC/Ally Financial's 
funding over time.
---------------------------------------------------------------------------
    \321\ Ally Financial Transcript: Q3 2010 Earnings Call, supra note 
306.
---------------------------------------------------------------------------
    Cost Reductions. GMAC/Ally Financial has also made progress 
with respect to its objective of reducing controllable expenses 
by approximately $600 million during 2010. Its quarterly 
expenses for the third quarter of 2010 were $146 million less 
than those of the prior year period.\322\
---------------------------------------------------------------------------
    \322\ Ally Financial Transcript: Q3 2010 Earnings Call, supra note 
306.
---------------------------------------------------------------------------
            b. Government Exit Strategy
    As discussed above, Treasury's outstanding investment in 
GMAC/Ally Financial is $17.2 billion, which includes $5.9 
billion in MCPs, $2.7 billion in TruPs, and 73.8 percent of the 
common equity of GMAC/Ally Financial.\323\
---------------------------------------------------------------------------
    \323\ If Treasury were to convert its remaining $5.9 billion of 
MCPs prior to an IPO at the same conversion terms used in the December 
2010 conversion (i.e., same conversion price and conversion ratio), its 
common equity ownership percentage would increase to 81.7 percent.
---------------------------------------------------------------------------
    Treasury has identified four tasks with which GMAC/Ally 
Financial must continue to demonstrate progress in order for 
any government exit strategy to be successful.\324\ First, 
GMAC/Ally Financial must demonstrate consistent access to 
secured and unsecured funding sources. Second, GMAC/Ally 
Financial must demonstrate a consistent track record of 
profitability. Third, GMAC/Ally Financial must mitigate market 
concerns regarding the risk related to its mortgage operations. 
Finally, GMAC/Ally Financial must be able to demonstrate to 
equity investors that its bank franchise will continue to grow 
at an attractive rate.
---------------------------------------------------------------------------
    \324\ Treasury conversations with Panel staff (Nov. 18, 2010).
---------------------------------------------------------------------------
    As with Chrysler (and until recently with GM) Treasury's 
stake in GMAC/Ally Financial--common, TruPs, and MCPs \325\--is 
fundamentally illiquid. Accordingly, Treasury's large common 
stock position in GMAC/Ally Financial, a non-public company, 
can be sold only in private sales unless and until GMAC/Ally 
Financial launches an IPO. Hence, the U.S. government's exit 
strategy for GMAC/Ally Financial relies primarily upon an IPO 
tentatively scheduled, per GMAC/Ally Financial management, for 
2011. Treasury intends to sell its interests in a timely and 
orderly manner that ``minimizes financial market and economic 
impact,'' under what it determines to be appropriate market 
conditions.\326\ Consistent with its approach overall, 
Treasury's goal is to ``dispose of the government's interests 
as soon as practicable consistent with EESA goals.'' \327\ When 
asked at the Panel's recent hearing about the timetable for a 
GMAC/Ally Financial IPO, Secretary Geithner stated that it 
would happen ``[a]s quickly as we can do it,'' emphasizing that 
Treasury is ``going to move as quickly as we can to replace the 
government's investments with private capital, take those firms 
public, and figure out a way to exit as quickly as we can. And 
we're working very hard with the management and board of Ally 
to achieve that outcome.'' \328\ While noting that he does not 
know how soon the IPO will happen, Secretary Geithner stated 
that ``it's going to be much sooner than we thought six months 
ago.'' \329\
---------------------------------------------------------------------------
    \325\ TruPs have elements of both common equity and debt, are 
senior to all other common equity of GMAC/Ally Financial, and have no 
contractual restrictions on transfer (other than requirements that 
certificates bear certain legends and other similar restrictions set 
forth in the Declaration of Trust for the Trust), while MCPs, which are 
convertible at the Federal Reserve's option, would require conversion 
before they can be marketed. See Treasury Announces Restructuring of 
Commitment To GMAC, supra note 289; U.S. Department of the Treasury, 
Decoder (online at www.financialstability.gov/roadtostability/
decoder.htm) (accessed Jan. 11, 2011); U.S. Department of the Treasury, 
The Treasury Capital Assistance Program and the Supervisory Capital 
Assessment Program, Joint Statement by Secretary of the Treasury 
Timothy F. Geithner, Chairman of the Board of Governors of the Federal 
Reserve System Ben S. Bernanke, Chairman of the Federal Deposit 
Insurance Corporation Sheila Bair, and Comptroller of the Currency John 
C. Dugan (May 6, 2009) (online at www.financialstability.gov/latest/
tg91.html); GMAC, Inc., Summary of Trust Preferred Securities and 
Warrant Terms (May 21, 2009) (online at financialstability.gov/docs/
AIFP/Posted%20to%20AIFP%20Website%20-%20GMAC%202009.pdf).
    \326\ U.S. Department of the Treasury, Office of Financial 
Stability Agency Financial Report: Fiscal Year 2009, at 40 (Dec. 10, 
2009) (online at www.treasury.gov/about/organizational-structure/
offices/Mgt/Documents/OFS%20AFR%2009_24.pdf) (hereinafter ``OFS FY2009 
Agency Financial Report''); Treasury conversations with Panel staff 
(Nov. 18, 2010).
    \327\ OFS FY2009 Agency Financial Report, supra note 326, at 44. 
Given that Treasury currently holds 73.8 percent of GMAC/Ally 
Financial's common equity, it is likely to take one to two years 
following the IPO for Treasury to dispose completely of its ownership 
stake. Treasury conversations with Panel staff (Jan. 5, 2011).
    \328\ Congressional Oversight Panel, Testimony of Timothy F. 
Geithner, secretary, U.S. Department of the Treasury, Transcript: COP 
Hearing with Treasury Secretary Timothy Geithner (Dec. 16, 2010) 
(online at cop.senate.gov/hearings/library/hearing-121610-geithner.cfm) 
(publication forthcoming).
    \329\ Id.
---------------------------------------------------------------------------
    As it has done with its stake in Citigroup, and as it plans 
to do for its stake in AIG, Treasury recently converted $5.5 
billion of its MCP interest (nearly half of its preferred 
shares) into common stock.\330\ In addition to providing more 
clarity on the government's equity stake (and potential 
shareholder dilution), Treasury's conversion also helps GMAC/
Ally Financial in two significant ways.\331\ First, as a result 
of the conversion and the consequent dilution of the equity 
interest in GMAC/Ally Financial held by or on behalf of GM, the 
Federal Reserve has determined that Ally Bank and GM will no 
longer be treated as ``affiliates'' for purposes of Sections 
23(a) and 23(b) of the Federal Reserve Act, which, among other 
things, impose limitations on transactions between banks and 
their affiliates.\332\ Since Ally Bank is a source of cheap 
financing in part because it is the beneficiary of federal 
deposit insurance, it is cheaper and more cost-effective for 
GMAC/Ally Financial to use its bank as the core piece of its 
auto finance operations. This Federal Reserve decision will 
allow GMAC/Ally Financial to use Ally Bank to fund an 
increasing amount of GM retail and dealer loans.\333\ Second 
(and, according to Treasury, the more important ramification), 
the conversion was intended to strengthen GMAC/Ally Financial's 
capital structure by increasing the proportion of equity in the 
form of common stock (and, therefore, conforming GMAC/Ally 
Financial's equity account to that more typical of a bank 
holding company and improving its leverage ratios). This factor 
largely determined the timing of Treasury's conversion, as 
Treasury determined it would be beneficial to allow the company 
to conform its capital structure to that of a more typical bank 
holding company before it starts to market itself to investors 
ahead of an upcoming IPO.\334\
---------------------------------------------------------------------------
    \330\ Treasury Converts Ally Preferred Shares to Common Stock, 
supra note 288.
    \331\ Treasury conversations with Panel staff (Jan. 5, 2011).
    \332\ Transactions between Ally Bank and GM will, however, continue 
to be subject to regulation and examination by the bank's primary 
federal regulator, the Federal Deposit Insurance Corporation. Ally 
Financial Inc., Form 8-K (Dec. 30, 2010) (online at www.sec.gov/
Archives/edgar/data/40729/000119312510291571/d8k.htm).
    After it became a bank holding company, GMAC/Ally Financial 
requested on two occasions that the Federal Reserve Board grant Ally 
Bank an exemption from Section 23(a) of the Federal Reserve Act. 
Section 23(a) restricts the amount of ``covered transactions'' between 
a bank and its affiliates. According to the Federal Reserve Board, the 
``twin purposes of section 23(a) are (i) to protect against a 
depository institution suffering losses in transactions with affiliates 
and (ii) to limit the ability of an institution to transfer to its 
affiliates the subsidy arising from the institution's access to the 
federal safety net.'' Board of Governors of the Federal Reserve System, 
Transactions Between Member Banks and Their Affiliates, 67 Fed. Reg. 
76560, 76560 (Dec. 12, 2002) (final rule). The safety net consists of 
deposit insurance, the Federal Reserve's discount window, and other 
banking regulatory tools designed to protect financial markets and 
participants.
    Section 23(a), however, authorizes the Board to grant an exemption 
if it finds that doing so is in the public interest and consistent with 
the statute's purposes. 12 U.S.C. Sec. 371c(f)(2); 12 CFR 
Sec. 223.43(a). On December 24, 2008, the Board granted GMAC/Ally 
Financial's request for an exemption for retail loans, and on May 21, 
2009, it granted GMAC/Ally Financial's extended request for an 
exemption for both retail and dealer loans.
    For further details and discussion concerning Section 23(a) of the 
Federal Reserve Act and GMAC/Ally Financial's receipt of Section 23(a) 
waivers, see March 2010 Oversight Report, supra note 22, at 23-25.
    \333\ In the company's view, the Section 23(a) limitations were 
impacting their business with GM. GMAC/Ally Financial conversations 
with Panel staff (Jan. 5, 2011).
    \334\ In addition to seeking an improved capital structure prior to 
the company's efforts to market itself to investors, Treasury also 
stated that were other factors that influenced the timing of its 
December 2010 conversion. First, by year-end 2010, GMAC/Ally Financial 
had demonstrated a track record of overall profitability for three 
consecutive quarters. Second, GMAC/Ally Financial made headway in 
reducing the risk in its mortgage portfolio during 2010. By year-end 
2010, GMAC/Ally Financial had entered into settlements with Fannie Mae 
and Freddie Mac to resolve potential repurchase exposure related to 
mortgage loans sold to the GSEs. In addition, the company sold its 
European mortgage operations, representing approximately $11.0 billion 
of assets. Treasury conversations with Panel staff (Jan. 5, 2011).
---------------------------------------------------------------------------
    The conversion helps GMAC/Ally Financial raise equity in 
the capital markets in the future, and improves GMAC/Ally 
Financial's ability to raise debt financing as loss-absorbing 
common equity increases.\335\ GMAC/Ally Financial's management 
is pleased with the timing and terms of Treasury's conversion 
and believes that there are no other steps the government would 
need to take before the company pursues an IPO. It remains too 
early, however, to speculate on the impact of this transaction 
on an IPO and Treasury's exit strategy because Treasury still 
retains $5.9 billion in MCPs and $2.7 billion in TruPS.\336\ At 
this time, Treasury's strategy for the disposition of those 
interests remains unclear.
---------------------------------------------------------------------------
    \335\ According to JPMorgan Chase, if Treasury converts its GMAC/
Ally Financial preferred stake into common equity, GMAC/Ally Financial 
should be able to lower its leverage as preferred dividends could 
decline by $1 billion. A conversion of some or all of Treasury's 
preferred stake into common equity should likely ``further improve 
Ally's leverage ratios in the event of an IPO.'' J.P. Morgan, North 
America Credit Research, Ally Financial Inc.: 3Q10 Preview (Nov. 1, 
2010) (hereinafter ``Ally Financial 3Q10 Preview'').
    \336\ While investor confidence and interest in an IPO has 
presumably been increased because the recent conversion provides some 
reassurance to the markets that Treasury does not intend to retain its 
ownership stake in GMAC/Ally Financial over the long term, some 
investors might be hesitant to buy shares that could later be 
substantially diluted through a conversion by the government.
    As part of the terms of Treasury's December 2010 conversion, GMAC/
Ally Financial also agreed to assist Treasury in the sale of a portion 
of its holdings of TruPs on terms acceptable to Treasury and GMAC/Ally 
Financial as soon as practical, subject to certain conditions.
    GMAC/Ally Financial's working assumption is that the company will 
redeem Treasury's remaining MCPs as part of the IPO, meaning that GMAC/
Ally Financial will need to raise additional equity to pay back 
Treasury. GMAC/Ally Financial conversations with Panel staff (Jan. 5, 
2011).
---------------------------------------------------------------------------
    Alternatively, Treasury has noted that it would be 
impossible to rule out a sale of GMAC/Ally Financial.\337\ The 
company would entertain any bids that might come in, and 
Treasury, as the majority shareholder, would have a significant 
influence on any discussions and the decision on whether to 
accept such a bid.\338\ Treasury has stated, however, that only 
a small number of institutions could digest an acquisition of 
this magnitude, so this course of action appears less feasible 
than an IPO exit strategy.\339\
---------------------------------------------------------------------------
    \337\ Treasury conversations with Panel staff (Nov. 18, 2010).
    \338\ Treasury conversations with Panel staff (Nov. 18, 2010).
    \339\ Treasury conversations with Panel staff (Nov. 18, 2010).
---------------------------------------------------------------------------
    As part of its exit strategy, Treasury should ensure that 
legacy private sector stakeholders in GMAC/Ally Financial do 
not see any return until U.S. taxpayers recoup their entire 
investment.
            c. Valuing GMAC/Ally Financial's Equity
    Since GMAC/Ally Financial is a private company, and its 
business platform is unique, it is difficult to conduct a clear 
analysis of its current value. As comparables, Treasury 
currently uses for the GMAC/Ally Financial valuation 35 
publicly traded companies across the bank, thrift, and 
specialty lender sectors.\340\ Through an analysis of the 
market performance of these comparables, by using the average 
price-to-book value for this imperfect peer group, it is 
possible to estimate a market capitalization for GMAC/Ally 
Financial.\341\ During 2010, the 35 comparable firms traded 
between 102 and 132 percent of their book value. Applying this 
range of multiples to GMAC/Ally Financial--with a reported book 
value of $21 billion as of the third quarter of 2010--values 
the equity of the entire firm between $21.4 billion and $27.7 
billion.\342\ Hence, this methodology values the Treasury's 
73.8 percent equity stake between $15.8 billion and $20.4 
billion.\343\ However, as noted, this is a crude yardstick 
given that GMAC/Ally Financial has a differentiated business 
model focused on the auto finance sector. Further, the 
company's book value calculation is likely to change before an 
IPO.
---------------------------------------------------------------------------
    \340\ Treasury conversations with Panel staff (Jan. 10, 2011). 
Treasury requested that the identity of the 35 companies be withheld.
    \341\ The book value of a company, in this instance, is the 
difference between a company's assets and its liabilities. The market 
capitalization is broadly defined as the dollar value of a company.
    \342\ Bloomberg Data Service; SNL Financial. This analysis is based 
on GMAC/Ally Financial's third quarter 2010 total asset figure of 
$173.2 billion, its total liabilities of $152.2 billion and its implied 
book value, the difference between assets and liabilities, of $21.0 
billion. The analysis uses the price-to-book ratios of the 35 
comparables and averages the results for each trading day for the full-
year 2010. The implied trading ranges for the comparables are as 
follows: low estimate (102 percent), median estimate (113 percent), 
average estimate (114 percent), and high estimate (132 percent).
    \343\ As discussed in Section B.1.d, Treasury has converted or 
exchanged $9.4 billion (both a loan and preferred stock) of its 
investment in GMAC/Ally Financial for the 73.8 percent equity stake it 
currently holds, therefore valuing Treasury's common interests in the 
company above the amount it invested to receive those interests. This 
does not, however, account for the remaining debt instruments Treasury 
holds in the company, or the difficulty in liquidating such a large 
equity position.
---------------------------------------------------------------------------
    In conversations with Panel staff, Mr. Carpenter and other 
senior officers from GMAC/Ally Financial's management stated 
that its public offering, if priced at or near book value, 
could help facilitate the conversion of the Treasury's 
remaining MCPs, which would help the company ultimately repay 
the government in full.\344\ As Figure 22 below illustrates, 
the average price-to-book of Treasury's 35 comparables has 
recovered dramatically from its 2009 trough and has remained 
above 100 percent for the entirety of 2010. The performance of 
these comparables, which are used by Treasury's Office of 
Financial Supervision (OFS) to monitor the value of its 
investments,\345\ appears to be positive for GMAC/Ally 
Financial, signaling a market perception at this time that 
comparable companies are valued at a multiple high enough to 
provide for full Treasury repayment. While the comparables show 
a positive trend in the market valuation of their businesses, 
there is a clear disparity between the performance of the 
broader universe of Treasury comparables and that of a more 
specifically tailored peer group, which may provide a closer--
but still imperfect--representation of the value of GMAC/Ally 
Financial. As demonstrated in Figure 22 below, the average 
price-to-book ratios of the nation's four largest banks (Bank 
of America, JPMorgan, Citigroup, and Wells Fargo), as well as 
CIT Group, a large specialty lender, have traded within a 
relatively narrow band over the past 12 months, underperforming 
a larger universe of financial firms. As of December 31, 2010, 
the price-to-book ratio of those five larger financial sector 
companies was 25 percent lower than that of the universe of 
smaller companies.
---------------------------------------------------------------------------
    \344\ GMAC/Ally Financial conversations with Panel staff (Dec. 6, 
2010).
    \345\ Treasury conversations with Panel staff (Nov. 18, 2010).
---------------------------------------------------------------------------

FIGURE 22: PRICE-TO-BOOK RATIO OF GMAC/ALLY FINANCIAL COMPARABLES \346\

      
---------------------------------------------------------------------------
    \346\ Bloomberg Data Service. Note that Large Cap Comparables 
refers to Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, and 
CIT Group.

[GRAPHIC] [TIFF OMITTED] T3381.017

3. Analysis of Intended Exit Strategy

            a. The Timetable for Treasury's Exit Strategy
    As discussed above, GMAC/Ally Financial has taken steps to 
mitigate some of the poor management decisions made in the past 
(most notably with respect to the company's substantial 
mortgage market exposure). As economic conditions have 
improved, the potential for Treasury to recoup its investment 
increased as market prices for capital transactions improved 
throughout 2010. In recent conversations with Panel staff, 
Treasury representatives have expressed confidence about the 
progress the company has made over the course of 2010 and the 
prospects for the taxpayers to be repaid pending the completion 
of an IPO.
    Treasury pointed to three key developments that underscore 
their optimism.\347\
---------------------------------------------------------------------------
    \347\ Treasury conversations with Panel staff (Nov. 18, 2010).
---------------------------------------------------------------------------
      First, they noted the improvements in the 
company's liquidity profile, with approximately $30 billion of 
new secured and unsecured funding transactions and an increase 
in the number of deposits at Ally Bank.
      Second, they noted that the outlook for GMAC/Ally 
Financial has become more favorable as the valuations for 
financial companies have increased since the early part of 
2010.\348\
---------------------------------------------------------------------------
    \348\ Noting that although there is no company that is a perfect 
match against which to measure GMAC/Ally Financial's prospects, 
Treasury is nonetheless pleased with the general improvements in 
valuation of companies that are at least somewhat comparable to GMAC/
Ally Financial. Treasury conversations with Panel staff (Nov. 18, 
2010).
---------------------------------------------------------------------------
      Finally, Treasury discussed how the company's 
core business has remained profitable for three consecutive 
quarters.
    Treasury's cause for optimism on both the company's 
progress and an upcoming IPO, however, might be premature. As 
discussed above, the Panel notes that the valuations for 
financial companies have not improved as much as Treasury 
stated. It is likely that mortgage market valuations have had 
the biggest impact on GMAC/Ally Financial (largely as a result 
of the company's efforts to stem the bleeding at ResCap). While 
GMAC/Ally Financial has now had three consecutive quarters of 
overall profitability, this likely owes more to the 
improvements in the ResCap mortgage portfolio than to anything 
else.
    Moreover, with respect to GMAC/Ally Financial's improved 
liquidity, an analysis of GMAC/Ally Financial's five-year 
credit default swap (CDS) spreads, a market indicator of 
perceived risk of a company's default, provides insight into 
the market's perception of the company's health. Using Ford 
Motor Credit (FMCC), a better capitalized company without the 
same degree of mortgage exposure, as a comparable provides a 
basis of comparison. The movement in GMAC/Ally Financial's CDS 
spread illustrates the dramatic improvement in market sentiment 
towards the company following the announcement that the 
Treasury would provide assistance to the company on December 
29, 2008. The 14.8 percent decline in GMAC/Ally Financial's CDS 
spread between December 30, 2010 and January 5, 2011, as 
compared to the 2.0 percent decline in Ford Motor Credit's CDS 
spread during the same period, further demonstrates the 
improvement in market opinion following Treasury's conversion 
of $5.5 billion of preferred interests in GMAC/Ally Financial 
into common stock.\349\ However, the current low spreads on its 
CDS, and its position relative to Ford Motor Credit--a company 
with a stronger balance sheet--show that GMAC/Ally Financial is 
apparently still benefitting from the support provided by 
Treasury as well as a market belief that the support will 
remain intact for the foreseeable future (which helps it secure 
funding at a lower cost).
---------------------------------------------------------------------------
    \349\ On the day prior to the announcement--December 29, 2010--
GMAC/Ally Financial's 5-year CDS spread was 270.9 basis points and Ford 
Motor Credit's was 218.5 basis points. On January 5, 2011, these 
metrics were 230.8 and 214.1 basis point, respectively. Bloomberg Data 
Service.
---------------------------------------------------------------------------

FIGURE 23: CREDIT DEFAULT SPREADS ON GMAC/ALLY FINANCIAL AND FORD MOTOR 
                              CREDIT \350\

      
---------------------------------------------------------------------------
    \350\ Bloomberg Data Service.

