Treasury to Auction Stock Warrants

By Chris Carey, Bailout Sleuth

The Treasury Department will auction off some of the stock warrants it received in exchange for bailout assistance.

Over the next month, Treasury will use a “modified Dutch auction” system to unload it warrant positions in JP Morgan Chase & Co., Capital One Financial Corp., and TCF Financial Corp., the government announced. The department said it “expects to conduct similar auctions in the future for other warrant positions it holds.”

All three banks have redeemed the common and preferred stock they gave the government under the Troubled Asset Relief Program by returning the money they received plus dividends.

Pricing the warrants, however, has proved a more difficult task. Earlier this year, Treasury announced a policy under which banks that have already bought back the stock they sold the government submitted their own valuation of the warrants. Treasury then had 10 days to accept the bank’s valuation or initiate a two-stage cooperative appraisal process.

Under the auction system, which will be run by Deutsche Bank Securities Inc., a market price is created “by allowing investors to submit bids at specified increments above a minimum price specified for each auction,” Treasury said. The three banks will be permitted to bid on their own warrants.

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