JPMorgan Chase (JPM) warrants held by U.S. government’s bank bailout program were sold for $936.1 million on Dec11. The Treasury Department’s second auction of warrants held by the Troubled Asset Relief Program (TARP) drew $10.75 each for 88.4 million of the securities.

These warrants were acquired by the Treasury in connection with the capital it provided to each of the institutions through the $700 billion TARP. The US Treasury Department transferred $25 billion of funds to JPMorgan Chase on Oct 28, 2008, via the TARP. This was the fifth largest amount transferred under the United States 2008 TARP bailout bill.

In a final step to free itself from TARP debts, the receiver has to buy back the warrants that it had originally issued. However, the government has the right to stage an auction when the repurchase price posted by the bank fails to reach an acceptable level.

The JPMorgan warrants were sold via a Dutch auction with Deutsche Bank Securities a unit of Deutsche Bank AG (DB) acting as auction agent and sole book-running manager. The proceeds of this sale will provide additional revenue to the taxpayers over and above the dividend payments it has already received on the related preferred stock of JPMorgan.

In a similar transaction earlier during the month, the government received $146.5 million from the sale of Capital One Financial Corporation (COF) warrants. The Treasury would also auction warrants it received from TCF Financial Corporation (TCB). The government expects to conduct similar auctions in the future for other warrant positions it holds in approximately 260 banks.

We think that the repayment of government money and repurchase of warrants can be viewed as a sign of recovery of the institutions and the economy. Earlier during the month, Treasury Secretary Tim Geithner said that as a result of improved financial conditions and careful stewardship of the program, losses on TARP investments were likely to be significantly trimmed.

The banks that had received support from the program will soon have repaid nearly half of the TARP funds they received. Therefore, TARP might just cost taxpayers at least $200 billion, less than the previously projected $341 billion in the August mid-session Review of the President’s budget. President Obama has recently that some of the unspent funds in the program would be diverted to job creation efforts.

Zacks Investment Research

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