Bloomberg Shines on TARP Repayments

This is why you’ve got to love Bloomberg’s Mark Pittman.

He takes a story, grabs on to the taxpayer angle, and doesn’t let go. All else is distraction.

Today, Pittman reports that taxpayers are in for a $10 billion shortfall if Give-It-Away Geithner continues his generous ways on TARP refunds.

When the U.S. gave banks hundreds of billions from the TARP, it got warrants to buy their stock at a certain price—A small benefit for recapitalizing an entire industry. But now that some banks are beginning to repay the TARP funds, the Obama administration isn’t exactly driving a hard bargain:

While 17 financial institutions have repaid TARP funds, only one has come to terms with the U.S. on the value of the rights to buy stock that taxpayers received for the risk of recapitalizing the industry. That was Old National Bancorp in Evansville, Indiana, which gave the Treasury Department $1.2 million for warrants that may have been worth $5.81 million, according to the data.

Pittman extrapolates what that means across the entire industry:

Under the Old National warrants formula, Bank of America Corp. would save $2.03 billion, followed by Wells Fargo & Co. at $1.48 billion and JPMorgan Chase & Co. at $1.46 billion. Morgan Stanley’s benefit would be $983 million, Citigroup Inc.’s would come in at $965 million and Goldman Sachs Group Inc. would have $693 million, according to the data compiled by Bloomberg.

For the 20 largest TARP recipients, the total savings would be $9.985 billion, the data show.

Journalists really need to do more of this kind of work. You know, pick up the rake and stir up some muck for crying out loud. It’s all around you. This story is pure analysis—it’s waiting there for anyone to do.

Taken alone, the Old National anecdote means little. After all, it’s just $4 million (in an age of trillions, who cares about that?) from some bank in Indiana. Putting that number in this kind of context—it’s an 80 percent discount— is eye-opening. And look at it another way to see if that catches you:

Based on that volatility and that rate, the Black-Scholes options valuation tool appraised one Old National warrant at $7.18. The bank paid the U.S. $1.48 for each.

Here’s former IMFer Simon Johnson on what this means broadly:

“The point of the warrants is that taxpayers participate in the upside,” Johnson said in an interview. “It defeats the whole purpose if you’re going to sell them way below market price.”


This is excellent background on an unfamiliar aspect of the TARP:

The U.S. received rights to buy 1.4 billion common shares in exchange for $287 billion in TARP capital, according to data compiled by Bloomberg. A company that accepted aid had to grant warrants equal to 15 percent of the TARP investment at a strike price equal to the 20-day trailing average of the shares. A strike, or exercise, price is that at which an option can be exercised.

And it’s good to hammer away at this point:

Now that Goldman Sachs, JPMorgan and Morgan Stanley have applied to return the $45 billion they received, they may also reclaim their warrants.

Those are worth about $4 billion, data compiled by Bloomberg show. If the U.S. followed the Old National formula for the three New York-based banks, taxpayers would receive less than $1 billion.

And an obvious solution:

Wilson said the government would serve taxpayers better by auctioning off the securities to investors. The law that established TARP allows for an auction.

This is anticipatory journalism, which is something that we’ve seen was all-too-missing in the runup to the crisis. The pieces of the puzzle are out there. Journalists just have to put them together, and do it in a catchy way.

This story is a template for how to to do just that.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.