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ADDITIONAL INSIGHT ON USE OF
TROUBLED ASSET RELIEF PROGRAM
FUNDS

SIGTARP-10-004
DECEMBER 10, 2009

SIGTARP

December 10, 2009

Office of the Special Inspector General
For The Troubled Asset Relief Program

ADDITIONAL INSIGHT ON USE OF TROUBLED ASSET RELIEF PROGRAM
FUNDS

Summary of Report: SIGTARP-10-004

What SIGTARP Found
Why SIGTARP Did This Study
The Emergency Economic Stabilization Act
(“EESA”) of 2008, which was enacted on October 3,
2008, created the Troubled Asset Relief Program
(“TARP”) and provided the Secretary of the Treasury
with various authorities to restore the liquidity and
stability of the United States financial system and
stimulate lending.
Congress and the public frequently ask questions
about how TARP funds have been used. In July 2009,
the Special Inspector General for the Troubled Asset
Relief Program (“SIGTARP”) reported on the use of
funds by 360 banks receiving TARP funds through
January 2009. SIGTARP found that, although most
banks did not segregate or track TARP fund usage on
a dollar-for-dollar basis, banks reported that TARP
funds allowed them to support lending, increase
capital reserves, and make investments, often citing
multiple benefits. That report also met a
congressional mandate in the Special Inspector
General for the Troubled Asset Relief Program Act of
2009 that SIGTARP report on the use of TARP funds.
This report expands our coverage of the use of TARP
funds to include six additional institutions—two
automobile manufacturers, two automobile financing
firms, and two life insurance companies. SIGTARP
conducted this expanded review to provide additional
insight into how companies used TARP funds.
Together, these two reports provide perspective on the
use of funds by a broad range of institutions receiving
TARP assistance.
To determine how companies used TARP funds, we
interviewed Department of the Treasury officials and
officials from each company. We also reviewed
supporting documentation from each organization.
SIGTARP performed its work in accordance with
generally accepted government auditing standards.
However, as in SIGTARP’s previous audit on the use
of funds, the results in this audit rely primarily on
what was reported to SIGTARP by TARP recipients
in response to high-level inquiries. SIGTARP intends
to engage in follow-up reviews of specific institutions
in the future, as appropriate.

What SIGTARP Recommends
This audit demonstrates that TARP recipients can
provide meaningful information about their use of
TARP funds. Notwithstanding Treasury’s prior
contrary views and public statements on this issue, it
has now agreed to adopt SIGTARP’s recommendation
that it collect and publish information regarding each
TARP recipients’ use of TARP funds. Treasury
should be given substantial credit for its willingness to
remain engaged with SIGTARP on this issue and
change course. Its adoption of this recommendation is
a significant step forward in providing the American
taxpayers with the transparency they deserve on how
their money is being used.

As in SIGTARP’s previous report on how banks used TARP funds, the six companies
included in this report were able to provide useful insight on their actual or planned use
of TARP funds notwithstanding the inherent fungibility of money and regardless of
whether they segregated the money from other company funds. In total, Treasury
provided the six reviewed companies $81.25 billion in TARP funds; their use of this
money is summarized below.
•

•

•

•

•

•

General Motors (“GM”), which received $49.5 billion, reported that it used
about $32 billion (65 percent) to meet day-to-day operating expenses, such as
payments to employees and suppliers. Treasury also made $986 million (2
percent) available to GM for the old company’s wind-down, a portion of which
will be set aside for environmental cleanup at manufacturing plants that are
being shut down. Additionally, GM used about $2.8 billion (6 percent) to
resolve the bankruptcy of a major parts supplier, Delphi. Finally, $13.7 billion
(27 percent) remains unused but is still available to GM. GM officials stated
that a portion of these proceeds are expected to be used to pay outstanding
loans from Treasury and the Canadian Government. Treasury requires GM to
report on its intended use of TARP funds prior to each draw and also receives
reports on the actual uses of funds.
Chrysler, which received $12.5 billion, reported that it used about $10.5 billion
(84 percent) to meet day-to-day operating expenses, such as payments to
employees and suppliers. About $2.0 billion (16 percent) is unused but still
available to Chrysler. Treasury requires Chrysler to report on its intended use
of TARP funds prior to each draw and also receives reports on the actual uses
of funds.
GMAC LLC (“GMAC”), which received $13.4 billion, reported that it used
all its TARP funds to strengthen its capital reserves, allowing it to continue to
make auto loans, provide dealer financing, and modify home loans. GMAC
officials stated that it plans to leverage the TARP funds to make significantly
more than $13.4 billion in new loans and dealer financing.
Chrysler Financial Services Americas LLC (“Chrysler Financial”), which
received $1.5 billion, reported that it used the funds to make about 85,000 auto
loans from February to June 2009. As was intended by Treasury at the time it
approved such funding, the company has repaid Treasury using primarily funds
obtained from the Term Asset-Backed Securities Loan Facility, another TARPrelated program.
The Hartford Financial Services Group, Inc. (“Hartford”), which received
$3.4 billion, reported that it invested $3.2 billion (94 percent) in high quality
short-term investments or money market funds. This allowed the company to
issue additional insurance policies. Hartford also provided $195 million (6
percent) in TARP funds to Federal Trust Bank, which it had purchased in order
to qualify for CPP funds, to support the thrift’s recapitalization.
Lincoln National Corporation (“Lincoln”), which received $950 million,
reported that it invested about $608 million (64 percent) in domestic corporate
bonds and mortgage-backed securities, with the remaining $342 million (36
percent) to be invested in commercial mortgage-backed securities, commercial
real estate loans, domestic bonds and asset-backed securities. Lincoln acquired
Newton County Loan & Savings FSB in order to qualify for CPP funds. Unlike
Hartford’s investment in Federal Trust Bank, Lincoln invested $10 million of
its own capital, and not TARP funds, to capitalize Newton County.

Special Inspector General for the Troubled Asset Relief Program

Table of Contents
Introduction

1

Companies Were Able To Provide Information on
Their Use of TARP Funds

4

Conclusions and Recommendation

10

Appendices
A. Scope and Methodology

13

B. General Motors

15

C. Chrysler

18

D. GMAC LLC

21

E. Chrysler Financial Services Americas LLC

24

F. The Hartford Financial Services Group, Inc.

26

G. Lincoln National Corporation

29

H. Management Comments

32

I. Audit Team Members

34

J. Acronyms

35

Additional Insight on Use of Troubled Asset Relief
Program Funds
SIGTARP 10-004

December 10, 2009

Introduction
The Congress and the public frequently ask how companies have used the billions of dollars
provided by the U.S. government under the Troubled Asset Relief Program (“TARP”). In July
2009, the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”)
reported on the use of funds by 360 banks receiving TARP funds. 1 We found that, although
most banks said that they did not segregate or track TARP fund usage on a dollar-for-dollar
basis, they reported that TARP funds allowed them to support lending, increase capital reserves,
and make investments, often citing multiple benefits. This report expands our coverage of the
use of TARP funds to include six additional institutions—two automobile manufacturers, two
automobile financing firms, and two life insurance companies. We conducted this expanded
review to provide additional insight into how companies use TARP funds and to respond more
fully to a congressional mandate in the Special Inspector General for the Troubled Asset Relief
Program Act of 2009, dated April 24, 2009, that we report on the use of TARP funds.
Collectively, these two reports provide perspective on the use of funds by a broad range of
institutions receiving TARP assistance.

Background
The Emergency Economic Stabilization Act of 2008 (“EESA”) 2 authorized the Secretary of the
Treasury to establish TARP to purchase troubled assets from financial institutions. As the
financial markets rapidly deteriorated in fall 2008, the Department of the Treasury (“Treasury”)
injected capital into qualified financial institutions 3 under its Capital Purchase Program (“CPP”)
to stabilize them and to stimulate lending. Treasury established CPP to invest in viable financial
institutions to promote financial stability, maintain confidence in the financial system, and permit
financial institutions to meet the credit needs of American consumers and businesses.
Toward the end of 2008, the financial conditions of General Motors (“GM”) and Chrysler were
seriously deteriorating, and the two companies were virtually closed out of the private capital
markets. As a result, Treasury established the Automotive Industry Financing Program (“AIFP”)
to invest in auto-related companies (manufacturing and finance) to prevent their failure and the
1

SIGTARP Survey Demonstrates that Banks Can Provide Meaningful Information on Their Use of TARP Funds,
SIGTARP-09-001, July 20, 2009.
2
P.L. 110-343, October 3, 2008.
3
Qualified financial institutions are public and private U.S. government-regulated banks, savings associations, and
holding companies.

