Squaring the Tarp circle

20 April 2009 By Hugo Dixon Follow @hugodixon

The administration will struggle to get Congressional approval for more bailout cash. But if its stress tests don t lead to more capital injections, they will be branded a whitewash. One way to square the circle is to convert the government s existing prefs into ordinary shares.

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Rahm Emanuel, the White House chief of staff, told ABC on Sunday that the administration was not going to need more funding from Congress despite the fact that some of the biggest banks are going to need resources. If they need capital, we have that capacity, he said.

Administration officials believe they can make the original bailout money go further by converting existing investments, which have been in the form of preferred shares, into ordinary equity, the New York Times reported. The government has already agreed to do this with up to $25bn of preferred shares it holds in Citigroup.

Of the original $700bn that Congress authorised for use under the Troubled Asset Relief Programme, about $135bn is so far uncommitted.

In February, the administration said that any new capital injections would be in the form of mandatory convertible preferred shares. These shares would convert into ordinary shares if needed to keep the banks well capitalised.

Treasury press release

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Of the original $700bn that Congress authorised for use under the Troubled Asset Relief Programme, about $135bn is so far uncommitted.

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