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As we've seen, some banks that received TARP funding to stabilize them are now returning the money. The U.S. government made a small profit from the deal, even after you factor in the cost of borrowing the money in the first place. But even those banks that returned their funding aren't done yet -- the government still holds warrants in those banks, worth about $5 billion, that keep those firms under stricter government supervision. Unsurprisingly, the banks want out, and equally unsurprisingly, they think that they shouldn't have to pay:
The American Bankers Association has said the U.S. doesn’t deserve a windfall in return for holding warrants for a few months or for investing in banks that weren’t in danger of failing. The Washington-based trade group said in April the warrant buybacks create an “onerous exit fee” and a “punitive obstacle” to leaving TARP.“We shouldn’t have had to pay a dime,” said Sun Bancorp Chief Executive Thomas Geisel, whose profitable New Jersey-based company bought back its warrants in May for what Wilson calculated was 32 cents on the dollar. “Taxpayers deserve a return for the risk they took on, but it wasn’t a risk to invest in us.”Jamie Dimon, CEO of New York-based JPMorgan Chase, said June 1 that that the U.S. should cancel half the warrants it holds “out of fairness.” JPMorgan’s warrants have a value of $1.2 billion to $1.7 billion, Credit Suisse said.Are you kidding me? The taxpayers went on the line to bail the banks out during a financial crisis produced by the banks' own excess, and now they think that debt should be canceled "out of fairness." Yikes. Luckily, the Treasury seems to be growing into a tougher negotiator after some initial criticism from Congress, and may be thinking about auctioning the warrants to third parties to drive up prices further. Or, if the banks don't want to buy them back right now, they can remain under stricter regulatory supervision until the entire financial regulation apparatus is overhauled this summer.
-- Tim Fernholz