1

potential systemic market disruption that was expected to follow. On December 29, 2008, and
January 2, 2009, Treasury provided AIFP funds to GM and Chrysler, respectively, to allow the
two companies to continue operating and to restructure for long-term viability. Treasury also
included in AIFP the auto finance companies—GMAC LLC (“GMAC”) and Chrysler Financial
Services Americas LLC (“Chrysler Financial”)—because these companies served as a critical
link to the viability of the automakers. As of November 26, 2009, Treasury has obligated about
$76.9 billion under AIFP to these four companies, as shown in Table 1.
Table 1: AIFP Funds Obligated 4 to Automobile Manufacturing
and Financing Companies ($ in Billions)
Company
GM

Funds Obligated
$49.5

Chrysler

12.5 a

GMAC

13.4

Chrysler Financial
Total

1.5
$76.9 b

Notes:
a. Includes $350 million available for GMAC risk sharing; excludes $2.4 billion originally provided, but later de-obligated by
Treasury.
b. Excludes loans made to GM and Chrysler under the Auto Warranty Commitment Program and to GM and Chrysler special
purpose vehicles under the Auto Supplier Support Program.
Source: SIGTARP analysis of data from the Department of the Treasury

Treasury’s investments in GM and Chrysler were used to help pay general operating and
corporate expenses, such as payments to suppliers and employees. Treasury received detailed
financial forecasts prior to providing any funds and imposed some restrictions on uses of those
funds. In addition, Treasury required each company to provide information on intended uses of
those funds. The investment in GMAC was intended to strengthen its capital structure and to
provide funds to continue financing auto dealerships and customers, as well as to increase home
loans under its mortgage subsidiary. Finally, Treasury’s investment in Chrysler Financial was
intended to support loans to customers. In return for its investments in these four companies,
Treasury received some combination of company debt, preferred stock, common stock, and
warrants to purchase common stock. As of November 26, 2009, Treasury holds a 60.8 percent
equity interest in GM, a 35.4 percent equity interest in GMAC, and a 9.8 percent equity interest
in Chrysler. 5
CPP application guidelines define qualified financial institutions as bank holding companies,
financial holding companies, insured depository institutions and thrift savings and loan holding
companies. Treasury officials stated that, regardless of their size, these types of companies could
be eligible for CPP funds. Like other such institutions, companies that reorganize as bank or
4

The AIFP funds obligated to GM, GMAC, and Chrysler Financial have been disbursed to the respective
companies.
5
Treasury’s 9.846 percent (rounded to 9.8) interest in Chrysler can be reduced to 8 percent if Fiat S.p.A, a junior
equity owner of Chrysler, assists the company in meeting certain performance “milestones”.

2

thrift holding companies must first receive approval from their regulatory agency before their
application is forwarded and reviewed for CPP admittance. To become eligible for CPP funding,
two insurance companies—The Hartford Financial Services Group, Inc. (“Hartford”) and
Lincoln National Corporation (“Lincoln”)—each purchased small depository institutions and
reorganized as thrift holding companies. On November 14, 2008, Hartford applied to become a
thrift holding company based on its plans to acquire Federal Trust Corporation and its insured
depository, Federal Trust Bank. The Office of Thrift Supervision (“OTS”) approved the
purchase in early January 2009 contingent upon Treasury’s approval of Hartford’s participation
in CPP. On November 13, 2008, Lincoln applied to OTS to become a savings and loan holding
company based on its plans to acquire Newton County Loan & Savings (“Newton County”).
OTS approved this purchase in January 2009. On June 26, 2009, Hartford received $3.4 billion
in CPP funds; on July 10, 2009, Lincoln received $950 million. In return, Treasury received
preferred shares in amounts equal to its investment, as well as warrants that it can exercise to
acquire common stock. 6

Objective
This report addresses how six companies reported on how they accounted for and used TARP
funds.

Scope
The scope of this audit included the six companies noted below. For a more detailed discussion
of our audit scope and methodology, see Appendix A. We provide a detailed discussion of each
company’s accounting for and use of TARP funds in the following appendices:
•

Appendix B—General Motors

•

Appendix C—Chrysler

•

Appendix D—GMAC LLC

•

Appendix E—Chrysler Financial Services Americas LLC

•

Appendix F—The Hartford Financial Services Group, Inc.

•

Appendix G—Lincoln National Corporation

For management comments, see Appendix H. For a list of audit team members, see Appendix I.
For definitions of acronyms used in this report, see Appendix J.

6

A warrant is the right to purchase shares of common stock at a fixed (“strike”) price over a specific period.

3

Companies Were Able To Provide Information
on Their Use of TARP Funds
This section discusses how six companies reported on how they accounted for and used TARP
funds. As in SIGTARP’s previous report on how banks used TARP funds, the six companies
included in this report were able to provide useful insight on their actual or planned use of TARP
funds, regardless of whether they segregated TARP funds from other company funds.
When a financial institution uses TARP funds to strengthen its capital structure, the company can
typically leverage the capital provided through TARP at some multiple to the funds that they
were provided. For example, during our review, a Lincoln official stated that the leveraging
effect of the CPP funding suggests that “for every $100 of capital, we can support roughly 20
times that amount in new product sales.…” Similarly, in our previous report on the use of funds,
SIGTARP noted that “[o]ne added dollar of…capital can generate the potential for the bank to
then issue an additional $10 in loans.”

Accounting for TARP Funds Appears Related to Its Planned
Use or Industry Practice
The six companies included in this report differed in the extent to which they segregated TARP
funds from other company funds. The choice to segregate funds appears related to the planned
use of the funds or industry practice, as described below:
•

Automobile manufacturing companies: GM and Chrysler comingled TARP funds with
other company funds. GM’s Chief Financial Officer stated that, because GM did not
have adequate cash to pay its operating expenses without TARP, it was not practical to
establish a separate account for TARP funds. Chrysler’s Treasurer stated that it is not
customary practice for industrial companies to establish separate accounts for their
operating cash. However, Treasury restricts the usage of TARP funds to specified
corporate purposes.

•

Automobile financing companies: GMAC officials stated that the company did not
segregate TARP funds from its other institutional funds. They added, however, that
current management routines and reporting processes are in place to track and forecast
overall cash balances and related sources and uses of funds. Chrysler Financial, on the
other hand, used a Special Purpose Vehicle (“SPV”) 7 to segregate TARP funds from
other company funds. The Chief Financial Officer of Chrysler Financial stated that the
funds were placed into an existing SPV and allowed Chrysler Financial to report easily
on the use of funds because the agreement with Treasury stipulated that TARP funds
could be used only to support loans for Chrysler products.

7

A special purpose vehicle is an off-balance-sheet legal entity that holds transferred assets presumptively beyond
the reach of the entities providing the assets.

4

•

Insurance companies: Hartford and Lincoln established separate general ledger
accounts to account for TARP funds. Officials at both companies stated that segregating
TARP funds followed their normal business practice of establishing separate accounts for
different types of investments. Hartford segregated TARP funds by establishing (1)
separate custodial accounts and investment portfolios at the holding company and certain
subsidiaries, and (2) unique identifiers in the general ledger to report the flow of
investments/funds within the company’s books and records. Lincoln also placed TARP
funds into a segregated account as part of its life insurance subsidiary’s capital. Thus, the
company is able to track the funds separately from its general capital. According to
Lincoln officials, the company maintains a clear accounting of the receipt of TARP
funds, a same-day capital contribution to Lincoln National Life, and segregated portfolio
accounts.

Companies’ Actual and Planned Use of TARP Funds
Irrespective of whether a company segregated TARP funds from its other capital, the six
companies were able to provide information on how they used or expected to use TARP funds.
The uses identified reflect the specific needs of each of the recipients.

Automobile Manufacturing Companies
GM: Treasury has disbursed $49.5 billion to GM—$19.4 billion before bankruptcy and $30.1
billion during bankruptcy. Treasury restricts the purposes for which these funds may be used
and requires GM to provide information on its intended use of proceeds prior to each draw. As
of November 18, 2009, GM had used about $35.8 billion (72 percent) of TARP funds as follows:
•

$31.9 billion was used to help pay its operating costs, such as payments to employees and
parts suppliers. Prior to Treasury assistance in December 2008, GM only had $2.7 billion
in cash. For 2009, GM’s payments to its suppliers average about $3 billion per month,
and employee payroll costs average about $424 million per month. GM provided a cash
flow analysis for the first six months of 2009 that shows that, without TARP and
Canadian government investments, GM had a negative cash flow and would not have
been able to pay its bills. GM’s Chief Financial Officer stated that this condition
continued through June 2009 because receipts from car sales did not generate adequate
cash to meet operating expenses. During this period, GM also applied for and received
approval from Treasury to use TARP funds to make investments to fund foreign
subsidiaries, settle derivative positions and provide a loan to GM Canada Limited. 8

•

$986 million is being used to support the wind-down of old GM along with $189 million
loaned by Export Development Canada, Canada’s export credit agency, for a total of $1.2
billion. According to Motors Liquidation Company 9 officials, a portion of these funds

8

Under the original loan, transactions over $100 million required approval of Treasury. Under the new loan, only
uses of funds in escrow require approvals.
9
During the Chapter 11 bankruptcy proceeding, General Motors Corporation (old GM) changed its name to Motors
Liquidation Company and sold substantially all of GM’s assets to General Motors Company, a new and independent
entity.