    [GRAPHIC] [TIFF OMITTED] T3381.018
    
            b. Key Variables/Risks Going Forward that Might Impact the 
                    Exit Strategy and Government Returns
    As with its ownership stakes in GM and Chrysler, there are 
certain variables and risks associated with Treasury's ability 
to divest its ownership stake in GMAC/Ally Financial 
successfully. As detailed below, the exit strategy timetable 
for GMAC/Ally Financial is somewhat complicated because the 
company's outlook is tied substantially to two key sectors--the 
auto industry and mortgage market--and the outlook for both 
remains uncertain. A successful exit strategy will, however, 
continue to depend upon positive--and improving--earnings as 
well as greater clarity about the company's medium-term 
strategy to grow Ally Bank, manage the GM relationship, 
maintain a mortgage portfolio with a more conservative risk/
reward calculus, and seize other growth opportunities. Since a 
public offering is the most likely method for recovery of 
taxpayers' money, if GMAC/Ally Financial experiences delays or 
obstacles in accessing the equity capital markets, this will 
prolong Treasury's involvement as a shareholder and could 
potentially impact GMAC/Ally Financial's ability to repay its 
government assistance.
            i. Performance of U.S. Auto Retail Market
    Given how the largest percentage of GMAC/Ally Financial's 
net revenue during the third quarter of 2010 was related to 
North American auto finance, GMAC/Ally Financial faces the 
classic monoline concentration risk--it is a company that 
focuses primarily on operating in one specific financial area. 
The company's viability and future profitability are, 
therefore, intimately tied to the performance of the U.S. 
retail auto market.\351\
---------------------------------------------------------------------------
    \351\ Treasury conversations with Panel staff (Nov. 18, 2010). See 
also Ally Financial Form 10-Q, supra note 297, at 80.
---------------------------------------------------------------------------
    On one hand, GMAC/Ally Financial's efforts to increase 
lending to consumers with super-prime and prime credit ratings 
(while reducing its near-prime and non-prime exposures), as 
discussed above, have resulted in higher quality originations 
that will likely minimize the risk of delinquencies and 
necessitate lower loss provisions (at least in the short term). 
Additionally, it might be at least somewhat prudent for a 
company to have such a disproportionate exposure to the auto 
finance business, since this asset class category is very 
attractive from a risk point of view, and has been one of the 
most resilient asset classes in the banking business.
    On the other hand, however, the global auto industry is 
highly cyclical and sensitive to changes in consumer sentiment, 
employment, gasoline prices, interest rates, and general 
economic activity.\352\ GMAC/Ally Financial's focus on this 
sector--and its continued close relationships with GM and 
Chrysler--concentrates the risk to GMAC/Ally Financial of any 
decline in the automotive industry. The success of GMAC/Ally 
Financial's auto finance franchise (and, in large part, that of 
GMAC/Ally Financial as a company), therefore, in large part 
depends upon credit quality and the pace of auto sales growth, 
which is tied to the rate of economic recovery, consumer 
sentiment, and the outlook for housing and employment in the 
United States. Further, GMAC/Ally Financial's prior major 
effort at diversification (albeit under an earlier management 
team) beyond the automotive industry, ResCap, was clearly not 
successful. While GMAC/Ally Financial has started to focus on 
building a presence in the used-car sector, where prices are 
currently at an all-time high,\353\ it is unclear what level of 
revenue this sector will generate for GMAC/Ally Financial going 
forward, but it will become less valuable if prices decline.
---------------------------------------------------------------------------
    \352\ See Section C.5, supra.
    \353\ Decreased consumer confidence in the economy is driving more 
people to purchase used cars, putting increased pricing pressure on a 
limited supply of vehicles. Inventory is low due to the current 
shortage of lease returns and trade-ins for vehicles of this type.
---------------------------------------------------------------------------
            ii. Relationship with GM
    GM recently acquired AmeriCredit, an auto finance company 
with total assets of $10 billion, to meet customer demand for 
leasing and non-prime financing for GM vehicles. GMAC/Ally 
Financial's auto finance franchise focuses on prime retail and 
dealer financing, while AmeriCredit focuses on subprime retail 
financing exclusively.\354\ If GM changes AmeriCredit's 
business model and expands its financing operations, however, 
GMAC/Ally Financial would lose some of its GM market share to 
AmeriCredit. While GMAC/Ally Financial continues to emphasize 
how it maintains an ``important, mutually beneficial 
relationship'' with GM,\355\ GM's acquisition of AmeriCredit 
raises the question as to whether GMAC/Ally Financial will 
continue to be uniquely positioned to serve GM dealers and 
customers.
---------------------------------------------------------------------------
    \354\ Ally Financial 2Q10 Earnings Review, supra note 308, at 7. 
However, there is room for competition between the two in the leasing 
market, as the economy recovers, and some lease programs may be more 
suitable to a captive financier.
    \355\ Ally Financial 2Q10 Earnings Review, supra note 308, at 7.
---------------------------------------------------------------------------
    GMAC/Ally Financial's current relationship with GM is 
shaped by the shared historical relationship between the two 
entities since 1919. Until 2006, GMAC/Ally Financial was a 
wholly owned subsidiary of GM, functioning as GM's captive 
financing arm with the interests of both entities very closely 
aligned. As part of the 2006 sale, GMAC/Ally Financial and GM 
entered into several service agreements that ``codified the 
mutually beneficial historic relationship between the 
companies.'' \356\ One of these agreements was the United 
States Consumer Financing Services Agreement (USCFSA), which 
provided that GM would use GMAC/Ally Financial exclusively 
whenever it offered vehicle financing and leasing incentives to 
customers.\357\ The parties agreed to maintain this 
relationship for 10 years. As consideration for this 
arrangement, GMAC/Ally Financial pays GM an annual exclusivity 
fee and agrees to meet specified targets with respect to 
consumer retail and lease financings of new GM vehicles. On 
December 29, 2008, after the Federal Reserve approved GMAC/Ally 
Financial's application to become a bank holding company, GM 
and GMAC/Ally Financial agreed to modify certain terms and 
conditions of the USCFSA.\358\ The modified USCFSA is in effect 
until December 24, 2013, but certain provisions terminate in 
January 2011.\359\ In addition, the subvention agreements 
between GM and GMAC/Ally Financial have been continued through 
these contractual agreements.\360\
---------------------------------------------------------------------------
    \356\ GMAC LLC, Form 10-K for the Fiscal Year Ended December 31, 
2008, at 40 (Feb. 27, 2009) (online at www.sec.gov/Archives/edgar/data/
40729/000119312509039567/d10k.htm) (hereinafter ``GMAC Form 10-K'').
    \357\ Id. at 40.
    \358\ Id. at 40.
    \359\ Id. at 40. These amendments include the following:
    (1) The parties agreed that for a two-year period (until 2011), GM 
could offer retail financing incentive programs through an alternative 
financing source under certain conditions. Following that two-year 
period, GM would be able to offer any incentive programs on a graduated 
basis through alternative financing sources, along with GMAC/Ally 
Financial, provided that the pricing satisfies certain requirements.
    (2) The parties agreed to eliminate the requirement that GMAC/Ally 
Financial satisfy certain lending and underwriting targets in order to 
remain the exclusive underwriter of special promotional loan programs 
offered by GM. GM offered GMAC/Ally Financial the right to finance 
these special programs for retail consumers for a five-year period.
    (3) The parties eliminated the exclusivity arrangement with respect 
to promotional programs for GM dealers, and this change will be phased 
out over time.
    (4) The parties agreed that GMAC/Ally Financial would no longer 
have an obligation to lend to a particular wholesale or retail 
customer, provide operating lease financing products, or be required to 
pay a penalty or receive lower payments or incentives for refusing to 
lend to a customer or for failing to satisfy individual or aggregate 
lending targets. GMAC/Ally Financial can also make loans to any third 
party and will use its own underwriting standards in making loans, 
including GM-related loans.
    \360\ See, e.g., GMAC Form 10-K, supra note 356, at 162; GMAC, 
Inc., Form 10-K for the Fiscal Year Ended December 31, 2009, at 43-44 
(Mar. 1, 2010) (online at www.sec.gov/Archives/edgar/data/40729/
000119312510043252/d10k.htm) (hereinafter ``GMAC Form 10-K'').
---------------------------------------------------------------------------
    These contractual modifications mean that GMAC/Ally 
Financial will be engaging in a sizeable renegotiation with its 
biggest operating partner in the near future. While the USCFSA 
relates mainly to subvented GM financing, GMAC/Ally Financial's 
share of which is proportionately less important now than what 
it once was, it is likely that before GMAC/Ally Financial can 
pursue an IPO, potential investors would like further 
clarification on GMAC/Ally Financial's relationship with GM 
going forward, especially given how critical GMAC/Ally 
Financial's relationships with GM dealers and customers are to 
its balance sheet.\361\ This may include a renegotiated 
operating agreement between GM and GMAC/Ally Financial that 
would explicitly prevent AmeriCredit from overtaking GMAC/Ally 
Financial's floorplan and consumer financing, at least for the 
indefinite future.\362\
---------------------------------------------------------------------------
    \361\ Industry analyst conversations with Panel staff (Nov. 16, 
2010).
    \362\ Industry analyst conversations with Panel staff (Nov. 16, 
2010).
---------------------------------------------------------------------------
    While GM's AmeriCredit acquisition does not pose a near-
term threat to GMAC/Ally Financial's business, it could 
represent a longer-term strategy by GM to grow its own captive 
financing arm organically.\363\ GM currently benefits from its 
relationship with GMAC/Ally Financial because Ally Bank (as a 
federally insured depository institution) has a lower cost of 
capital than captive finance companies such as Ford Motor 
Credit, leading some industry analysts to conclude that this 
remains an excellent arrangement for GM.\364\ As the Panel 
stated in its March 2010 report, however, ``it would not be 
unreasonable for a potential equity investor to question 
whether [GMAC/Ally Financial]'s relationship with GM is 
designed to serve GM's rather than [GMAC/Ally Financial]'s 
shareholders' interests.'' \365\ In that context, GMAC/Ally 
Financial's non-captive status subjects it to greater risk from 
GM: the relationship could sour, and GMAC/Ally Financial could 
lose its preferred provider role, and/or GM could, in fact, 
form its own, new captive finance company.\366\ If any of this 
were to happen, investor enthusiasm for a potential GMAC/Ally 
Financial IPO might be dampened, absent any evidence of other 
tangible growth opportunities. GMAC/Ally Financial has become 
the preferred finance company in the United States for Saab, 
Suzuki, Thor Industries (the world's largest manufacturer of 
recreational vehicles), and Fiat over the course of 2010, but 
it is unclear how much business these relationships will 
generate for GMAC/Ally Financial going forward, and it appears 
that current revenue projections are fairly small. An IPO 
requires a prospective investor to believe either that GMAC/
Ally Financial's relationship with GM is sufficiently stable to 
sustain it as a separate company, or that GMAC/Ally Financial 
can expand adequately (through growth strategies for Ally Bank, 
Chrysler, other automotive companies, the used car market, or 
otherwise) to handle the risk of a reduced relationship with 
GM. The public equity markets have never had an opportunity to 
evaluate this question, and their assessment remains unknown.
---------------------------------------------------------------------------
    \363\ Although a substantial loss in GM business would have a 
meaningful impact on GMAC/Ally Financial's ongoing viability because 
the company's auto finance platform has not yet undergone sufficient 
diversification, it is likely that an unwinding of GM's relationship 
with GMAC/Ally Financial would happen over the long term, which would 
allow for the impact of the loss to be spread over a period of time.
    \364\ Industry analyst conversations with Panel staff (Dec. 3, 
2010).
    \365\ March 2010 Oversight Report, supra note 22, at 108-109.
    \366\ The Panel also notes that GM might be further incentivized to 
form its own new captive finance company (or build AmeriCredit's 
platform) because it is beneficial to have a finance arm particularly 
during very tough markets, as it provides some protection if other 
lenders walk away. Industry analyst conversations with Panel staff 
(Nov. 10, 2010).
---------------------------------------------------------------------------

FIGURE 24: GMAC/ALLY FINANCIAL'S AUTO FINANCE LOAN ORIGINATIONS THROUGH 
         DECEMBER 20, 2010 (PERCENT OF UNITS ORIGINATED) \367\

      
---------------------------------------------------------------------------
    \367\ Data from GMAC/Ally Financial.

    [GRAPHIC] [TIFF OMITTED] T3381.019
    
            iii. Turmoil in the Mortgage Market
    GMAC Mortgage, a subsidiary of GMAC/Ally Financial, is the 
fifth largest U.S. mortgage servicer.\368\ As the Panel 
discussed in its November 2010 report, in the fall of 2010, 
reports began to surface of problems with foreclosure 
documentation.\369\ GMAC Mortgage announced on September 24, 
2010 that it had identified irregularities in its foreclosure 
document procedures, which have raised questions about the 
validity of some of its foreclosures. GMAC/Ally Financial 
temporarily suspended evictions and foreclosure sales by GMAC 
Mortgage in 23 states during September after an employee 
testified that he signed foreclosure documents without ensuring 
their accuracy.
---------------------------------------------------------------------------
    \368\ House Financial Services, Subcommittee on Housing and 
Community Opportunity, Written Testimony of Thomas Marano, chief 
executive officer, Mortgage Operations, Ally Financial Inc., Robo-
Signing, Chain of Title, Loss Mitigation, and Other Issues in Mortgage 
Servicing, at 1 (Nov. 18, 2010) (online at financialservices.house.gov/
Media/file/hearings/111/Marano111810.pdf) (hereinafter ``Thomas Marano 
Testimony'') (stating that GMAC Mortgage ``is currently the fifth 
largest residential mortgage servicer in the United States . . . '').
    \369\ See Congressional Oversight Panel, November Oversight Report: 
Examining the Consequences of Mortgages Irregularities for Financial 
Stability and Foreclosure Mitigation, at 7-8 (Nov. 16, 2010) (online at 
cop.senate.gov/documents/cop-111610-report.pdf) (hereinafter ``November 
2010 Oversight Report'').
---------------------------------------------------------------------------
    These developments raise two important issues: (1) the 
validity of some of GMAC Mortgage's foreclosures given the 
irregularities in its documentation procedures; and (2) the 
amount of exposure GMAC/Ally Financial could face from mortgage 
repurchases.
    With respect to the first issue, as of November 3, 2010, 
GMAC Mortgage has reviewed 9,523 foreclosure affidavits and, 
where necessary, has re-executed some.\370\ Fewer than 15,500 
additional affidavits are being reviewed and, when necessary, 
will be remediated.\371\ According to GMAC/Ally Financial, the 
review has shown ``no evidence of inappropriate foreclosure to 
date,'' and GMAC Mortgage ``is confident that the decisions 
behind foreclosure proceedings were sound.'' \372\ Corrective 
actions will be taken as necessary, according to the company, 
and company management expects that the vast majority of cases 
will be remediated over the next few months.
---------------------------------------------------------------------------
    \370\ Ally Financial 3Q10 Earnings Review, supra note 300, at 10.
    \371\ Ally Financial 3Q10 Earnings Review, supra note 300, at 10.
    \372\ Ally Financial 3Q10 Earnings Review, supra note 300, at 10. 
See also Thomas Marano Testimony, supra note 368, at 1.
---------------------------------------------------------------------------
    With respect to the second issue, GMAC Mortgage, like other 
underwriters/issuers, is required to make representations and 
warranties about the mortgage loans to the purchaser or 
securitization trust when selling mortgage loans through whole-
loan sales or securitizations. This may require it to 
repurchase mortgage loans as a result of borrower fraud or if a 
payment default occurs on a mortgage loan shortly after its 
origination. Over the course of 2010, GMAC/Ally Financial 
entered into settlements with Fannie Mae and Freddie Mac, under 
which it made one-time payments to Fannie Mae and Freddie Mac 
for the release of repurchase obligations relating to mortgage 
loans sold to the GSEs.\373\ This means that its remaining 
exposure is to potential repurchase obligations related to 
mortgage loans sold to private institutions to be securitized. 
Estimates of potential repurchase claims are subject to change 
as GMAC Mortgage provides more clarity on its exposure. Some 
analysts see GMAC/Ally Financial as a ``well capitalized 
company with considerable liquidity and earnings power,'' 
despite the risk of negative publicity surrounding mortgage 
uncertainties.\374\ Furthermore, while the company's current 
repurchase reserve might not be sufficient to resolve all 
future claims, these issues will likely take years to settle, 
which would thereby spread the impact of the liability over a 
period of time and mitigate capital outflows.\375\ The 
repurchase exposure is the primary concern of both GMAC/Ally 
Financial's management and investors, rather than the 
foreclosure irregularities issue.\376\ Because the 2009 stress 
tests considered the ability of financial institutions to 
remain well-capitalized only until the end of 2010, however, 
the stress tests offer limited reassurance that major bank 
holding companies like GMAC/Ally Financial will remain well-
capitalized in the months and years to come, especially if the 
economic recovery remains sluggish. Even the prospect of such 
losses could damage GMAC/Ally Financial's reputation, its 
ability to raise capital, and its ability to pursue an 
IPO.\377\ If the company is unable to assuage investor concerns 
on this front, the timing of a potential IPO could be impacted.
---------------------------------------------------------------------------
    \373\ In March 2010, GMAC/Ally Financial's subsidiaries, GMAC 
Mortgage and Residential Funding Company, LLC, made a one-time payment 
to Freddie Mac for the release of repurchase obligations relating to 
mortgage loans sold to Freddie Mac prior to January 1, 2009. The 
release does not cover any of GMAC/Ally Financial's potential 
repurchase obligations related to mortgage loans sold to Freddie Mac 
after January 1, 2009 or GMAC/Ally Financial's potential repurchase 
obligations related to ``private-label'' mortgage securities (mortgage 
loans sold to private institutions) to be securitized. This agreement 
also does not cover any of GMAC/Ally Financial's obligations with 
respect to loans where its subsidiary Ally Bank is the owner of the 
servicing. Ally Financial Form 10-Q, supra note 297, at 77.
    On December 27, 2010, GMAC/Ally Financial announced that ResCap and 
certain ResCap subsidiaries reached a settlement with Fannie Mae for 
the release of repurchase obligations relating to mortgage loans sold 
to Freddie Mac. The agreement covers loans serviced by GMAC Mortgage on 
behalf of Fannie Mae prior to June 30, 2010, and all mortgage-backed 
securities that Fannie Mae purchased prior to the settlement, including 
private-label securities. ``The settlement was for approximately $462 
million and releases ResCap and its subsidiaries from liability related 
to approximately $292 billion of original unpaid principal balance (and 
$84 billion of current UPB) on these loans.'' ResCap and Fannie Mae 
also reached an arrangement with respect to ``ResCap's payment of 
mortgage insurance proceeds where mortgage insurance coverage is 
rescinded or canceled.'' This agreement does not cover other 
contractual obligations that ResCap has with Fannie Mae (e.g., those 
that may arise in connection with mortgage servicing), and excludes 
Ally Bank. Ally Financial Inc., Ally Financial's Mortgage Subsidiaries 
Reach Agreement With Fannie Mae on Repurchase Exposure (Dec. 27, 2010) 
(online at media.ally.com/index.php?s=43&item=437).
    \374\ Ally Financial 3Q10 Preview, supra note 335. Based upon 
assumptions of delinquency rates, put-back rates, put-back acceptance, 
and loss severity on the $310.6 billion of loans originated by GMAC/
Ally Financial during 2006-2008, JPMorgan Chase estimated in November 
2010 that mortgage put-backs will cost the company $1.4 billion of 
incremental capital. While this potential magnitude is significant, 
JPMorgan Chase believes GMAC/Ally Financial can ``easily fund potential 
liabilities'' with its existing liquidity or estimated 2010 net income 
and notes that the firm increased its mortgage repurchase reserve by $1 
billion in 2009 to end the year with a $1.2 billion reserve.
    \375\ Ally Financial 3Q10 Preview, supra note 335, at 2.
    \376\ GMAC/Ally Financial conversations with Panel staff (Dec. 6, 
2010); Industry analyst conversations with Panel staff (Dec. 1, 2010).
    \377\ Moody's Investors Service, Issuer Comment: Problems at GMAC 
Servicing and Ally Financial Are Credit Negative (extracted from 
Moody's Weekly Credit Outlook) (Sept. 27, 2010) (noting that GMAC/Ally 
Financial may need to increase its marketing expense to help offset or 
overcome the reputational damage associated with these developments).
---------------------------------------------------------------------------
    In conversations with Panel staff, Treasury representatives 
noted that they believe GMAC/Ally Financial's exposure is 
manageable, and asserted that the risk profile of GMAC Mortgage 
is no worse or better than that of its peers.\378\ In addition, 
they stated that they have not dictated GMAC/Ally Financial's 
response to the foreclosure irregularities issue, but have 
handled the issue in a ``routine'' manner, consistent with its 
core principles as a ``reluctant shareholder.'' \379\ According 
to GMAC/Ally Financial, however, Mr. Carpenter has met with 
Treasury Acting Assistant Secretary for Financial Stability Tim 
Massad regularly on this topic.\380\ While GMAC/Ally Financial 
management concurs that Treasury has not told the company how 
to respond to this issue, they note that Treasury remains a 
``very concerned shareholder'' on this topic.\381\
---------------------------------------------------------------------------
    \378\ Treasury conversations with Panel staff (Nov. 18, 2010).
    \379\ Treasury conversations with Panel staff (Dec. 21, 2010).
    \380\ These meetings have been requested by both GMAC/Ally 
Financial and Treasury. GMAC/Ally Financial conversations with Panel 
staff (Dec. 14, 2010).
    The Panel also notes the company's recent testimony on this topic. 
See, e.g., Thomas Marano Testimony, supra note 368.
    \381\ GMAC/Ally Financial conversations with Panel staff (Dec. 13, 
2010).
---------------------------------------------------------------------------
            iv. Has GMAC/Ally Financial Sufficiently Reduced the Risk 
                    in its Mortgage Portfolio?
    As discussed above, one of GMAC/Ally Financial's core goals 
has been to review the mortgage strategy and reduce the risk in 
its mortgage operations business. During the earnings call for 
the third quarter of 2010 (and in conversations with Panel 
staff), Mr. Carpenter stated that the company has ``effectively 
de-risked the mortgage business.'' \382\ While ResCap was again 
profitable in the third quarter of 2010 (with net income of $38 
million) and has required no additional capital or liquidity 
support, there continues to be a risk that ResCap will not be 
able to meet its debt service obligations.\383\ Although GMAC/
Ally Financial's mortgage operations proved to be a poor 
strategy in the past, its plans to retain and expand its 
mortgage servicing/origination business (rather than selling 
off the entire ResCap business) are much less balance sheet 
intensive and lower risk than mortgage originations. It remains 
unclear whether GMAC/Ally Financial has reduced the risk in its 
mortgage portfolio completely, in large part because the 
company's outstanding contingent liabilities (including 
repurchase claims) and any remaining legal exposure could 
present risks going forward.\384\
---------------------------------------------------------------------------
    \382\ Ally Financial Transcript: Q3 2010 Earnings Call, supra note 
306; Ally Financial 3Q10 Earnings Review, supra note 300, at 40.
    \383\ Ally Financial Form 10-Q, supra note 297, at 10.
    \384\ Industry analyst conversations with Panel staff (Dec. 1, 
2010).
---------------------------------------------------------------------------
            v. Maintaining a Robust Liquidity Profile
    As noted above, GMAC/Ally Financial faces multiple 
impediments to profitability, especially amid a fragile 
economic and market recovery. At the parent company level, 
GMAC/Ally Financial must maintain sufficient liquidity to 
support its non-bank asset originations, debt maturities, 
interest and dividends, and investments/loans to operating 
subsidiaries. GMAC/Ally Financial must continue to demonstrate 
unfettered and non-government-sponsored access to the third-
party credit markets, including wholesale financing markets, 
and must continue to make headway in reducing its cost of 
capital.
    A key challenge facing GMAC/Ally Financial will be 
maintaining robust liquidity. GMAC/Ally Financial suffers from 
significant amounts of maturing debt, as reflected below in 
Figure 25. GMAC/Ally Financial has $21.5 billion coming due in 
2011 and $19.8 billion in 2012. In the second quarter of 2009, 
the company received approval to issue debt up to $7.4 billion 
under the FDIC's Temporary Liquidity Guarantee Program 
(TLGP).\385\ Pursuant to the program, it issued $4.5 billion of 
unsecured long-term debt, which included $3.5 billion of senior 
fixed-rate notes and $1.0 billion of senior floating rate 
notes. Both types of notes are due in December 2012.\386\ On 
October 30, 2009, GMAC/Ally Financial issued an additional $2.9 
billion of unsecured debt in the form of senior fixed-rate 
notes. These notes are due in October 2012.\387\ If GMAC/Ally 
Financial is unable to refinance at affordable rates or has 
insufficient cash to cover its maturing obligations, it may 
face even higher borrowing costs, possibly resulting in renewed 
liquidity problems.
---------------------------------------------------------------------------
    \385\ GMAC Form 10-K, supra note 360, at 83.
    \386\ GMAC Form 10-K, supra note 360, at 83.
    \387\ GMAC Form 10-K, supra note 360, at 83.
---------------------------------------------------------------------------

  FIGURE 25: LONG-TERM DEBT MATURITIES AS OF SEPTEMBER 30, 2010_ALLY 
                   FINANCIAL (EXCLUDING RESCAP) \388\

      
---------------------------------------------------------------------------
    \388\ Regarding ResCap long-term debt, $716 million is set to 
mature in 2011, $358 million is set to mature in 2012, $1,236 million 
is set to mature in 2013, $809 million is set to mature in 2014, and 
$1,011 million is set to mature during and after 2015. There was no 
ResCap long-term debt scheduled to mature in 2010. These amounts 
exclude ResCap debt held by GMAC/Ally Financial and collateralized 
borrowings in securitized trusts. Ally Financial Form 10-Q, supra note 
297, at 31.

[GRAPHIC] [TIFF OMITTED] T3381.020

            vi. Ally Bank's Strategy is a Work in Progress
    As discussed above, Ally Bank provides GMAC/Ally Financial 
with a source of liquidity in both the retail and wholesale 
markets. Ally Bank also provides diversified funding (including 
deposits) for the automotive financing unit. This strategy has 
several components. GMAC/Ally Financial is simultaneously 
integrating Ally Bank with the auto lending business while 
expanding its retail banking offerings. GMAC/Ally Financial is 
aware that its combination of retail online banking and 
wholesale automotive financial services is untested but 
believes that it offers good value to Ally Bank's customers 
while simultaneously involving Ally Bank effectively in the 
automotive lending side of the business.
    GMAC/Ally Financial has been engaged in an aggressive 
marketing campaign for Ally Bank. Among other things, Ally Bank 
has been attempting to interest depositors by offering CD rates 
that have been and remain among the highest available 
nationally.\389\ Some analysts also believe that there is long-
term uncertainty with Ally Bank's funding strategy due to both 
the risks associated with changing its operational and funding 
model to one focused on banking and those risks associated with 
whether an internet banking platform can meet the funding 
requirements of a large-scale company such as GMAC/Ally 
Financial.\390\ In addition, since Ally Bank's current deposit 
mix is rate sensitive, GMAC/Ally Financial could be subject to 
some amount of volatility due to the potential for loss of 
customers and deposit amounts due to rate shifts.\391\ In order 
to support Ally Bank's expansion and sustain its capital 
strength, the GMAC/Ally Financial parent company will 
``probably need to inject significant cash capital over the 
next few years.'' \392\ The extent to which GMAC/Ally Financial 
will need to provide Ally Bank with cash infusions remains 
unclear.
---------------------------------------------------------------------------
    \389\ Bankrate.com, CD Investment Rates (online at 
www.bankrate.com/cd.aspx) (accessed Jan. 11, 2011). This strategy has 
been politically contentious as regulators view unusually high rates as 
an indication of instability. For example, in the summer of 2009, Ally 
Bank's rates were more than double the national average. This prompted 
the American Bankers Association (ABA) to write a letter of complaint 
to the FDIC and the FDIC to issue new regulations setting a variety of 
standards for the interest rates permissible for insured depository 
institutions that are not well capitalized. For further discussion 
concerning the controversy surrounding Ally Bank's interest rates and 
the viability of Ally Bank's strategy going forward, see March 2010 
Oversight Report, supra note 22, at 105-107. See also Bankrate.com, CD 
Investment Rates (online at www.bankrate.com/funnel/cd-investments/cd-
investment-
results.aspx?local=false&tab=CD&prods=15&ic_id=CR_searchCDNational_cd_1y
rCD_V1) (accessed Jan. 11, 2011).
    \390\ Moody's Investors Service, Global Credit Research, Liquidity 
Risk Assessment: Ally Financial Inc., at 1 (Oct. 15, 2010) (hereinafter 
``Moody's Liquidity Risk Assessment'').
    \391\ Id. at 1. While Ally Bank has demonstrated strong CD 
retention rates, Moody's believes that ``these deposits are rate 
sensitive and therefore less sticky than demand deposits offered 
through traditional branch networks.''
    Given the very limited product suite at Ally Bank, some analysts 
believe that Ally Bank's deposits function more like brokered deposits 
(or ``hot money'') than core deposits at more conventional banks. 
Industry analyst conversations with Panel staff (Dec. 1, 2010). 
Brokered deposits are large deposits that deposit brokers shop among 
depository institutions looking for high rates and are usually viewed 
as risky for the depository institution. They are short-term 
investments, which have been associated with high rates of bank 
failures. See Mindy West and Chris Newbury, Brokered and High-Cost 
Deposits, FDIC Interagency Minority Depository Institutions National 
Conference Presentation, at 33, 40 (July 2009) (online at www.fdic.gov/
regulations/resources/minority/events/interagency2009/Presentations/
Brokered.pdf). See also L.J. Davis, Chronicle of a Debacle Foretold, 
Harper's Magazine, at 53-54 (Sept. 1990).
    One analyst considers Ally Bank's proportion of brokered deposits 
and lack of restrictions on deposit withdrawals to be a warning sign of 
bank instability. See Congressional Oversight Panel, Written Testimony 
of Christopher Whalen, senior vice president and managing director, 
Institutional Risk Analytics, COP Hearing on GMAC Financial Services, 
at 18 (Feb. 25, 2010) (online at cop.senate.gov/documents/testimony-
022510-whalen.pdf); Congressional Oversight Panel, Testimony of 
Christopher Whalen, senior vice president and managing director, 
Institutional Risk Analytics, Transcript: COP Hearing on GMAC Financial 
Services, at 91-98 (Feb. 25, 2010) (online at frwebgate.access.gpo.gov/
cgi-bin/getdoc.cgi?dbname=111_senate_hearings&docid=f:56723.pdf).
    \392\ Moody's Liquidity Risk Assessment, supra note 390, at 1.
---------------------------------------------------------------------------
    Ultimately, Ally Bank appears to be both critical to GMAC/
Ally Financial and is very much a work in progress. The Panel 
notes that Ally Bank may ultimately need to move toward a more 
traditional banking model (with a branch network) and broaden 
its footprint via other offerings. These possibilities, 
however, are not on the immediate horizon and would be 
impractical for the company to accomplish before the 
government's exit.\393\
---------------------------------------------------------------------------
    \393\ GMAC/Ally Financial conversations with Panel staff (Dec. 6, 
2010).
---------------------------------------------------------------------------

                    G. Auto Supplier Support Program


1. Background

    Generally, automotive suppliers ship parts to auto 
manufacturers and receive payment 45-60 days later. Under 
normal market conditions, suppliers can either sell or borrow 
against the payment commitments, known as receivables. In early 
2009, the downturn in the economy and uncertainty regarding the 
future of GM and Chrysler resulted in tightening credit for 
auto suppliers. Banks stopped providing credit against supplier 
receivables. On March 19, 2009, in order to address this 
situation and to provide overall structural support for the 
auto industry, Treasury announced the creation of the Auto 
Supplier Support Program (ASSP).\394\
---------------------------------------------------------------------------
    \394\ U.S. Department of the Treasury, Auto Supplier Support 
Program: Stabilizing the Auto Industry at a Time of Crisis (Mar. 19, 
2009) (online at www.treasury.gov/press-center/press-releases/
Documents//supplier_support_program_3_18.pdf).
---------------------------------------------------------------------------

2. TARP Intervention

    When the ASSP was created, up to $5 billion in financing 
was made available through the TARP. Participating suppliers 
could access a government-backed guarantee of eligible 
receivables or sell receivables into the program. A fee was 
charged for participation in the ASSP, and receivables were 
sold into the program at a discount.\395\ While all domestic 
automotive manufacturers were eligible for the program, only 
Chrysler and GM participated.
---------------------------------------------------------------------------
    \395\ The credit insurance cost participants 2 percent, while 
selling receivables into the program carried a 3 percent cost. U.S. 
Department of Commerce, Office of Transportation and Machinery, On the 
Road: U.S. Automotive Parts Industry Annual Assessment, at 19 (2010) 
(online at trade.gov/wcm/groups/internet/documents/article/
auto_reports_parts2010.pdf).
---------------------------------------------------------------------------
    Two special-purpose vehicles (SPVs), GM Supplier 
Receivables LLC and Chrysler Receivables SPV LLC, were created 
to administer the program for GM and Chrysler, respectively. 
Originally, $3.5 billion was committed to the GM SPV, and $1.5 
billion was dedicated to the Chrysler counterpart. On July 1, 
2009, Treasury reduced the total amount available under the 
ASSP to $3.5 billion, with $2.5 billion being reserved for GM's 
SPV and $1 billion for the Chrysler SPV. As Figure 26 details, 
through the life of the program, only $413.1 million of the 
$3.5 billion in available funding was drawn down. Treasury's 
commitment to lend to the SPVs terminated in April 2010.\396\ 
All funds outstanding under the ASSP were repaid, and Treasury 
earned a total of $14.9 million in interest as well as $101.1 
million in proceeds from additional notes.\397\
---------------------------------------------------------------------------
    \396\ The GM SPV closed on April 5, 2010, and the Chrysler SPV 
closed on April 7, 2010. Treasury Transactions Report, supra note 24, 
at 19.
    \397\ The additional notes were financial instruments that Treasury 
took from the Chrysler and GM SPVs as part of their agreement to 
participate in the program; the notes provided Treasury the opportunity 
to recognize upside gains on its investments. As dictated in the 
legislation that created the TARP, the Emergency Economic Stabilization 
Act, financial instruments such as warrants were to be provided to 
Treasury in consideration for its investment in participating 
institutions. As the law states, instruments such as warrants, or 
additional debentures in the case of the ASSP, were created ``to 
provide for reasonable participation by the Secretary, for the benefit 
of taxpayers, in equity appreciation in the case of a warrant or other 
equity security, or a reasonable interest rate premium, in the case of 
a debt instrument.'' 12 U.S.C. Sec. 5223(d)(2)(A)(i).

