The Treasury Department announced the procedure for banks seeking to redeem stock warrants sold to the government under the Troubled Asset Relief Program.
As part of the $700 billion bailout program, hundreds of banks gave the Treasury stock and stock warrants in exchange for financial assistance. Over the last few months, an increasing number have repurchased the share and paid accrued dividends.
The banks see the repurchase of the warrants as the last step to get out from under the TARP program and an uncomfortable regulatory environment that includes restrictions on executive pay and the distribution of dividends. How to value the warrants, however, has proved a tricky question.
Under the announced terms of the Capital Purchase Program, a $250 billion endeavor under the TARP umbrella, banks that have already redeemed the stock they sold the government have 15n days to submit their own valuation of the warrants.
Treasury then has 10 days to accept the bank's valuation or initiate a cooperative appraisal process in which both the bank and Treasury name independent appraisers to evaluate the claim. If the two fail to agree, a third independent appraiser is to be named and "a composite valuation" of all three will determine the final value.
In a sign that Treasury is eager to get the warrants of its books, Treasury also laid out the procedure for selling the warrants if the banks do not want to buy them back. Under that scenario, the government will auction them off in a procedure to be announced soon.
According to Treasury, the department considered holding the warrants to attempt to realize greater profits, but "there was no certainty that we would realize higher values, and it was not appropriate for the government to be exercising discretionary judgment on timing market sales."
As part of the $700 billion bailout program, hundreds of banks gave the Treasury stock and stock warrants in exchange for financial assistance. Over the last few months, an increasing number have repurchased the share and paid accrued dividends.
The banks see the repurchase of the warrants as the last step to get out from under the TARP program and an uncomfortable regulatory environment that includes restrictions on executive pay and the distribution of dividends. How to value the warrants, however, has proved a tricky question.
Under the announced terms of the Capital Purchase Program, a $250 billion endeavor under the TARP umbrella, banks that have already redeemed the stock they sold the government have 15n days to submit their own valuation of the warrants.
Treasury then has 10 days to accept the bank's valuation or initiate a cooperative appraisal process in which both the bank and Treasury name independent appraisers to evaluate the claim. If the two fail to agree, a third independent appraiser is to be named and "a composite valuation" of all three will determine the final value.
In a sign that Treasury is eager to get the warrants of its books, Treasury also laid out the procedure for selling the warrants if the banks do not want to buy them back. Under that scenario, the government will auction them off in a procedure to be announced soon.
According to Treasury, the department considered holding the warrants to attempt to realize greater profits, but "there was no certainty that we would realize higher values, and it was not appropriate for the government to be exercising discretionary judgment on timing market sales."
published June 29, 2009, 0 Comments
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