5

will be set aside for environmental clean-up and other costs associated with closing
manufacturing plants.
A portion of the proceeds of the $30.1 billion loan to GM was placed in an escrow account so
that Treasury could exercise additional supervision over its use. Treasury must approve each
withdrawal. In October 2009, Treasury granted a request for the release of approximately $2.8
billion in TARP funds from the escrowed funds to resolve the bankruptcy of Delphi, a major
parts supplier. Approximately $1.7 billion was used to acquire a membership interest in the new
Delphi entity, and approximately $1.1 billion was used to acquire Delphi’s global steering
business and four parts-manufacturing facilities.
After the withdrawal of funds related to Delphi, the escrow account had a balance of
approximately $13.7 billion. GM officials stated that they intend to seek release of additional
escrowed funds to repay its outstanding $6.7 billion loan to Treasury and $1.3 billion loan to the
Canadian Government.
Chrysler: Treasury had initially made $14.9 billion available to Chrysler in three stages: $4.5
billion before bankruptcy, $3.8 billion during bankruptcy and $6.6 billion after bankruptcy.
Treasury subsequently de-obligated $2.4 billion of the $14.9 billion, leaving a total Treasuryobligated funding of $12.5 billion. As of November 18, 2009, Chrysler had drawn down $10.5
billion (84 percent) of the $12.5 billion, which it used primarily to help pay operating costs, such
as payments to employees and parts suppliers. Treasury requires Chrysler to provide information
on use of proceeds prior to each draw, as well as quarterly reports on the actual use of all TARP
funds.
As of November 18, 2009, Chrysler had not used $2.0 billion of the funds obligated by Treasury.
This amount includes $350 million set aside to cover potential losses that GMAC may incur
from assuming the financing of Chrysler dealerships and consumer car loans from Chrysler
Financial, in which Chrysler has a continuing financial interest. The remaining $1.7 billion of
TARP funds remains available to Chrysler for general corporate and working capital purposes.
The agreement with Chrysler permits it to draw funds over the life of the loan as long as it
provides Treasury with a Borrowing Notice two days prior to the requested draw date and it does
not default on the terms of the loan. The Borrowing Notice contains a detailed report on how
Chrysler plans to use the money. The Treasurer of Chrysler stated that the company does not
currently have plans on whether or how to use the remaining funds.

Automobile Financing Companies
GMAC: Treasury has thus far disbursed $13.4 billion to GMAC—$5.9 billion 10 on December
29, 2008, and an additional $7.5 billion on May 21, 2009. According to GMAC officials, it has
requested additional TARP funding, but its Board of Directors has since asked that this decision
be postponed until GMAC’s new management has assessed the company’s financial situation to
determine the appropriate amount and form of such funding. According to GMAC’s Chief
Financial Officer:
10

This includes $884 million loaned to GM to underwrite a debt-for-equity exchange offering by GMAC; this
exchange took place on January 16, 2009.

6

•

GMAC used the initial $5.9 billon to strengthen capital reserves, which enabled it to
continue to make auto loans and, through its Residential Capital, LLC mortgage
subsidiary, modify home loans, both of which it had curtailed at the end of 2008. In
general, companies that issue such loans are required to keep a percentage of capital on
hand to allow them to absorb losses due to fluctuations in the markets or defaults; the
ratio of debt to capital requirements may vary across industries. GMAC reported that its
mortgage refinancing increased in volume from $4.6 billion in the fourth quarter 2008, to
$10.5 billion during the first quarter 2009, and to $14.7 billion during the second quarter
2009. Likewise, it reported that car loans increased from $999 million in the fourth
quarter 2008, to $2.3 billion in the first quarter 2009, and $4.5 billion in the second
quarter 2009.

•

The second tranche of $7.5 billion was used in two ways: $3.5 billion to further
strengthen GMAC’s capital position, and $4 billion to finance Chrysler dealers and
consumers who purchase Chrysler cars. GMAC reported that, since it began financing
Chrysler in May 2009, retail loans have increased from 1,603 in May to 6,270 in June;
6,392 in July; and 9,896 in August. It also reported that receivables from dealers have
increased from $572 million in June to $1.1 billion in July and about $2 billion in August.

Chrysler Financial: In January 2009, Treasury provided $1.5 billion in TARP funds to Chrysler
Financial as a temporary loan until the Term Asset-Backed Securities Loan Facility (“TALF”) 11
program was operational. The company reported that it used TARP funds to make about 85,000
automobile loans from February to June 2009. Treasury’s agreement with Chrysler Financial
required it to provide auto loans for new or used vehicles manufactured by Chrysler and that
were originated in the United States. Chrysler Financial has repaid the entire $1.5 billion loan
with interest. According to the Chief Financial Officer of Chrysler Financial, about 70 percent
of the funds used to pay back TARP loans were provided from transactions financed under the
TALF program, and the remaining 30 percent was from private investors.

Insurance Companies
As with all CPP participants, Treasury’s agreements with Hartford and Lincoln state that the
companies agreed to (1) “expand the flow of credit to U.S. consumers and businesses on
competitive terms to promote the sustained growth and vitality of the U.S. economy” and (2)
“work diligently, under existing programs, to modify the terms of residential mortgages as
appropriate to strengthen the health of the U.S. housing market.” However, the agreements do
not detail how TARP funds are to be used to accomplish these goals.
Hartford: Hartford, which received $3.4 billion, reported that it invested $3.2 billion (94
percent) of its TARP funds in short-term liquid assets, such as mortgage-backed securities and
corporate bonds. Hartford invested approximately $2.7 billion at the holding company level in
eight different investment funds and $500 million in six different investment funds through its
11

Treasury and the Federal Reserve originally announced TALF as a $200 billion program that included $20 billion
of TARP funds for purchasing surrendered collateral. TALF was designed to increase the credit available for
consumer and small-business loans through a Federal Reserve loan program backed by TARP funds. TALF
provides non-recourse loans to investors secured by certain types of asset-backed securities.

7

life insurance subsidiary. Hartford officials stated that these investments, which provide
Hartford with additional capital reserves, would allow it to continue to sell individual annuities,
life insurance, and group business policies.
Between June and September 2009, Hartford provided $195 million in TARP funds to Federal
Trust Bank, the thrift it acquired for the primary purpose of enabling it to qualify for CPP funds,
to support its recapitalization. Federal Trust Bank has maintained the funds in its Federal
Reserve Account and has used $47 million, together with its operating cash flow, to repay higher
cost debt. As of September 30, 2009, the CPP funds remaining at Federals Trust Bank’s Federal
Reserve Account totaled $148 million.
Hartford received substantially more TARP funds than the thrift could have received had it
applied and been accepted for TARP funds on its own. Under Treasury’s guidance, CPP funding
may be from one percent to three percent of the recipients firm’s risk-weighted assets, up to $25
billion. 12 Based on these criteria, had Federal Trust Bank met Treasury’s criteria for a “viable”
thrift and hypothetically had all of its assets carried zero risk weight, it would have been eligible
for a maximum of only about $18 million in CPP funding. A Treasury official stated that,
because the CPP funds went to Hartford, Federal Trust Bank’s holding company, Treasury’s
analysis was based on Hartford’s assets. He also noted that the Federal Trust Bank did not apply
independently for CPP funding.
Lincoln: Lincoln, which received $950 million of TARP funds, reported that it invested $608
million (64 percent) in domestic corporate bonds and mortgage-backed securities, and $342
million (36 percent) is to be invested in commercial mortgage-backed securities, commercial real
estate loans and domestic bonds. According to Lincoln officials, the additional funds provided
by TARP will allow it to continue to sell individual annuities, life insurance, and group business
policies. Under insurance risk-based capital guidelines, Lincoln is required to hold capital
against the business it underwrites in the event of financial losses. The amount of capital or
leveraged assets required differs from product to product and is largely dictated by the nature of
the insurance liability and the amount of asset risk it takes.
According to Lincoln officials, the leveraging impact of the CPP funding suggests that “for every
$100 dollars of capital, [Lincoln] can support roughly 20 times that amount in new [insurance
and retirement] product sales.” As such, they project that TARP funds will allow the company to
expand its business and that its investment in assets such as commercial mortgage-backed
securities will indirectly support the extension of credit to institutions and individuals. Unlike
Hartford, Lincoln had invested $10 million of its own capital to acquire Newton County prior to
receiving TARP funds. Lincoln officials stated that the thrift is currently well capitalized and
can afford to invest in new technology and necessary upgrades without further capital infusion.
Had Newton County applied to CPP on its own and met the criteria for a “viable” thrift, and

12

Risk-weighted assets are the amount of a bank’s total assets after applying risk factor to each asset class. Cash for
example, would be a low-risk asset, whereas commercial mortgage-backed securities carry a higher risk.
Subsequent to Hartford’s funding, CPP was changed so that banks that have less than $500 million of total assets are
eligible to apply for up to 5 percent of their risk-weighted assets.

8

hypothetically had all of its assets carried zero risk weight, it would have been eligible for a
maximum of about $350,000.
- -----See appendices B through G for a more complete discussion of each company’s accounting for
and use of TARP funds.