                                FIGURE 26: AUTO SUPPLIER SUPPORT PROGRAM METRICS
                                              [Millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                       Proceeds
                                                   Original     Adjusted      Amount      Interest       from
                                                  Commitment   Commitment   Drawn Down      Paid      Additional
                                                                                                        Notes
----------------------------------------------------------------------------------------------------------------
GM Receivables LLC.............................       $3,500       $2,500       $290.0         $9.1        $56.5
Chrysler Receivables SPV LLC...................        1,500        1,000        123.1          5.8         44.5
                                                ----------------------------------------------------------------
Total..........................................       $5,000       $3,500       $413.1        $14.9       $101.1
----------------------------------------------------------------------------------------------------------------

3. Current Status of Auto Supplier Industry

    Standard indicators appear to show a stabilization in the 
automotive supplier industry as industry-wide consolidation 
increases. While there were 62 automotive supplier bankruptcies 
in 2009, there were only 5 failures in 2010.\398\ Furthermore, 
the auto supplier industry's capacity utilization rate, an 
indicator of the degree to which an enterprise uses its ability 
to produce, is currently 60.5 percent. While this figure is 
significantly higher than it was at its trough of 45.9 percent 
during the crisis, it remains notably lower than the pre-crisis 
level, when it was typically above 70 percent.\399\ This has 
led to ongoing consolidation of the supplier industry. Ford, 
GM, and Chrysler have announced reductions of 53, 30, and 50 
percent, respectively, in their direct supply bases.\400\
---------------------------------------------------------------------------
    \398\ Data provided by the Original Equipment Suppliers Association 
in response to a Panel request (Nov. 30, 2010).
    \399\ Data provided by the Original Equipment Suppliers Association 
in response to a Panel request (Jan. 7, 2011).
    \400\ The State of the Supplier Industry, supra note 52, at 17. 
This measure is based on number of direct suppliers each manufacturer 
states it will use going forward. For example, Ford has stated that it 
will have 750 direct suppliers in the future as compared to the 1,600 
it currently relies upon.
---------------------------------------------------------------------------

H. Analysis of Treasury's Interaction with all Three Companies in Light 
                       of Government's Objectives


1. Summary of Principles upon which Government Says it Will Conduct its 
        Involvement in Private Companies

    In numerous hearings, reports, and statements to the press, 
Treasury has articulated four guiding principles for its 
involvement in private industry in the wake of the financial 
crisis, and specifically for its involvement with the 
automotive industry.
    First, the government has cast itself as a ``reluctant 
shareholder.'' It has stated that: ``[t]he government has no 
desire to own equity stakes in companies any longer than 
necessary, and will seek to dispose of its ownership interests 
as soon as practicable. Our goal is to promote strong and 
viable companies that can quickly be profitable and contribute 
to economic growth and jobs without government involvement.''
    Second, Treasury has said that it will ``reserve the right 
to set upfront conditions to protect taxpayers, promote 
financial stability, and encourage growth. When necessary, 
these conditions may include restructurings similar to that now 
underway at GM as well as changes to ensure a strong board of 
directors that selects management with a sound long-term vision 
to restore their companies to profitability and to end the need 
for government support as quickly as is practically feasible.''
    Third, Treasury has stated its commitment to ``managing its 
ownership stake in a hands-off, commercial manner.'' This 
includes a commitment not to ``interfere with or exert control 
over day-to-day company operations.'' To the extent that 
Treasury appoints any board members, it has stated that ``[n]o 
government employees will serve on the boards or be employed by 
these companies.''
    Finally, Treasury has stated that it will vote its shares 
only ``on core governance issues, including the selection of a 
company's board of directors and major corporate events or 
transactions.'' \401\
---------------------------------------------------------------------------
    \401\ White House Fact Sheet on General Motors Restructuring, supra 
note 36.
---------------------------------------------------------------------------
    Put together, these principles illustrate an approach to 
government intervention that seeks to minimize the government's 
role, dampen any leverage the government has simply by virtue 
of its unique authority as sovereign, and present itself as a 
shareholder that behaves in most cases as a private shareholder 
would, while still protecting the assets of the people of the 
United States.\402\
---------------------------------------------------------------------------
    \402\ Whether the use of the TARP for the support of the automotive 
industry is a legitimate use of TARP funds is an issue that the Panel 
has addressed at length. September 2009 Oversight Report, supra note 2, 
at 70-79.
---------------------------------------------------------------------------
    Given the principles Treasury has laid out for its own 
involvement with the American automobile industry, three 
questions arise: (1) has Treasury abided by its own principles; 
(2) has Treasury used its limited powers effectively; and (3) 
was Treasury correct in establishing these guidelines as an act 
of prudent government restraint, or did the guidelines 
unnecessarily tie Treasury's hands at a time when greater 
government action, or at least shareholder activism, was 
necessary.

2. Has Treasury Abided by its own Principles?

    As to the first question, the answer seems to be a 
qualified yes. According to the information the Panel has 
received from Treasury and the companies, it seems that 
Treasury has kept to the guidelines it established for itself. 
It is unclear, however, whether given its status, the 
government can actually be a passive investor. On the whole, 
Treasury's involvement in the companies has been restricted to 
participation in periodic calls with management to obtain 
information, appointing directors as permitted by the shares 
Treasury holds, and voting on a limited number of issues. At 
present, Treasury staff speaks with management at GM and 
Chrysler at least monthly and with management at GMAC/Ally 
Financial on a regular basis. In most cases, it is the 
companies that contact Treasury to convey new information such 
as earnings reports, or other relevant data. During these 
calls, company management provides Treasury with updated 
information on current operations and financial information, 
including updates on revenue, market share, domestic and 
international sales, and any corporate highlights as well as a 
review and analysis of the companies' balance sheets.\403\ 
Treasury maintains that these calls are one-way; Treasury's 
role is to listen to the information provided by management, 
and does not respond with any directives or requests of 
management.\404\ In the wake of allegations of irregularities 
in GMAC/Ally Financial's mortgage foreclosures, however, 
Treasury did take the initiative to contact the company for 
additional information regarding the irregularities.
---------------------------------------------------------------------------
    \403\ Data provided by Treasury (Dec. 9, 2010).
    \404\ Treasury conversations with Panel staff (Nov. 18 and 22, 
2010).
---------------------------------------------------------------------------
    Treasury has described these calls as the type that any 
large shareholder might have with company management, although 
it is unlikely that a large private shareholder would actually 
be as passive as Treasury describes. For the most part, the 
companies also describe their interactions with Treasury as 
being similar to interactions with other major shareholders. 
For example, Chrysler has stated that it provides all of its 
owners, including Treasury, with the same information about its 
operations and financial results each month. GM has stated that 
Treasury expressed a desire to be kept apprised of progress but 
had no intention to influence the company's progress, and that 
Treasury has stayed true to that intent. Moreover, GM has 
confirmed that Treasury's role in determining the timing of its 
IPO was extremely limited and that Treasury left the decision 
in the hands of GM management. Chrysler has similarly stated 
that Treasury has not provided input on the proposed timing for 
that company's IPO.
    Treasury has said that, in the period preceding the GM IPO, 
its interactions with GM were much more frequent than they had 
been previously.\405\ This increased activity, however, 
Treasury has attributed solely to its need to perform due 
diligence as a large shareholder. GM has affirmed this view, 
and has also confirmed Treasury's position that the decision 
about when to have the IPO was made primarily by the company. 
Treasury and the Canadian government both had demand rights 
that would have enabled them to force an IPO by a certain date 
if the company had not begun the process, but the need to 
exercise those rights did not arise. Treasury has acknowledged 
that waiting a year or 18 months may have given GM time to 
improve its value even further, but noted that the company had 
determined that it was ready for an IPO.\406\
---------------------------------------------------------------------------
    \405\ Treasury conversations with Panel staff (Nov. 22, 2010).
    \406\ The exact timing of the IPO was impacted by the holiday 
season. Treasury has stated that there was a consensus that if the IPO 
did not happen by mid-November 2010, it would have to wait until after 
the holidays and possibly until the spring for a receptive market. 
Treasury conversations with Panel staff (Nov. 22, 2010). As discussed 
in Sections C and D, supra, the company has taken several steps in the 
course of restructuring that have made it a more attractive investment, 
including streamlining its operations and improving its efficiency.
---------------------------------------------------------------------------
    In general, GMAC/Ally Financial has described its 
interactions with Treasury in the same way. Preparations for 
GMAC/Ally Financial's potential IPO, however, have presented 
some challenges that have led to a different dynamic in the 
interactions between GMAC/Ally Financial and Treasury with 
regard to this issue. As the Panel discussed in its March 2010 
report, Treasury's treatment of GMAC/Ally Financial has not 
adhered as firmly to the principles on which Treasury has 
claimed to base all of its TARP investment decisions.\407\ For 
Treasury to suggest otherwise in conversations with Panel staff 
may reveal a bias to present a consistent narrative regarding 
its shareholder principles, rather than acknowledging the 
unique circumstances that its stake in GMAC/Ally Financial may 
present.
---------------------------------------------------------------------------
    \407\ March 2010 Oversight Report, supra note 22.
---------------------------------------------------------------------------
    This is illustrated by the rigidity with which Treasury 
articulates these principles in explaining its interactions 
with the company--descriptions that often lack the transparency 
that would illustrate the unique factors that understandably 
impact Treasury's GMAC/Ally Financial exit strategy.
    Treasury initially informed the Panel on November 22, 2010 
that the timing of a potential IPO was entirely up to GMAC/Ally 
Financial. However, this assertion neglected to acknowledge the 
practical impact of the continued uncertainty regarding the 
potential conversion status of the Treasury's MCPs, and the 
obvious hurdle this would present in terms of proceeding with 
an IPO. Although Treasury later acknowledged that the timing of 
the conversion would impact the timing of the IPO, Treasury 
still maintained that the conversion of its MCP holdings was 
not a prerequisite for the company to proceed with an IPO. 
After a portion of the MCPs were converted, however, Treasury 
finally cited this move as a necessary step towards the IPO 
during a conversation with oversight bodies on January 5, 2011, 
and now appears somewhat more hesitant to reassert its prior 
claims of GMAC/Ally Financial's independence to pursue its IPO 
on its own timetable.\408\ Treasury's stated rationale for 
timing the conversion tacitly confirms the fact that a GMAC/
Ally Financial IPO would be impeded by a delay on Treasury's 
part in converting its MCPs into common shares, and seems to 
contradict Treasury's earlier statement that GMAC/Ally 
Financial could hold its IPO without waiting for Treasury to 
convert the MCPs.\409\ In any case, the Panel recognizes that 
this may be a prudent (but belated) acknowledgement of the 
unique factors that understandably complicate the IPO process 
for GMAC/Ally Financial.
---------------------------------------------------------------------------
    \408\ In something of a departure from its involvement in GM, 
Treasury would not state unequivocally that the timing of a GMAC/Ally 
Financial IPO is solely in company management's hands. Treasury 
conversations with Panel staff (Jan. 5, 2011).
    \409\ Treasury also cited the need to bolster GMAC/Ally Financial's 
capital structure and its recent settlement with Fannie Mae on mortgage 
repurchase claims as affecting the timing of the conversion. During the 
same meeting, Treasury articulated, for the first time, the need to 
conduct the conversion in order to remove GMAC/Ally Financial from the 
strictures of section 23(a) of the Federal Reserve Act, which limits 
the transactions between a bank and its non-bank affiliates (in this 
instance, GM). Treasury conversations with Panel staff (Jan. 5, 2011). 
GMAC/Ally Financial was granted an exemption from this rule in 2008 and 
in 2009. See March 2010 Oversight Report, supra note 22, at 23-25.
---------------------------------------------------------------------------
    Treasury, in its role as shareholder, has also appointed a 
number of new members to the board of each company. At GM, 
Treasury has appointed 10 of the current 12 board members, 
including Dan Akerson, who was later named CEO by the company's 
directors. Treasury has appointed four members to the Chrysler 
board, and three to GMAC/Ally Financial's board, with an 
additional member currently undergoing the vetting process for 
appointment. As a result of converting a portion of its GMAC/
Ally Financial MCPs into common shares, Treasury has also 
acquired the right to appoint two more members to the company's 
board. In seeking candidates for these positions, Treasury used 
private search companies, such as might be used by a private 
shareholder seeking to appoint directors to a large 
corporation.
    As a common stockholder, Treasury has the right to vote its 
shares on various issues. In accordance with its commitment to 
vote only on ``core governance issues,'' Treasury has exercised 
its right three times, all at GM: the appointment of board 
members; a stock split that immediately preceded the IPO; and a 
charter amendment for the preservation of tax assets. These 
actions fall squarely within the category of ``core governance 
issues'' and are the type on which a large private shareholder 
would usually vote. Treasury has never voted its shares in 
Chrysler or GMAC/Ally Financial.
    Based on the information that Treasury has provided to the 
Panel, it appears that Treasury has been following its 
guidelines and has taken no action that a private shareholder 
could not take. This does not mean, however, that Treasury's 
position as a majority shareholder, or even as a shareholder at 
any level, has had no impact on the companies. It may be 
impossible for a government agency to hold a stake in a private 
company without having a greater impact than a private 
shareholder. First, Treasury's stake is more visible than that 
of any other shareholder. Because the American people have a 
direct interest in the companies, the companies' every movement 
is of potential interest to the press. Second, Treasury makes 
larger waves with each of its movements than a private investor 
does. The fact that Treasury intends to have a ``hands-off'' 
approach does not mean that its voice does not seem louder to 
the companies than those of other shareholders.
    Treasury's ownership stake may have both a positive and 
negative impact on the companies' share prices. For example, 
there may be a perception in the market--particularly among 
debt investors--that the government stands behind the 
companies, regardless of whether the government has that 
intention, thereby making credit available to the companies on 
more favorable terms than they would have otherwise received. 
As discussed in Section F.3.a, the current spreads on GMAC/Ally 
Financial credit default swaps support this assumption. On the 
negative side, potential investors may fear that Treasury would 
wield influence disproportionate to its holdings, and that 
Treasury's presence is not a positive backstop, but an ongoing 
sign of the companies' inherent weaknesses.\410\
---------------------------------------------------------------------------
    \410\ See September 2009 Oversight Report, supra note 2, at 80-102 
(discussing the tensions inherent in government ownership of private 
enterprise). Moreover, GM has indicated that it believes that some 
potential consumers may be disinclined to buy automobiles from the 
companies due to dissatisfaction with the government's policies. The 
company was unwilling to provide documentation to support this claim, 
as it views this analysis as confidential and proprietary.
---------------------------------------------------------------------------

3. Has Treasury Used its Limited Authority Effectively?

    To analyze the success of Treasury's intervention in the 
automotive industry, there must first be a definition of 
``success.'' Treasury has provided its own views on what would 
constitute a success. In testimony before the Panel, senior 
Treasury advisor Ronald Bloom defined success as primarily a 
question of return on investment: ``the greater percentage of 
the money that we invested that we get back, the greater 
success.'' \411\ The investment was not, however, made purely 
for the purpose of seeing a return on those funds. Mr. Bloom 
also testified to the importance of job preservation and listed 
a number of other measures for determining whether the program 
was successful, including the question of ``whether these 
companies have addressed the long-term problems that we 
identified,'' such as ``a declining market share, a poor 
profitability profile'' and failing to increase their ability 
to provide ``good, stable jobs.'' \412\ Austan Goolsbee, 
Chairman of the Council of Economic Advisers, appeared in a 
recent video released by the White House to explain the 
``Rebirth of the American Auto Industry.'' According to Mr. 
Goolsbee, although taxpayers may soon see a return of the funds 
invested, the investment ``was never really about the stock 
market. It was about saving American jobs.'' \413\
---------------------------------------------------------------------------
    \411\ Congressional Oversight Panel, Testimony of Ron Bloom, senior 
advisor, U.S. Department of the Treasury, Transcript: COP Field Hearing 
on the Auto Industry, at 38 (July 27, 2009) (online at cop.senate.gov/
documents/transcript-072709-detroithearing.pdf) (hereinafter 
``Transcript: Testimony of Ron Bloom'').
    \412\ Id. at 38-39.
    \413\ The White House, The White House Whiteboard: The Rebirth of 
the American Auto Industry, at 3:15 (Nov. 18, 2010) (online at 
www.whitehouse.gov/photos-and-video/video/2010/11/18/white-house-white-
board-rebirth-american-auto-industry) (hereinafter ``The White House 
Whiteboard: The Rebirth of the American Auto Industry'').
---------------------------------------------------------------------------
    If the success of the overall automotive rescue, and of the 
government's means of implementing that program in accordance 
with the principles listed in Section H.1, above, is measured 
by Treasury's ability to meet its own definition of success, 
the program must: (1) provide a return on investment; (2) 
create or at least preserve jobs that would have otherwise been 
lost; and (3) set the companies on a path toward ongoing 
stability. Treasury's challenge, given its goals, lies not only 
in the difficulty of the goals themselves, but also in the fact 
that they may be mutually exclusive at times. For example, the 
best way to improve the return on investment and shore up the 
companies for the future may be to cut jobs. Also, to the 
extent that these companies have conflicting interests, 
Treasury may be placed in an untenable position. Historically, 
GMAC/Ally Financial has had close to a monopoly position in 
providing financing for GM dealers as well as a large share of 
the GM consumer financing market. This position is beneficial 
to GMAC/Ally Financial but not to GM and may have led to 
borrowers receiving more expensive loans than they might have 
obtained in a more competitive market. Treasury, as a 
stakeholder in both GM and GMAC/Ally Financial, can support 
neither GMAC/Ally Financial's dominant market position nor the 
entrance of greater competition without potentially undermining 
its investment in one company or the other. Moreover, judging 
Treasury solely by its ability to meet goals it set for itself 
may lead to a result that is overly favorable to Treasury. The 
goals articulated by Treasury may include certain assumptions 
about the proper role of government and the needs of the 
American economy that are not shared by all.
    As described in detail elsewhere in this report,\414\ the 
likelihood that taxpayers will receive a full return of their 
money depends on a variety of market factors that are 
impossible to predict with perfect accuracy. A certain portion 
of the funds have already been repaid, however, and the current 
prospect for a significant return is more favorable than it was 
as of the Panel's September 2009 report on the automotive 
industry. Using Mr. Bloom's yardstick, therefore, the program 
has been more successful than many had predicted.
---------------------------------------------------------------------------
    \414\ See Sections D, E, and F.
---------------------------------------------------------------------------
    Additional repayment at this point, however, turns in large 
part on Treasury's ability to sell off its entire stake in each 
company, including its sizeable remaining stake in GM. As 
discussed in Sections D, E, and F, above, Treasury faces 
challenges in each case. In the case of GM, Treasury still 
holds a substantial share of the common stock, which it must 
sell at a price approximately 64 percent above the IPO price to 
realize a profit on the government's overall investment. 
Investor interest in GM must therefore remain high enough to 
absorb such a large number of shares. GMAC/Ally Financial faces 
various uncertainties before investors are likely to welcome an 
IPO. And, in the case of Chrysler, the earliest an IPO is 
likely to occur is 2012, making it difficult to predict both 
Treasury's ability to sell its entire stake and the amount 
Treasury is likely to receive in such a sale. In any case, $3.5 
billion of Treasury's investment in Chrysler has already been 
written off, so even a very successful IPO is unlikely to 
recoup all of the money invested in that company. Moreover, as 
discussed in Section E above, Treasury holds only an 8 percent 
equity stake in Chrysler and is unlikely to be able to exercise 
its call option to obtain more. This leaves Treasury with a 
stake that is too small either to command a control premium or 
to exercise any control over the timing of the IPO. Finally, it 
is not clear whether the market will have an appetite for 
shares of another large American auto company soon after the GM 
IPO.
    The case of Chrysler Financial may provide an example of 
the government forgoing potential upside in order to exit an 
investment as quickly as possible. The issue is not that the 
implied value of Chrysler Financial increased by 33 percent in 
the seven months following the sale of Treasury's stake to 
Cerberus in May 2010. The Panel acknowledges that there is no 
exact science to determining the most opportune time to exit an 
investment. Rather, the government's exercise of due diligence 
in response to the overture from Cerberus to buy out its stake 
appears to have been surprisingly limited and did not envision 
other valuation scenarios for Chrysler Financial that would 
involve a strategic buyer for the asset. Clearly, both Cerberus 
and Chrysler Financial, on the other hand, recognized the value 
in the platform and subsequently sought to maximize the value 
of the business following the government's exit in preparation 
for a sale to a strategic buyer.
    As the Panel has discussed in earlier reports, the cost of 
any program initiated under EESA cannot be measured solely by 
the amount of money returned to the public coffers.\415\ The 
cost must also include a calculation of the risk that the 
American people assumed while the loans or investments were 
outstanding.\416\ And it must include some accounting of the 
potential future effects on the industry and the wider economy, 
such as the heightened risk of moral hazard among American 
automobile companies, or among any large corporations, leading 
these companies and the market to assume that they have an 
implicit guarantee from the government (i.e., that they are 
``too big to fail,'' or at least will receive generous 
government support to ease the bankruptcy process). Even if 
such effects cannot be determined until years into the future, 
their potential must be taken into account when measuring the 
success of the automobile programs.
---------------------------------------------------------------------------
    \415\ See, e.g., Congressional Oversight Panel, September Oversight 
Report: Assessing the TARP on the Eve of Its Expiration, at 95-104 
(Sept. 16, 2010) (online at cop.senate.gov/documents/cop-091610-
report.pdf).
    \416\ In addition, Treasury has already written off $3.5 billion in 
funds invested in the domestic automotive industry. See Figure 1.
---------------------------------------------------------------------------
    It is also difficult to determine how many jobs were saved 
through the government's intervention. In the aforementioned 
White House video presentation, Mr. Goolsbee states that 
hundreds of thousands of American workers are currently 
employed at GM plants, dealerships, and auto suppliers instead 
of ``going out and looking for new work.'' \417\ But, as 
discussed in Sections C and D, above, GM has also shed 
thousands of jobs as part of its bid to return to 
profitability. It is likely true that, had the company faced a 
prolonged disruption in operations as part of the bankruptcy 
process, either because the company was liquidated or because 
there was a significant delay in finding DIP financing, a much 
larger number of GM employees, if not all, may have been laid 
off.\418\ The exact number of jobs ultimately saved is 
difficult to determine. For example, some of the workers 
included in Mr. Goolsbee's calculation, such as those working 
for suppliers, may have served customers in addition to GM and 
may not have been laid off in the event of a GM liquidation. In 
addition, if the rescue of the automotive industry ultimately 
proves unsuccessful, then these jobs were not truly saved; 
instead, unemployment for these workers was delayed at a cost 
to the American taxpayers.\419\ It is likely, however, that, 
had GM's bankruptcy been a more prolonged process, a larger 
number of workers would likely have lost their jobs.\420\
---------------------------------------------------------------------------
    \417\ The White House Whiteboard: The Rebirth of the American Auto 
Industry, supra note 413, at 3:36. An earlier White House estimate 
placed the figure at 1.1 million jobs saved by the entire automobile 
industry rescue. George W. Bush White House Archives Fact Sheet, supra 
note 12.
    \418\ For a full discussion of the bankruptcy options available to 
GM and Chrysler, see September 2009 Oversight Report, supra note 2.
    \419\ To the extent that the rescue of the automotive industry is 
viewed as a job preservation program, it is not clear that such a 
program aimed solely at a single industry was the best use of funds for 
this purpose. The Panel takes no position on this issue, however.
    \420\ On the other hand, it should be noted that employment in the 
motor vehicle and parts industry declined by 40 percent between 
November 2006 and November 2010, from 1.1 million to 650,000.
---------------------------------------------------------------------------
    The final issue with respect to the effectiveness of the 
government's intervention is whether these companies are now on 
the path to long-term stability. Because the issues that 
determine long-term stability are often the same issues that 
determine a company's valuation, these factors overlap 
substantially with the question of whether and to what extent 
Treasury may recover its investment and exit its positions in 
these companies. As discussed in prior sections of this report, 
GMAC/Ally Financial has been profitable for the last three 
quarters, GM's earnings have increased in each of the last four 
quarters, and Chrysler has been consistently repaying its 
debts. GM and Chrysler nonetheless face a number of challenges. 
Both are seeking additional market share in the small-car 
sector, which is extremely competitive. Both must also convince 
consumers that they are creating reliable, quality cars, since 
their reputation in this area has been declining in recent 
years.\421\ GMAC/Ally Financial must overcome its current 
trouble with foreclosure irregularities, and must establish a 
stable business model for automotive financing and leasing, one 
that is not overly dependent on GM in light of GM's acquisition 
of AmeriCredit. GMAC/Ally Financial also faces uncertainty 
related to its heavy concentration in the automotive industry. 
Even if the three companies' financials are relatively sound 
now, the domestic automotive sector as a whole must make a 
strong comeback in order for them to thrive.
---------------------------------------------------------------------------
    \421\ As discussed in Sections D and E above, though, both have 
made definite strides in this area.
---------------------------------------------------------------------------

4. Was Treasury Right in Establishing These Guidelines for Itself?

    Treasury's determination to set and abide by its own 
guidelines may be an exemplary exercise in government 
restraint, or it may be an unnecessary and harmful restriction 
on government in a time when government intervention was 
necessary. The guidelines, to the extent that they were 
followed, provided some reassurance to the markets that 
Treasury's actions would be circumscribed and no more 
unpredictable than those of the average private investor. 
Moreover, given the public's preference for free-market 
commerce instead of government-owned enterprise, the guidelines 
may have assuaged some objections to Treasury's actions. They 
also may have provided a check on Treasury at times when the 
temptation to take more aggressive action arose and ensured 
that rules established with a cooler head prevailed.
    On the other hand, Treasury created certain risk for the 
American people by imposing restrictions on its actions. The 
American people had a large amount of money at stake in private 
companies. Treasury arguably had a duty to protect those 
resources to the best of its ability, and voluntarily 
refraining from action could have been a way of doing less than 
that. Treasury staff has said that even if one of the companies 
had taken a step that, even to an industry outsider, would 
appear foolhardy, Treasury would not have stepped in to prevent 
the company from pursuing its plan. It does not appear that any 
of the companies involved with the TARP has had any intention 
of taking highly risky or questionable marketing or investment 
decisions, let alone actually having done so. Hence, Treasury's 
self-restraint does not seem to have ultimately had any harmful 
effects in practice.
    There are, however, other opportunities that may have been 
lost. As discussed in the Panel's March 2010 report on GMAC/
Ally Financial, it appears that the option to merge the company 
back into GM, making GMAC/Ally Financial again a captive 
finance arm, was not considered, despite certain potential 
advantages. The Panel has no opinion on whether merging the 
companies would actually have been the correct course, but it 
is disconcerting that the option was not thoroughly examined. 
This lack of consideration raises questions about whether other 
options that may have maximized benefits to the taxpayer were 
also left unexplored due to Treasury's avowed hands-off stance.

