On June 26, 2009, the Treasury announced its policy with regard to the repurchase or other disposition of the warrants it received from exchange-traded companies under the TARP Capital Purchase Program.
Under the terms of the Capital Purchase Program contract, publicly-traded institutions that have repaid the Treasury’s TARP investment have 15 days following repayment to make a determination of the “fair market value” to repurchase the warrants as well. This determination is made by the institution’s Board of Directors, acting in good faith on the opinion of an independent banking firm. The Treasury then has 10 days to either accept the “fair market value” offered by the company, or will initate the three appraiser process established in the original contract to determine a final “fair market value.”
If a company decides not to repurchase the warrants, the Treasury intends to sell the warrants through an auction process over the next few months. The Treasury is in the process of establishing guidelines for these auctions. Treasury also has the authority to dispose of warrants held by companies that have not redeemed their TARP investment generally (subject to a requirement to retain half the warrants through December 31, 2009). Although the Treasury’s announcement of an upcoming auction does not specifically differentiate between companies that have and have not redeemed the TARP investment, presumably the upcoming auction is intended only for institutions that have elected not repurchase the warrants after redeeming the TARP investment.
