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TARPedBanks (< 20)

First TARP Warrant Auction Complete



December 04, 2009 – Comments (4) | RELATED TICKERS: COF , JPM , TCF

Lost in all the noise and news about BAC raising capital and repurchasing its TARP preferred stock, the first public auction of TARP warrants was completed on Thursday.

Deutsche Bank Securities is running the auctions for Treasury.  On Thursday the 3rd, about 12.7 million Capital One (COF) warrants were sold in a modified Dutch auction.  The warrants were priced at $11.75 each.  The warrants give the owner the option to purchase shares at a strike price of $42.30.  There are about nine years left before the warrants expire.

Treasury got warrants in addition to preferred shares of banks as part of the TARP Capital Purchase Program.  Most banks that have repurchased preferred stock have also repurchased the warrants.  In at least three cases, COF, JP Morgan (JPM) and TCF Financial Corporation (TCB), the banks opted not to buy the warrants.  Treasury plans to auction the JPM and TCB warrants later this month.

The warrants don’t get covered as often as other aspects of the gov’t bailout programs, but they offer some of the best upside for taxpayers from TARP.  For example, when Goldman Sachs repurchased preferred, it not only repaid the $10 billion of preferred stock with dividends, it coughed up another $1.1 billion to buy the warrants.  A rare bright spot for TARP – invest $10 billion in GS preferred and warrants, over the next 8 months or so collect $318 million in dividends, get the $10 billion back and collect $1.1 billion for the warrants.  Don’t worry, there’s more than enough downside opportunity in TARP to cancel out those gains. 

The prospectuses for the JPM and TCB warrant auctions haven’t been released yet.  For the COF auction, the minimum lot size was 100 shares so this isn’t strictly a big investment bank game.  Anyone interested does need to be prepared to move fast – the COF prospectus for the 3 Dec auction was posted 1 Dec.

I had considered making on offer on some JPM warrants.  Haven’t ruled that out, but am inclined to let the big boys and girls play in this sand box.

Fool on!


4 Comments – Post Your Own

#1) On December 04, 2009 at 10:07 PM, anchak (99.90) wrote:

Thanks for covering this!!

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#2) On December 04, 2009 at 10:26 PM, UltraContrarian (30.72) wrote:

That's interesting.  I bet the government could have squeezed out some more money if they gave more than two days notice.

There are a few TARPed bank warrants I would consider but not COF, JPM or TCB.  Maybe DFS or STL.

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#3) On December 04, 2009 at 10:51 PM, ChrisGraley (28.49) wrote:

I was actually thinking about JPM myself. I didn't realize how little time you have to prepare. I'll have to do whatever DD in the background that I can and  burn the midnight oil when the prospectus comes out.

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#4) On December 04, 2009 at 11:25 PM, lquadland10 (< 20) wrote:

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