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 Just when they thought they were out, they get pulled back in. Treasury gave 10 large banks the thumbs-up to repay capital from the Troubled Asset Relief Program Tuesday, but simply returning the money isn't enough. There's also the issue of buying back the warrants that the government was issued. And that will add another few billion to the banks' tabs if they want to throw off the restrictions of TARP. Estimates for how much the warrants will cost the banks vary widely, ranging between $3.7 billion and $5.1 billion, according to Bloomberg. Bank CEOs and the American Bankers Association have already protested extracting a high price from them to buy back the warrants, saying it is "unfair" and "onerous." J.P. Morgan Chase & Co.'s (NYSE:JPM) CEO Jamie Dimon has suggested that the government cancel half its warrants out of fairness. Meanwhile Congress is pressing Treasury Secretary Tim Geithner to make the banks pay full market value for the warrants after the prior buyouts saw prices as low as 32 cents on the dollar. Both sides have a case to make. Dimon can rightly argue that his institution was strong and the administration forced it to take TARP money for the greater good of the banking system, which would arguably make sticking him with another billion in buyback costs somewhat unfair. However, it could just as easily be argued J.P. Morgan and others benefited greatly from the assurance that there would be no more Lehman Brothers Holdings Inc.-like failures in the teeth of the financial crisis last fall, and that taxpayers deserve compensation for the risks taken on behalf of the banks. In its statement on repayment Tuesday, Treasury said the financial firms have the right to buy the securities "at fair market value." While the banks have the right of first refusal on buying back their warrants, the government does have the option of selling them on the open market if the two sides can't agree on a price. Overall, the government holds warrants giving it the right to purchase 1.4 billion common shares of the 600 U.S. financial firms that took TARP money. - George White See Bloomberg story on warrants See Dealscape post on TARP repayment
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As a taxpayer it seems very unfair that the banks want to change the deal after the fact, we own the warrants and we should sell them at market rates.
If you want to talk about onerous, how about Jamie Dimon's overdraft charges and over blown transaction fees for a few frat buddies getting together and playing monopoly with our money.
Let's squeeze the banks like the boils they have become so they run their businesses with some respect for their customers, the same ones now holding the warrants.