In a deal experts said was good for taxpayers, American Express Co. paid the Treasury Department $340 million for stock warrants it sold it last year in exchange for bailout funding.
The company, which has already repurchased the $3.39 billion in preferred shares it sold the government under the Troubled Asset Relief Program, is the latest to strike a deal with Treasury over the valuation of the warrants.
How to value the warrants has been a sticky question since the program began. Because they permit the holder to buy common shares at a specified price, some have argued that the government should hold on to them until the financial sector recovers.
Under that scenario, taxpayers might make a significant profit. And selling them at the price they might make on the open market today would mean the taxpayers aren't compensated for the risk they took in accepting them in the first place.
Last month, with banks clamoring to leave TARP and escape a perceived unfriendly regulatory environment, Treasury announced the procedure by which it would price the warrants.
Under the announced terms, banks that have already redeemed the stock they sold the government submit their own valuation of the warrants.
Treasury then has 10 days to accept the bank's valuation or initiate a cooperative appraisal process in which both the bank and Treasury name independent appraisers to evaluate the claim. If the two fail to agree, a third independent appraiser is to be named and "a composite valuation" of all three will determine the final value.
In the case of American Express, it appears that an agreement was reached rather quickly. In a statement, the company said that the price it paid for the warrants, when added to the $74.4 million in dividend payments in paid for its redeemed stock holding, resulted in a "annualized 26 percent return" for the government.
Experts agreed, saying that the final price was a "good deal" for taxpayers. "It seems that congressional pressure and the threat of auctions has significantly stiffened the negotiation stance of the U.S. Treasury," Linus Wilson, a finance professor with the University of Louisiana at Lafayette, told Bloomberg News.
BailoutSleuth reported last week that Goldman Sachs Group Inc. had paid $1.1 billion for its warrants after it's first offer of $500 million was rejected. Other companies that have redeemed warrants and made a final exit from the TARP program include U.S. Bancorp, BB&T Corp., and State Street Corp.
The company, which has already repurchased the $3.39 billion in preferred shares it sold the government under the Troubled Asset Relief Program, is the latest to strike a deal with Treasury over the valuation of the warrants.
How to value the warrants has been a sticky question since the program began. Because they permit the holder to buy common shares at a specified price, some have argued that the government should hold on to them until the financial sector recovers.
Under that scenario, taxpayers might make a significant profit. And selling them at the price they might make on the open market today would mean the taxpayers aren't compensated for the risk they took in accepting them in the first place.
Last month, with banks clamoring to leave TARP and escape a perceived unfriendly regulatory environment, Treasury announced the procedure by which it would price the warrants.
Under the announced terms, banks that have already redeemed the stock they sold the government submit their own valuation of the warrants.
Treasury then has 10 days to accept the bank's valuation or initiate a cooperative appraisal process in which both the bank and Treasury name independent appraisers to evaluate the claim. If the two fail to agree, a third independent appraiser is to be named and "a composite valuation" of all three will determine the final value.
In the case of American Express, it appears that an agreement was reached rather quickly. In a statement, the company said that the price it paid for the warrants, when added to the $74.4 million in dividend payments in paid for its redeemed stock holding, resulted in a "annualized 26 percent return" for the government.
Experts agreed, saying that the final price was a "good deal" for taxpayers. "It seems that congressional pressure and the threat of auctions has significantly stiffened the negotiation stance of the U.S. Treasury," Linus Wilson, a finance professor with the University of Louisiana at Lafayette, told Bloomberg News.
BailoutSleuth reported last week that Goldman Sachs Group Inc. had paid $1.1 billion for its warrants after it's first offer of $500 million was rejected. Other companies that have redeemed warrants and made a final exit from the TARP program include U.S. Bancorp, BB&T Corp., and State Street Corp.
published July 30, 2009, 0 Comments
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