After almost a year of initiating the $700 billion Troubled Asset Relief Program (TARP) to rescue the nation’s financial industry, the U.S. Treasury Department said on Thursday that it would auction off stock warrants it acquired from three big banks that received a significant portion of taxpayers’ money and have fully repaid the same. The government is taking this step to free the lenders from the federal bailout program.
The three banks, whose warrants will be sold via auctions over the next month, are
JPMorgan Chase (
JPM),
Capital One Financial (
COF) and
TCF Financial Corporation (
TCB). These three banks, that received a total of $28.9 billion from the TARP, have fully repurchased Treasury's preferred stock investment. The current move to sell their warrants will completely free these banks from government intervention.
The government still holds warrants of 261 banks, out of which only 15 have paid back the bailout money but not repurchased their warrants yet. Many other financial institutions that have already repaid bailout money include
American Express (
AXP),
Goldman Sachs (
GS),
Morgan Stanley (
MS),
BB&T Corporation (
BBT) and
US Bancorp (
USB). Also, banks like
Bank of America (
BAC),
Wells Fargo (
WFC) and
Citigroup (
C) are expected to exit TARP over the next 12 to 18 months.
Treasury will sell the warrants through a modified Dutch auction. According to the format, the three banks will be able to bid for the warrants themselves. However, the price at which banks could buy back the warrants became a contentious issue as banks started repaying their bailouts.
We think that the repayment of government money and repurchase of warrants can be viewed as a sign of recovery of the institutions as well as the economy. Also, the full repayment of government money by the bailed-out firms will help protect their executive compensation packages.
Read the full analyst report on "JPM"Read the full analyst report on "COF"Read the full analyst report on "TCB"Read the full analyst report on "AXP"Read the full analyst report on "GS"Read the full analyst report on "MS"Read the full analyst report on "BBT"Read the full analyst report on "USB"Read the full analyst report on "BAC"Read the full analyst report on "WFC"Read the full analyst report on "C"Zacks Investment Research