9

Conclusions and Recommendation
Although the extent that companies segregated TARP funds from their other capital varied, all
six companies were able to report on actual or planned activities that were supported by TARP
funds, such as paying current bills, increasing capital reserves, and/or increasing lending. In
some cases, companies leveraged TARP funds to provide loans or insurance policies worth
significantly more than the face value of the TARP investment. The responses of the six
companies in this audit, along with our previous report on use of CPP funds by 360 banks,
conclusively and demonstrably prove that TARP recipients can provide meaningful information
on how they use TARP funds.
Beyond the transparency issue, the examples of the CPP investments in two insurance companies
highlight an incongruity in the CPP program design that is worth noting. Hartford and Lincoln
were able to obtain CPP funds by buying small thrift savings institutions and becoming thrift/
savings and loan holding companies, thereby meeting the technical criteria for receipt of CPP
funds. The amount of CPP funds provided, however, was then determined by the assets of the
holding company (i.e., the parent insurance company), not just the assets of the much smaller
qualifying thrifts. In the case of Lincoln, for example, the company was able to obtain $950
million in TARP funds after it acquired a thrift that, on its own, would have been able to obtain
at most $350,000 (if it would have qualified for CPP funding at all). Moreover, in using TARP
funds, there was no requirement that TARP funding be used in connection with the subsidiary
thrifts’ activities. As it happened, the insurance companies reported that they used little (in the
case of Hartford) or no (in the case of Lincoln) TARP funds in connection with the subsidiary
thrifts’ activities but rather used the vast bulk of the funds to support their insurance businesses.
Stated another way, simply by purchasing comparatively tiny thrifts, Hartford and Lincoln—
companies whose primary businesses (unlike other CPP participants) have little to do with
lending to consumers and businesses—gained access to more than $4.3 billion in taxpayer funds,
an amount that is many multiples of the thrifts’ total assets.

Recommendation and Treasury’s Adoption Thereof
From its inception, SIGTARP’s most fundamental recommendation with respect to basic
transparency in the operation TARP has been that Treasury require all TARP recipients to report
periodically on their use of TARP funds. The efficacy of this common sense recommendation —
initially made in December 2008 (just eight days into SIGTARP’s existence) and later examined
through a survey of 364 TARP recipients and supported by an initial audit report issued in July
2009 — has now been fully reaffirmed by this report. Once again, this audit demonstrates that
meaningful information supporting basic transparency in the operation of TARP can indeed be
generated by requiring TARP recipients to report on what they did with the taxpayers’ money.
Even when TARP recipients do not segregate TARP funds, they are fully capable of providing a
general indication of what they have been able to do that they would not otherwise have been
able to do without TARP funds.

10

Notwithstanding Treasury’s previously articulated skepticism about this recommendation —
saying that use of funds reporting would not be “meaningful” and deeming the recommendation
“closed” as recently as this September — to its credit, Treasury has been willing to remain
engaged with SIGTARP on this issue and has recently informed us that it has decided to
undertake surveying and reporting on recipients’ use of TARP funds. Building on positive steps
taken by Treasury over the past several months, Treasury will be obtaining and reporting to the
public qualitative responses from each TARP recipient on their use of TARP funds, backed by
quantitative data obtained from the recipients’ regulators and Treasury’s own analysis. For the
first time, Treasury will be collecting and publicly reporting this data, and it will be doing so on
an institution-by-institution basis. We believe that Treasury’s decision to provide this basic
transparency will provide meaningful information to the public and to policy makers on whether
the TARP programs have met their goals and, as a result, will significantly enhance the
credibility of TARP. If implemented as described, Treasury’s plan on this front will constitute
an adoption of SIGTARP’s recommendation.
Although SIGTARP has been highly critical of Treasury for its previous refusal to adopt this
recommendation, Treasury—at the very highest levels—should be given substantial credit for its
willingness (a) to continue to work with SIGTARP on this issue, (b) to change course
notwithstanding its prior views and public comments, and (c) to develop a workable plan for
implementation that will finally give the American people (the investors in TARP) the
transparency they deserve on how their money is being used.

Management Comments and SIGTARP’s Response
In commenting on a draft of this report, in addition to confirming that it will be collecting and
reporting upon TARP recipients’ use of funds, Treasury has taken issue with SIGTARP’s
comments above about the participation of Hartford and Lincoln in CPP, asserting that “the
report fails to explain why the CPP was designed in this manner.” Treasury’s letter then goes on
to explain how these insurance companies’ participation is consistent with the letter of EESA and
Treasury’s own CPP program rules.
Treasury’s criticism of the report, however, misses the point. This report does not suggest that
the insurance companies’ participation was contrary to the letter of EESA or the CPP rules that
Treasury instituted — and if it was, SIGTARP would have taken prompt action to address such
non-compliance — but rather that such participation was incongruous with the spirit and intent
of the CPP program. Treasury no doubt could have, consistent with EESA, designed a program
specifically to provide capital to insurance companies, much as it designed programs to provide
support to other non-banking enterprises such as AIG and the auto industry, but it did not.
Instead, Treasury chose to allow the insurance companies access to the CPP program, a program
that has otherwise been geared toward providing banks and similar institutions engaged in
lending with a strengthened capital base so that they, according to Treasury’s website, could
“have an increased capacity to lend to U.S. businesses and consumers and to support the U.S.
economy.” As demonstrated by this audit, the investments in Hartford and Lincoln supported
those entities’ insurance businesses, not their comparatively tiny, newly acquired thrifts. Further,
the amount of the CPP investments (which was based on the parent insurance companies’ assets)
dwarfed the size of the thrifts that made the insurance companies CPP eligible in the first

11

instance. Simply put, Treasury fit the enormous investments in these insurance companies, huge
proverbial pegs, into the small round holes represented by the technical CPP eligibility brought
about through these targeted acquisitions.

12

Appendix A—Scope and Methodology
We performed this audit under the authority of Public Law 110-343, as amended, which also
incorporates the duties and responsibilities of inspectors general under the Inspector General Act
of 1978, as amended. This audit reports on the use of TARP funds by six companies that
participated in TARP. Our specific objective was to determine how these TARP recipients
accounted for and used the funds obligated to it by Treasury.
We performed this audit in accordance with generally accepted government auditing standards
from July to October 2009. These standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions.
We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions.
To ascertain how the companies accounted for and used TARP funds, we interviewed Treasury
officials and officials from each company. We also reviewed and cross-checked corporate
financial information with Treasury-issued documents. The documents analyzed for this report
include:
• SIGTARP’s Quarterly Reports to Congress, July 21, 2009 and October 21, 2009
• Company responses to SIGTARP’s February 2009 “Use of Funds” survey
• Treasury’s CPP Case Decision Memoranda
• Credit agreements between TARP recipients and Treasury
• Loan and Security Agreements between TARP recipients and Treasury
• Treasury’s corporate term sheets
• Securities and Exchange Commission filings
• Company investor relations presentations and press releases
• Office of Financial Stability TARP Transactions and Dividends Reports

Internal Controls
We used data files from Treasury related to TARP transactions, but did not verify the
information. We also used information that the companies provided us and to the Securities and
Exchange Commission. We compared the information obtained from Treasury with the data
collected from the individual companies for consistency. We found no material discrepancies.

Use of Computer-Generated Data
Much of the information provided by the six companies included in this review came from
independently audited financial systems. As a result, we believe that the data is sufficiently
reliable as a basis for our conclusions.

13

Prior Coverage
SIGTARP Survey Demonstrates that Banks Can Provide Meaningful Information on Their Use
of TARP Funds, SIGTARP-09-001, July 20, 2009.

14

Appendix B—General Motors
As early as the second quarter of 2008, GM anticipated a reduction in cash flow due to fewer
automobile sales, and it reported that it had initiated a plan to reduce operating costs and raise
capital in the private marketplace, closing factories and cutting its workforce in the process. In
October 2008, GM began discussions with the U.S. Government for financial assistance.
Although GM sought assistance from Congress, it was unable to secure financing through
legislation. GM officials stated that, by December 2008, the company had reached a liquidity
crisis: cash revenues from operations were insufficient to fund ongoing operations. With no
alternative sources for financing, GM entered into a Loan & Security Agreement with Treasury
and received an initial tranche of $13.4 billion in TARP funds in December 2008 to allow it to
pay its outstanding bills and avoid bankruptcy, at least in the short term. From January through
the end of May 2009, GM received another $6.0 billion to allow it to continue operating.
Treasury subsequently entered into the debtor-in-possession loan with GM, in the amount of
$30.1 billion, which was fully funded during its bankruptcy. Of this amount, $16.4 billion of the
unused $30.1 billion debtor-in-possession funds was used to fund an escrow account that was
transferred to the new GM under a new loan agreement. As of November 18, 2009, Treasury
had disbursed a total of $49.5 billion in TARP funds to GM, of which it has used about $35.8
billion (see Table 4).
Table 4: TARP AIFP Disbursement to GM a ($ in Billions)
Category

Time Period

Funds
Disbursed
by Treasury

Pre-bankruptcy

Dec. 31, 2008 – May 31, 2009

Bankruptcy

Jun. 3, 2009 – Jul. 9, 2009

Post-bankruptcy

Jul. 10, 2009 – Present

Funds Used
by GM
$19.4

30.1

13.6

---

2.8

$49.5

TOTAL

$19.4

$35.8

Notes
a. On December 29, 2008, Treasury loaned $884 million to GM. GM was required to use the proceeds to purchase
common membership interests in GMAC and made the purchase on January 16, 2009. The Loan Security Agreement
included an option for Treasury to exchange the amount owed for GMAC common membership interests. On May 29,
2009, Treasury exercised its option and terminated the GMAC loan with GM. In connection with the transaction,
Treasury was granted the right to appoint two Board members at GMAC. This amount is excluded from the direct TARP
investment in GM shown in Table 4. In addition, the Table 4 does not include funds received through the Supplier
Receivable Program, the Auto Warranty Commitment Program, or the Canadian Government.
Source: General Motors

With its $49.5 billion investment in GM, Treasury received these direct financial interests in
GM:
•
•

60.8 percent common stock interest in the new General Motors Company
$2.1 billion in preferred stock of General Motors Company

15

• $7.1 billion interest-bearing notes from General Motors Company maturing in 2015 13
As of October 31, 2009, Treasury has received about $302 million in dividends and interest on
its TARP AIFP investment in GM.

