TARP Warrants: A Boon for Taxpayers?

On Friday it was announced that State Street Corp. became the first of 10 large banks to repurchase warrants held by the US Treasury. The warrants were put in place to assure that taxpayers are rewarded for their collective TARP loan to banks as the finance sector recovers.

The transaction occurred on Wednesday and cost State Street $60 million dollars. The proceeds flowed directly into US government coffers. The transaction sets the warrant bar for the nine other top banks who have collectively repayed $66B in rescue aid principal, but have yet to retire their warrant obligations by negotiating deals with the Treasury.

The State Street transaction equates to $30M per $1B borrowed. That could well mean that the other nine banks are looking at a collective $2B payback on their $66B.

The warrant deals are politically sensitive, with congress calling on the Treasury to drive a hard bargain on behalf of taxpayers. Banks have complained that valuing the warrants too highly could impede the goal of restoring health to the financial system. (I’ll use that line on my bank loan officer the next time and see how well it works)

For taxpayers (many of which viewed the bailout monies as a gift rather than a loan to the banks) are now reveling in the reality that they’ve just made a quick 3% gain in less than a year.

A quite healthy return in the current investment climate.

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