Banks buying back TARP warrants at a discount, panel says
Published on 07-10-2009
WASHINGTON - A panel that oversees the $700 billion bank bailout package said Friday that financial institutions buying out warrants they gave the government in exchange for capital injections are now buying back those stakes at well below their fair value.
The Congressional Oversight Panel, which is charged with overseeing the Troubled Asset Relief Program, or TARP, said in a report that a group of 11 small banks that have repurchased government warrants in exchange for taxpayer-funded assistance, have bought-out the stakes at 66% of their face value.
The oversight panel, which employed three Harvard University valuation experts to conduct the analysis, said taxpayers would have received $10 million more had the warrants been sold back to the banks at their face value.
The report argues that liquidity discounts are a key factor for why the warrants were purchased at such low prices. Should a similar discount be a major factor for warrant repurchases at larger institutions buying out government stakes, the shortfall to taxpayers could be as much as $2.7 billion, the report said.
A group of 32 financial firms, including 10 large financial institutions, paid $70.2 billion to buy out preferred shares Treasury received when they received financial assistance. These buyouts have made the firms eligible to buy back the warrants the government received along with the preferred shares.
Banks that received financial assistance as part of TARP were required to give the government warrants for the future purchase of some of their common shares. Warrants are the right to buy common shares of a company at a set price at some point in the future.
The report said, however, that the Treasury may have other goals with the repurchases that supersede maximizing taxpayer returns.
"Treasury has said that it wants to allow banks to operate again without TARP assistance as soon as they are strong enough to do so," it said.
Published on 07-10-2009
WASHINGTON - A panel that oversees the $700 billion bank bailout package said Friday that financial institutions buying out warrants they gave the government in exchange for capital injections are now buying back those stakes at well below their fair value.
The Congressional Oversight Panel, which is charged with overseeing the Troubled Asset Relief Program, or TARP, said in a report that a group of 11 small banks that have repurchased government warrants in exchange for taxpayer-funded assistance, have bought-out the stakes at 66% of their face value.
The oversight panel, which employed three Harvard University valuation experts to conduct the analysis, said taxpayers would have received $10 million more had the warrants been sold back to the banks at their face value.
The report argues that liquidity discounts are a key factor for why the warrants were purchased at such low prices. Should a similar discount be a major factor for warrant repurchases at larger institutions buying out government stakes, the shortfall to taxpayers could be as much as $2.7 billion, the report said.
A group of 32 financial firms, including 10 large financial institutions, paid $70.2 billion to buy out preferred shares Treasury received when they received financial assistance. These buyouts have made the firms eligible to buy back the warrants the government received along with the preferred shares.
Banks that received financial assistance as part of TARP were required to give the government warrants for the future purchase of some of their common shares. Warrants are the right to buy common shares of a company at a set price at some point in the future.
The report said, however, that the Treasury may have other goals with the repurchases that supersede maximizing taxpayer returns.
"Treasury has said that it wants to allow banks to operate again without TARP assistance as soon as they are strong enough to do so," it said.
********************************************************
My comment back to SPECTRE was as follows:
"The report said, however, that the Treasury may have other goals with the repurchases that supersede maximizing taxpayer returns.
"Treasury has said that it wants to allow banks to operate again without TARP assistance as soon as they are strong enough to do so," it said."
I guess the goal is to rip-off the taxpayers in order to favor those who brought down the economy in the first place.
This is my view---the consumer definitely must take some of the blame for their current fate, but the fact remains that they were told from the President Bush on down that spending and borrowing was good for the country. That low interest rates, high returns on equities, and that speculation was the way wealth was to be created, and productivity and an increase in GDP, as well as foreign investment was healthy for the nation.
Bush said after 9-11 for America to go shopping! "Leave your troubles in an old kit bag and smile, smile, smile."
This is what many, many Americans believed. They are not economists. They saw that when the Tech Bubble broke, it took down the value of equities,but the recovery only took a couple years to show progress again. They think the same way today! They don't realize that these lost jobs are gone forever.
Currently, the consumer is being punished, so to speak, by seeing that the financial syndicate con artists, such as Geithner, are continuing to offer special deals and arrangements to those banksta thieves.
Spectre, I am assuming you feel the same, how disheartening it is that there are no real leaders, other than Ron Paul and a few others who don't really march into the public eye screaming how we should not take this anymore.
Michael Jackson, upon his death, gets a massive vocal and public audience. I guess upon the death of America it will be then when the loud voices of protest and anger begin to get loudly heard.
"Treasury has said that it wants to allow banks to operate again without TARP assistance as soon as they are strong enough to do so," it said."
I guess the goal is to rip-off the taxpayers in order to favor those who brought down the economy in the first place.
This is my view---the consumer definitely must take some of the blame for their current fate, but the fact remains that they were told from the President Bush on down that spending and borrowing was good for the country. That low interest rates, high returns on equities, and that speculation was the way wealth was to be created, and productivity and an increase in GDP, as well as foreign investment was healthy for the nation.
Bush said after 9-11 for America to go shopping! "Leave your troubles in an old kit bag and smile, smile, smile."
This is what many, many Americans believed. They are not economists. They saw that when the Tech Bubble broke, it took down the value of equities,but the recovery only took a couple years to show progress again. They think the same way today! They don't realize that these lost jobs are gone forever.
Currently, the consumer is being punished, so to speak, by seeing that the financial syndicate con artists, such as Geithner, are continuing to offer special deals and arrangements to those banksta thieves.
Spectre, I am assuming you feel the same, how disheartening it is that there are no real leaders, other than Ron Paul and a few others who don't really march into the public eye screaming how we should not take this anymore.
Michael Jackson, upon his death, gets a massive vocal and public audience. I guess upon the death of America it will be then when the loud voices of protest and anger begin to get loudly heard.
I felt this news flash was important enough to post. Thanks, jerry