Accounting for TARP Funds
GM stated that it did not segregate TARP funds from other operating funds. The agreements
with Treasury did not require it to do so. However, Treasury did include specific reporting
requirements on GM’s short- and long-term viability. The December 31, 2008 Loan and
Security Agreement with Treasury required that GM notify Treasury of any defaults, litigation,
material adverse company effects, change of control, significant adverse legal judgments, and
changes in accounting policies. GM was also to provide reports related to its finances, such as a
13-week rolling cash forecast, liquidity status, and changes to its expense policies. In April
2009, Treasury amended the Loan and Security Agreement to require any draw of funds to be
accompanied by a certificate signed by an officer of GM setting forth the intended use of the
requested advance. Additionally, Treasury implemented a requirement that GM provide
Treasury, upon request, a certification that GM has used the loan proceeds in accordance with
the previous intended use, as well as supporting documentation. In both the debtor-in-possession
credit facility and the loan agreement with the new GM, Treasury implemented provisions to
account for the use of funds.

Use of TARP Funds
The December 31, 2008, Loan and Security Agreement between GM and Treasury permitted
TARP funds to be used for “general corporate and working capital” purposes. In addition, the
Agreement listed 22 categories of permitted investments associated with the loan, as well as
restrictions on certain investment, financing, and operating activities—including entrance into
joint ventures and incurring new debt. Certain transactions, such as transactions over $100
million and entering into joint ventures, require approval of Treasury. The subsequent
agreements included similar restrictions and defined corporate purposes.
According to GM officials, through the first six months of 2009, TARP funds were GM’s
primary source of funding along with operating receipts. In the face of ongoing liquidity
requirements, GM used the funds received under the original Loan and Security Agreement
($19.4 billion), a portion of the Debtor-in-Possession financing ($8.5 billion), and funding from
the Canadian Government ($2.2 billion) to pay its operating costs and other corporate expenses,
primarily payments to its employees and suppliers. A total of about $35.8 billion of TARP
funding, combined with cash generated through other operating, financing, and investing
activities of the business, has been utilized as necessary to support the restructuring of the
company and for general corporate purposes and working capital needs. Table 5 shows the
impact of government funds on GM’s cash balances as a major source to cover its operating and
corporate expenses from December 31, 2008, through June 30, 2009.
13

GM made a partial repayment of $0.4 billion on July 10, 2009, leaving an outstanding principal balance of $6.7
billion under the notes.

16

Table 5: Impact of Government Investments on General Motors Liquidity Pool Dec. 31, 2008 – Jun. 30, 2009 ($ in Billions)
Description

Amount

Beginning cash balance as of December 31, 2008

$2.7

Receipts from operations

31.6

Disbursements for operations and net non-operating activities

(56.4)

Negative cash flow without government investment
Treasury TARP investment

($22.1)

a

27.9

Canadian Government investment

2.2

Ending cash balance as of June 30, 2009

$8.0

Source: General Motors
Notes:
a. TARP funds used from December 31, 2008 through June 30, 2009 to meet GM’s expenses.

$1.2 billion is being used to support the wind-down of old GM (of which $986 million, or 84
percent of which, was funded by Treasury and $189 million by Export Development Canada,
Canada’s export credit agency). According to Motors Liquidation Company officials, a portion
of these funds will be set aside for environmental clean-up and other costs associated with
closing manufacturing plants.
Upon the sale of substantially all the assets of old GM to new GM, $16.4 billion of the unused
loan funds was placed in an escrow account and made available to GM according to a Treasury
approval process. In October 2009, Treasury granted a request for the release of $2.8 billion in
TARP funds from the escrowed funds in order to resolve the bankruptcy of Delphi, a major parts
supplier. Approximately $1.7 billion was used to acquire a membership interest in the new
Delphi entity and approximately $1.1 billion was used to acquire of Delphi’s global steering
business and four parts-manufacturing facilities. GM stated that it does not anticipate applying
for additional releases from the escrow account for its operations in 2009. GM officials stated
that a portion of the escrow proceeds is expected to be used to pay the outstanding $6.7 billion
Treasury and $1.3 billion Canadian loans.  

17

Appendix C—Chrysler
In a statement made before the Congressional Oversight Panel on July 27, 2009, a Chrysler
Group LLC 14 official stated that as the credit markets tightened in fall 2008, the U.S. automotive
industry, including Chrysler LLC (now known as Old Carco LLC), faced an impending liquidity
crisis. The availability of loans to dealers and consumers became severely restricted, and
Chrysler would have been unable to meet its operating expenses. Facing a severe capital
shortage and the lack of other available government assistance, Chrysler requested a $7 billion
bridge loan under TARP. On January 2, 2009, Chrysler Holding LLC received an initial loan of
$4 billion from Treasury. Old Carco LLC then received $1.9 billion in debtor-in-possession
funds on May 1, 2009.
Chrysler Group LLC received a secured loan for $7.1 billion 15 in TARP funds in connection
with its purchase of Old Carco LLC’s principal operating assets on June 10, 2009, of which
about $4.6 billion has been drawn. Table 6 shows TARP funds obligated to Old Carco LLC and
Chrysler Group LLC.
Table 6: Funds Obligated by Treasury and Used by Old Carco LLC and Chrysler
Group LLC as of October 31, 2009 ($ in Billions)
Category

Funds Obligated
by Treasury

Time period

Funds Used

$4.0 a

$4.0

Apr. 30, 2009 - Jun. 10, 2009

1.9 b

1.9

Jun. 10, 2009 – Present

6.6 c

4.6

d

$10.5

Pre-bankruptcy

Dec. 2008 - Apr. 30, 2009

In-bankruptcy
Post-bankruptcy
Total

$12.5

a. Excludes $500 million that Treasury obligated but subsequently de-obligated
b. Excludes $1.9 billion that Treasury obligated but subsequently de-obligated
c. Includes $350 million available for GMAC risk-sharing
d. Excludes Supplier Receivable SPV and Warranty SPV loans
Source: Department of the Treasury and Chrysler Group LLC

14

Chrysler Group LLC (formerly New Carco Acquisition LLC) was formed in April 2009 by Fiat North America
LLC, an offshoot of Fiat S.p.A. Chrysler Group LLC purchased the principal operating assets of Chrysler LLC on
June 10, 2009. It is owned by the UAW Retiree Medical Benefits Trust, a voluntary employees’ beneficiary
association trust (67.7 percent), Fiat North America LLC (20 percent), the United States Department of the Treasury
(9.8 percent), and the Canadian Government (2.5 percent). Chrysler LLC filed for bankruptcy on April 30, 2009. It
was owned by Chrysler Holding LLC, which in turn was held by affiliates of Cerberus Capital Management L.P.
(80.1 percent) and Daimler AG (19.9 percent). Chrysler Holdings LLC also owns Chrysler Financial Services
Americas LLC, a company that provides financing to automotive dealers and consumers. Chrysler LLC and
Chrysler Financial were operated independently from each other under separate managements.
15
The $7.1 billion consists of $6.6 billion in new funding and $500 million of assumed debt from the initial loan to
Chrysler Holding LLC.

18

In return for providing a secured term loan to Chrysler Group LLC, Treasury received a 9.8
percent equity interest. As of October 31, 2009, Treasury reported that it has received more than
$55 million in interest payments from Chrysler Holding LLC.

Accounting for TARP Funds
None of Chrysler Holding LLC, Old Carco LLC, and Chrysler Group LLC segregated TARP
funds from other institutional capital. Such segregation, according to Chrysler officials, is not a
customary practice for industrial companies. However, Old Carco LLC did segregate proceeds
received from the disposition of certain collateral in which Treasury was granted a first lien
priority interest under the TARP loan. Old Carco LLC has stated that it established two such
cash collateral accounts:
•

a cash collateral account relating to the balance of its spare parts inventory, which it has
pledged as collateral for the loan, and

•

a cash collateral account relating to the disposition of certain other property, which it has
also pledged as collateral for the loan.

