Capital One warrants help chip away TARP obligation

Posted Dec 6th 2009 3:40PM by Tom Johansmeyer
Filed under: JPMorgan Chase (JPM), Recession, Financial Crisis

The Treasury Department made $146.5 million through the sale of Capital One Financial (COF) warrants. This was the first auction of warrants conducted by the government as part of the banking system bailout. The sale was conducted by Deutsche Bank (DB) and reached a sale price of $11.75 per warrant.

The warrants, which expire on November 14, 2018, give the holders the right to purchase a share of Capital One stock at $42.13. Almost 12.7 million warrants were given to the Treasury Department a little more than a year ago, when Capital One received $3.56 billion in bailout support.

The government and Capital One chose to use an auction to sell the warrants because they couldn't agree on a sale price for the financial instruments, despite months of negotiation. Most banks have wanted to repurchase the warrants they gave the government, in order to prevent their shareholders' from being diluted. But, the feds are wary of being accused of accepting prices that are too low.

Expect to see more of these warrant auctions. JPMorgan Chase (JPM) and TCF Financial (TCB) announced last month that they were going to hold warrant auctions, as well. All three banks have repaid their original TARP obligations, and only the disposition of the warrants remains.

Tags: banking sector, banks, Capital One Financial, COF, db, Deutsche Bank, inthenews, JPM, JpMorgan, TARP repayment, TCB, TCF Financial, treasury department, Troubled Asset Relief Program, warrants

Print this

Reader Comments (Page 1 of 1)

12-06-2009 @ 4:41PM

JCH said...

I don't understand. This was supposed to be the biggest heist in history, and yet there is all of this talk of repayment.

When Jesse James robbed a train, did he pay back the railroad? Is that how a heist works?

Here all my life i've been under the mistaken impression that the robbers keep the money. Who knew they returned it plus interest and cash for warrants?

12-07-2009 @ 2:30AM

peterhailey said...

The way this new scam works is that the new investors get to buy stock at some future date at a reduced price with what amounts to a stock option. This than dilutes your existing shares making them worth less. The bank is not repaying the TARP funds, you the shareholder is paying for it thru depreciated stock value.