Lower AIG, GM values add $21 billion to deficit: White House

Boxes containing copies of the 2013 Federal Budget are displayed at the Government Printing Office in Washington February 13, 2012.

WASHINGTON (Reuters) - The U.S. financial bailout program will add $21 billion to the budget deficit next year largely due to lower valuations of the government's stock in General Motors Co and American International Group, the Obama administration said on Monday.

The White House now estimates that the Troubled Asset Relief Program will have a final net cost of $67.8 billion, up from a $46.8 billion estimate made in August 2011. The non-cash accounting difference added $21 billion to its fiscal 2013 deficit estimate of $1.33 trillion.

But the estimates use November 30 share prices for bailout recipients GM and AIG, and their shares have rebounded somewhat since then. If this trend continues, an upward valuation adjustment -- which would reduce deficits -- is likely later this year.

The government rescued the automaker and the insurance giant during the height of the 2007-2009 financial crisis, leaving U.S. taxpayers with substantial equity stakes in each.

After both companies pulled off successful public stock offerings in 2010 and 2011, their improved valuations made it seem the government might actually earn an overall profit on the $700 billion TARP bailout fund. Downward revisions to TARP cost estimates helped reduce White House deficit forecasts in fiscal 2010 and 2011.

But the companies' shares fell amid turmoil in Europe and Japan last year and worries about another U.S. recession.

The White House based its AIG estimate on a November 30 share price of $23.31 per share, well below AIG's $52.66 peak in January 2011. AIG shares were trading at $27.10 on Monday, closer to the $28.73 price needed for taxpayers to break even on the bailout.

For GM's valuation, the White House used a share price of $21.29, well below the $33 initial public offering price in November 2010 and its January 2011 peak of $38.10. GM was trading at $25.62 on Monday, but it has to go to about $53 a share for taxpayers to break even.

The readjustment of TARP costs in the Obama administration's budget follows a similar $23 billion increase in the program's cost estimate by the non-partisan Congressional Budget Office at the end of January, also largely due to the lower share prices of bailed-out GM and AIG.

Offsetting the decline in GM and AIG shares in the White House's estimate was a $1.4 billion increase in the value of mortgage-backed securities held in the Public Private Investment Program, which was created to invest in so-called "toxic" assets -- the original intended purpose for TARP before it was used to directly inject capital into banks and other companies.

(Reporting by David Lawder; Editing by Chizu Nomiyama)