On the First TARP Warrant Auction (h/t Seeking Alpha)

From the article:

The U.S. Treasury has finally taken a small step toward trusting markets. It normally cuts deals with banks before investors can make an offer on the taxpayers’ warrants. Taxpayers obtained warrants as part of their banking sector bailout in the Troubled Asset Relief Program (TARP).

Yet, before Thanksgiving it announced that it would be auctioning off the warrants of JP Morgan Chase (JPM), Capital One Financial (COF), and TCF Financial (TCB). According to Dow Jones Newswires, this Thursday, December 3, 2009, it will auction off taxpayers' nearly 12.7 million warrants to buy Capital One Financial (COF) stock.

These warrants that expire on November 14, 2018, give the holder the right to buy a share of Capital One’s stock at a price of $42.13 per share at any time before the expiration date. According to the preliminary prospectus, these warrants will trade on the secondary market under the ticker COF-W.

via First TARP Warrant Auction Set for Tomorrow — Seeking Alpha.

If you want to see an example of how this works, Linus Wilson provides one:

Consider the following example where about 12.7 million warrants are being auctioned. Bidder A bids for 2 million warrants at $25 per warrant; Bidder B bids for 10 million warrants at $24 per warrant; and Bidder C bids for 1 million warrants at $21 per warrant. If all other bids are lower than bidder C, then the price set by auction is $21 per warrant. Bidder A gets 2 million warrants, and Bidder B gets 10 million warrants. Bidder C gets about 0.7 million warrants or about 70 percent of her desired quantity while the higher bidders get all the warrants they wanted.

There’s a reserve of $7.50/share, so hopefully we’ll see some good bidding & price action tomorrow.

We’d like our money back, now. Please.


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Filed under finance, government, Markets, Way Forward

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