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TARPedBanks (< 20)

Treasury to start selling TARP bank warrants



November 19, 2009 – Comments (0) | RELATED TICKERS: JPM , COF , TCF

When the US Treasury purchased preferred stock in banks last year, the government also got 10-year warrants to purchase common stock with strike prices set at the previous 20-day average. 

Today, Treasury announced, "Over the next month, Treasury intends to conduct auctions to sell its warrant positions in JP Morgan Chase & Co., Capital One Financial Corporation, and TCF Financial Corporation."

These three banks repurchased their TARP preferred, but did not purchase the warrants.  I haven't kept tabs on the warrants and don't know if there are any other banks that have completed repurchasing their preferred stock, but opted not to buy back the warrants.  Here's how the warrants stack up as of today's close:

Stock     Strike Price     11/19 Close
JPM          42.42                42.55
COF         42.30                38.34
TCB          16.93               12.14

With nine-years of life remaining, all three have a fair chance of ending up in the money.

Treasury intends to sell the warrants through registered public offerings. These offerings will be executed using a modified Dutch auction methodology that establishes a market price by allowing investors to submit bids at specified increments above a minimum price specified for each auction.

Details beyond that are sketchy.  Deutsche Bank will be handling the auctions. 

If this is truly an open auction, I don't see the need to set a minimum bid price.  If the auction is open and there aren't enough bids above the minimum price, then it's obvious the minimum price was set too high.

If investors do not have an account with Deutsche Bank, they may be able to participate in the auction through their own brokers, as a network of several dozen brokerage firms will be invited to aggregate suitable client orders and submit them to Deutsche Bank.

The release doesn't indicate which brokerage firms are included in the several dozen.  I intend to call WellsTrade and see if they're participating.  I wouldn't mind trying a low ball bid on some of the JPM warrants.  If nothing else, the process of submitting a bid would make a good blog entry.

Anyone considering bidding on warrants for bank stocks from the Treasury?

Fool on!



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