US Treasury To Sell TARP Warrants In Public Auctions

[SpartanDem]

Source: WSJ

The U.S. Treasury Department plans to sell warrants it obtained from J.P. Morgan Chase & Co. (JPM), Capital One Financial Corp. (COF) and TCF Financial Corp. (TCB) in modified Dutch auctions that will be held during the next month.

Treasury obtained the warrants in connection with capital it provided to each of the institutions through the $700 billion Troubled Asset Relief Program, commonly known as TARP.

While some banks have worked directly with Treasury to determine prices at which they would buy back warrants, others such as J.P. Morgan Chase have pushed for sales to happen in a more public forum.

A Congressional oversight panel monitoring TARP suggested Treasury would likely maximize taxpayer returns if it sold warrants at auctions instead of through negotiations with banks. "An auction would cause the warrants to be allocated to the buyers willing to pay the highest price, and competitive pressures in the bidding process may push bids up, the panel said in a July report.

Further, "auctions can put upward pressure on negotiated transactions by setting new, higher transaction precedents and by showing that a secondary market for these warrants exists, leading to a smaller liquidity discount in the negotiated transactions," the panel noted.



Read more: http://online.wsj.com/article/BT-CO-20091119-716742.html

[fasttense]

1. How innovative, too bad they can't seem to use their innovation in bailing out the

middle class.

Or preventing a crash in the 1st place.

[rfranklin]

2. We'll be able to see just how little this garbage is worth...

Which is why the banksters have wanted to keep all this stuff hidden in the closet.

[Po_d Mainiac]

3. The difference in "face value" and the actual

sale/auction price should be clawed back :grr:

[ooglymoogly]

4. News flash.....New York city dump to sell its garbage on the futures market.

creating a whole new commodity. It is based on the proven theory that there is a sucker born every minute.

[Lucky Luciano]

5. Do the posters above even know what the warrants are???

The bank stocks are up a ton so the warrants are worth mch much more than when the government purchased them. True - vol is way down, which lowers a warrant's value, but the stock moves have dominated and they are big profits for the government.

[ooglymoogly]

6. Here is a link to exactly what it means.

http://www.marketwatch.com/story/banks-buying-back-tarp-warrants-at-discount-panel

[Lucky Luciano]

7. Right - sme smaller banks did pick off the government...

I am well aware that they bought the warrants for less than they were worth. Goldman bought back their warrants for close to fair value. In this case, JPM, COF, etc are not going to be the ones buying them back - it will be sold to outside investors - and to the highest bidder - should be the best way to realize profits from their sale. Incidentally, I am not sure what "Face Value" means for warrants - probably the intended phrse is "Fair Value.". Warrants are almost exactly like call options. The primary difference is theat it gives the holder the right to buy shares that get issued by the company as opposed to shares that have already been issued. Therefore exercising a warrant dilutes other shareholders whereas exercising a call option does not. As such, the warrant needs to be valued based on this dilution in the event of exercise. The other key factors for valuation are interest rates, dividends (dividends lower the value of warrants because divs reduce the stock price - though sometimes warrants can be dividend adjusted to remove that issue), time to expiration, strike price, and volatility. Higher volatility makes vanilla options worth more because the more volatile, the higher the probability that they will land deeper in the money. Vol is wayyyyyyyyyyyyyyyy down from a year ago, so the warrants have to be valued based on much lower vols - but like I said, the stock moves have overwhelmingly dominated the crash in volatility from a year ago (Needless to say, the passage of one year of time has had little effect because I think the warrants had a 5 year term, so that is also dominated by the stock moves).


See this if you have some mathematical inclinations:

http://en.wikipedia.org/wiki/Black%E2%80%93Scholes

[DJ13]

8. The bank stock movements higher are because the government underwrote

the banks.

Im not sure the government will get as much by selling the warrants as you do because selling essentially removes the government backstop.

In fact the banks stocks could fall quite a bit when the warrants are put up for auction.

[No Elephants]

10. It does not necessarily remove the government backstop. The US did not own

warrants in the companies when it did the bailout. "Too big to fail" was the reason givven for the TARP (and may well have been accurate). "Too big to fail" has not changed. So, the backstop may still be there, whether or not the US puts its warrants up for auction.

Heads, the taxpayer loses. Tails, the taxpayer loses.

[No Elephants]

9. Will Buffet hold on to his securities?

[Lucky Luciano]

11. GS would LOVE to buy their warrants back from Buffet!

He made a killing on his warrants struck around $120.

[ThisThreadIsSatire]

12. I'd rather help finance arrest warrants... (nt)