                   I. Conclusions and Recommendations

    The financial crisis laid bare the challenges facing the 
domestic U.S. auto industry. The cumulative impact of a series 
of strategic and competitive missteps over the preceding decade 
came to the fore in the fall of 2008. While the Panel has 
previously questioned the government's perception of its policy 
choices during various stages of the crisis, there is little 
doubt that in the absence of massive government assistance, GM, 
Chrysler, and GMAC/Ally Financial faced the prospect of 
bankruptcies and potential liquidation, given the apparent 
dearth of available financing from the private sector. In the 
context of a fragile economy and the financial crisis (which 
severely restricted both corporate and consumer credit), the 
failure of these companies could have had significant near-term 
consequences in terms of job losses and the performance of the 
broader U.S. economy. Although the assets of GM and Chrysler 
(plants and equipment, employees, brand recognition) would have 
had value to other firms over the longer term, it was in the 
context of these adverse near-term consequences that both the 
Bush and Obama Administrations provided assistance to the auto 
sector.
    The Panel takes no position on the decision to support the 
auto industry, a topic addressed in our September 2009 report. 
All told, the Bush and Obama Administrations provided $81.4 
billion in assistance to these three companies (as well as $3.5 
billion for auto suppliers). Unlike assistance to the banks, 
much of the government's investment still hangs in the balance, 
with 66 percent of overall assistance still outstanding. 
Treasury is now on course to recover the majority of its 
automotive investments within the next few years, but the 
impact of its actions will reverberate for much longer. 
Treasury's rescue suggested that any sufficiently large 
American corporation may be considered ``too big to fail,'' 
broadening moral hazard risk from its TARP rescue actions 
beyond the financial sector. Further, the fact that the 
government helped absorb the consequences of GM's and 
Chrysler's failures has put more competently managed automotive 
companies at a disadvantage. Still, while the government 
perhaps set a dangerous precedent of expanding the notion of 
``too-big-to-fail'' to the non-financial sector, the terms on 
which this support was provided offered considerably less 
comfort to legacy shareholders and creditors, at least to those 
of Chrysler and GM, than it did to the equity and debt holders 
of rescued financial firms.
    While the outlook for the return on taxpayer funds has 
improved considerably over the past 12 months, there is still a 
long road ahead, particularly for GMAC/Ally Financial and 
Chrysler. Improving industry fundamentals--signified by GM's 
recent IPO--highlight a more hospitable backdrop since the 
Panel's last report on the auto sector in September 2009. This 
backdrop corresponds with improved operating fundamentals, as 
GM and Chrysler have shed costs and positioned themselves to 
produce profits at much lower levels of output. Market shares 
have generally stabilized, as has vehicle pricing since 
manufacturers no longer need to offer generous incentives to 
reduce overladen inventories. GMAC/Ally Financial has benefited 
from an improving backdrop for mortgage assets, allowing the 
firm to reduce the crushing overhang of its mortgage exposure, 
as well as reverse at least a portion of prior asset write-
downs.
    Against this improving backdrop, GM has reported improving 
earnings in each of the past four quarters. GMAC/Ally Financial 
is now in the black after reporting losses throughout 2009, and 
Chrysler's performance has improved materially with the help of 
its alliance with Fiat. (While operationally profitable, 
interest payments on TARP loans have prevented a bottom-line 
return to profitability at Chrysler.)
    Treasury's calculations of potential taxpayer losses of 
$14.7 billion on total assistance of $81.3 billion to these 
three firms could ultimately prove conservative, but 
significant risks remain, given that the amount recovered will 
depend heavily on public market valuations of each firm's 
shares into 2011 and beyond.\422\ Below is a brief summary of 
the status of Treasury's investments in GM, Chrysler, and GMAC/
Ally Financial.
---------------------------------------------------------------------------
    \422\ OFS Agency Financial Report, supra note 172, at 11; Treasury 
Transactions Report, supra note 24, at 18-19.
---------------------------------------------------------------------------
      GM: Of the $49.9 billion in total assistance, the 
government has thus far recouped $22.7 billion.\423\ As of 
December 31, 2010, the government's unsold stake is valued at 
$18.4 billion, which would represent a total taxpayer loss of 
$7.9 billion.
---------------------------------------------------------------------------
    \423\ Total funds recovered to date excludes dividends and interest 
of $766 million paid to Treasury through December 31, 2010.
---------------------------------------------------------------------------
      Chrysler: Only $2.2 billion in total assistance 
has been recouped,\424\ and $3.5 billion in loans are 
considered a loss. However, the improved financial performance 
of the company indicates that Treasury's remaining loans to 
Chrysler may in fact be ultimately recovered. As discussed in 
Section E, for the government to recoup losses already incurred 
to Old Chrysler, the equity value of a potential IPO would have 
to exceed $14.5 billion.\425\
---------------------------------------------------------------------------
    \424\ Total funds recovered to date excludes interest of $580 
million paid to Treasury through December 31, 2010.
    \425\ Certain assumptions apply to this estimate. See Section E.3 
for a fuller discussion.
---------------------------------------------------------------------------
      GMAC/Ally Financial: Significant equity 
investments in GMAC/Ally Financial imply greater risk and more 
uncertainty in the lead-up to a potential IPO in 2011, although 
the improved operating performance--similar to that of GM and 
Chrysler--bodes well for a meaningful return on the $17.2 
billion in total assistance to GMAC/Ally Financial. This being 
said, GMAC/Ally Financial is now the last TARP recipient 
standing--after the accelerated Citigroup exit and recent 
announcements about exiting AIG--for which the government has 
control of its exit and not articulated a clear exit strategy.
    These rescue efforts by the government employed 
differentiated strategies with varying levels of risk to the 
taxpayer. While GM and Chrysler were put through bankruptcy, 
GMAC/Ally Financial was not, to the relative benefit of its 
legacy shareholders and creditors. Whereas the government 
shouldered the entire rescue of GM, it enlisted Fiat as a 
partner for Chrysler, which is a smaller and less economically 
significant automobile manufacturer than GM.
    While the Panel has outlined various scenarios that could 
see taxpayers recover a meaningful amount of this assistance 
over the next two years, the financial returns on these 
investments do not tell the entire story and should not 
overshadow the Administration's broader objectives in providing 
assistance to the auto industry.
    Unlike the intervention in the financial sector, the 
government in this case sought a broad restructuring of the 
underlying industry, and it was able to pursue this objective 
given its controlling stake in some of the impacted companies. 
Given the broader restructuring aims--as well as countering the 
threat of imminent and massive job losses--it is perhaps not 
surprising that the government has offered various benchmarks 
beyond a strict tally of the full return of the taxpayer's 
assistance to measure its success in this endeavor. While 
senior Treasury advisor Ronald Bloom once defined success 
solely in monetary terms--``the greater percentage of the money 
that we invested that we get back, the greater success'' 
\426\--on other occasions Mr. Bloom and others in the 
Administration have cited the dual mandates of jobs 
preservation and effecting lasting fundamental reform of the 
auto sector.
---------------------------------------------------------------------------
    \426\ Transcript: Testimony of Ron Bloom, supra note 411, at 38.
---------------------------------------------------------------------------
    As outlined in this report, there are examples of 
conflict--some inevitable, others not--between Treasury's core 
principles. In particular, the government has sought to present 
a consistent narrative of its role as a reluctant shareholder. 
In the case of GMAC/Ally Financial, transparency that would 
illustrate the unique circumstances of specific investments and 
explain certain actions by Treasury has sometimes been 
sacrificed in favor of retaining the appearance of a consistent 
narrative. This unnecessarily undermines the spirit of 
transparency critical to the effectiveness of the TARP.
    Another recent example of this conflict between Treasury's 
principles involves Chrysler Financial, where meaningful 
incremental taxpayer returns appear to have been sacrificed in 
favor of an unnecessarily accelerated exit, further compounded 
by apparently questionable due diligence. The Panel notes that 
questions stemming from this transaction are not motivated by 
the fact that seven months following Treasury's exit, Chrysler 
Financial sold at a price that was 33 percent higher than the 
value of the company implied by Treasury's settlement price. 
Rather, the government's due diligence on the sale of its stake 
to Cerberus was surprisingly limited in scope. Treasury focused 
on the merits of the offer at hand and apparently neglected to 
contemplate more favorable valuation scenarios that may have 
resulted from a competitive bidding process of eager strategic 
buyers looking to acquire and invest in the Chrysler Financial 
platform. Given the apparent success of the longer-term 
investment mindset that has characterized the government's 
management of its AIG and GMAC/Ally Financial investments, 
Treasury's haste to exit Chrysler Financial is perplexing.
    A final tally on the return of taxpayer assistance and a 
report card on longer-term reform efforts remain premature. 
Early returns indicate that the government's intervention in 
the auto sector--leaving aside any assessment of the relative 
merits of providing that assistance in the first place--has 
been surprisingly successful, both in terms of financial 
returns from assistance and the rebound in the companies' 
performance. The Panel notes that GM and Chrysler are now 
adding jobs after their initial downsizings. However, as noted, 
a more robust scorecard, one that weighs the positives from 
government intervention, such as the near-term preservation of 
jobs and prevention of a deeper contraction in the economy, 
versus the negatives, including the investment of substantial 
taxpayer dollars and the precedent set by government 
intervention into the private sector, is required to evaluate 
fully the government's actions. Nonetheless, this longer-term 
assessment should not obscure the near-term focus on recovering 
as much value as possible for the taxpayer. At the same time, 
the Panel recognizes that absent sustainable reform that 
produces a smaller auto industry subject to the discipline of 
the private capital markets, improved returns on taxpayer 
assistance could mask longer-term risks.
    Likewise, the relatively improved outlook should not 
overshadow serious questions that prevent a more transparent 
assessment of the government's efforts. These questions arise 
from the fact that, having intervened on a massive scale and 
outlined sweeping mandates for the reform of the industry, the 
government--by its own account--then chose largely to retreat 
to the sidelines, performing run-of-the-mill oversight of its 
investments and leaving the heavy lifting to the government's 
designees on the companies' boards of directors.
    Treasury has consistently (and often vociferously) asserted 
that it will not interfere or otherwise seek to influence the 
strategic management of the companies in which it holds a 
stake. The Panel recognizes the importance of a hands-off 
approach to day-to-day business operations and recognizes that 
crossing this line in certain instances can raise troubling 
questions regarding the government's role in the private 
sector. However, many would argue that this line had long since 
been crossed, given the government's initial decision to 
provide assistance to the auto industry, and to pretend 
otherwise today begs credulity.
    In the case of GMAC/Ally Financial, the Panel recommended 
previously that Treasury explore the possibility of value-
enhancing strategic arrangements that would seek to maximize 
the government's aggregate stake in both GM and GMAC/Ally 
Financial. Subsequently, rather than seeking a closer 
relationship with GMAC/Ally Financial, GM has chosen to build 
its own auto financing subsidiary via the acquisition of 
AmeriCredit. While such a move may seemingly make strategic 
sense for GM, it is not clear if the value to the government, 
as a shareholder in GM, outstrips the potential negative impact 
of this acquisition to the government's stake in GMAC/Ally 
Financial. Treasury's deliberate refusal to take a portfolio 
investment approach to managing its holdings across the auto 
sector appears to be inconsistent with the rationale for its 
decision to rescue GMAC/Ally Financial, which was to help GM 
continue to finance car sales, particularly to its dealership 
network.\427\
---------------------------------------------------------------------------
    \427\ A similar portfolio analysis might have been undertaken at 
the time of the initial decision to rescue Chrysler, exploring the 
alternative of letting Chrysler fail in order to bolster the prospects 
of the remaining domestic auto manufacturers, particularly GM.
---------------------------------------------------------------------------
    The Panel recognizes two potential positive developments 
from Treasury's hands-off approach. Namely, GM's efforts to 
establish its own captive auto finance subsidiary will likely 
improve the competitive dynamics in this market by reducing the 
company's reliance on GMAC/Ally Financial. Further, any 
residual moral hazard in the marketplace related to the 
perception that GMAC/Ally Financial is too interconnected with 
GM to be allowed to fail would likely be mitigated by GM's 
development of its own captive financing subsidiary.
    The Panel makes the following recommendations:
      The Administration should enhance disclosure in 
the budget and financial statements for the TARP by reporting 
on the valuation assumptions (``credit reform'' subsidy rates) 
for the individual companies included in the overall subsidy 
rate for the AIFP.
      The Panel recognizes that it is in the private 
sector's and the government's interest for Treasury to exit its 
investments as soon as practicable. However, Treasury should be 
cognizant that this may not in all instances be in the 
taxpayer's best interest. The Panel urges Treasury to consult 
independent third parties to assess these determinations in the 
future to identify instances where a longer investment horizon 
may meaningfully improve the outlook for the taxpayer's return 
on its investment.
      Treasury sought to assure the Panel during its 
February 2010 hearing on GMAC/Ally Financial that legacy 
private sector stakeholders in the company would not see any 
return until and if the U.S. taxpayer recoups its entire 
investment. The Panel recommends that Treasury expand on this 
assertion, clarifying its approach to the treatment of legacy 
shareholders in GMAC/Ally Financial as the government's exit 
plan moves forward. Aside from the consequences to the 
taxpayer's interest, clarifying the treatment of legacy 
shareholders will help preserve market discipline going 
forward.
      Given the scale of government intervention and 
the desire not to repeat this episode, it may be in the 
taxpayer's interest that Congress commission independent 
researchers to periodically assess the long-term fallout from 
the collapse of the auto industry and the subsequent government 
intervention, including the risk to taxpayers stemming from 
future disruptions to the auto market from economic, credit 
market or other potential threats. Related to these efforts, 
Congress should also follow up by contracting with independent 
researchers and market analysts to develop more credible 
estimates of the impact of the bailout of GM, GMAC/Ally 
Financial, and Chrysler on economic performance and employment.
                     SECTION TWO: ADDITIONAL VIEWS


         A.  J. Mark McWatters and Professor Kenneth R. Troske

    We concur with the issuance of the January report and offer 
the additional observations below. We appreciate the efforts 
the Panel and staff made incorporating our suggestions offered 
during the drafting of the report.
    We wish to make the following points.

      In the closing days of 2008 when GM, Chrysler, 
and GMAC/Ally Financial faltered, the American taxpayers--not 
the Department of Treasury--stood as the last safe-haven for 
these distressed institutions. In return for their generosity 
the CBO estimates that the taxpayers stand to lose 
approximately $19 billion on their investments.\428\ This is 
real money, enough to finance the construction of over four 
Nimitz-class aircraft carriers (at $4.5 billion each) or fund 
approximately 25 years of NIH-sponsored breast cancer research 
(at $765 million per year).\429\
---------------------------------------------------------------------------
    \428\ See Congressional Budget Office, Report on the Troubled Asset 
Relief Program--November 2010, at 5 (Nov. 18, 2010) (online at 
www.cbo.gov/ftpdocs/119xx/doc11980/11-29-TARP.pdf).
    \429\ See U.S. Navy, Fact File: Aircraft Carriers (online at 
www.navy.mil/navydata/fact_display.asp?cid=4200&tid=200&ct=4) (accessed 
Jan. 12, 2011); U.S. Department of Health and Human Services, National 
Institutes of Health, Estimates of Funding for Various Research, 
Condition and Disease Categories (RCDC)  (Feb. 1, 2010)  (online at 
report.nih.gov/rcdc/ 
categories/).
---------------------------------------------------------------------------
      Treasury's primary role in the restructuring of 
GM, Chrysler, and GMAC/Ally Financial was to act as a funding 
conduit for the taxpayer sourced capital infusions. These 
institutions have, not surprisingly, performed reasonably well 
over the past several months due to the strength of their 
foreign markets, the recovery of their domestic markets, the 
replacement of their directors and senior management, the de-
leveraging of their balance sheets, the renegotiation of their 
collective bargaining agreements, the recovery of the capital 
markets, the tepid recovery of the general economy, and, of 
course, the ``gift'' of $19 billion or so of taxpayer funds. It 
remains to be seen, however, if these companies can remain on 
the path to financial recovery and independence from taxpayer-
sourced subsidies.

      The Panel concludes in the report: ``there is 
little doubt that in the absence of massive government 
assistance, GM, Chrysler, and GMAC/Ally Financial faced the 
prospect of bankruptcies and potential liquidation.'' \430\
---------------------------------------------------------------------------
    \430\ See Section I, supra.
---------------------------------------------------------------------------
        While bankruptcy did follow for GM and Chrysler and 
        probably should have followed for GMAC/Ally Financial, 
        we remain skeptical that the companies would have been 
        liquidated and sold off for scrap value absent direct 
        intervention by the government. The brisk turn-around 
        of the three institutions over the past two years 
        indicates that even in the last quarter of 2008 
        substantial inherent value existed within each company. 
        Despite claims to the contrary, we still have trouble 
        concluding that Chevrolet, Cadillac, Buick, GMC trucks, 
        and Jeep, as well as GMAC/Ally Financial's auto finance 
        business, among others, were worth next to nothing in 
        the closing days of 2008 and, but for the taxpayer-
        funded bailouts, would have failed and left hundreds of 
        thousands temporarily unemployed. It would have been 
        preferable for these institutions to have been 
        reorganized by private sector participants, with, 
        perhaps, debtor-in-possession financing guaranteed to a 
        limited extent by the government. It is difficult to 
        accept that private sector strategic buyers, private 
        equity firms, hedge funds, and sovereign wealth funds 
        were not willing and able to orchestrate the successful 
        reorganizations or restructurings of the three 
        distressed companies. Once the government entered the 
        picture and signaled its intent to bail out the 
        institutions with its unlimited taxpayer-financed 
        checkbook, it is hardly surprising that private sector 
        participants demurred. Under such circumstances, it is 
        not possible for even the most sophisticated, 
        motivated, and financially secure of private sector 
        firms to prevail.

      The Panel states in the report:

                Treasury is now on course to recover the 
                majority of its automotive investments within 
                the next few years, but the impact of its 
                actions will reverberate for much longer. 
                Treasury's rescue suggested that any 
                sufficiently large American corporation--even 
                if it is not a bank--may be considered ``too 
                big to fail,'' creating a risk that moral 
                hazard will infect areas of the economy far 
                beyond the financial system. Further, the fact 
                that the government helped absorb the 
                consequences of GM's and Chrysler's failures 
                has put more competently managed automotive 
                companies at a disadvantage. For these reasons, 
                the effects of Treasury's intervention will 
                linger long after taxpayers have sold their 
                last share of stock in the automotive 
                industry.\431\
---------------------------------------------------------------------------
    \431\ See Section I, supra.

---------------------------------------------------------------------------
        The Panel states in the report:

                These favorable events, however, must be 
                thoughtfully balanced against the moral hazard 
                risks created by the taxpayer's bailout of the 
                three institutions and the ongoing implicit 
                guarantee of the government. By bailing out GM, 
                Chrysler, and GMAC/Ally Financial, the 
                government sent a powerful message to the 
                marketplace--some institutions will be 
                protected at all cost, while others must 
                prosper or fail based upon their own business 
                judgment and acumen. We regret that Treasury 
                has focused solely on the apparent success of 
                the GM IPO in assessing the rescues of the 
                three institutions to the distinct exclusion of 
                the moral hazard risks arising from the 
                bailouts.\432\
---------------------------------------------------------------------------
    \432\ See Section A, supra.

---------------------------------------------------------------------------
        The Panel also states in the report:

                As the Panel has discussed in earlier reports, 
                the cost of any program initiated under EESA 
                cannot be measured solely by the amount of 
                money returned to the public coffers. The cost 
                must also include a calculation of the risk 
                that the American people assumed while the 
                loans or investments were outstanding. And it 
                must include some accounting of the potential 
                future effects on the industry and the wider 
                economy, such as the heightened risk of moral 
                hazard among American automobile companies, or 
                among any large corporations, leading these 
                companies and the market to assume that they 
                have an implicit guarantee from the government 
                (i.e., that they are ``too big to fail,'' or at 
                least will receive generous government support 
                to ease the bankruptcy process). Even if such 
                effects cannot be determined until years into 
                the future, their potential must be taken into 
                account when measuring the success of the 
                automobile programs.\433\
---------------------------------------------------------------------------
    \433\ See Section H.3, supra.

        In our view, the above passages represent the most 
        significant analysis provided in the report. The TARP 
        has all but created an expectation, if not an emerging 
        sense of entitlement, that certain financial and non-
        financial institutions are simply ``too-big-or-too-
        interconnected-to-fail'' and that the government will 
        promptly honor the implicit guarantee issued for the 
        benefit of any such institution that suffers a reversal 
        of fortune. This is the enduring legacy of the TARP. 
        Unfortunately, by offering a strong safety net funded 
        with unlimited taxpayer resources, the government has 
        encouraged potential recipients of such largess to 
        undertake inappropriately risky behavior secure in the 
        conviction that all profits from their endeavors will 
        inure to their benefit and that large losses will fall 
        to the taxpayers. The placement of a government 
        sanctioned thumb-on-the-scales corrupts the fundamental 
        tenets of a market economy--the ability to prosper and 
---------------------------------------------------------------------------
        the ability to fail.

        Following the bailouts of GM, Chrysler, and GMAC/Ally 
        Financial and the potential loss of $19 billion or more 
        of taxpayer-sourced funds, is it realistic to expect 
        that the government will permit these companies to fail 
        the next time around? We have our doubts. More 
        significantly, the directors, managers, and employees 
        of these institutions most likely appreciate the 
        benefits afforded by the government's implicit 
        guarantee, but it remains to be seen whether they also 
        appreciate the attendant moral hazard risks.

     Although not the subject of this report, we would 
be remiss if we did not note that commentators have questioned 
the treatment of certain classes of creditors in the GM and 
Chrysler bankruptcies as well as certain procedures adopted by 
and rulings of the bankruptcy courts.\434\
---------------------------------------------------------------------------
    \434\ See September 2009 Oversight Report, supra note 2, at 148 
(from the Additional Views of former Panel member Congressman Jeb 
Hensarling).

        Regarding this matter, Barry E. Adler, the Petrie 
        Professor of Law and Business, New York University, 
---------------------------------------------------------------------------
        offered the following testimony to the Panel:

                The rapid disposition of Chrysler in Chapter 11 
                was formally structured as a sale under 
                Sec. 363 of the Bankruptcy Code. While that 
                provision does, under some conditions, permit 
                the sale of a debtor's assets, free and clear 
                of any interest in them, the sale in Chrysler 
                was irregular and inconsistent with the 
                principles that undergird the Code.

                The most notable irregularity of the Chrysler 
                sale was that the assets were not sold free and 
                clear . . . That is, money that might have been 
                available to repay these secured creditors was 
                withheld by the purchaser to satisfy unsecured 
                obligations owed the UAW. Thus, the sale of 
                Chrysler's assets was not merely a sale, but 
                also a distribution--one might call it a 
                diversion--of the sale proceeds seemingly 
                inconsistent with contractual priority among 
                the creditors.