Treasury also required Chrysler Holding LLC and Old Carco LLC to report frequently on their
viability and expenditures, including 13-week rolling cash forecasts, liquidity status, and changes
to their expense policies. Company officials noted that its cost committee held daily meetings to
provide oversight for the use of all company funds during the bankruptcy period. According to
company officials, the committee could cut the company’s expenses by discontinuing or limiting
services. In May 2009, Treasury amended the Loan and Security Agreement to require any draw
of funds to be accompanied by a certificate signed by an officer of Chrysler Holding LLC setting
forth the intended use of the requested advance. Additionally, Treasury implemented a
requirement that Chrysler Holding LLC provide Treasury, upon request, a certification that it has
used the loan proceeds in accordance with the previous intended use, as well as supporting
documentation. Likewise, in the debtor-in-possession credit facility with Old Carco LLC,
Treasury implemented provisions to account for the use of funds. The restrictions on the use of
funds were tied to a specific budget of the company during bankruptcy and, later, the wind-down
budget.
The agreement between Treasury and Chrysler Group LLC states that the company is bound by
reporting requirements similar to those of Chrysler Holding LLC and Old Carco LLC. The use
of proceeds is limited to a specific set of purposes, and Chrysler Group LLC must submit a “Use
of Proceeds Statement” describing how it intends to use an advance each time it requests a draw
on the Treasury loan. Moreover, each quarter, Chrysler Group LLC must deliver to Treasury a
report detailing the actual use of the loan proceeds.

Use of TARP Funds
The initial TARP loan agreement with Treasury provided that Chrysler Holding LLC use TARP
proceeds for general corporate and working capital purposes. Likewise, the debtor-in-possession
loan agreement with Old Carco LLC and the loan agreement with Chrysler Group LLC limited

19

the use of funds to working capital needs and other corporate purposes. According to Chrysler
officials, it used TARP funds, along with its other capital, primarily to pay its suppliers and auto
dealers. Table 7 shows the impact of Treasury’s TARP investment of the company’s cash
balance.
Table 7: Impact of Treasury Investment on Old Carco LLC U.S. Cash Balances
Jan. 1, 2009 – June 10, 2009 ($ in Billions)
Description

Amount

Beginning cash balance (01/01/09)

$0.8

Receipts from operations

12.4

Disbursements for operations

(18.8)

Negative cash flow without government investment

($5.6)

Treasury TARP investment

5.9

Ending cash balance (06/10/09)

$0.3

Notes - U.S. entities only
Source: Chrysler Group LLC

Chrysler officials stated that Treasury’s initial investment of TARP funds allowed Old Carco
LLC to avoid near-term bankruptcy. However, Treasury required Old Carco LLC to prepare a
restructuring plan for long-term sustainability of the company, which it submitted on February
17, 2009. On April 30, 2009, following a determination by Treasury that the company’s plan did
not indicate long-term viability, Old Carco LLC filed for bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code. It completed a sale of its principal operating assets to Chrysler Group
LLC on June 10, 2009. With the aid of TARP funds, Old Carco LLC is liquidating its remaining
assets in bankruptcy and Chrysler Group LLC is operating the automobile production lines
acquired from Old Carco LLC.

20

Appendix D—GMAC LLC
GMAC has been the primary financial services arm of GM for more than 90 years, providing
automobile loans to individuals and commercial businesses. Through its residential mortgage
subsidiary, Residential Capital, LLC, it also provides mortgage loans. In November 2006, GM
sold 51 percent of the controlling ownership interest in GMAC to FIM Holdings, whose primary
partner was Cerberus Capital Management, L.P. Beginning in 2007 and continuing through
2008, GMAC was adversely impacted by the severe stress in the credit markets as well as
decreasing home values and the decline in GM’s profitability. With a net loss of more than $2.0
billion in 2008, GMAC needed funding to recapitalize itself and preserve its lending capabilities.
As capital markets continued to contract in the third and fourth quarters of 2008, Treasury’s
TARP became the sole option for additional capital. GMAC officials stated that its decision to
pursue federal assistance was driven, in part, by the desire to preserve funding for $20-$30
billion of loans to U.S. auto dealers, 4.5 million U.S. consumer vehicle loans and leases and
servicing for just under $400 billion of U.S. mortgages.
On December 29, 2008, Treasury invested $5 billion in GMAC. At the time of this investment,
GMAC reorganized into a bank holding company and thus became eligible to participate in other
Government support programs. On May 21, 2009, Treasury purchased an additional $7.5 billion
of mandatorily convertible preferred equity in GMAC. Of this $7.5 billion investment, $4 billion
supported GMAC’s servicing of Chrysler loans and leases. The additional $3.5 billion helped
GMAC address its capital needs as identified through the Supervisory Capital Assessment
Program stress test completed with the Federal Reserve. At the time of the initial Treasury
investment, the Federal Reserve required GMAC to raise $2 billion of new equity. GMAC
raised $1.1 billion through private investments, and Treasury loaned GM the remaining $884
million to purchase GMAC equity; GM purchased additional equity in GMAC on January 16,
2009. On May 29, 2009, Treasury exchanged this $884 million loan to GM for a portion of
GM’s common equity interests in GMAC. Through that exchange, Treasury now holds 35.4
percent of GMAC’s common shares. According to GMAC officials, it has requested additional
TARP funding, but its Board of Directors has since asked that this decision be postponed until
GMAC’s new management has assessed the company’s financial situation to determine the
appropriate amount and form of such funding
As of November 18, 2009, Treasury’s TARP transaction report shows that GMAC has thus far
received approximately $13.4 billion in TARP funds. Table 8 shows Treasury’s AIFP allotment
to, and funds used by GMAC.

21

Table 8: TARP AIFP Disbursement to GMAC and Funds Used ($ in Billions)
Agreement

Date

Funds Disbursed
by Treasury

Funds Used by
GMAC

Loan and Security Agreement

Dec. 29, 2008

$5.0

$5.0

Loan to GM for rights offering

Dec. 29, 2008

0.9

0.9

Loan and Security Agreement

May 21, 2009

7.5

7.5

$13.4

$13.4

Total

Source: Department of the Treasury Transaction Report for period ending, Nov. 26, 2009, unaudited and GMAC

As of October 31, 2009, Treasury reported that it has received about $431 million in dividend
payments on its TARP AIFP investment in GMAC.

Accounting for TARP Funds
GMAC officials stated that GMAC did not segregate TARP funds from its other institutional
funds. However, they added that current management routines and reporting processes are in
place to track and forecast cash balances and the related sources and uses of funds. GMAC
specifically stated that its Global Liquidity Reporting team meets bi-weekly to review and
discuss such reporting. Through this process, its executive management team monitors GMAC’s
operating and lending activities and manages the company’s cash balances to a level it considers
sufficient to meet lending and operating needs. It added that this process serves as the basis for
generally monitoring the use of TARP funds.
Although GMAC is not required to do so under its agreement with Treasury, the company’s
internal audit function plans to conduct periodic audits of the company’s processes and reporting
of its use of federal funds, according to GMAC officials. To date, its internal audit group has
performed audits of executive compensation and travel and entertainment expenses. Additional
audits will include GMAC’s use of funds and reporting, and its governance and oversight of
TARP compliance. In addition, Treasury designated two new members of the GMAC’s Board.
One is Chairman of the Audit Committee and a member of the Compensation, Nominating and
Governance Committee; the other is Chairman of the Compensation, Nominating and
Governance Committee and a member of the Audit Committee.

Use of TARP Funds
GMAC officials stated that the company used TARP funds to replenish its depleted equity
caused by a significant decrease in asset values and continued operating losses. The use of
TARP funds to recapitalize GMAC and the emergence of GM from bankruptcy has allowed
GMAC to increase its lending activities that had been significantly curtailed. According to
GMAC officials, it will leverage the $13.4 billion in TARP funds to make significantly more
than $13.4 billion in new loans and dealer financings in 2009 and 2010.

22

Although GMAC’s latest financial report shows a continued operating loss, the number of retail
auto loans has almost doubled in each of the first two quarters of 2009. GMAC reported that its
car loans increased from $999 million in the fourth quarter 2008, to $2.3 billion in the first
quarter 2009, and $4.5 billion in the second quarter 2009. Further, GMAC estimates that since it
took over financing Chrysler consumer loans and dealerships in May 2009, it has financed over
$650 million of new Chrysler consumer originations through August 2009. GMAC has also
reported that it has extended approximately $2 billion in wholesale financing to U.S. and
Canadian Chrysler dealers. Finally, GMAC reported that its mortgage refinancing increased
from $4.6 billion in the fourth quarter 2008 to $10.5 billion during the first quarter 2009 and to
$14.7 billion during the second quarter 2009.

