JP Morgan sees solution in the market

With the warrants that came with the purchase of preferred stocks by the government when it funneled money into some of the biggest financial institutions in the country, the latter are now having difficulties offloading those warrants finding the demands of the government to be too much.  A report from the Wall Street Journal says some banks are finding the valuation given by the government to the warrants that would allow them to buy shares of the banks at a later date to be higher than necessary.

Ah, but of course.  Again some problems with the government.

The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth, these people said. That has prompted complaints from some top executives.

[JP Morgan] has waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which bank executives say will result in an actual market price.

Jamie Dimon is reported to have brought the valuation issue to Treasury Secretary Tim Geithner.  Three options are given to the banks to remove the warrants owned by the government. First is to sell it to them at an agreed upon price. Second, if valuations are not amenable, to “enter into a potentially lengthy arbitration process involving multiple third-party valuations.” The third is the one being used by JP Morgan.  That is easily the idea of leaving it all to the markets to determine the right price.

The report from WSJ HERE.


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