                Given the constraint on bids, it is conceivable 
                that the liquidation value of Chrysler's assets 
                exceeded the company's going-concern value but 
                that no liquidation bidder came forward because 
                the assumed liabilities--combined with the 
                government's determination to have the company 
                stay in business--made a challenge to the 
                favored sale unprofitable, particularly in the 
                short time frame afforded. It is also possible 
                that, but for the restrictions, there might 
                have been a higher bid for the company as a 
                going concern, perhaps in anticipation of 
                striking a better deal with workers. Thus, the 
                approved sale may not have fetched the best 
                price for the Chrysler assets. That is, the 
                diversion of sales proceeds to the assumed 
                liabilities may have been greater than the 
                government's subsidy of the transaction, if 
                any, in which case the secured creditors would 
                have suffered a loss of priority for their 
                claims. There is nothing in the Bankruptcy Code 
                that allows a sale for less than fair value 
                simply because the circumstances benefit a 
                favored group of creditors.\435\
---------------------------------------------------------------------------
    \435\ Congressional Oversight Panel, Written Testimony of Barry E. 
Adler, Charles Seligson Professor of Law, New York University School of 
Law, COP Field Hearing on the Auto Industry, at 2-3 (July 27, 2009) 
(online at cop.senate.gov/documents/testimony-072709-adler.pdf).
---------------------------------------------------------------------------
        In addition, with respect to the bailout of GMAC/Ally 
        Financial, the Panel offered the following observations 
        in its March 2010 report:

                Although the Panel takes no position on whether 
                Treasury should have rescued GMAC, it finds 
                that Treasury missed opportunities to increase 
                accountability and better protect taxpayers' 
                money. Treasury did not, for example, condition 
                access to TARP money on the same sweeping 
                changes that it required from GM and Chrysler: 
                it did not wipe out GMAC's equity holders; nor 
                did it require GMAC to create a viable plan for 
                returning to profitability; nor did it require 
                a detailed, public explanation of how the 
                company would use taxpayer funds to increase 
                consumer lending.

                Moreover, the Panel remains unconvinced that 
                bankruptcy was not a viable option in 2008. In 
                connection with the Chrysler and GM 
                bankruptcies, Treasury might have been able to 
                orchestrate a strategic bankruptcy for GMAC. 
                This bankruptcy could have preserved GMAC's 
                automotive lending functions while winding down 
                its other, less significant operations, dealing 
                with the ongoing liabilities of the mortgage 
                lending operations, and putting the company on 
                sounder economic footing. The Panel is also 
                concerned that Treasury has not given due 
                consideration to the possibility of merging 
                GMAC back into GM, a step which would restore 
                GM's financing operations to the model 
                generally shared by other automotive 
                manufacturers, thus strengthening GM and 
                eliminating other money-losing operations.\436\
---------------------------------------------------------------------------
    \436\ March 2010 Oversight Report, supra note 22, at 4. See also 
id. at 122 (from the Additional Views of Panel member J. Mark McWatters 
and former Panel member Paul S. Atkins).
             SECTION THREE: TARP UPDATES SINCE LAST REPORT


 A. Ally Financial Mandatory Convertible Preferred Exchange to Common 
                                 Stock

    On December 30, 2010, Treasury converted $5.5 billion of 
its total convertible preferred stock in GMAC/Ally Financial 
into 531,850 shares of common stock of the company, following 
the terms of conversion. Treasury currently holds $5.9 billion 
of GMAC/Ally Financial's convertible preferred stock, $2.7 
billion in Trust Preferred securities, and 73.8 percent of the 
common stock.

                               B. Metrics

    Each month, the Panel's report highlights a number of 
metrics that the Panel and others, including Treasury, the 
Government Accountability Office (GAO), the Special Inspector 
General for the Troubled Asset Relief Program (SIGTARP), and 
the Financial Stability Oversight Board, consider useful in 
assessing the effectiveness of the Administration's efforts to 
restore financial stability and accomplish the goals of EESA. 
This section discusses changes that have occurred in several 
indicators since the release of the Panel's December 2010 
report.

1. Financial Indices

    Financial Stress. The St. Louis Financial Stress Index, a 
proxy for financial stress in the U.S. economy, has decreased 
by more than half since the Panel's December 2010 report. The 
index has decreased more than 80 percent since its post-crisis 
peak in June 2010. Furthermore, the recent trend in the index 
suggests that financial stress continues moving toward its 
long-run norm. The index has decreased by more than four 
standard deviations since EESA was enacted in October 2008.

   FIGURE 27: ST. LOUIS FEDERAL RESERVE FINANCIAL STRESS INDEX \437\

      
---------------------------------------------------------------------------
    \437\ Federal Reserve Bank of St. Louis, Series STLFSI: Business/
Fiscal: Other Economic Indicators (Instrument: St. Louis Financial 
Stress Index, Frequency: Weekly) (online at research.stlouisfed.org/
fred2/series/STLFSI) (accessed Jan. 3, 2011). The index includes 18 
weekly data series, beginning in December 1993 to the present. The 
series are: effective federal funds rate, 2-year Treasury, 10-year 
Treasury, 30-year Treasury, Baa-rated corporate, Merrill Lynch High 
Yield Corporate Master II Index, Merrill Lynch Asset-Backed Master BBB-
rated, 10-year Treasury minus 3-month Treasury, Corporate Baa-rated 
bond minus 10-year Treasury, Merrill Lynch High Yield Corporate Master 
II Index minus 10-year Treasury, 3-month LIBOR-OIS spread, 3-month TED 
spread, 3-month commercial paper minus 3-month Treasury, the J.P. 
Morgan Emerging Markets Bond Index Plus, Chicago Board Options Exchange 
Market Volatility Index, Merrill Lynch Bond Market Volatility Index (1-
month), 10-year nominal Treasury yield minus 10-year Treasury Inflation 
Protected Security yield, and Vanguard Financials Exchange-Traded Fund 
(equities). The index is constructed using principal components 
analysis after the data series are de-meaned and divided by their 
respective standard deviations to make them comparable units. The 
standard deviation of the index is set to 1. For more details on the 
construction of this index, see Federal Reserve Bank of St. Louis, 
National Economic Trends Appendix: The St. Louis Fed's Financial Stress 
Index (Jan. 2010) (online at research.stlouisfed.org/publications/net/
NETJan2010Appendix.pdf).

[GRAPHIC] [TIFF OMITTED] T3381.021


    Stock Market Volatility. Stock market volatility, as 
measured by the Chicago Board Options Exchange Volatility Index 
(VIX), continues to decrease. The VIX has fallen by more than 
half since its post-crisis peak in May 2010 and has declined 18 
percent since the Panel's December 2010 report. As of January 
3, 2011, volatility was 13 percent higher than its post-crisis 
low on April 12, 2010.

    FIGURE 28: CHICAGO BOARD OPTIONS EXCHANGE VOLATILITY INDEX \438\

      
---------------------------------------------------------------------------
    \438\ Data accessed through Bloomberg Data Service (Jan. 3, 2011). 
The CBOE VIX is a key measure of market expectations of near-term 
volatility. Chicago Board Options Exchange, The CBOE Volatility Index--
VIX, 2009 (online at www.cboe.com/micro/vix/vixwhite.pdf) (accessed 
Jan. 3, 2011).

[GRAPHIC] [TIFF OMITTED] T3381.022


    Interest Rates. As of January 3, 2011, the 3-month and 1-
month London Interbank Offer Rates (LIBOR), the prices at which 
banks lend and borrow from each other, were 0.30 and 0.26, 
respectively.\439\ Both rates have decreased slightly since the 
Panel's December 2010 report. The 3-month and 1-month LIBOR 
remain below their post-crisis highs in June 2010. Over the 
longer term, interest rates remain extremely low relative to 
pre-crisis levels, reflecting the impact of the actions of 
central banks and institutions' perceptions of reduced risk in 
lending to other banks.
---------------------------------------------------------------------------
    \439\ Data accessed through Bloomberg Data Service (Jan. 3, 2011).

   FIGURE 29: 3-MONTH AND 1-MONTH LIBOR RATES (AS OF JANUARY 3, 2011)
------------------------------------------------------------------------
                                              Percent Change from Data
          Indicator              Current      Available at Time of Last
                                  Rates          Report (12/1/2010)
------------------------------------------------------------------------
3-Month LIBOR \440\..........         0.30                         (0.2)
1-Month LIBOR \441\..........         0.26                         (1.8)
------------------------------------------------------------------------
\440\ Data accessed through Bloomberg Data Service (Jan. 3, 2011).
\441\ Data accessed through Bloomberg Data Service (Jan. 3, 2011).

    Interest Rate Spreads. As of January 3, 2011, the 
conventional mortgage rate spread, which measures the 
difference between 30-year mortgage rates and 10-year Treasury 
bond yields, decreased by 8 percent since the Panel's December 
2010 report.\442\ The TED spread, which captures the difference 
between the 3-month LIBOR and the 3-month Treasury bill rates, 
serves as an indicator for perceived risk in the financial 
markets.\443\ As of January 3, 2011, the spread was 18.3 basis 
points, increasing almost 30 percent in December.
---------------------------------------------------------------------------
    \442\ Board of Governors of the Federal Reserve System, Federal 
Reserve Statistical Release H.15: Selected Interest Rates: Historical 
Data (Instrument: Conventional Mortgages, Frequency: Weekly) (online at 
www.federalreserve.gov/releases/h15/data/Weekly_Thursday_/
H15_MORTG_NA.txt) (accessed Jan. 3, 2011) (hereinafter ``Federal 
Reserve Statistical Release H.15''); Federal Reserve Bank of St. Louis, 
Series DGS10: Interest Rates: Treasury Constant Maturity (Instrument: 
10-Year Treasury Constant Maturity Rate, Frequency: Daily) (online at 
research.stlouisfed.org/fred2/series/DGS10) (accessed Jan. 3, 2011).
    \443\ Federal Reserve Bank of Minneapolis, Measuring Perceived 
Risk--The TED Spread (Dec. 2008) (online at www.minneapolisfed.org/
publications_papers/pub_display.cfm?id=4120).
---------------------------------------------------------------------------
    The LIBOR-OIS (Overnight Index Swap) spread serves as a 
metric for the health of the banking system, reflecting what 
banks believe to be the risk of default associated with 
interbank lending.\444\ The spread increased over threefold 
from early April to July 2010, before falling in mid-July.\445\ 
The LIBOR-OIS spread grew approximately 13 percent since the 
Panel's December 2010 report. The decrease in both the LIBOR-
OIS spread and the TED spread from the middle of 2010 suggests 
that hesitation among banks to lend to counterparties has 
receded. As shown in Figures 30 and 31 below, these spreads 
remain below pre-crisis levels.
---------------------------------------------------------------------------
    \444\ Federal Reserve Bank of St. Louis, What the LIBOR-OIS Spread 
Says (May 11, 2009) (online at research.stlouisfed.org/publications/es/
09/ES0924.pdf).
    \445\ Data accessed through Bloomberg Data Service (Jan. 3, 2011).
---------------------------------------------------------------------------

                      FIGURE 30: TED SPREAD \446\

      
---------------------------------------------------------------------------
    \446\ Data accessed through Bloomberg Data Service (Jan. 3, 2011).

    [GRAPHIC] [TIFF OMITTED] T3381.023
    
                   FIGURE 31: LIBOR-OIS SPREAD \447\

      
---------------------------------------------------------------------------
    \447\ Data accessed through Bloomberg Data Service (Jan. 3, 2011).

    [GRAPHIC] [TIFF OMITTED] T3381.024
    

    The interest rate spread on AA asset-backed commercial 
paper, which is considered mid-investment grade, decreased by 
almost 20 percent since the Panel's December 2010 report. The 
interest rate spread on A2/P2 commercial paper, a lower grade 
investment than AA asset-backed commercial paper, increased by 
approximately 10 percent. Both interest rate spreads remain 
below pre-crisis levels.

        FIGURE 32: INTEREST RATE SPREADS (AS OF JANUARY 3, 2011)
------------------------------------------------------------------------
                                                        Percent Change
               Indicator                  Current     Since Last Report
                                           Spread        (12/1/2010)
------------------------------------------------------------------------
Conventional mortgage rate spread              1.44                (7.7)
 \448\................................
TED Spread (basis points).............        18.28                27.5
Overnight AA asset-backed commercial           0.06               (19.4)
 paper interest rate spread \449\.....
Overnight A2/P2 nonfinancial                   0.14                 9.7
 commercial paper interest rate spread
 \450\................................
------------------------------------------------------------------------
\448\ Federal Reserve Statistical Release H.15, supra note 442; Board of
  Governors of the Federal Reserve System, Federal Reserve Statistical
  Release H.15: Selected Interest Rates: Historical Data (Instrument:
  U.S. Government Securities/Treasury Constant Maturities/Nominal 10-
  Year, Frequency: Weekly) (online at www.federalreserve.gov/releases/
  h15/data/Weekly_Friday_/H15_TCMNOM_Y10.txt) (accessed Jan. 3, 2011).
\449\ The overnight AA asset-backed commercial paper interest rate
  spread reflects the difference between the AA asset-backed commercial
  paper discount rate and the AA nonfinancial commercial paper discount
  rate. Board of Governors of the Federal Reserve System, Federal
  Reserve Statistical Release: Commercial Paper Rates and Outstandings:
  Data Download Program (Instrument: AA Asset-Backed Discount Rate,
  Frequency: Daily) (online at www.federalreserve.gov/DataDownload/
  Choose.aspx?rel=CP) (accessed Jan. 3, 2011); Board of Governors of the
  Federal Reserve System, Federal Reserve Statistical Release:
  Commercial Paper Rates and Outstandings: Data Download Program
  (Instrument: AA Nonfinancial Discount Rate, Frequency: Daily) (online
  at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP) (accessed
  Jan. 3, 2011). In order to provide a more complete comparison, this
  metric utilizes the average of the interest rate spread for the last
  five days of December.
\450\ The overnight A2/P2 nonfinancial commercial paper interest rate
  spread reflects the difference between the A2/P2 nonfinancial
  commercial paper discount rate and the AA nonfinancial commercial
  paper discount rate. Board of Governors of the Federal Reserve System,
  Federal Reserve Statistical Release: Commercial Paper Rates and
  Outstandings: Data Download Program (Instrument: A2/P2 Nonfinancial
  Discount Rate, Frequency: Daily) (online at www.federalreserve.gov/
  DataDownload/Choose.aspx?rel=CP) (accessed Jan. 3, 2011); Board of
  Governors of the Federal Reserve System, Federal Reserve Statistical
  Release: Commercial Paper Rates and Outstandings: Data Download
  Program (Instrument: AA Nonfinancial Discount Rate, Frequency: Daily)
  (online at www.federalreserve.gov/DataDownload/Choose.aspx?rel=CP)
  (accessed Jan. 3, 2011). In order to provide a more complete
  comparison, this metric utilizes the average of the interest rate
  spread for the last five days of December.

    Corporate Bonds. The spread between Moody's Baa Corporate 
Bond Yield Index and 30-year constant maturity U.S. Treasury 
Bond, which indicates the difference in perceived risk between 
corporate and government bonds, doubled from late April to mid-
June 2010. During December, the spread declined approximately 
10 percent, and has fallen almost 30 percent since its post-
crisis peak in mid-June. The declining spread could indicate 
waning concerns about the riskiness of corporate bonds.

 FIGURE 33: MOODY'S BAA CORPORATE BOND INDEX AND 30-YEAR U.S. TREASURY 
                              YIELD \451\

      
---------------------------------------------------------------------------
    \451\ Federal Reserve Bank of St. Louis, Series DGS30: Selected 
Interest Rates (Instrument: 30-Year Treasury Constant Maturity Rate, 
Frequency: Daily) (online at research.stlouisfed.org/fred2/
release?rid=18) (accessed Jan. 3, 2011). Corporate Baa rate data 
accessed through Bloomberg data service (Jan. 3, 2011).

[GRAPHIC] [TIFF OMITTED] T3381.025

2. Bank Conditions

    Net Charge-Offs and Nonperforming Loan Rates. Data on net 
charge-offs and nonperforming loans are beginning to reflect 
stabilizing loan quality in domestic banks. Net loan charge-
offs represented 2.8 percent of all loans at the end of the 
third quarter of 2010, falling 10 percent from the first 
quarter of 2010. Nonperforming loans as a percentage of all 
commercial bank loans have also declined. Nonperforming loans 
include loans that are in default for 90 or more days and 
nonaccrual loans.\452\ Since the beginning of 2010, this 
percentage has fallen from 5.6 percent to 5.2 percent at the 
end of the third quarter of 2010.
---------------------------------------------------------------------------
    \452\ Loans in nonaccrual status include those that are: (a) 
maintained on a cash basis because of deterioration in the financial 
condition of the borrower; (b) full payment of principal or interest is 
not expected; or (c) principal or interest has been in default for 90 
or more days. Federal Deposit Insurance Corporation, Schedule RC-N--
Past Due and Nonaccrual Loans, Leases, and Other Assets, at 2 (online 
at www.fdic.gov/regulations/resources/call/crinst/2008-03/308RC-
N032808.pdf).
---------------------------------------------------------------------------
    Despite the recent decline, these two percentages remain 
well above their respective levels in October 2008. At the 
time, total net loan charge-offs accounted for only 1.2 percent 
of all loans, and nonperforming loans represented 2.3 percent 
of all loans.

 FIGURE 34: NET LOAN CHARGE-OFFS AS A PERCENTAGE OF TOTAL LOANS (AS OF 
                             Q3 2010) \453\

      
---------------------------------------------------------------------------
    \453\ Federal Reserve Bank of St. Louis, Condition of Banking: 
Total Net Loan Charge-offs (online at research.stlouisfed.org/fred2/
series/NCOTOT/downloaddata?cid=93) (accessed Jan. 3, 2011).

[GRAPHIC] [TIFF OMITTED] T3381.026

FIGURE 35: NONPERFORMING LOANS AS A PERCENTAGE OF TOTAL LOANS (AS OF Q3 
                              2010) \454\

      
---------------------------------------------------------------------------
    \454\ Federal Reserve Bank of St. Louis, Condition of Banking: 
Nonperforming Loans (Past Due 90+ Days Plus Nonaccrual)/Total Loans for 
All U.S. Banks (online at research.stlouisfed.org/fred2/series/
USNPTL?cid=93) (accessed Jan. 3, 2011).

[GRAPHIC] [TIFF OMITTED] T3381.027


    Bank Failures. In 2010, a total of 157 banks failed and 
were placed into receivership, with eight institutions failing 
in December. Despite exceeding the total number of bank 
failures for 2009, banks that failed in 2010 had $92.1 billion 
in total assets, which represents approximately half of the 
total assets of failed institutions in 2009.\455\ Most failures 
in 2010 involved institutions that held less than $10 billion 
in assets.
---------------------------------------------------------------------------
    \455\ Federal Deposit Insurance Corporation, Failures & Assistance 
Transactions (online at www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30) 
(accessed Jan. 3, 2011) (hereinafter ``FDIC Failures & Assistance 
Transactions'').
---------------------------------------------------------------------------

   FIGURE 36: BANK FAILURES AS A PERCENTAGE OF TOTAL BANKS AND BANK 
               FAILURES BY TOTAL ASSETS (1990-2010) \456\

      
---------------------------------------------------------------------------
    \456\ The disparity between the number of and total assets of 
failed banks in 2008 is driven primarily by the failure of Washington 
Mutual Bank, which held $307 billion in assets. The 2010 year-to-date 
percentage of bank failures includes failures through December. The 
total number of FDIC-insured institutions as of September 30, 2010 is 
7,760 commercial banks and savings institutions, which represents a 
quarter-over-quarter decline of 70 institutions and a decrease of 624 
institutions since the end of the third quarter of 2008. Furthermore, 
there are currently 860 institutions on the FDIC's ``Problem List.'' 
FDIC Failures & Assistance Transactions, supra note 455; Federal 
Deposit Insurance Corporation, Quarterly Banking Profile, Third Quarter 
2010: Statistics At A Glance, at 5 (online at www.fdic.gov/bank/
statistical/stats/2010sep/industry.pdf) (accessed Jan. 3, 2011). Asset 
totals have been converted into 2005 dollars using the GDP implicit 
price deflator. The quarterly values were averaged into a yearly value. 
FDIC Failures & Assistance Transactions, supra note 455.

[GRAPHIC] [TIFF OMITTED] T3381.028

3. Housing Indices

    Home Sales. Both new and existing home sales saw a month-
over-month increase in November 2010, increasing 2 percent 
during the month. New home sales, as measured by the U.S. 
Census Bureau, increased 2 percent to 290,000 during the month. 
With respect to existing home sales, the National Association 
of Realtors estimates a 6 percent month-over-month increase in 
November, to an annual rate of 4.4 million homes sold. Although 
existing home sales in November remain below the ten-year 
historical average, current levels are above the July 2010 
level, when existing home sales reached their lowest point in 
more than a decade.

        FIGURE 37: NEW AND EXISTING HOME SALES (2000-2010) \457\

      
---------------------------------------------------------------------------
    \457\ Data accessed through Bloomberg Data Service (Jan. 3, 2011). 
Spikes in both new and existing home sales in January 2009 and November 
2009 correlate with the tax credits extended to first-time and repeat 
home buyers during these periods. After both tax credits were 
extinguished on April 30, 2010, existing home sales dropped to 3.8 
million homes in July, their lowest level in a decade. National 
Association of Realtors, July Existing-Home Sales Fall as Expected but 
Prices Rise (Aug. 24, 2010) (online at www.realtor.org/press_room/
news_releases/2010/08/ehs_fall).

[GRAPHIC] [TIFF OMITTED] T3381.029

    Foreclosures. Foreclosure actions, which consist of default 
notices, scheduled auctions, and bank repossessions, decreased 
21 percent in November 2010 to 262,339, marking the first month 
since February 2009 that foreclosure filings have been below 
300,000.\458\ However, it is important to note that much of the 
decline could be attributed to a number of loan servicers 
suspending foreclosures in the fall of 2010 as they conducted 
internal reviews of their foreclosure procedures.\459\ Since 
the enactment of EESA, there have been approximately 8.4 
million foreclosure filings.\460\
---------------------------------------------------------------------------
    \458\ RealtyTrac, Foreclosure Activity Decreases 21 Percent in 
November (Dec. 16, 2010) (online at www.realtytrac.com/content/press-
releases/foreclosure-activity-decreases-21-percent-in-november-6251) 
(hereinafter ``RealtyTrac--Foreclosure Activity Decreases'').
    \459\ For more information on foreclosure irregularities, see 
November 2010 Oversight Report, supra note 369.
    \460\ Data accessed through Bloomberg Data Service (Jan. 3, 2011).
---------------------------------------------------------------------------
    Home Prices. With respect to housing price indices, the 
Case-Shiller Composite 20-City Composite Home Price Index 
decreased by less than 1 percent, while the FHFA Housing Price 
Index increased by less than 1 percent in October 2010. The 
Case-Shiller and FHFA indices are approximately 8 percent and 5 
percent below their respective October 2008 levels.\461\
---------------------------------------------------------------------------
    \461\ The most recent data available are for September 2010. See 
Standard and Poor's, S&P/Case-Shiller Home Price Indices (Instrument: 
Case-Shiller 20-City Composite Seasonally Adjusted, Frequency: Monthly) 
(online at www.standardandpoors.com/indices/sp-case-shiller-home-price-
indices/en/us/?indexId=spusa-cashpidff--us----) (accessed Jan. 3, 2011) 
(hereinafter ``S&P/Case-Shiller Home Price Indices''); Federal Housing 
Finance Agency, U.S. and Census Division Monthly Purchase Only Index 
(Instrument: USA, Seasonally Adjusted) (online at www.fhfa.gov/
Default.aspx?Page=87) (accessed Jan. 3, 2011) (hereinafter ``FHFA 
Monthly Purchase Only Index''). S&P has cautioned that the seasonal 
adjustment is probably being distorted by irregular factors. These 
factors could include distressed sales and the various government 
programs. See Standard and Poor's, S&P/Case-Shiller Home Price Indices 
and Seasonal Adjustment (Apr. 2010) (online at 
www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-
Type&blobcol=urldata&blobtable=MungoBlobs&blobheadervalue2=inline;+filen
ame%3D
CaseShiller_SeasonalAdjustment2,0.pdf&blobheadername2=Content-
Disposition&blobheadervalue1=application/
pdf&blobkey=id&blobheadername1=content-type
&blobwhere=1243679046081&blobheadervalue3=UTF-8). For a discussion of 
the differences between the Case-Shiller Index and the FHFA Index, see 
Congressional Oversight Panel, April Oversight Report: Evaluating 
Progress on TARP Foreclosure Mitigation Programs, at 98 (Apr. 14, 2010) 
(online at cop.senate.gov/documents/cop-041410-report.pdf).
---------------------------------------------------------------------------
    Case-Shiller futures prices indicate a market expectation 
that home-price values for the major Metropolitan Statistical 
Areas (MSAs) will decrease through 2011.\462\ These futures are 
cash-settled to a weighted composite index of U.S. housing 
prices in the top ten MSAs, as well as to those specific 
markets. They are used to hedge by businesses whose profits and 
losses are related to a specific area of the housing industry, 
and to balance portfolios by businesses seeking exposure to an 
uncorrelated asset class. As such, futures prices are a 
composite indicator of market information known to date and can 
be used to indicate market expectations for home prices.
---------------------------------------------------------------------------
    \462\ Data accessed through Bloomberg Data Service (Jan. 3, 2011). 
The Case-Shiller Futures contract is traded on the Chicago Mercantile 
Exchange (CME) and is settled to the Case-Shiller Index two months 
after the previous calendar quarter. For example, the February contract 
will be settled against the spot value of the S&P Case-Shiller Home 
Price Index values representing the fourth calendar quarter of the 
previous year, which is released in February one day after the 
settlement of the contract. Note that most close observers believe that 
the accuracy of these futures contracts as forecasts diminishes the 
farther out one looks.
    A Metropolitan Statistical Area is defined as a core area 
containing a substantial population nucleus, together with adjacent 
communities having a high degree of economic and social integration 
with the core. U.S. Census Bureau, About Metropolitan and Micropolitan 
Statistical Areas (online at www.census.gov/population/www/metroareas/
aboutmetro.html) (accessed Dec. 10, 2010).

                                          FIGURE 38: HOUSING INDICATORS
----------------------------------------------------------------------------------------------------------------
                                                                                                       Percent
                                                                    Most Recent    Percent Change       Change
                             Indicator                                Monthly         from Data         Since
                                                                        Data      Available at Time    October
                                                                                   of Last Report        2008
----------------------------------------------------------------------------------------------------------------
Monthly foreclosure actions \463\.................................      262,339              (21.0)        (6.2)
S&P/Case-Shiller Composite 20 Index \464\.........................       143.52               (0.1)        (8.2)
FHFA Housing Price Index \465\....................................       190.83                0.2         (5.4)
----------------------------------------------------------------------------------------------------------------
\463\ RealtyTrac--Foreclosure Activity Decreases, supra note 458. The most recent data available are for
  November 2010.
\464\ S&P/Case-Shiller Home Price Indices, supra note 461. The most recent data available are for October 2010.
\465\ FHFA Monthly Purchase Only Index, supra note 461. The most recent data available are for October 2010.

