Mounting losses from commercial real estate loans will continue to be a problem for the US and especially smaller banks, but it can be managed, US Treasury Secretary Timothy Geithner said on Monday.
“Commercial real estate’s still going to be a problem for the country,” Geithner said in an interview with CNBC. “But we can manage through this process.”
Geithner also said the Treasury Department’s announcement that it will begin selling the stake it owns in Citigroup Inc, which could net about US$7.5 billion for the government, shows “how far we’ve come” in exiting from the financial bailout program.
The government received 7.7 billion shares of Citigroup in exchange for US$25 billion of the total US$45 billion it gave the financial behemoth during the 2008 credit crisis. The Treasury Department said on Monday it will sell the shares over the course of this year, depending on market conditions.
Like any investor, the government will likely hold on to its shares if prices fall steeply. However, Citi shares have been steadily rising with the broader market in recent months, which means the government is likely to pocket a hefty profit.
The government has been trying to unwind the investments it made in banks under the US$700 billion Troubled Asset Relief Program, or TARP, that came in at the height of the financial crisis.
Geithner said in the interview the government doesn’t want to keep an ownership stake in the financial companies “a day longer than necessary.”
The government will use a “careful process” to balance two objectives, he said: ensuring maximum return on the taxpayers’ investment while also getting the US out of the business of owning private companies.
While losses on mortgage loans socked banks at the beginning of the 2008 financial crisis, it is commercial and development loans that have brought dramatic losses for banks in recent months.
Losses have mounted on loans for commercial projects like stores and office complexes.
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