23

Appendix E—Chrysler Financial Services
Americas LLC
For more than 40 years, Chrysler Financial served as the primary lending arm to consumers and
dealers of Chrysler vehicles. In early 2009, due to disruptions in the capital markets, Chrysler
Financial lacked access to sufficient and reasonably priced capital to enable it to continue to
support Chrysler vehicle sales at previous levels. Chrysler Financial accepted TARP funds to
support such sales while Chrysler was developing its viability plan. According to Treasury
officials, TARP funds were provided to Chrysler Financial to allow the company to make retail
loans to support economic growth. As reflected in the minutes of the meeting at which
Treasury’s TARP Investment Committee considered Chrysler Financial’s application, TARP
funds were intended to be a temporary measure until the Federal Reserve and Treasury’s Term
Asset-Backed Securities Loan Facility (“TALF”) became operational, according to the January
14, 2009 TARP Investment Committee meeting minutes. TALF funds were later used by
Chrysler Financial to help pay back the TARP loan.
In January 2009, Chrysler Financial established a special purpose vehicle (the “SPV”), Chrysler
LB Receivables Trust, and the SPV entered into an agreement with Treasury to provide Chrysler
Financial with retail loan capacity through AIFP. Under the terms of the agreement, TARP
funds would not flow directly to Chrysler Financial. Rather, up to $1.5 billion would be placed
into the SPV to finance qualified new retail auto loans. Use of the bankruptcy-remote SPV was
intended to protect Treasury’s interests.
The process worked as follows: Chrysler Financial used its own operating funds to make loans
for Chrysler automobiles and it sold them to the SPV. The sale to the SPV ensured that no
creditor, other than Treasury, had claims against these receivables. The purchase price paid by
the SPV for these receivables was limited to a maximum of 85 percent of the face value of the
receivables, providing additional loss protection to Treasury. Chrysler Financial funded the
remaining 15 percent of the value of the sold receivables to the SPV in underlying equity
contributions. TARP funds were released to Chrysler Financial only as qualified new
receivables were sold to the SPV. Treasury reported that it had received about $7.4 million in
interest on its TARP AIFP investment in Chrysler Financial.

Accounting for TARP Funds
The company segregated the money in the SPV, allowing the funds to remain separate from
Chrysler Financial’s general ledger accounts. Each month, Chrysler Financial submitted a report
to Treasury showing the amount of TARP funds used by the SPV to purchase receivables. In
addition, the Loan and Security Agreement required Chrysler Financial to provide Treasury with
written documentation on defaults, litigation, and other actions involving changes in its
accounting and organizational policies.

24

Use of TARP Funds
The agreement between Chrysler Financial and Treasury required that Chrysler Financial use
TARP proceeds only to support Chrysler retail auto loans and was not to be used for its own
operating expenses. Treasury required that these loans meet these specific criteria to ensure the
taxpayer’s investment in Chrysler Financial:
•

Underlying loans must be vehicles manufactured by Chrysler.

•

Loans originated must be from January 1, 2009, onward.

•

Loans must originate in the United States.

•

The borrowers in the loan pool had to have a weighted average credit score of 700.

According to Chrysler Financial, it used TARP funds to acquire loans for retail customers. With
TARP funds, the company stated it was able to fund about 85,000 automobile loans from
January 2009 to June 2009.
Beginning on March 17, 2009, Chrysler Financial began repaying its outstanding loan and
accrued interest, completing full repayment on July 14, 2009. According to the Chief Financial
Officer of Chrysler Financial, about 70 percent of the funds used to pay back the TARP loans
were provided from transactions financed under the TALF program, and the remaining 30
percent was from private investors.

25

Appendix F—The Hartford Financial Services
Group, Inc.
The Hartford Financial Services Group, Inc. is one of the largest life insurance and investment
companies in the United States. Throughout 2008, Hartford experienced losses in its mortgagebacked securities investments and sought to raise capital to compensate for those losses. On
November 14, 2008, Hartford applied to the Office of Thrift Supervision (“OTS”) to become a
thrift holding company and entered into a binding agreement to acquire Federal Trust
Corporation and its insured depository, Federal Trust Bank. According to Treasury officials, the
primary purpose of this acquisition was to allow Hartford to apply for TARP funds under the
CPP, for approximately $3.4 billion, for which Hartford would otherwise be ineligible. Treasury
established CPP to invest in viable financial institutions to promote financial stability, maintain
confidence in the financial system, and permit these institutions to continue to meet the credit
needs of American consumers and businesses. Under program guidelines, institutions that
become bank or thrift holding companies were eligible to apply for CPP funds. In early January
2009, the OTS approved the purchase of Federal Trust Corporation contingent on Treasury’s
approval of Hartford’s participation in the CPP.
According to Hartford’s CEO, participation in the CPP was a prudent step for the company,
particularly given the continued uncertainty in the economic markets. He added that Hartford
would use TARP funds to strengthen its capital reserves and provide additional financial
flexibility. Subsequent to preliminary CPP approval on May 14, 2009, on June 24, 2009,
Hartford completed its purchase of Federal Trust Corporation and Federal Trust Bank, thereby
becoming eligible to receive CPP funds. On June 26, 2009, Treasury provided $3.4 billion in
TARP funds to Hartford. In return, Treasury received 3.4 million shares of Hartford’s Series E
preferred stock, which pay a 5 percent dividend per year for the first 5 years, and 9 percent
thereafter. Treasury also received a warrant to purchase up to 52 million shares of common
stock that it can exercise at $9.79 per share. On November 31, 2009, the closing price for
Hartford’s common stock was $24.48 per share. As of October 31, 2009, Treasury reported that
it has received about $23 million in dividend payments on its TARP CPP investment in Hartford.

Accounting for TARP Funds
The agreements between Hartford and Treasury did not require the company to segregate TARP
funds from its other capital. However, prior to receiving TARP funds, Hartford agreed with the
Office of Thrift Supervision, its primary federal regulator, to segregate TARP funds. As a result,
Hartford established:
•
•
•

separate custodial accounts at the holding company and certain subsidiaries to segregate
TARP funds and related investments;
separate investment portfolios at the holding company and certain subsidiaries to
segregate TARP funds and related investments; and
unique identifiers in the general ledger to track TARP investments within the company’s
books and records.
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Hartford officials stated that it established new CPP custodial accounts and portfolios at The
Hartford Financial Services Group Inc., Hartford Life and Accident Insurance Company,
Hartford Life Insurance Company, and Hartford Life and Annuity Insurance Company. Hartford
has also said that it will maintain a central repository of supporting documentation at the holding
company level to respond to requests for information. Accordingly, Hartford’s Corporate
Treasury Department maintains a repository that includes custody account statements, portfolio
holding reports, general ledger reports and other supporting documentation.

Use of TARP Funds
Hartford officials stated that the company invested the $3.4 billion in TARP funds in high quality
short-term investments or money market funds, as shown in Table 10, as well as in Federal Trust
Bank. Hartford’s holdings primarily include government or agency-backed securities or mutual
funds.
Table 10: Hartford’s Allotment of TARP Funds as of September 30, 2009 ($ in
Millions)
Total

Investment
The Hartford Financial Services Group, Inc.

$2,705

Hartford Life Insurance Company

500

Federal Trust Bank

195

TOTAL

$3,400

Source: The Hartford Financial Services Group, Inc.

Between June and September 2009, Hartford provided $195 million in CPP funds to Federal
Trust Bank to support its recapitalization. Federal Trust used $47 million, along with its internal
operating cash flow, to repay high-cost liabilities and the rest was deposited into its account at
the Federal Reserve, which, as of September 30, 2009, had a balance of $148 million. Hartford
received substantially more TARP funds than the thrift could have received had it applied and
been accepted for TARP funds on its own. Under Treasury guidelines in place at the time
Hartford was funded, CPP funding was equal to not less than 1 percent or more than 3 percent of
a recipient’s risk-weighted assets. Based on these criteria, had Federal Trust bank met
Treasury’s criteria for a “healthy, viable” bank and hypothetically had all of its assets carried
zero risk weight, it would have been eligible for a maximum of about $18 million in CPP
funding. Under Treasury’s policies for administering CPP funds, however, the amount of CPP
funds awarded to a holding company of a depositary institution is based on the risk-weighted
assets of the holding company, rather than those of the subsidiary depositary institution. Thus,
Hartford received $3.4 billion in CPP funding based on its risk-weighted assets, including its
overwhelmingly non-Federal Trust Bank related assets.

27

Federal Trust Bank
Federal Trust Bank is a federally chartered thrift stock-savings bank, headquartered in Sanford,
Florida, with $602 million in assets as of September 30, 2008. In addition to its main offices,
Federal Trust Bank has ten full-service branches in Orange, Seminole, Lake, Flagler, and
Volusia counties. Its assets are concentrated in residential and commercial real estate loans,
which the thrift has historically funded with customer deposits and borrowings.
According to an OTS analysis, as of September 30, 2008 the thrift was in “troubled” condition. 16
Absent a recapitalization, OTS had expected to put Federal Trust Bank into Federal Deposit
Insurance Company (“FDIC”) receivership in the first quarter of 2009. Hartford alleviated this
condition by agreeing to purchase the thrift.

16

The OTS analysis is in a publicly available Prompt Corrective Action report, dated February 3, 2009.

