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JP Morgan TARP Warrants to be Auctioned Tomorrow

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December 09, 2009 – Comments (12) | RELATED TICKERS: JPM

Treasury isn't giving much lead time for this.  The press release was yesterday, the modified Dutch auction is tomorrow.  Here's the preliminary prospectus if anyone wants all the gory details. 

Quick summary:

88.4 million warrants with a strike price of $42.42
Warrants expire Oct 28, 2018
Minimum bid price $8, bids must be in 25 cent increments above the minimum
Minimum bid lot size 100 warrants
Auction starts a 8:00 am Thurs, 10 Dec and ends 630 pm Thurs.
Deutsche Bank Securities is the auction agent

The warrants are similar to call options.  The warrant holder has the right, but not an obligation, to purchase one share of common stock at the strike price any time up to expiration.  Like a call, if JPM stock price is below the strike price at expiration, the warrants would expire worthless.  The warrants are scheduled to be listed on the NYSE after the auction.

This will be the second auction of TARP warrants.  Here's a rundown of the first auction.   Time will tell if TMF is being Foolish or foolish for letting me try freelance writing :)

Ten cents for Foolanthropy

Fool on!

Russ

12 Comments – Post Your Own

#1) On December 09, 2009 at 8:14 PM, ChrisGraley (29.75) wrote:

I want some of that perpetually preferred stuff that Buffet gets!

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#2) On December 09, 2009 at 8:23 PM, rd80 (98.29) wrote:

I think you have to actually be Buffett to get those deals. 

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#3) On December 09, 2009 at 8:25 PM, HarryCarysGhost (99.68) wrote:

Holy cow!

So I could buy Jpm for 8 and all they need to do is go to $42.42

(or I could sell immediatly for a huge profit)

in eight years.

If I'm wrong please let me know.

If I'm right please tell me who gets this sweetheart deal.

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#4) On December 09, 2009 at 8:47 PM, JaysRage (89.42) wrote:

msftgev -- You are only the buying the right to pay $42.42 for JPM stock.     So, unless it breaks $50.42, you don't make money.   Of course, anything more than that is profit. 

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#5) On December 09, 2009 at 9:09 PM, HarryCarysGhost (99.68) wrote:

 JaysRage

Ah! that makes much more sense

Still that seems like such a good deal it seems criminal.

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#6) On December 09, 2009 at 9:11 PM, rd80 (98.29) wrote:

$8 is the minimum bid price.  The actual clearing price will be set by the auction and will almost certainly be quite a bit higher.

JaysRage  is correct.  The warrant gives the owner the right to buy stock at the strike price.  Bidders in the auction are bidding on the warrants, not JPM stock.
1 warrant + $42.42 can be converted to 1 share of JPM common.

Two ways someone could make money on these:

1.  They'll be traded on the NYSE.  Like any other security, the market price will fluctuate and an investor might be able to sell the warrants at a profit.  For example, Capital One's warrants went off the auction block at $11.75.  They closed today at $12.80.

2.  If JPM stock climbs above the warrant price + $42.42.

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#7) On December 09, 2009 at 10:07 PM, silverminer (30.62) wrote:

Russ ... congratulations on the freelancing! :)

You'll make a great Fool!

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#8) On December 09, 2009 at 10:24 PM, rd80 (98.29) wrote:

Thanks Sinch, I'm enjoying it so far.

Blog + 8 comments = 90 cents for Foolanthropy!

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#9) On December 09, 2009 at 11:43 PM, ChrisGraley (29.75) wrote:

I gotta make it an even buck!

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#10) On December 10, 2009 at 1:18 AM, starbucks4ever (97.24) wrote:

How exactly do you enter a bid? I expect the auction procedure is a little different from placing an ordinary limit order?

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#11) On December 10, 2009 at 7:53 AM, rd80 (98.29) wrote:

zloj

I would start with a phonecall to your broker to see if they can enter a bid for you.  If not, I'd call Deutsche Bank Securities and ask how to bid and how to transfer the warrants to your account if you win, what fees are involved, etc. Some of that info should be in the prospectus.

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#12) On December 11, 2009 at 10:19 AM, rd80 (98.29) wrote:

The warrants cleared at $10.75 each for $936 million to Treasury.  I had expected them to go quite a bit higher.

The warrants are trading on the NYSE, ticker JPM WS.  I didn't find them on most quote services, but the NYSE has a quote page for them.

So far, prices haven't moved much from the clearing price.

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