Treasury to auction 88.4M JPMorgan warrants

AP News
Posted: Dec 08, 2009 5:00 PM

The Treasury Department this week will auction 88.4 million warrants of JPMorgan Chase & Co., the second auction of warrants the government received as part of the $700 billion financial bailout.

Treasury said the auction, which will take place between 8 a.m. and 6:30 p.m. EST Thursday, will allow interested buyers to place bids with a minimum price of $8 per warrant.

The government last week concluded its first such auction, receiving $146.5 million for warrants of McLean, Va.-based Capital One Financial Corp.

Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price. Treasury received them as a deal-sweetener when it injected capital into the banks. They allow taxpayers to benefit from a financial recovery supported by billions of their dollars.

The auctions are being held because lengthy negotiations between the government and three large banks over a price for the warrants failed to yield agreements.

Besides Capital One and New York-based JPMorgan, the Treasury also is expected to hold an auction this month for the warrants of Wayzata, Minn.-based TCF Financial Corp. The three banks received government money totaling $28.9 billion, which they have since repaid.

The Capital One auction resulted in a price of $11.75, giving the purchaser the right to buy Capital One stock at $42.13 before the warrant expires on Nov. 14, 2018.

Many banks that received aid from the rescue program Congress passed in October 2008 repurchased their own warrants when they returned the government assistance because they did not want to dilute the value of their stockholders' shares in the future.

However, the government has the right to schedule auctions if the negotiations do not arrive at a price it finds acceptable. The Obama administration has wanted to avoid criticism that it accepted prices for the warrants that were too low.

The Treasury Department this week trimmed by $200 billion its estimate of how much the bailout program will lose, now projecting losses of $141 billion or lower, down from an estimate of $341 billion made in August. The lower figure represents faster paybacks from many banks as the financial system stabilizes and lower use of the $700 billion fund than originally envisioned.