The U.S. Department of the Treasury said Thursday that it is putting stock warrants it received for investments made in several large banks on the auction block.Treasury obtained warrants through the capital injections it provided to financial institutions nearly a year ago under the $700 billion Troubled Asset Relief Program (TARP).

Over the next month, the Department intends to sell its warrant positions in J.P. Morgan Chase & Co., Capital One Financial Corporation, and TCF Financial Corporation. Each of these banks has paid in full the bailout money it received from the government, which together totals $28.9 billion. The sale of the warrants would absolve the three companies of having the government as a shareholder and sever their final tie to the financial bailout program.

The transactions will be executed through a modified Dutch auction methodology, Treasury explained, which allows investors to submit bids at specified increments above the set minimum price and establishes a market value for the warrants. According to the New York Times, the warrants on shares of the biggest of the three banks, JPMorgan, could fetch as much as $2.75 billion.

The Treasury has retained Deutsche Bank Securities Inc. as the auction agent and book running manager for these offerings, to accept bids and identify a clearing price for each auction.

The public sales announced Thursday will be the first by the Treasury to dispose of warrants related to the federal TARP program. The Department has worked directly with other banks to negotiate buy-back prices for their warrants, but was unable to reach an agreement over the value of the warrants from J.P. Morgan, Capital One, and TCF.

According to the Wall Street Journal, J.P. Morgan and other large banks have pushed for the warrants to be sold to other investors in a more public forum, rather than direct repurchases from the banks. A congressional watchdog panel urged the Treasury back in July to consider the public auction approach, saying it would provide a greater return to taxpayers and establish a competitive secondary market for the TARP warrants.

The Treasury said it expects to conduct similar auctions in the future for other warrant positions it holds in banks that have repaid their TARP investments. Of the 693 banks the Treasury invested capital in, it has sold warrants back to 24.

 

http://www.dsnews.com/articles/treasury-to-auction-off-tarp-warrants-2009-11-20   11/20/2009 BY: CARRIE BAY