   FIGURE 39: CASE-SHILLER HOME PRICE INDEX AND FUTURES VALUES \466\

      
---------------------------------------------------------------------------
    \466\ All data normalized to 100 in January 2000. Futures data 
accessed through Bloomberg Data Service (Jan. 3, 2011). S&P/Case-
Shiller Home Price Indices, supra note 461.

[GRAPHIC] [TIFF OMITTED] T3381.030

                          C. Financial Update

    Each month, the Panel summarizes the resources that the 
federal government has committed to the rescue and recovery of 
the financial system. The following financial update provides: 
(1) an updated accounting of the TARP, including a tally of 
dividend income, repayments, and warrant dispositions that the 
program has received as of November 30, 2010; and (2) an 
updated accounting of the full federal resource commitment as 
of December 30, 2010.

1. The TARP

            a. Program Updates \467\
---------------------------------------------------------------------------
    \467\ U.S. Department of the Treasury, Cumulative Dividends, 
Interest and Distributions Report as of September 30, 2010 (Oct. 11, 
2010) (online at financialstability.gov/docs/dividends-interest-
reports/September%202010%20Dividends%20&%20Interest%20Report.pdf); 
Treasury Transactions Report, supra note 24.
---------------------------------------------------------------------------
    Treasury's spending authority under the TARP officially 
expired on October 3, 2010. Though it can no longer make new 
funding commitments, Treasury can continue to provide funding 
for programs for which it has existing contracts and previous 
commitments. To date, $396.2 billion has been spent under the 
TARP's $475 billion ceiling.\468\ Of the total amount 
disbursed, $240.4 billion has been repaid. Treasury has also 
incurred $6.1 billion in losses associated with its Capital 
Purchase Program (CPP) and Automotive Industry Financing 
Program (AIFP) investments. About two-thirds of the $149.8 
billion in TARP funds currently outstanding relates to 
Treasury's investments in AIG and assistance provided to the 
automotive industry.
---------------------------------------------------------------------------
    \468\ The original $700 billion TARP ceiling was reduced by $1.26 
billion as part of the Helping Families Save Their Homes Act of 2009. 
12 U.S.C. Sec. 5225(a)-(b) (online at www.gpo.gov/fdsys/pkg/PLAW-
111publ22/pdf/PLAW-111publ22.pdf). On June 30, 2010, the House-Senate 
Conference Committee agreed to reduce the amount authorized under the 
TARP from $700 billion to $475 billion as part of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act that was signed into law on 
July 21, 2010. See Dodd-Frank Wall Street Reform and Consumer 
Protection Act, Pub. L. No. 111-203 (2010) (online at www.gpo.gov/
fdsys/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf); The White House, 
Remarks by the President at Signing of Dodd-Frank Wall Street Reform 
and Consumer Protection Act (July 21, 2010) (online at 
www.whitehouse.gov/the-press-office/remarks-president-signing-dodd-
frank-wall-street-reform-and-consumer-protection-act).
---------------------------------------------------------------------------
            CPP Repayments
    As of December 30, 2010, 131 of the 707 banks that 
participated in the CPP have fully redeemed their preferred 
shares either through capital repayment or exchanges for 
investments under the Community Development Capital Initiative 
(CDCI). During December 2010, Treasury received the funds from 
the sale of the final outstanding Citigroup shares, equaling 
full repayment of the $25 billion investment as well as an 
additional $6.9 billion in profit from the sale of these 
shares.\469\ An additional 14 banks fully repaid their 
remaining CPP capital, returning $3.3 billion in principal to 
Treasury. See Figure 40 below for repayment amounts.
---------------------------------------------------------------------------
    \469\ This figure is comprised of the $4.2 billion in net proceeds 
from the sale of Citigroup common stock between April 26 and December 
6, 2010 as well as $2.7 billion in proceeds from the December 6 equity 
underwriting.

   FIGURE 40: BANKS THAT FULLY REPAID THEIR CPP LOANS IN DECEMBER 2010
                                  \470\
------------------------------------------------------------------------
                                                          Remaining
              Bank                  Amount Repaid         Investment
------------------------------------------------------------------------
First Horizon National                 $866,540,000  Warrants
 Corporation.
Huntington Bancshares...........      1,398,071,000  Warrants
Heritage Financial Corporation..         24,000,000  Warrants
First PacTrust Bancorp, Inc.....         19,300,000  Warrants
East West Bancorp...............        406,546,000  Warrants
Wintrust Financial Corporation..        250,000,000  Warrants
Capital Bancorp, Inc............          4,700,000  None
Surrey Bancorp..................          2,000,000  None
1st Source Corporation..........        111,000,000  None
California Oaks State Bank......          3,300,000  None
The Bank of Currituck...........          1,742,850  None
Haviland Bancshares, Inc........            425,000  None
Signature Bancshares, Inc.......          1,700,000  None
Nationwide Bankshares, Inc......          2,000,000  None
                                 -------------------
Total...........................     $3,332,871,850  ...................
------------------------------------------------------------------------
\470\ Treasury Transactions Report, supra note 24.

    Additionally, during December 2010, United Financial 
Banking Companies, Inc. made a partial repayment of $3 million, 
and The Bank of Kentucky Financial Corporation made a partial 
repayment of $17 million. A total of $167.9 billion has been 
repaid under the program, leaving $34.4 billion in funds 
currently outstanding.\471\
---------------------------------------------------------------------------
    \471\ The $34.4 billion currently outstanding reflects the $2.6 
billion in announced losses associated with the program. See Figure 42 
for further details on losses associated with programs.
---------------------------------------------------------------------------
            b. Income: Dividends, Interest, and Warrant Sales
    In conjunction with its preferred stock investments under 
the CPP and the Targeted Investment Program (TIP), Treasury 
generally received warrants to purchase common equity.\472\ As 
of December 30, 2010, 46 institutions have repurchased their 
warrants from Treasury at an agreed-upon price. Treasury has 
also sold warrants for 15 other institutions at auction. To 
date, income from warrant dispositions totals $8.2 billion.
---------------------------------------------------------------------------
    \472\ For its CPP investments in privately held financial 
institutions, Treasury also received warrants to purchase additional 
shares of preferred stock, which it exercised immediately. Similarly, 
Treasury received warrants to purchase additional subordinated debt 
that were immediately exercised along with its CPP investments in 
subchapter S corporations. Treasury Transactions Report, supra note 24, 
at 14.
---------------------------------------------------------------------------
    In addition to warrant proceeds, Treasury also receives 
dividend payments on the preferred shares that it holds under 
the CPP, 5 percent per year for the first five years and 9 
percent per year thereafter.\473\ For preferred shares issued 
under the TIP, Treasury received a dividend of 8 percent per 
year.\474\ In total, Treasury has received approximately $30.3 
billion in net income from warrant repurchases, dividends, 
interest payments, profit from the sale of stock, and other 
proceeds deriving from TARP investments, after deducting 
losses.\475\ For further information on TARP profit and loss, 
see Figure 42.
---------------------------------------------------------------------------
    \473\ U.S. Department of the Treasury, Capital Purchase Program 
(Oct. 3, 2010) (online at www.financialstability.gov/roadtostability/
capitalpurchaseprogram.html).
    \474\ U.S. Department of the Treasury, Targeted Investment Program 
(Oct. 3, 2010) (online at www.financialstability.gov/roadtostability/
targetedinvestmentprogram.html).
    \475\ U.S. Department of the Treasury, Cumulative Dividends, 
Interest and Distributions Report as of November 30, 2010 (Dec. 10, 
2010) (online at financialstability.gov/docs/dividends-interest-
reports/November%202010%20Dividends%20&%20Interest%20Report.pdf) 
(hereinafter ``Cumulative Dividends, Interest and Distributions 
Report''); Treasury Transactions Report, supra note 24. Treasury also 
received an additional $1.2 billion in participation fees from its 
Guarantee Program for Money Market Funds. U.S. Department of the 
Treasury, Treasury Announces Expiration of Guarantee Program for Money 
Market Funds (Sept. 18, 2009) (online at www.treasury.gov/press-center/
press-releases/Pages/tg293.aspx).
            c. TARP Accounting

                              FIGURE 41: TARP ACCOUNTING (AS OF DECEMBER 30, 2010)
                                             [billions of dollars] i
----------------------------------------------------------------------------------------------------------------
                                                                 Total
                                      Maximum       Actual    Repayments/     Total       Funding      Funding
              Program                  Amount      Funding      Reduced       Losses     Currently    Available
                                      Allotted                  Exposure                Outstanding
----------------------------------------------------------------------------------------------------------------
Capital Purchase Program (CPP)....       $204.9       $204.9  ii $(167.9)    iii$(2.6)        $34.4           $0
Targeted Investment Program (TIP).         40.0         40.0       (40.0)            0            0            0
Asset Guarantee Program (AGP).....          5.0       iv 5.0      v (5.0)            0            0            0
AIG Investment Program (AIGIP)....         69.8      vi 47.5            0            0         47.5         22.3
Auto Industry Financing Program            81.3         81.3       (26.4)    vii (3.5)    viii 51.4            0
 (AIFP)...........................
Auto Supplier Support Program               0.4          0.4        (0.4)            0            0            0
 (ASSP)ix.........................
Term Asset-Backed Securities Loan         x 4.3       xi 0.1            0            0          0.1          4.2
 Facility (TALF)..................
Public-Private Investment Program          22.4    xiii 15.1    xiv (0.6)            0         14.5          7.4
 (PPIP) xii.......................
SBA 7(a) Securities Purchase                0.4       xv 0.4            0            0          0.4        xvi 0
 Program..........................
Home Affordable Modification               29.9          0.8            0            0          0.7         29.1
 Program (HAMP)...................
Hardest Hit Fund (HHF)............     xvii 7.6    xviii 0.1            0            0          0.1          7.5
FHA Refinance Program.............          8.1      xix 0.1            0            0          0.1          8.0
Community Development Capital               0.8       xx 0.6            0            0          0.6            0
 Initiative (CDCI)................
----------------------------------------------------------------------------------------------------------------
Total.............................       $475.0       $396.2     $(240.4)       $(6.1)       $149.8        $78.5
----------------------------------------------------------------------------------------------------------------
\i\ Figures affected by rounding. Unless otherwise noted, data in this table are from the following sources:
  U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  December 30, 2010 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the Treasury, Troubled Assets Relief
  Program Monthly 105(a) Report--November 2010 (Dec. 10, 2010) (online at www.financialstability.gov/docs/
  November%20105(a)%20FINAL.pdf.
\ii\ In June 2009, Treasury exchanged $25 billion in Citigroup preferred stock for 7.7 billion shares of the
  company's common stock at $3.25 per share. As of December 30, 2010, Treasury had sold the entirety of its
  Citigroup common shares for $31.85 billion in gross proceeds. The amount repaid under CPP includes $25 billion
  Treasury received as part of its sales of Citigroup common stock. The difference between these two numbers
  represents the $6.85 billion in net profit Treasury has received from the sale of Citigroup common stock.
Total CPP repayments also include amounts repaid by institutions that exchanged their CPP investments for
  investments under the CDCI, as well as proceeds earned from the sale of preferred stock issued by South
  Financial Group, Inc., TIB Financial Corp, and the Bank of Currituck. See U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 2, 13-15 (Dec.
  30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the Treasury, Troubled Asset Relief
  Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf); U.S. Department of the Treasury,
  Treasury Commences Plan to Sell Citigroup Common Stock (Apr. 26, 2010) (online at www.treasury.gov/press-
  center/press-releases/Pages/tg660.aspx).
\iii\ In the TARP Transactions Report, Treasury has classified the investments it made in two institutions, CIT
  Group ($2.3 billion) and Pacific Coast National Bancorp ($4.1 million), as losses. In addition, Treasury sold
  its preferred ownership interests, along with warrants, in South Financial Group, Inc., TIB Financial Corp.,
  and the Bank of Currituck to non-TARP participating institutions. These shares were sold at prices below the
  value of the original CPP investment, at respective losses of $217 million, $25 million, and $2.3 million.
  Therefore, Treasury's net current CPP investment is $34.4 billion due to the $2.6 billion in losses thus far.
  See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  December 30, 2010, at 1-14 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-
  30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
\iv\ The $5.0 billion AGP guarantee for Citigroup was unused since Treasury was not required to make any
  guarantee payments during the life of the program. U.S. Department of the Treasury, Troubled Asset Relief
  Program: Two-Year Retrospective, at 31 (Oct. 2010) (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf); U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 20 (Dec. 30,
  2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
\v\ Although this $5.0 billion is no longer exposed as part of the AGP, Treasury did not receive a repayment in
  the same sense as with other investments. Treasury did receive other income as consideration for the
  guarantee, which is not a repayment and is accounted for in Figure 42. See U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 20 (Dec. 30,
  2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
\vi\ AIG has completely utilized the $40 billion that was made available on November 25, 2008, in exchange for
  the company's preferred stock. See U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
  Report for the Period Ending December 30, 2010, at 21 (Dec. 30, 2010) (online at www.financialstability.gov/
  docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). It has also drawn down
  $7.5 billion of the $29.8 billion made available on April 17, 2009. American International Group, Inc., Form
  10-Q for the Quarterly Period Ended September 30, 2010, at 119 (Nov. 5, 2010) (online at sec.gov/Archives/
  edgar/data/5272/000104746910009269/a2200724z10-q.htm). This figure does not include $1.6 billion in
  accumulated but unpaid dividends owed by AIG to Treasury due to the restructuring of Treasury's investment
  from cumulative preferred shares to non-cumulative shares. See U.S. Department of the Treasury, Troubled Asset
  Relief Program Transactions Report for the Period Ending December 30, 2010, at 21 (Dec. 30, 2010) (online at
  www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-
  10.pdf). AIG expects to draw down up to $22.3 billion in unutilized funds from the TARP as part of its plan to
  repay the revolving credit facility provided by the Federal Reserve Bank of New York. American International
  Group, Inc., AIG Announces Plan to Repay U.S. Government (Sept. 30, 2010) (online at www.aigcorporate.com/
  newsroom/2010_September/AIGAnnouncesPlantoRepay30Sept2010.pdf);
\vii\ On May 14, 2010, Treasury accepted a $1.9 billion settlement payment for its $3.5 billion loan to Chrysler
  Holding. The payment represented a $1.6 billion loss from the termination of the debt obligation. See U.S.
  Department of the Treasury, Chrysler Financial Parent Company Repays $1.9 Billion in Settlement of Original
  Chrysler Loan (May 17, 2010) (online at www.financialstability.gov/latest/pr_05172010c.html); U.S. Department
  of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at
  18-19 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf). Also, following the bankruptcy proceedings for Old
  Chrysler, which extinguished the $1.9 billion debtor-in-possession (DIP) loan provided to Old Chrysler,
  Treasury retained the right to recover the proceeds from the liquidation of specified collateral. Although
  Treasury does not expect a significant recovery from the liquidation proceeds, Treasury is not yet reporting
  this loan as a loss in the TARP Transactions Report. As of December 30, 2010, Treasury had collected $48.1
  million in proceeds from the sale of collateral. Treasury included these proceeds as part of the $26.4 billion
  repaid under the AIFP. U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report--
  September 2010 (Oct. 12, 2010) (online at www.financialstability.gov/docs/105CongressionalReports/September
  105(a) report_FINAL.pdf); Treasury conversations with Panel staff (Aug. 19, 2010 and Nov. 29, 2010); U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December
  30, 2010, at 18 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
\viii\ In the TARP Transactions Report, the $1.9 billion Chrysler debtor-in-possession loan, which was
  extinguished April 30, 2010, was deducted from Treasury's current AIFP investment amount. U.S. Department of
  the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 18
  (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf). See endnote vii, supra, for details on losses from
  Treasury's investment in Chrysler.
\ix\ On April 5, 2010, Treasury terminated its commitment to lend to the GM special purpose vehicle (SPV) under
  the ASSP. On April 7, 2010, it terminated its commitment to lend to the Chrysler SPV. In total, Treasury
  received $413 million in repayments from loans provided by this program ($290 million from the GM SPV and $123
  million from the Chrysler SPV). Further, Treasury received $101 million in proceeds from additional notes
  associated with this program. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions
  Report for the Period Ending December 30, 2010, at 19 (Dec. 30, 2010) (online at www.financialstability.gov/
  docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
\x\ For the TALF, $1 of TARP funds was committed for every $10 of funds obligated by the Federal Reserve. The
  program was intended to be a $200 billion initiative, and the TARP was responsible for the first $20 billion
  in loan-losses, if any were incurred. The loan was incrementally funded. When the program closed in June 2010,
  a total of $43 billion in loans was outstanding under the TALF, and the TARP's commitments constituted $4.3
  billion. The Federal Reserve Board of Governors agreed that it was appropriate for Treasury to reduce TALF
  credit protection from the TARP to $4.3 billion. Board of Governors of the Federal Reserve System, Federal
  Reserve Announces Agreement with the Treasury Department Regarding a Reduction of Credit Protection Provided
  for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at www.federalreserve.gov/
  newsevents/press/monetary/20100720a.htm).
\xi\ As of January 5, 2011, Treasury had provided $106 million to TALF LLC. This total is net of accrued
  interest payable to Treasury. Board of Governors of the Federal Reserve System, Factors Affecting Reserve
  Balances (H.4.1) (Jan. 3, 2010) (online at www.federalreserve.gov/releases/h41/20110106/).
\xii\ As of September 30, 2010, the total value of securities held by the PPIP fund managers was $19.3 billion.
  Non-agency residential mortgage-backed securities represented 82 percent of the total; commercial mortgage-
  backed securities represented the balance. U.S. Department of the Treasury, Legacy Securities Public-Private
  Investment Program, Program Update--Quarter Ended September 30, 2010, at 4 (Oct. 20, 2010) (online at
  www.financialstability.gov/docs/External%20Report%20-%2009-10%20vFinal.pdf).
\xiii\ U.S. Department of the Treasury, Troubled Assets Relief Program Monthly 105(a) Report--November 2010, at
  4 (Dec. 10, 2010) (online at www.financialstability.gov/docs/November%20105(a)%20FINAL.pdf).
\xiv\ As of December 30, 2010, Treasury has received $593 million in capital repayments from two PPIP fund
  managers. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
  Ending December 30, 2010, at 23 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/
  12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
\xv\ As of December 30, 2010, Treasury's purchases under the SBA 7(a) Securities Purchase Program totaled $368.1
  million. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period
  Ending December 30, 2010, at 22 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/
  12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
\xvi\ Treasury will not make additional purchases pursuant to the expiration of its purchasing authority under
  EESA. U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 43 (Oct.
  2010) (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
\xvii\ On June 23, 2010, $1.5 billion was allocated to mortgage assistance through the Hardest Hit Fund (HHF).
  Another $600 million was approved on August 3, 2010. U.S. Department of the Treasury, Obama Administration
  Approves State Plans for $600 million of `Hardest Hit Fund' Foreclosure Prevention Assistance (Aug. 3, 2010)
  (online at www.financialstability.gov/latest/pr_08042010.html). As part of its revisions to TARP allocations
  upon enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Treasury allocated an
  additional $2 billion in TARP funds to mortgage assistance for unemployed borrowers through the HHF. U.S.
  Department of the Treasury, Obama Administration Announces Additional Support for Targeted Foreclosure-
  Prevention Programs to Help Homeowners Struggling with Unemployment (Aug. 11, 2010) (online at
  www.financialstability.gov/latest/pr_08112010.html). In October 2010, another $3.5 billion was allocated among
  the 18 states and the District of Columbia currently participating in HHF. The amount each state received
  during this round of funding is proportional to its population. U.S. Department of the Treasury, Troubled
  Asset Relief Program: Two Year Retrospective, at 72 (Oct. 2010) (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
\xviii\ As of December 31, 2010, a total of $103.6 million has been disbursed to 12 state Housing Finance
  Agencies (HFAs). Data provided by Treasury (Jan. 4, 2011).
\xix\ This figure represents the amount Treasury disbursed to fund the advance purchase account of the Letter of
  Credit issued under the FHA Short Refinance Program. The $53.3 million in the FHA Short Refinance program is
  broken down as follows: $50 million for a deposit into an advance purchase account as collateral to the
  initial $50 million Letter of Credit, $2.9 million for the closing and funding of the Letter of Credit,
  $115,000 in trustee fees, $175,000 in claims processor fees, and $156,000 for an unused commitment fee for the
  Letter of Credit. Data provided by Treasury (Dec. 2, 2010).
\xx\ U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  December 30, 2010, at 1-13, 16-17 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-
  reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf). Treasury closed the program on September
  30, 2010, after investing $570 million in 84 CDFIs. U.S. Department of the Treasury, Treasury Announces
  Special Financial Stabilization Initiative Investments of $570 Million in 84 Community Development Financial
  Institutions in Underserved Areas (Sept. 30, 2010) (online at www.financialstability.gov/latest/
  pr_09302010b.html).


                                                             FIGURE 42: TARP PROFIT AND LOSS
                                                                  (millions of dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                              Warrant
                                                          Dividends xxii  Interest xxiii    Disposition   Other Proceeds    Losses xxv
                   TARP Initiative xxi                     (as of 11/30/   (as of 11/30/   Proceeds xxiv   (as of 11/30/   (as of 12/30/       Total
                                                               2010)           2010)       (as of 12/30/       2010)           2010)
                                                                                               2010)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Total...................................................         $17,345          $1,083          $8,160          $9,801        ($6,066)         $30,353
CPP.....................................................          10,169              59           6,905      xxvi 6,852         (2,578)          21,407
TIP.....................................................           3,004               -           1,256               -               -           4,260
AIFP....................................................     xxvii 3,729             931               -       xxviii 15         (3,488)           1,217
ASSP....................................................               -              15               -        xxix 101               -             116
AGP.....................................................             443               -               -       xxx 2,246               -           2,689
PPIP....................................................               -              76               -        xxxi 310               -             386
SBA 7(a)................................................               -               3               -               -               -               3
Bank of America Guarantee...............................               -               -               -       xxxii 276               -             276
--------------------------------------------------------------------------------------------------------------------------------------------------------
xxi AIG is not listed in this table because no profit or loss has been recorded to date for AIG. Its missed dividends were capitalized as part of the
  issuance to Treasury of Series E preferred shares and are not considered to be outstanding. Treasury currently holds non-cumulative preferred shares,
  meaning AIG is not penalized for non-payment. Therefore, no profit or loss has been realized on Treasury's AIG investment to date.
HAMP is not listed in this table because HAMP is a 100 percent subsidy program, and no profit is expected.
xxii U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of November 30, 2010 (Dec. 10, 2010) (online at
  www.financialstability.gov/docs/dividends-interest-reports/November%202010%20Dividends%20&%20Interest%20Report.pdf).
xxiii U.S. Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of November 30, 2010 (Dec. 10, 2010) (online at
  www.financialstability.gov/docs/dividends-interest-reports/November%202010%20Dividends%20&%20Interest%20Report.pdf).
xxiv U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010 (Dec. 30, 2010) (online
  at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xxv In the TARP Transactions Report, Treasury classified the investments it made in two institutions, CIT Group ($2.3 billion) and Pacific Coast
  National Bancorp ($4.1 million), as losses. Treasury has also sold its preferred ownership interests and warrants from South Financial Group, Inc.,
  TIB Financial Corp., and the Bank of Currituck. This represents a $244.0 million loss on its CPP investments in these three banks. Two TARP
  recipients, UCBH Holdings, Inc. ($298.7 million) and a banking subsidiary of Midwest Banc Holdings, Inc. ($89.4 million), are currently in bankruptcy
  proceedings. As of November 26, three TARP recipients, Pierce County Bancorp, Sonoma Valley Bancorp, and Tifton Banking Company, had entered
  receivership. Cumulatively, these three had received $19.3 million in TARP funding. U.S. Department of the Treasury, Troubled Asset Relief Program
  Transactions Report for the Period Ending December 30, 2010 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xxvi This figure represents net proceeds to Treasury from the sale of Citigroup common stock to date. For details on Treasury's sales of Citigroup
  common stock, see endnote ii, supra. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December
  30, 2010, at 15 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-
  10.pdf); U.S. Department of the Treasury, Troubled Asset Relief Program: Two-Year Retrospective, at 25 (Oct. 2010) (online at
  www.financialstability.gov/docs/TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
xxvii This figure includes $815 million in dividends from GMAC/Ally Financial preferred stock, trust preferred securities, and mandatory convertible
  preferred shares. The dividend total also includes a $748.6 million senior unsecured note from Treasury's investment in General Motors. U.S.
  Department of the Treasury, Cumulative Dividends, Interest and Distributions Report as of November 30, 2010 (Dec. 10, 2010) (online at
  financialstability.gov/docs/dividends-interest-reports/November%202010%20Dividends%20&%20Interest%20Report.pdf); Data provided by Treasury (May 7,
  2010).
xxviii Treasury received proceeds from an additional note connected with the loan made to Chrysler Financial on January 16, 2009. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 18 (Dec. 30, 2010) (online at
  www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xxix This represents the total proceeds from additional notes connected with Treasury's investments in GM Supplier Receivables LLC and Chrysler
  Receivables SPV LLC. U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 19
  (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xxx As a fee for taking a second-loss position of up to $5 billion on a $301 billion pool of ring-fenced Citigroup assets as part of the AGP, Treasury
  received $4.03 billion in Citigroup preferred stock and warrants. Treasury exchanged these preferred stocks for trust preferred securities in June
  2009. Following the early termination of the guarantee in December 2009, Treasury cancelled $1.8 billion of the trust preferred securities, leaving
  Treasury with $2.23 billion in Citigroup trust preferred securities. On September 30, 2010, Treasury sold these securities for $2.25 billion in total
  proceeds. At the end of Citigroup's participation in the FDIC's Temporary Liquidity Guarantee Program (TLGP), the FDIC may transfer $800 million of
  $3.02 billion in Citigroup Trust Preferred Securities it received in consideration for its role in the AGP to Treasury. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 20 (Dec. 30, 2010) (online at
  www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the Treasury, Board
  of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Citigroup Inc., Termination Agreement, at 1 (Dec. 23, 2009)
  (online at www.financialstability.gov/docs/Citi%20AGP%20Termination%20Agreement%20-%20Fully%20Executed%20Version.pdf); U.S. Department of the
  Treasury, Treasury Announces Further Sales of Citigroup Securities and Cumulative Return to Taxpayers of $41.6 Billion (Sept. 30, 2010) (online at
  financialstability.gov/latest/pr_09302010c.html); Federal Deposit Insurance Corporation, 2009 Annual Report, at 87 (June 30, 2010) (online at
  www.fdic.gov/about/strategic/report/2009annualreport/AR09final.pdf).
xxxi As of November 30, 2010, Treasury has earned $289.6 million in membership interest distributions from the PPIP. Additionally, Treasury has earned
  $20.6 million in total proceeds following the termination of the TCW fund. See U.S. Department of the Treasury, Cumulative Dividends, Interest and
  Distributions Report as of November 30, 2010, at 14 (Dec. 10, 2010) (online at financialstability.gov/docs/dividends-interest-reports/
  November%202010%20Dividends%20&%20Interest%20Report.pdf); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the
  Period Ending December 30, 2010, at 23 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xxxii Although Treasury, the Federal Reserve, and the FDIC negotiated with Bank of America regarding a similar guarantee, the parties never reached an
  agreement. In September 2009, Bank of America agreed to pay each of the prospective guarantors a fee as though the guarantee had been in place during
  the negotiations period. This agreement resulted in payments of $276 million to Treasury, $57 million to the Federal Reserve, and $92 million to the
  FDIC. U.S. Department of the Treasury, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Bank of America
  Corporation, Termination Agreement, at 1-2 (Sept. 21, 2009) (online at www.financialstability.gov/docs/AGP/BofA%20-%20Termination%20Agreement%20-
  %20executed.pdf).

            d. CPP Unpaid Dividend and Interest Payments \476\
---------------------------------------------------------------------------
    \476\ Cumulative Dividends, Interest and Distributions Report, 
supra note 475, at 20.
---------------------------------------------------------------------------
    As of November 30, 2010, 140 institutions have missed at 
least one dividend payment on outstanding preferred stock 
issued under the CPP.\477\ Among these institutions, 111 are 
not current on cumulative dividends, amounting to $151.5 
million in missed payments. Another 29 banks have not paid $9.7 
million in non-cumulative dividends. Of the $49.5 billion 
currently outstanding in CPP funding, Treasury's investments in 
banks with non-current dividend payments total $7.2 billion. A 
majority of the banks that remain delinquent on dividend 
payments have under $1 billion in total assets on their balance 
sheets. Also, there are 21 institutions that no longer have 
outstanding unpaid dividends, after previously deferring their 
quarterly payments.\478\
---------------------------------------------------------------------------
    \477\ This figure does not include banks with missed dividend 
payments that have either repaid all delinquent dividends, exited the 
TARP, gone into receivership, or filed for bankruptcy.
    \478\ Fifteen of these institutions made payments later. The 21 
institutions also include those that have either (a) fully repaid their 
CPP investment and exited the program or (b) entered bankruptcy or 
their subsidiary was placed into receivership. Cumulative Dividends, 
Interest and Distributions Report, supra note 475, at 21.
---------------------------------------------------------------------------
    Twelve banks have failed to make six dividend payments, six 
banks have missed seven quarterly payments, and one bank has 
missed all eight quarterly payments. These institutions have 
received a total of $897.2 million in CPP funding. Under the 
terms of the CPP, after a bank fails to pay dividends for six 
periods, Treasury has the right to elect two individuals to the 
company's board of directors.\479\ Figure 43 below provides 
further details on the distribution and the number of 
institutions that have missed dividend payments.
---------------------------------------------------------------------------
    \479\ U.S. Department of the Treasury, Frequently Asked Questions: 
Capital Purchase Program (CPP): Related to Missed Dividend (or 
Interest) Payments and Director Nomination (online at 
www.financialstability.gov/docs/CPP/CPP%20Directors%20FAQs.pdf) 
(accessed Jan. 11, 2011).
---------------------------------------------------------------------------
    In addition, eight CPP participants have missed at least 
one interest payment, representing $4.0 million in cumulative 
unpaid interest payments. Treasury's total investments in these 
non-public institutions represent less than $1 billion in CPP 
funding.

