Treasury cashing in on JPMorgan stake

Taxpayers could get a $1 billion windfall as the government sells TARP securities to investors.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By Colin Barr, senior writer

Chase chief Jamie Dimon will soon be done with TARP.

NEW YORK (Fortune) -- The U.S. government is preparing to cash in on its investment in JPMorgan Chase.

On Thursday, the Treasury Department will auction off the stock warrants it received from the bank as part of its $25 billion Troubled Asset Relief Program loan.

The warrants could be worth as much as $1.5 billion to taxpayers, according to one estimate -- though the results of an auction held last week suggest the feds may not get quite that much.

JPMorgan (JPM, Fortune 500) repaid its TARP loan in June, but the New York-based firm declined to repurchase the warrants, which the government received for free as part of the deal. Warrants give the holder the right to buy stock at a certain price within a certain period.

Under the terms of TARP, banks have the right to repurchase the 10-year warrants they gave the government, with the proceeds going to taxpayers as profits. A number of big banks including Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) made large payments to the government this past summer to buy back their warrants.

A bank that declines to repurchase its warrants, for whatever reason, triggers an auction at which the government sells the warrants to private sector bidders.

Treasury held its first warrant auction last week, reaping $147 million via the sale of warrants to buy shares in credit card lender Capital One (COF, Fortune 500). That's a nice chunk of change, though it was less than one researcher was expecting.

Linus Wilson, a finance professor at the University of Louisiana at Lafayette, had estimated that Treasury could take in as much as $286 million on the Capital One warrants.

Wilson said the results of the Capital One auction suggest investors are expecting the stock price to be relatively stable between now and when the warrants expire, in nine years. He had forecast bigger swings.

Using the lower volatility assumption, Wilson said he now expects Treasury to receive as much as $1.5 billion for the JPMorgan warrants. His middle estimate is $928 million, or $10.50 a warrant.

The minimum bid price is $8 a warrant. If the warrants sell at that price, Treasury will get $700 million.

The advantage of the auction format is that it resolves questions about the fairness of deals negotiated behind closed doors. Early this year, Treasury appeared to allow some small banks that were repurchasing their warrants in private to underpay for the privilege, shortchanging taxpayers.

"We can be cheered by the fact that the private investors" are now driving the valuations, said Wilson. "Security prices should be set by investors, not deals between Treasury officials and bank executives."  To top of page

Company Price Change % Change
Ford Motor Co 8.29 0.05 0.61%
Advanced Micro Devic... 54.59 0.70 1.30%
Cisco Systems Inc 47.49 -2.44 -4.89%
General Electric Co 13.00 -0.16 -1.22%
Kraft Heinz Co 27.84 -2.20 -7.32%
Data as of 2:44pm ET
Index Last Change % Change
Dow 29,638.64 -271.73 -0.91%
Nasdaq 12,198.74 -7.11 -0.06%
S&P 500 3,621.63 -16.72 -0.46%
Treasuries .84 0.00 0.24%
Data as of 10:18pm ET
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.