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Appendix G—Lincoln National Corporation
Lincoln National Corporation and its subsidiaries operate under the marketing name Lincoln
Financial Group. Lincoln is a Fortune 500 company that provides life insurance, retirement and
group benefits, and investment management products to individuals and commercial entities
across the United States and internationally. The company posted a loss of $506 million in
fourth quarter 2008 and sought additional capital during a period when the credit and equity
markets were unstable. As a result, it sought to participate in TARP and obtain funds to increase
its capitalization and liquidity. However, to qualify for TARP funds under Treasury’s CPP,
Lincoln had to purchase a bank or thrift and become a bank or thrift holding company.
On November 14, 2008, Lincoln applied to OTS to become a thrift holding company. That same
day, Lincoln entered into an agreement with Newton County Loan & Savings FSB to purchase
the Indiana-based institution. At the time, the stability and viability of Newton County’s loan
portfolio were uncertain. Newton County was a $7 million mutual-thrift institution whose
primary business was originating loans secured by single-family residences. By comparison,
Lincoln is a $173 billion corporation with diversified financial investment portfolios. Lincoln
officials told us that the company opted to acquire a small thrift because of its unfamiliarity with
the savings and loan industry and because it wanted to minimize any potential risks associated
with the acquisition.
Lincoln and Treasury officials stated that the primary purpose for purchasing Newton County
was to become eligible for CPP funds. Lincoln officials added, however, that its acquisition of
Newton was not contingent on Treasury’s approval of its CPP application; it had been
considering acquiring a bank or thrift for some time. Lincoln had invested $10 million of its own
capital in Newton County prior to receiving TARP funds. Had Newton County applied to CPP
on its own and met the criteria for a “healthy, viable” thrift and if hypothetically all of its assets
carried zero risk weight, it would have been eligible for a maximum of about $350,000.
In May 2009, Lincoln received approval for up to $2.5 billion in TARP funding. According to
Lincoln officials, as the credit and equity markets began to open, the company was able to secure
$1.2 billion from non-government lenders. As a result, Lincoln only sought $950 million in CPP
funds, which it received on July 10, 2009. In return, Treasury received 950,000 preferred shares
with a 5 percent annual dividend for the first 5 years, and 9 percent thereafter. In addition,
Treasury received a warrant to purchase slightly more than 13 million shares of common stock
that it can exercise at $10.92 per share. Lincoln officials stated that it is reviewing the viability
of raising private capital to retire CPP funds early, but it is more likely to repay the investment as
market conditions dictate over the next few years. As of November 31, 2009, the price of
Lincoln’s common stock was about $23.29 a share. As of October 31, 2009, Treasury reported
that it has received about $4.6 million in dividend payments on its TARP CPP investment in
Lincoln.

29

Accounting for TARP Funds
According to Lincoln officials, the company placed the $950 million in TARP funds into a
segregated account as part of its life insurance subsidiary’s capital; it also tracks the money
separately from the company’s general capital. Lincoln officials added that although OTS did
not require it to do so, the company maintains a clear accounting of the receipt of TARP funds,
the same-day capital contribution to Lincoln National Life, and segregated portfolio accounts.
Lincoln officials stated that separately accounting for the funds was necessary to track the
money’s specific use. Lincoln plans to report monthly to Treasury on the investment
performance of TARP funds, and it is in the process of building internal reports as part of its
automated systems, according to company officials.

Use of TARP Funds
Treasury considered Lincoln’s financial position strong and the company viable without TARP
funds. However, Lincoln deemed that TARP funds could provide additional protection for the
company to prudently pursue its business plan. Lincoln indicated in its application for CPP
funds that it would channel most of the TARP proceeds into its life insurance subsidiaries to
increase their capital base. According to its filing, Lincoln stated that it would use TARP funds
as follows:
•
•
•
•

60 to 70 percent in corporate bonds,
10 to 15 percent in commercial mortgage loans,
10 to 15 percent in agency mortgage-backed securities, and
up to 5 percent in non-agency mortgage-backed securities/commercial mortgage-backed
securities

According to Lincoln officials, the use of TARP funds is consistent with the company’s lending
activities and the original intent of the CPP, namely investing in funds to support the U.S.
economy and providing credit to credit markets. Lincoln provided SIGTARP updated
information indicating that it had used TARP funds to purchase approximately $608 million in
domestic corporate bonds and mortgage-backed securities, with the remaining $342 million to be
invested in commercial mortgage loans that it plans to originate, domestic bonds, and assetbacked securities. Many of these assets carry a low risk weight and can be used as leveraged
collateral in ways similar, although not identical, to cash. According to Lincoln officials, TARP
funds allowed it to continue to underwrite business by selling individual annuities, life insurance,
and group business.
Under insurance risk-based capital guidelines, Lincoln is required to hold capital against the
business it underwrites. The amount of capital required differs from product to product and
depends on the nature of the insurance liability and the amount of asset risk it takes. For
example, according to Lincoln officials, variable annuities generally require less capital
support—approximately three percent—because the underlying investment risk is borne by the
policyholder. On the other hand, fixed annuity deposits are invested in the insurance company’s
general account where the insurance company takes on the asset risk. As a result, it must hold

30

approximately five percent of the initial deposit as capital. The investments that Lincoln made
with TARP funds count towards the total amount of capital it must hold. Accordingly, Lincoln
officials stated that the leveraging impact of the CPP funding can be “up to 20 times that amount
in new [insurance and retirement] product sales.” This leveraging ability is governed by the
National Association of Insurance Commissioners risk-based capital requirements that dictate
capital guidelines for the insurance industry on a product-by-product basis. As such, Lincoln
projects that TARP funds will allow the company to accept more insurance deposits and invest
the assets that make up reserves back into the economy through investing in structured securities
like residential mortgage and credit card-backed securities.
Lincoln officials added that, while the company is assessing the potential for early repayment, it
expects to pay back TARP funds before the interest rate rises to 9 percent at the end of 5 years.
These officials also stated that Lincoln would like to see the economic situation improve before
repaying the funds to include less volatile credit markets, the recovery of bonds to pre-recession
prices, and the availability of markets for issuing common stock at prices higher than it currently
stands.

Newton County Loan & Savings FSB
Prior to its purchase by Lincoln in January 2009, Newton County was a federal mutual savings
bank (thrift) with roughly $7 million in assets. It had one branch office in Goodland, Indiana,
and three employees. According to Lincoln officials, at the time of its acquisition, Newton
County was the 37th-smallest savings & loan bank in the United States. Its assets were
concentrated in non-owner occupied, single-family residential loans in the Indianapolis, Indiana,
area.
Lincoln officials stated that prior to acquiring Newton County, the thrift needed financial
assistance. Throughout 2007 and 2008, Newton County’s capital, earnings, and loan portfolio
had deteriorated in part because of untimely payments or defaults on loans it had issued. After
conducting a June 2008 field visit, the OTS considered Newton County to be “significantly
undercapitalized.” Further, Newton County had received poor quality of service ratings from the
government in other areas. As a small institution incorporated into the Community
Reinvestment Act, Newton County was required to help meet the credit needs of the local
community by issuing residential loans. Over a 5-year period, however, it had issued only four
loans in its local community out of the 550 loans it originated. The OTS stated that Newton
County also had other weaknesses attributable to its small size, geographical location, and
managerial resources, including its limited products and outdated technology systems.
Since its acquisition of Newton County, Lincoln reported that it has focused on recapitalizing
and restructuring the thrift. Lincoln officials stated that it has injected $10 million of capital into
the thrift which was not funded with TARP proceeds. Lincoln also appointed a new thrift
president, a company employee, and according to Lincoln officials, it is overhauling Newton
County’s technology and security systems. Lincoln officials stated that the thrift is currently
well capitalized and can afford to invest in new technology and necessary upgrades without
further capital infusion.

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Appendix H—Management Comments

32

33

Appendix I—Audit Team Members
This report was prepared and the review was conducted under the direction of Barry W. Holman,
Deputy Special Inspector General for Audit, Office of the Special Inspector General for the
Troubled Asset Relief Program.
The staff members who conducted the audit and contributed to the report include:
Michael Kennedy
Joshua Moses
Charles Thompson

34

Appendix J—Acronyms
Acronym

Definition

AIFP

Automotive Industry Financing Program

Chrysler Financial

Chrysler Financial Services Americas

CPP

Capital Purchase Program

EESA

Emergency Economic Stabilization Act of 2008

FDIC

Federal Deposit Insurance Corporation

GM

General Motors

GMAC

GMAC LLC

Hartford

The Hartford Financial Services Group, Inc.

IPO

Initial Public Offering

Lincoln

Lincoln National Corporation

Newton County

Newton County Loan & Savings FSB

OTS

Office of Thrift Supervision

SIGTARP

Special Inspector General for the Troubled Asset Relief Program

SPV

special purpose vehicle

TALF

Term Asset-Backed Securities Loan Facility

TARP

Troubled Asset Relief Program

Treasury

U.S. Department of the Treasury

35

SIGTARP Hotline
If you are aware of fraud, waste, abuse, mismanagement, or misrepresentations associated with the
Troubled Asset Relief Program, please contact the SIGTARP Hotline.
By Online Form: www.SIGTARP.gov

By Phone: Call toll free: (877) SIG-2009

By Fax: (202) 622-4559
By Mail:

Hotline: Office of the Special Inspector General
for the Troubled Asset Relief Program
1801 L Street, NW, 4th Floor
Washington, D.C. 20220

Press Inquiries
If you have any inquiries, please contact our Press Office:

Kristine Belisle,
Director of Communications
Kris.Belisle@do.treas.gov
202-927-8940

Legislative Affairs
For Congressional inquiries, please contact our Legislative Affairs Office:
Lori Hayman
Legislative Affairs
Lori.Hayman@do.treas.gov
202-927-8941

Obtaining Copies of Testimony and Reports
To obtain copies of testimony and reports, please log on to our website at www.sigtarp.gov


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102