VALUING THE TARP WARRANTS
Using three programs within the Treasury Asset Relief Program (TARP), the U.S. Treasury
made cash investments on behalf of taxpayers in financial institutions in return for a combination
of dividend-paying preferred stock and warrants to purchase common stock. The three programs
within TARP are: the Capital Purchase Program (CPP), in which hundreds of billions of dollars of funding was provided to over 600 banks; the Systemically Significant Failing Institutions (SSFI) program, consisting of funding for AIG; and the Targeted Investment Program (TIP),
consisting of funding for Citigroup and Bank of America.
On June 9, Treasury announced that 10 of the largest financial institutions participating in the CPP had met requirements for repayment of funds. Under the CPP investment agreements, institutions that repay preferred stock that Treasury obtained through capital injections have the
right to repurchase, at “fair market value,” warrants that Treasury also received. This report discusses how the warrants are valued in the CPP agreements and alternatives to Treasury’s procedure of selling them back to the issuing institutions at some agreed upon fair market value.
made cash investments on behalf of taxpayers in financial institutions in return for a combination
of dividend-paying preferred stock and warrants to purchase common stock. The three programs
within TARP are: the Capital Purchase Program (CPP), in which hundreds of billions of dollars of funding was provided to over 600 banks; the Systemically Significant Failing Institutions (SSFI) program, consisting of funding for AIG; and the Targeted Investment Program (TIP),
consisting of funding for Citigroup and Bank of America.
On June 9, Treasury announced that 10 of the largest financial institutions participating in the CPP had met requirements for repayment of funds. Under the CPP investment agreements, institutions that repay preferred stock that Treasury obtained through capital injections have the
right to repurchase, at “fair market value,” warrants that Treasury also received. This report discusses how the warrants are valued in the CPP agreements and alternatives to Treasury’s procedure of selling them back to the issuing institutions at some agreed upon fair market value.
