Banks Lowball Taxpayers on TARP Payback

Feds hold stake after emergency loans, and could profit by waiting
By Kevin Spak,  Newser Staff
Posted May 19, 2009 10:55 AM CDT
JP Morgan CEO Jamie Dimon, left, and Goldman Sachs CEO Lloyd Blankfein leave the White House, March 27, 2009, following a meeting with President Barack Obama.   (AP Photo)
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(Newser) – US banks are eager to repay their TARP money, but doing so might rob taxpayers of the upside they were originally promised, the New York Times reports. In exchange for emergency loans, the government got 10-year warrants to buy stock in the banks. If repaid, it must sell those warrants. But at what price? Should it try to maximize taxpayer profit, or minimize pain for banks?

One bank, Indiana’s Old National, has repaid its debt and bought back its warrants, paying $1.2 million for investments analysts say were worth up to $6.9 million. “It’s a great deal for Old National,” said one professor. “Treasury accepted a lowball offer.” He values the Treasury’s warrant portfolio at up to $10.9 billion, and thinks it should sell the assets to the highest third-party bidder.