On July 10, 2009, according to a report by the Congressional Oversight Panel, (created by Congress under the Emergency Economic Stabilization Act of 2008 to oversee the Troubled Asset Relief Program [TARP]) the Treasury decided to sell stock warrants back to recipients of TARP funds at a 34% discount on their fair-market value. The Treasury intends to take such action as the warrants provide opportunity for taxpayers to participate directly in the increase in share prices of recipients.
 
The Congress initiated the Troubled Asset Relief Program (TARP) in late 2008 to even out the financial system. During that time, Congress authorized $700 billion to cure the financial turmoil and decided that taxpayers should have the opportunity to share in the potential upside if the banks returned to profitability.
 
To verify whether the valuation of the warrants by the Treasury maximizes the taxpayers’ investment in the companies, the panel conducted its technical valuation of the warrants held by Treasury.  According to its evaluation of the warrant repurchases, the Treasury already approved, 11 banks have repurchased their warrants for an estimated amount of 66% of current market value. As a result, taxpayers would have recovered $10 million more.
 
The largest banks have received the Treasury approval for TARP repayment, as they are now able to tap the debt markets without FDIC’s support and also access the equity markets as investor confidence returns to the stronger banks.
 
Among others, Bank of America Corp. (BAC) received a total of $45 billion and Wells Fargo & Co. (WFC) received a total of $25 billion from TARP.
 
The Treasury is just about to start the warrant repurchase program. We expect that the Treasury will take further steps for the recipients to allow them to repurchase their warrants from the Treasury in future but not at the expense of public interest in financial stabilization and economic growth.
Read the full analyst report on “BAC”
Read the full analyst report on “WFC”
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