TARP Repayments, Including the Repurchase of Stock Warrants
The Congressional Oversight Panel July Oversight Report, “TARP Repayments, Including the Repurchase of Stock Warrants,” examines several important issues raised by the repayment of TARP funds by institutions that have received TARP assistance.
Now that Treasury has decided that some banks can repay their TARP funds, it is the Panel's mandate to determine whether the taxpayer is receiving maximum benefit from TARP. Because the warrants that accompanied TARP assistance represent the only opportunity for the taxpayer to participate directly in the increase in the share prices of banks made possible by public money, the price at which the warrants are sold is critical.
Eleven banks have repurchased their warrants from the Treasury for a total amount that the Panel estimates to be only 66 percent of its best estimate of their value. However, it is important to note that Treasury is just beginning its warrant repurchase program. Banks have bought back only a fraction of one percent of all warrants issued, and the prices paid thus far may not be representative of what is to come. The report further analyzes how Treasury is constrained by the provisions of the contracts governing the TARP investments in the banks and recognizes that the Panel's valuations do not include the liquidity discounts and other adjustments contemplated by Treasury.
The Panel emphasizes that it is critical that Treasury make the process - the reason for its decisions, the way it arrives at its figure, and the exit strategy from or future use of TARP - absolutely transparent.