 FIGURE 43: CPP MISSED DIVIDEND PAYMENTS (AS OF NOVEMBER 30, 2010) \480\
------------------------------------------------------------------------
    Number of Missed Payments      1   2   3   4   5   6   7   8   Total
------------------------------------------------------------------------
Cumulative Dividends
Number of Banks, by asset size..  17  28  20  20  14   9   3   0     111
    Under $1B...................  10  21  17  16   9   6   1   0      80
    $1B-$10B....................   6   6   3   3   5   3   2   0      28
    Over $10B...................   1   1   0   1   0   0   0   0       3
Non-Cumulative Dividends
Number of Banks, by asset size..   6   1   6   6   3   3   3   1      29
    Under $1B...................   5   1   6   5   3   3   3   1      27
    $1B-$10B....................   0   0   0   1   0   0   0   0       1
    Over $10B...................   1   0   0   0   0   0   0   0       1
                                 ---------------------------------------
Total Banks Missing Payments....  ..  ..  ..  ..  ..  ..  ..  ..     140
                                 ---------------------------------------
Total Missed Payments...........  ..  ..  ..  ..  ..  ..  ..  ..     470
------------------------------------------------------------------------
\480\ Cumulative Dividends, Interest and Distributions Report, supra
  note 475, at 17-20. Data on total bank assets compiled using SNL
  Financial data service (accessed Jan. 6, 2011).

            e. CPP Losses
    As of December 30, 2010, Treasury has realized a total of 
$2.6 billion in losses from investments in five CPP 
participants. CIT Group Inc. and Pacific Coast National Bancorp 
have both completed bankruptcy proceedings, and the preferred 
stock and warrants issued by the South Financial Group, TIB 
Financial Corp., and the Bank of Currituck were sold to third-
party institutions at a discount. Excluded from Treasury's 
total losses are investments in institutions that have pending 
receivership or bankruptcy proceedings, as well as an 
institution that is currently the target of an 
acquisition.\481\ Settlement of these transactions and 
proceedings would increase total losses in the CPP to $3.0 
billion. Figure 44 below details settled and unsettled 
investment losses from CPP participants that have declared 
bankruptcy, been placed into receivership, or renegotiated the 
terms of their CPP contracts.
---------------------------------------------------------------------------
    \481\ Treasury Transactions Report, supra note 24, at 13.

                                                    FIGURE 44: CPP SETTLED AND UNSETTLED LOSSES \482\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Investment     Warrant
                 Institution                     Investment     Disposition  Disposition   Dividends   Possible Losses/               Action
                                                   Amount         Amount        Amount     & Interest  Reduced Exposure
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cadence Financial Corporation...............      $44,000,000   $38,000,000            -   $2,970,000      $(6,000,000)  10/29/2010: Treasury agreed to
                                                                                                                          sell preferred stock and
                                                                                                                          warrants issued by Cadence
                                                                                                                          Financial to Community Bancorp
                                                                                                                          LLC for $38 million plus
                                                                                                                          accrued and unpaid dividends.
                                                                                                                          Completion of the sale subject
                                                                                                                          to fulfillment of certain
                                                                                                                          closing conditions.
Capital Bank Corporation \483\..............       41,279,000             -            -    3,457,117      (20,639,500)  11/9/2010: Capital Bank Corp.
                                                                                                                          is seeking to enter an
                                                                                                                          agreement with Treasury
                                                                                                                          pursuant to which the company
                                                                                                                          will repurchase outstanding
                                                                                                                          TARP preferred shares at 50
                                                                                                                          percent of liquidation value,
                                                                                                                          plus accrued unpaid dividends.
                                                                                                                          The company will use cash
                                                                                                                          proceeds from its acquisition
                                                                                                                          by North American Financial
                                                                                                                          Holdings Inc. As of Nov. 30,
                                                                                                                          2010, no agreement has been
                                                                                                                          reached between Capital Bank
                                                                                                                          Corp. and Treasury.
CIT Group Inc.*.............................    2,330,000,000             -            -   43,687,500   (2,330,000,000)  12/10/2009: Bankruptcy
                                                                                                                          reorganization plan for CIT
                                                                                                                          Group Inc. became effective.
                                                                                                                          CPP preferred shares and
                                                                                                                          warrants were extinguished and
                                                                                                                          replaced with contingent value
                                                                                                                          rights (CVR). On Feb. 8, 2010,
                                                                                                                          the CVRs expired without
                                                                                                                          value.
Midwest Banc Holdings, Inc..................       89,388,000             -            -      824,289      (89,388,000)  5/14/2010: Midwest Banc
                                                                                                                          Holdings, Inc. subsidiary,
                                                                                                                          Midwest Bank and Trust, Co.,
                                                                                                                          placed into receivership.
                                                                                                                          Midwest Banc Holdings is
                                                                                                                          currently in bankruptcy
                                                                                                                          proceedings.
Pacific Coast National Bancorp*.............        4,120,000             -            -       18,088       (4,120,000)  2/11/2010: Pacific Coast
                                                                                                                          National Bancorp dismissed its
                                                                                                                          bankruptcy proceedings without
                                                                                                                          recovery to creditors or
                                                                                                                          investors. Investments,
                                                                                                                          including Treasury's CPP
                                                                                                                          investments, were
                                                                                                                          extinguished.
Pierce County Bancorp.......................        6,800,000             -            -      207,948       (6,800,000)  11/5/2010: Pierce County
                                                                                                                          Bancorp subsidiary, Pierce
                                                                                                                          Commercial Bank, placed into
                                                                                                                          receivership.
Sonoma Valley Bancorp.......................        8,653,000             -            -      347,164       (8,653,000)  8/20/2010: Sonoma Valley
                                                                                                                          Bancorp subsidiary, Sonoma
                                                                                                                          Valley Bank, placed into
                                                                                                                          receivership.
South Financial Group*......................      347,000,000   130,179,219     $400,000   16,386,111     (216,820,781)  9/30/2010: Preferred stock and
                                                                                                                          warrants sold to Toronto-
                                                                                                                          Dominion Bank.
The Bank of Currituck*......................        4,021,000     1,742,850            -      169,834       (2,278,150)  12/3/2010: The Bank of
                                                                                                                          Currituck completed its
                                                                                                                          repurchase of all preferred
                                                                                                                          stock (including preferred
                                                                                                                          stock received upon exercise
                                                                                                                          of warrants) issued to
                                                                                                                          Treasury.
TIB Financial Corp.*........................       37,000,000    12,119,637       40,000    1,284,722      (24,880,363)  9/30/2010: Preferred stock and
                                                                                                                          warrants sold to North
                                                                                                                          American Financial Holdings.
Tifton Banking Company......................        3,800,000             -            -      223,208       (3,800,000)  11/12/2010: Tifton Banking
                                                                                                                          Company placed into
                                                                                                                          receivership.
UCBH Holdings, Inc..........................      298,737,000             -            -    7,509,920     (298,737,000)  11/6/2009: United Commercial
                                                                                                                          Bank, a wholly owned
                                                                                                                          subsidiary of UCBH Holdings,
                                                                                                                          Inc., was placed into
                                                                                                                          receivership. UCBH Holdings is
                                                                                                                          currently in bankruptcy
                                                                                                                          proceedings.
                                             -----------------------------------------------------------------------------------------------------------
    Total...................................   $3,214,798,000  $182,041,706      440,000   77,085,901  $(3,012,116,794)  ...............................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\482\ Treasury Transactions Report, supra note 24, at 14. The asterisk (``*'') denotes recognized losses on Treasury's Transactions Report.
\483\ Capital Bank Corporation, Schedule 14A, at 5 (Nov. 19, 2010) (online at www.sec.gov/Archives/edgar/data/1071992/000095012310107474/
  g25191ddef14a.htm).

f. Rate of Return

    As of January 3, 2011, the average internal rate of return 
for all public financial institutions that participated in the 
CPP and fully repaid the U.S. government (including preferred 
shares, dividends, and warrants) remained at 8.4 percent, with 
only one institution, Central Jersey Bancorp, exiting the 
program in December.\484\ The internal rate of return is the 
annualized effective compounded return rate that can be earned 
on invested capital.
---------------------------------------------------------------------------
    \484\ Calculation of the internal rate of return (IRR) also 
includes CPP investments in public institutions not repaid in full (for 
reasons such as acquisition by another institution), such as The South 
Financial Group and TIB Financial Corporation. The Panel's total IRR 
calculation now includes CPP investments in public institutions 
recorded as a loss on the TARP Transactions Report due to bankruptcy, 
such as CIT Group Inc. Going forward, the Panel will continue to 
include losses due to bankruptcy when Treasury determines that any 
associated contingent value rights have expired without value. When 
excluding CIT Group from the calculation, the resulting IRR is 10.4 
percent. Treasury Transactions Report, supra note 24.
---------------------------------------------------------------------------

g. Warrant Disposition

               FIGURE 45: WARRANT REPURCHASES/AUCTIONS FOR FINANCIAL INSTITUTIONS THAT HAVE FULLY REPAID CPP FUNDS (AS OF JANUARY 3, 2011)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                     Panel's Best
                                                                                      Warrant         Warrant          Valuation      Price/
                            Institution                               Investment     Repurchase  Repurchase/ Sale     Estimate at    Estimate     IRR
                                                                         Date           Date          Amount          Disposition      Ratio   (Percent)
                                                                                                                         Date
--------------------------------------------------------------------------------------------------------------------------------------------------------
Old National Bancorp..............................................      12/12/2008     5/8/2009        $1,200,000        $2,150,000    0.558       9.3
Iberiabank Corporation............................................       12/5/2008    5/20/2009         1,200,000         2,010,000    0.597       9.4
Firstmerit Corporation............................................        1/9/2009    5/27/2009         5,025,000         4,260,000    1.180      20.3
Sun Bancorp, Inc..................................................        1/9/2009    5/27/2009         2,100,000         5,580,000    0.376      15.3
Independent Bank Corp.............................................        1/9/2009    5/27/2009         2,200,000         3,870,000    0.568      15.6
Alliance Financial Corporation....................................      12/19/2008    6/17/2009           900,000         1,580,000    0.570      13.8
First Niagara Financial Group.....................................      11/21/2008    6/24/2009         2,700,000         3,050,000    0.885       8.0
Berkshire Hills Bancorp, Inc......................................      12/19/2008    6/24/2009         1,040,000         1,620,000    0.642      11.3
Somerset Hills Bancorp............................................       1/16/2009    6/24/2009           275,000           580,000    0.474      16.6
SCBT Financial Corporation........................................       1/16/2009    6/24/2009         1,400,000         2,290,000    0.611      11.7
HF Financial Corp.................................................      11/21/2008    6/30/2009           650,000         1,240,000    0.524      10.1
State Street......................................................      10/28/2008     7/8/2009        60,000,000        54,200,000    1.107       9.9
U.S. Bancorp......................................................      11/14/2008    7/15/2009       139,000,000       135,100,000    1.029       8.7
The Goldman Sachs Group, Inc......................................      10/28/2008    7/22/2009     1,100,000,000     1,128,400,000    0.975      22.8
BB&T Corp.........................................................      11/14/2008    7/22/2009        67,010,402        68,200,000    0.983       8.7
American Express Company..........................................        1/9/2009    7/29/2009       340,000,000       391,200,000    0.869      29.5
Bank of New York Mellon Corp......................................      10/28/2008     8/5/2009       136,000,000       155,700,000    0.873      12.3
Morgan Stanley....................................................      10/28/2008    8/12/2009       950,000,000     1,039,800,000    0.914      20.2
Northern Trust Corporation........................................      11/14/2008    8/26/2009        87,000,000        89,800,000    0.969      14.5
Old Line Bancshares Inc...........................................       12/5/2008     9/2/2009           225,000           500,000    0.450      10.4
Bancorp Rhode Island, Inc.........................................      12/19/2008    9/30/2009         1,400,000         1,400,000    1.000      12.6
Centerstate Banks of Florida Inc..................................      11/21/2008   10/28/2009           212,000           220,000    0.964       5.9
Manhattan Bancorp.................................................       12/5/2008   10/14/2009            63,364           140,000    0.453       9.8
CVB Financial Corp................................................       12/5/2008   10/28/2009         1,307,000         3,522,198    0.371       6.4
Bank of the Ozarks................................................      12/12/2008   11/24/2009         2,650,000         3,500,000    0.757       9.0
Capital One Financial.............................................      11/14/2008    12/3/2009       148,731,030       232,000,000    0.641      12.0
JPMorgan Chase & Co...............................................      10/28/2008   12/10/2009       950,318,243     1,006,587,697    0.944      10.9
CIT Group Inc.....................................................      12/31/2008            -                 -           562,541    -         (97.2)
TCF Financial Corp................................................       1/16/2009   12/16/2009         9,599,964        11,825,830    0.812      11.0
LSB Corporation...................................................      12/12/2008   12/16/2009           560,000           535,202    1.046       9.0
Wainwright Bank & Trust Company...................................      12/19/2008   12/16/2009           568,700         1,071,494    0.531       7.8
Wesbanco Bank, Inc................................................       12/5/2008   12/23/2009           950,000         2,387,617    0.398       6.7
Union First Market Bankshares Corporation (Union Bankshares             12/19/2008   12/23/2009           450,000         1,130,418    0.398       5.8
 Corporation).....................................................
Trustmark Corporation.............................................      11/21/2008   12/30/2009        10,000,000        11,573,699    0.864       9.4
Flushing Financial Corporation....................................      12/19/2008   12/30/2009           900,000         2,861,919    0.314       6.5
OceanFirst Financial Corporation..................................       1/16/2009     2/3/2010           430,797           279,359    1.542       6.2
Monarch Financial Holdings, Inc...................................      12/19/2008    2/10/2010           260,000           623,434    0.417       6.7
Bank of America...................................................      10/28/2008     3/3/2010     1,566,210,714     1,006,416,684    1.533       6.5
                                                                    \485\ 1/9/2009
                                                                       \486\ 1/14/
                                                                        2009 \487\
Washington Federal Inc./Washington Federal Savings & Loan               11/14/2008     3/9/2010        15,623,222        10,166,404    1.537      18.6
 Association......................................................
Signature Bank....................................................      12/12/2008    3/10/2010        11,320,751        11,458,577    0.988      32.4
Texas Capital Bancshares, Inc.....................................       1/16/2009    3/11/2010         6,709,061         8,316,604    0.807      30.1
Umpqua Holdings Corp..............................................      11/14/2008    3/31/2010         4,500,000         5,162,400    0.872       6.6
City National Corporation.........................................      11/21/2008     4/7/2010        18,500,000        24,376,448    0.759       8.5
First Litchfield Financial Corporation............................      12/12/2008     4/7/2010         1,488,046         1,863,158    0.799      15.9
PNC Financial Services Group Inc..................................      12/31/2008    4/29/2010       324,195,686       346,800,388    0.935       8.7
Comerica Inc......................................................      11/14/2008     5/4/2010       183,673,472       276,426,071    0.664      10.8
Valley National Bancorp...........................................      11/14/2008    5/18/2010         5,571,592         5,955,884    0.935       8.3
Wells Fargo Bank..................................................      10/28/2008    5/20/2010       849,014,998     1,064,247,725    0.798       7.8
First Financial Bancorp...........................................      12/23/2008     6/2/2010         3,116,284         3,051,431    1.021       8.2
Sterling Bancshares, Inc./Sterling Bank...........................      12/12/2008     6/9/2010         3,007,891         5,287,665    0.569      10.8
SVB Financial Group...............................................      12/12/2008    6/16/2010         6,820,000         7,884,633    0.865       7.7
Discover Financial Services.......................................       3/13/2009     7/7/2010       172,000,000       166,182,652    1.035      17.1
Bar Harbor Bancshares.............................................       1/16/2009    7/28/2010           250,000           518,511    0.482       6.2
Citizens & Northern Corporation...................................       1/16/2009     8/4/2010           400,000           468,164    0.854       5.9
Columbia Banking System, Inc......................................      11/21/2008    8/11/2010         3,301,647         3,291,329    1.003       7.3
Hartford Financial Services Group, Inc............................       6/26/2009    9/21/2010       713,687,430       472,221,996    1.511      30.3
Lincoln National Corporation......................................       7/10/2009    9/16/2010       216,620,887       181,431,183    1.194      27.1
Fulton Financial Corporation......................................      12/23/2008     9/8/2010        10,800,000        15,616,013    0.692       6.7
The Bancorp, Inc./The Bancorp Bank................................      12/12/2008     9/8/2010         4,753,985         9,947,683    0.478      12.8
South Financial Group, Inc./Carolina First Bank...................       12/5/2008    9/30/2010           400,000         1,164,486    0.343     (34.2)
TIB Financial Corp/TIB Bank.......................................       12/5/2008    9/30/2010            40,000           235,757    0.170     (38.0)
Central Jersey Bancorp............................................      12/23/2008    12/1/2010           319,659         1,554,457    0.206       6.3
                                                                   -------------------------------------------------------------------------------------
Total.............................................................  ..............  ...........    $8,148,651,825    $8,001,397,712    1.018       8.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
\485\ Investment date for Bank of America in the CPP.
\486\ Investment date for Merrill Lynch in the CPP.
\487\ Investment date for Bank of America in the TIP.


 FIGURE 46: VALUATION OF CURRENT HOLDINGS OF WARRANTS (AS OF JANUARY 3,
                                  2011)
------------------------------------------------------------------------
                                       Warrant Valuation (millions of
                                                  dollars)
   Financial Institutions with    --------------------------------------
       Warrants Outstanding            Low          High         Best
                                     Estimate     Estimate     Estimate
------------------------------------------------------------------------
Citigroup, Inc.\488\.............       $53.80    $1,070.04      $168.61
SunTrust Banks, Inc..............        15.38       186.09        78.14
Regions Financial Corporation....        11.40       199.48       106.32
Fifth Third Bancorp..............       137.43       428.31       228.42
KeyCorp..........................        33.05       183.96        93.42
AIG..............................     1,064.98     2,516.60     1,652.69
All Other Banks..................       684.87     1,786.36     1,203.84
                                  --------------------------------------
Total............................    $2,000.91    $6,370.84    $3,531.44
------------------------------------------------------------------------
\488\ Includes warrants issued under the CPP, the AGP, and the TIP.

2. Federal Financial Stability Efforts

            a. Federal Reserve and FDIC Programs
    In addition to the direct expenditures Treasury has 
undertaken through the TARP, the federal government has engaged 
in a much broader program directed at stabilizing the U.S. 
financial system. Many of these initiatives explicitly augment 
funds allocated by Treasury under specific TARP initiatives, 
such as FDIC and Federal Reserve asset guarantees for 
Citigroup, or operate in tandem with Treasury programs. Other 
programs, like the Federal Reserve's extension of credit 
through its Section 13(3) facilities and special purpose 
vehicles (SPVs) and the FDIC's Temporary Liquidity Guarantee 
Program (TLGP), operate independently of the TARP.
            b. Total Financial Stability Resources
    Beginning in its April 2009 report, the Panel broadly 
classified the resources that the federal government has 
devoted to stabilizing the economy through myriad new programs 
and initiatives such as outlays, loans, or guarantees. With the 
reductions in funding for certain TARP programs, the Panel 
calculates the total value of these resources to be 
approximately $2.5 trillion. However, this would translate into 
the ultimate ``cost'' of the stabilization effort only if: (1) 
assets do not appreciate; (2) no dividends are received, no 
warrants are exercised, and no TARP funds are repaid; (3) all 
loans default and are written off; and (4) all guarantees are 
exercised and subsequently written off.
    With respect to the FDIC and Federal Reserve programs, the 
risk of loss varies significantly across the programs 
considered here, as do the mechanisms providing protection for 
the taxpayer against such risk. As discussed in the Panel's 
November 2009 report, the FDIC assesses a premium of up to 100 
basis points, or 1 percentage point, on TLGP debt 
guarantees.\489\ In contrast, the Federal Reserve's liquidity 
programs are generally available only to borrowers with good 
credit, and the loans are over-collateralized and with recourse 
to other assets of the borrower. If the assets securing a 
Federal Reserve loan realize a decline in value greater than 
the ``haircut,'' the Federal Reserve is able to demand more 
collateral from the borrower. Similarly, should a borrower 
default on a recourse loan, the Federal Reserve can turn to the 
borrower's other assets to make the Federal Reserve whole. In 
this way, the risk to the taxpayer on recourse loans only 
materializes if the borrower enters bankruptcy.
---------------------------------------------------------------------------
    \489\ Congressional Oversight Panel, November Oversight Report: 
Guarantees and Contingent Payments in TARP and Related Programs, at 36 
(Nov. 6, 2009) (online at cop.senate.gov/documents/cop-110609-
report.pdf).
---------------------------------------------------------------------------
            c. Mortgage Purchase Programs
    On September 7, 2008, Treasury announced the GSE Mortgage 
Backed Securities Purchase (MBS) Program. The Housing and 
Economic Recovery Act of 2008 provided Treasury with the 
authority to purchase MBS guaranteed by government-sponsored 
enterprises (GSEs) through December 31, 2009. Treasury 
purchased approximately $225 billion in GSE MBS by the time its 
authority expired.\490\ As of December 2010, there was 
approximately $144.4 billion in MBS still outstanding under 
this program.\491\
---------------------------------------------------------------------------
    \490\ U.S. Department of the Treasury, FY2011 Budget in Brief, at 
138 (Feb. 2010) (online at www.treasury.gov/about/budget-performance/
budget-in-brief/Documents/FY%202011%20BIB%20(2).pdf).
    \491\ U.S. Department of the Treasury, MBS Purchase Program: 
Portfolio by Month (online at www.financialstability.gov/docs/
December%202010%20Portfolio%20by%20month.pdf) (accessed Jan. 11, 2011). 
Treasury has received $75.9 billion in principal repayments and $15.6 
billion in interest payments from these securities. See U.S. Department 
of the Treasury, MBS Purchase Program Principal and Interest Received 
(online at www.financialstability.gov/docs/
December%202010%20MBS%20Principal%20and%20Interest%20Monthly%20Breakout.
pdf) (accessed Jan. 11, 2011).
---------------------------------------------------------------------------
    In March 2009, the Federal Reserve authorized purchases of 
$1.25 trillion MBS guaranteed by Fannie Mae, Freddie Mac, and 
Ginnie Mae, and $200 billion of agency debt securities from 
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.\492\ 
The intended purchase amount for agency debt securities was 
subsequently decreased to $175 billion.\493\ All purchasing 
activity was completed on March 31, 2010. As of January 6, 
2010, the Federal Reserve held $992 billion of agency MBS and 
$147 billion of agency debt.\494\
---------------------------------------------------------------------------
    \492\ Board of Governors of the Federal Reserve System, Federal 
Reserve System Monthly Report on Credit and Liquidity Programs and the 
Balance Sheet, at 5 (Dec. 2010) (online at federalreserve.gov/
monetarypolicy/files/monthlyclbsreport201012.pdf).
    \493\ Id. at 5.
    \494\ Board of Governors of the Federal Reserve System, Factors 
Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online at 
www.federalreserve.gov/releases/h41/20110106/) (hereinafter ``Factors 
Affecting Reserve Balances (H.4.1)'').
---------------------------------------------------------------------------
            d. Federal Reserve Treasury Securities Purchases \495\
---------------------------------------------------------------------------
    \495\ Board of Governors of the Federal Reserve System, Press 
Release--FOMC Statement (Nov. 3, 2010) (online at 
www.federalreserve.gov/newsevents/press/monetary/20101103a.htm); 
Federal Reserve Bank of New York, Statement Regarding Purchases of 
Treasury Securities (Nov. 3, 2010) (online at www.federalreserve.gov/
newsevents/press/monetary/monetary20101103a1.pdf).
---------------------------------------------------------------------------
    On November 3, 2010, the Federal Open Market Committee 
(FOMC) announced that it has directed the Federal Reserve Bank 
of New York (FRBNY) to begin purchasing an additional $600 
billion in longer-term Treasury securities. In addition, FRBNY 
will reinvest $250 billion to $300 billion in principal 
payments from agency debt and agency MBS in Treasury 
securities.\496\ The additional purchases and reinvestments 
will be conducted through the end of the second quarter of 
2011, meaning the pace of purchases will be approximately $110 
billion per month. In order to facilitate these purchases, 
FRBNY will temporarily lift its System Open Market Account per-
issue limit, which prohibits the Federal Reserve's holdings of 
an individual security from surpassing 35 percent of the 
outstanding amount.\497\ As of January 6, 2010, the Federal 
Reserve held $1.03 trillion in Treasury securities.\498\
---------------------------------------------------------------------------
    \496\ On August 10, 2010, the Federal Reserve began reinvesting 
principal payments on agency debt and agency MBS holdings in longer-
term Treasury securities in order to keep the amount of their 
securities holdings in their System Open Market Account portfolio at 
their then-current level. Board of Governors of the Federal Reserve 
System, FOMC Statement (Aug. 10, 2010) (online at 
www.federalreserve.gov/newsevents/press/monetary/20100810a.htm).
    \497\ Federal Reserve Bank of New York, FAQs: Purchases of Longer-
term Treasury Securities (Nov. 3, 2010) (online at www.newyorkfed.org/
markets/lttreas_faq.html).
    \498\ Factors Affecting Reserve Balances (H.4.1), supra note 494.

            FIGURE 47: FEDERAL GOVERNMENT FINANCIAL STABILITY EFFORT (AS OF DECEMBER 30, 2010) xxxiii
----------------------------------------------------------------------------------------------------------------
                                                     Treasury         Federal
          Program (billions of dollars)               (TARP)          Reserve          FDIC            Total
----------------------------------------------------------------------------------------------------------------
Total...........................................          $475.0        $1,311.6          $690.9        $2,477.5
    Outlays xxxiv...............................           201.4         1,166.0           188.9         1,556.3
    Loans.......................................            23.6           145.6               0           169.6
    Guarantees xxxv.............................             4.3               0             502           506.3
    Repaid and Unavailable TARP Funds...........           245.8               0               0           245.8
AIG xxxvi ......................................            69.8            81.7               0           151.4
    0utlays.....................................     xxxvii 69.8    xxxviii 26.4               0            96.2
    Loans.......................................               0      xxxix 55.2               0            55.2
    Guarantees..................................               0               0               0               0
Citigroup.......................................               0               0               0               0
    0utlays.....................................            xi 0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Purchase Program (Other)................            34.4               0               0            34.4
    Outlays.....................................        xii 34.4               0               0            34.4
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Capital Assistance Program......................             N/A               0               0        xlii N/A
TALF............................................             4.3            38.7               0            43.0
    Outlays.....................................               0               0               0               0
    Loans.......................................               0       xliv 38.7               0            38.7
    Guarantees..................................       xliii 4.3               0               0             4.3
PPIP (Loans) xlv................................               0               0               0               0
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
PPIP (Securities)...............................       xlvi 22.4               0               0            22.4
    Outlays.....................................             7.4               0               0             7.4
    Loans.......................................            15.1               0               0            15.1
    Guarantees..................................               0               0               0               0
Making Home Affordable Program/Foreclosure                  45.6               0               0            45.6
 Mitigation.....................................
    Outlays.....................................      xlvii 45.6               0               0            45.6
    Outlays.....................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Automotive Industry Financing Program...........     xlviii 51.4               0               0            51.4
    Outlays.....................................            43.3               0               0            43.3
    Loans.......................................             8.1               0               0             8.1
    Guarantees..................................               0               0               0               0
Automotive Supplier Support Program.............             0.4               0               0             0.4
    Outlays.....................................               0               0               0               0
    Loans.......................................        xliv 0.4               0               0             0.4
    Guarantees..................................               0               0               0               0
SBA 7(a) Securities Purchase....................          l 0.37               0               0            0.37
    Outlays.....................................            0.37               0               0            0.37
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Community Development Capital Initiative........         li 0.57               0               0            0.57
    Outlays.....................................               0               0               0               0
    Loans.......................................            0.57               0               0            0.57
    Guarantees..................................               0               0               0               0
Temporary Liquidity Guarantee Program...........               0               0           502.0           502.0
    Outlays.....................................               0               0               0               0
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0       lii 502.0           502.0
Deposit Insurance Fund..........................               0               0           188.9           188.9
    Outlays.....................................               0               0       liii 88.9           188.9
    Loans.......................................               0               0               0               0
    Guarantees..................................               0               0               0               0
Other Federal Reserve Credit Expansion..........               0         1,191.3               0         1,191.3
    Outlays.....................................               0     liv 1,139.6               0         1,139.6
    Loans.......................................               0         lv 51.7               0            51.7
    Guarantees..................................               0               0               0               0
----------------------------------------------------------------------------------------------------------------
xxxiii Unless otherwise noted, all data in this figure are as of December 30, 2010.
xxxiv The term ``outlays'' is used here to describe the use of Treasury funds under the TARP, which are broadly
  classifiable as purchases of debt or equity securities (e.g., debentures, preferred stock, exercised warrants,
  etc.). These values were calculated using (1) Treasury's actual reported expenditures, and (2) Treasury's
  anticipated funding levels as estimated by a variety of sources, including Treasury statements and GAO
  estimates. Anticipated funding levels are set at Treasury's discretion, have changed from initial
  announcements, and are subject to further change. Outlays used here represent investment and asset purchases--
  as well as commitments to make investments and asset purchases--and are not the same as budget outlays, which
  under section 123 of EESA are recorded on a ``credit reform'' basis.
xxxv Although many of the guarantees may never be exercised or will be exercised only partially, the guarantee
  figures included here represent the federal government's greatest possible financial exposure.
xxxvi U.S. Department of the Treasury, Treasury Update on AIG Investment Valuation (Nov. 1, 2010) (online at
  financialstability.gov/latest/pr_11012010.html). AIG values exclude accrued dividends on preferred interests
  in the AIA and ALICO SPVs and accrued interest payable to FRBNY on the Maiden Lane LLCs.
xxxvii This number includes investments under the AIGIP/SSFI Program: a $40 billion investment made on November
  25, 2008, and a $30 billion investment made on April 17, 2009 (less a reduction of $165 million representing
  bonuses paid to AIG Financial Products employees). As of November 1, 2010, AIG had utilized $47.5 billion of
  the available $69.8 billion under the AIGIP/SSFI. U.S. Department of the Treasury, Treasury Update on AIG
  Investment Valuation (Nov. 1, 2010) (online at www.financialstability.gov/latest/pr_11012010.html); U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December
  30, 2010, at 21 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xxxviii As part of the restructuring of the U.S. government's investment in AIG announced on March 2, 2009, the
  amount available to AIG through the Revolving Credit Facility was reduced by $25 billion in exchange for
  preferred equity interests in two special purpose vehicles, AIA Aurora LLC and ALICO Holdings LLC. Board of
  Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity
  Programs and the Balance Sheet, at 18 (Dec. 2010) (online at www.federalreserve.gov/monetarypolicy/files/
  monthlyclbsreport201012.pdf). These SPVs were established to hold the common stock of two AIG subsidiaries:
  American International Assurance Company Ltd. (AIA) and American Life Insurance Company (ALICO). As of January
  6, 2011, the book value of the Federal Reserve Bank of New York's holdings in AIA Aurora LLC and ALICO
  Holdings LLC was $26.4 billion in preferred equity ($16.9 billion in AIA and $9.5 billion in ALICO). Federal
  Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online at
  www.federalreserve.gov/releases/h41/20110106/).
xxxix This number represents the full $28.9 billion made available to AIG through its Revolving Credit Facility
  (RCF) with FRBNY ($20.0 billion had been drawn down as of January 5, 2011) and the outstanding principal of
  the loans extended to the Maiden Lane II and III SPVs to buy AIG assets (as of January 5, 2011, $12.8 billion
  and $13.5 billion, respectively). Federal Reserve Bank of New York, Factors Affecting Reserve Balances (H.4.1)
  (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/); Board of Governors of the Federal
  Reserve System, Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity Programs
  and the Balance Sheet, at 16 (Dec. 2010) (online at www.federalreserve.gov/monetarypolicy/files/
  monthlyclbsreport201012.pdf). The amounts outstanding under the Maiden Lane II and III facilities do not
  reflect the accrued interest payable to FRBNY. Income from the purchased assets is used to pay down the loans
  to the SPVs, reducing the taxpayers' exposure to losses over time. Board of Governors of the Federal Reserve
  System, Federal Reserve System Monthly Report on Credit and Liquidity Programs and the Balance Sheet, at 15
  (Nov. 2010) (online at www.federalreserve.gov/monetarypolicy/files/monthlyclbsreport201011.pdf).
The maximum amount available through the RCF decreased from $34.4 billion to $28.9 billion between March and
  November 2010, primarily as a result of the sale of several subsidiaries. The reduced ceiling also reflects a
  $3.95 billion repayment to the RCF from proceeds earned from a debt offering by the International Lease
  Finance Corporation (ILFC), an AIG subsidiary. The balance on the RCF increased $0.7 billion between October
  27 and November 24, 2010, primarily due to recapitalized interest and fees as principal repayments. Board of
  Governors of the Federal Reserve System, Federal Reserve System Monthly Report on Credit and Liquidity
  Programs and the Balance Sheet, at 16, 19 (Dec. 2010) (online at www.federalreserve.gov/monetarypolicy/files/
  monthlyclbsreport201012.pdf).
xl The final sale of Treasury's Citigroup common stock resulted in full repayment of Treasury's investment of
  $25 billion. See endnote ii, supra, for further details of the sales of Citigroup common stock. U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December
  30, 2010, at 1, 13 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xli This figure represents the $204.9 billion Treasury disbursed under the CPP, minus the $25 billion investment
  in Citigroup identified above, $139.5 billion in repayments (excluding the amount repaid for the Citigroup
  investment) that are in ``repaid and unavailable'' TARP funds, and losses under the program. This figure does
  not account for future repayments of CPP investments and dividend payments from CPP investments. U.S.
  Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December
  30, 2010, at 13 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xlii On November 9, 2009, Treasury announced the closing of the CAP and that only one institution, GMAC/Ally
  Financial, was in need of further capital from Treasury. GMAC/Ally Financial, however, received further
  funding through the AIFP. Therefore, the Panel considers the CAP unused. U.S. Department of the Treasury,
  Treasury Announcement Regarding the Capital Assistance Program (Nov. 9, 2009) (online at
  www.financialstability.gov/latest/tg_11092009.html).
xliii This figure represents the $4.3 billion adjusted allocation to the TALF SPV. However, as of January 6,
  2011, TALF LLC had drawn only $106 million of the available $4.3 billion. Board of Governors of the Federal
  Reserve System, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online at www.federalreserve.gov/
  releases/h41/20110106/); U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report
  for the Period Ending December 30, 2010, at 21 (Dec. 30, 2010) (online at financialstability.gov/latest/
  tg_11092009.html). On June 30, 2010, the Federal Reserve ceased issuing loans collateralized by newly issued
  CMBS. As of this date, investors had requested a total of $73.3 billion in TALF loans ($13.2 billion in CMBS
  and $60.1 billion in non-CMBS) and $71 billion in TALF loans had been settled ($12 billion in CMBS and $59
  billion in non-CMBS). Earlier, it ended its issues of loans collateralized by other TALF-eligible newly issued
  and legacy ABS (non-CMBS) on March 31, 2010. Federal Reserve Bank of New York, Term Asset-Backed Securities
  Loan Facility: Terms and Conditions (online at www.newyorkfed.org/markets/talf_terms.html) (accessed Jan. 6,
  2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: CMBS (online at
  www.newyorkfed.org/markets/cmbs_operations.html) (accessed Jan. 6, 2011); Federal Reserve Bank of New York,
  Term Asset-Backed Securities Loan Facility: CMBS (online at www.newyorkfed.org/markets/
  CMBS_recent_operations.html) (accessed Jan. 6, 2011); Federal Reserve Bank of New York, Term Asset-Backed
  Securities Loan Facility: non-CMBS (online at www.newyorkfed.org/markets/talf_operations.html) (accessed Jan.
  6, 2011); Federal Reserve Bank of New York, Term Asset-Backed Securities Loan Facility: non-CMBS (online at
  www.newyorkfed.org/markets/TALF_recent_operations.html) (accessed Jan. 6, 2011).
xliv This number is derived from the unofficial 1:10 ratio of the value of Treasury loan guarantees to the value
  of Federal Reserve loans under the TALF. U.S. Department of the Treasury, Fact Sheet: Financial Stability
  Plan, at 4 (Feb. 10, 2009) (online at financialstability.gov/docs/fact-sheet.pdf) (describing the initial $20
  billion Treasury contribution tied to $200 billion in Federal Reserve loans and announcing potential expansion
  to a $100 billion Treasury contribution tied to $1 trillion in Federal Reserve loans). Since only $43 billion
  in TALF loans remained outstanding when the program closed, Treasury is currently responsible for reimbursing
  the Federal Reserve Board only up to $4.3 billion in losses from these loans. Thus, the Federal Reserve's
  maximum potential exposure under the TALF is $38.7 billion. See Board of Governors of the Federal Reserve
  System, Federal Reserve Announces Agreement with Treasury Regarding Reduction of Credit Protection Provided
  for the Term Asset-Backed Securities Loan Facility (TALF) (July 20, 2010) (online at www.federalreserve.gov/
  newsevents/press/monetary/20100720a.htm); Board of Governors of the Federal Reserve System, Factors Affecting
  Reserve Balances (H.4.1) (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/).
xlv No TARP resources were expended under the PPIP Legacy Loans Program, a TARP program that was announced in
  March 2009 but never launched. Since no TARP funds were allocated for the program by the time the TARP expired
  in October 2010, this or a similar program cannot be implemented unless another source of funding is
  available.
xlvi This figure represents Treasury's final adjusted investment amount in the Legacy Securities Public-Private
  Investment Program (PPIP). As of December 30, 2010, Treasury reported commitments of $15.1 billion in loans
  and $7.4 billion in membership interest associated with the PPIP. See U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 23 (Dec. 30,
  2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-10%20Transactions%20
  Report%20as%20of%2012-30-10.pdf). On January 4, 2010, Treasury and one of the nine fund managers, UST/TCW
  Senior Mortgage Securities Fund, L.P. (TCW), entered into a ``Winding Up and Liquidation Agreement.'' U.S.
  Department of the Treasury, Winding Up and Liquidation Agreement Between the United States Department of the
  Treasury and UST/TCW Senior Mortgage Securities Fund, L.P. (Jan. 4, 2010) (online at financialstability.gov/
  docs/TCW%20Winding%20Up%20Agmt%20(Execution%20Copy)%20Redacted.pdf). Treasury's final investment amount in TCW
  totaled $356 million. Following the liquidation of the fund, Treasury's initial $3.3 billion obligation to TCW
  was reallocated among the eight remaining funds on March 22, 2010. See U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 23 (Dec. 30,
  2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of %2012-30-10.pdf).
On October 20, 2010, Treasury released its fourth quarterly report on PPIP. The report indicates that as of
  September 30, 2010, all eight investment funds have realized an internal rate of return since inception (net
  of any management fees or expenses owed to Treasury) above 19 percent. The highest performing fund, thus far,
  is AG GECC PPIF Master Fund, L.P., which has a net internal rate of return of 52 percent. U.S. Department of
  the Treasury, Legacy Securities Public-Private Investment Program, at 7 (Oct. 20, 2010) (online at
  financialstability.gov/docs/External%20Report%20-%2009-10%20vFinal.pdf).
xlvii The total amount of TARP funds committed to HAMP is $29.9 billion. U.S. Department of the Treasury,
  Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 45 (Dec. 30,
  2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf); U.S. Department of the Treasury, Troubled Assets Relief
  Program Monthly 105(a) Report--November 2010, at 4 (Dec. 10, 2010) (online at financialstability.gov/docs/
  November%20105(a)%20Report.pdf). However, as of December 31, 2010, only $840.1 million in non-GSE payments
  have been disbursed under HAMP. Data provided by Treasury (Jan. 4, 2011).
xlviii A substantial portion of the total $81.3 billion in debt instruments extended under the AIFP has since
  been converted to common equity and preferred shares in restructured companies. $8.1 billion has been retained
  as first-lien debt (with $1 billion committed to Old GM and $7.1 billion to Chrysler). $51.4 billion
  represents Treasury's current obligation under the AIFP after repayments and losses. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30, 2010, at 18
  (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
xlix This figure represents Treasury's total adjusted investment amount in the ASSP. U.S. Department of the
  Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending December 30,  at 19 (Dec.
  30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-10 %20Transactions%20Report
  %20as%20of%2012-30-10.pdf).
l U.S. Department of the Treasury, Troubled Asset Relief Program: Two Year Retrospective, at 43 (Oct. 2010)
  (online at www.financialstability.gov/docs/
  TARP%20Two%20Year%20Retrospective_10%2005%2010_transmittal%20letter.pdf).
li U.S. Department of the Treasury, Troubled Asset Relief Program Transactions Report for the Period Ending
  December 30, 2010, at 17 (Dec. 30, 2010) (online at www.financialstability.gov/docs/transaction-reports/12-30-
  10%20Transactions%20Report%20as%20of%2012-30-10.pdf).
lii This figure represents the current maximum aggregate debt guarantees that could be made under the program,
  which is a function of the number and size of individual financial institutions participating. $286.8 billion
  of debt subject to the guarantee is currently outstanding, which represents approximately 57.1 percent of the
  current cap. Federal Deposit Insurance Corporation, Monthly Reports Related to the Temporary Liquidity
  Guarantee Program: Debt Issuance Under Guarantee Program (Dec. 21, 2010) (online at www.fdic.gov/regulations/
  resources/tlgp/total_issuance11-10.html). The FDIC has collected $10.4 billion in fees and surcharges from
  this program since its inception in the fourth quarter of 2008. Federal Deposit Insurance Corporation, Monthly
  Reports Related to the Temporary Liquidity Guarantee Program: Fees Under Temporary Liquidity Guarantee Debt
  Program (Dec. 21, 2010) (online at www.fdic.gov/regulations/resources/tlgp/fees.html).
liii This figure represents the FDIC's provision for losses to its deposit insurance fund attributable to bank
  failures in the third and fourth quarters of 2008; the first, second, third, and fourth quarters of 2009; and
  the first, second, and third quarters of 2010. Federal Deposit Insurance Corporation, Chief Financial
  Officer's (CFO) Report to the Board: DIF Income Statement--Third Quarter 2010 (Nov. 12, 2010) (online at
  www.fdic.gov/about/strategic/corporate/cfo_report_3rdqtr_10/income.html). For earlier reports, see Federal
  Deposit Insurance Corporation, Chief Financial Officer's (CFO) Report to the Board (Sept. 23, 2010) (online at
  www.fdic.gov/about/strategic/corporate/index.html). This figure includes the FDIC's estimates of its future
  losses under loss-sharing agreements that it has entered into with banks acquiring assets of insolvent banks
  during these eight quarters. Under a loss-sharing agreement, as a condition of an acquiring bank's agreement
  to purchase the assets of an insolvent bank, the FDIC typically agrees to cover 80 percent of an acquiring
  bank's future losses on an initial portion of these assets and 95 percent of losses on another portion of
  assets. See, e.g., Federal Deposit Insurance Corporation, Purchase and Assumption Agreement--Whole Bank, All
  Deposits--Among FDIC, Receiver of Guaranty Bank, Austin, Texas, Federal Deposit Insurance Corporation and
  Compass Bank, at 65-66 (Aug. 21, 2009) (online at www.fdic.gov/bank/individual/failed/guaranty-
  tx_p_and_a_w_addendum.pdf).
liv Outlays are comprised of the Federal Reserve Mortgage Related Facilities. The Federal Reserve balance sheet
  accounts for these facilities under federal agency debt securities and mortgage-backed securities held by the
  Federal Reserve. Board of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1)
  (Jan. 6, 2011) (online at www.federalreserve.gov/releases/h41/20110106/)(accessed Jan. 6, 2011). Although the
  Federal Reserve does not employ the outlays, loans, and guarantees classification, its accounting clearly
  separates its mortgage-related purchasing programs from its liquidity programs. See, e.g., Board of Governors
  of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1), at 2 (Jan. 6, 2011) (online at
  www.federalreserve.gov/releases/h41/20110106/) (accessed Jan. 6, 2011).
lv Federal Reserve Liquidity Facilities classified in this table as loans include primary credit, secondary
  credit, central bank liquidity swaps, Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity
  Facility, loans outstanding to Commercial Paper Funding Facility LLC, seasonal credit, term auction credit,
  the Term Asset-Backed Securities Loan Facility, and loans outstanding to Bear Stearns (Maiden Lane LLC). Board
  of Governors of the Federal Reserve System, Factors Affecting Reserve Balances (H.4.1) (Jan. 6, 2011) (online
  at www.federalreserve.gov/releases/h41/20110106/)(accessed Jan. 6, 2011). For further information, see the
  data that the Federal Reserve recently disclosed on these programs pursuant to its obligations under the Dodd-
  Frank Wall Street Reform and Consumer Protection Act. Board of Governors of the Federal Reserve System, Credit
  and Liquidity Programs and the Balance Sheet: Overview (May 11, 2010) (online at www.federalreserve.gov/
  monetarypolicy/bst.htm); Board of Governors of the Federal Reserve System, Credit and Liquidity Programs and
  the Balance Sheet: Reports and Disclosures (Aug. 24, 2010) (online at www.federalreserve.gov/monetarypolicy/
  bst_reports.htm); Board of Governors of the Federal Reserve System, Usage of Federal Reserve Credit and
  Liquidity Facilities (Dec. 3, 2010) (online at www.federalreserve.gov/newsevents/reform_transaction.htm).

                   SECTION FOUR: OVERSIGHT ACTIVITIES

    The Congressional Oversight Panel was established as part 
of the Emergency Economic Stabilization Act (EESA) and formed 
on November 26, 2008. Since then, the Panel has produced 26 
oversight reports as well as a special report on regulatory 
reform, issued on January 29, 2009, and a special report on 
farm credit, issued on July 21, 2009. Since the release of the 
Panel's December oversight report, the following developments 
pertaining to the Panel's oversight of the TARP took place:
      The Panel held a hearing in Washington on 
December 16, 2010 with Secretary Geithner, his fifth appearance 
before the Panel. The Secretary had the opportunity to discuss 
the economic impact and ultimate cost of the TARP, the 
challenges that remain in supporting the financial system and 
the housing market now that the TARP's authority has expired, 
and other topics related to the Panel's recently published 
oversight reports.

Upcoming Reports and Hearings

    The Panel will release its next oversight report in 
February. The report will discuss executive compensation 
restrictions for companies that received TARP assistance, 
expanding upon the Panel's hearing on the topic on October 21, 
2010.\499\
---------------------------------------------------------------------------
    \499\ See Congressional Oversight Panel, COP Hearing on the TARP 
and Executive Compensation Restrictions (Oct. 21, 2010) (online at 
cop.senate.gov/hearings/library/hearing-102110-compensation.cfm).
         SECTION FIVE: ABOUT THE CONGRESSIONAL OVERSIGHT PANEL

    In response to the escalating financial crisis, on October 
3, 2008, Congress provided Treasury with the authority to spend 
$700 billion to stabilize the U.S. economy, preserve home 
ownership, and promote economic growth. Congress created the 
Office of Financial Stability (OFS) within Treasury to 
implement the TARP. At the same time, Congress created the 
Congressional Oversight Panel to ``review the current state of 
financial markets and the regulatory system.'' The Panel is 
empowered to hold hearings, review official data, and write 
reports on actions taken by Treasury and financial institutions 
and their effect on the economy. Through regular reports, the 
Panel must oversee Treasury's actions, assess the impact of 
spending to stabilize the economy, evaluate market 
transparency, ensure effective foreclosure mitigation efforts, 
and guarantee that Treasury's actions are in the best interests 
of the American people. In addition, Congress instructed the 
Panel to produce a special report on regulatory reform that 
analyzes ``the current state of the regulatory system and its 
effectiveness at overseeing the participants in the financial 
system and protecting consumers.'' The Panel issued this report 
in January 2009. Congress subsequently expanded the Panel's 
mandate by directing it to produce a special report on the 
availability of credit in the agricultural sector. The report 
was issued on July 21, 2009.
    On November 14, 2008, Senate Majority Leader Harry Reid and 
the Speaker of the House Nancy Pelosi appointed Richard H. 
Neiman, Superintendent of Banks for the State of New York, 
Damon Silvers, Director of Policy and Special Counsel of the 
American Federation of Labor and Congress of Industrial 
Organizations (AFL-CIO), and Elizabeth Warren, Leo Gottlieb 
Professor of Law at Harvard Law School, to the Panel. With the 
appointment on November 19, 2008, of Congressman Jeb Hensarling 
to the Panel by House Minority Leader John Boehner, the Panel 
had a quorum and met for the first time on November 26, 2008, 
electing Professor Warren as its chair. On December 16, 2008, 
Senate Minority Leader Mitch McConnell named Senator John E. 
Sununu to the Panel. Effective August 10, 2009, Senator Sununu 
resigned from the Panel, and on August 20, 2009, Senator 
McConnell announced the appointment of Paul Atkins, former 
Commissioner of the U.S. Securities and Exchange Commission, to 
fill the vacant seat. Effective December 9, 2009, Congressman 
Jeb Hensarling resigned from the Panel, and House Minority 
Leader John Boehner announced the appointment of J. Mark 
McWatters to fill the vacant seat. Senate Minority Leader Mitch 
McConnell appointed Kenneth Troske, Sturgill Professor of 
Economics at the University of Kentucky, to fill the vacancy 
created by the resignation of Paul Atkins on May 21, 2010. 
Effective September 17, 2010, Elizabeth Warren resigned from 
the Panel, and on September 30, 2010, Senate Majority Leader 
Harry Reid announced the appointment of Senator Ted Kaufman to 
fill the vacant seat. On October 4, 2010, the Panel elected 
Senator Kaufman as its chair.