Privately held banks are paying consistently higher prices to repurchase government-held warrants than their publicly traded counterparts.

Three closely held banks have repurchased warrants for prices equal to 5% of the Treasury Department's investments under the Troubled Asset Relief Program. Publicly owned banks, by comparison, have negotiated to repurchase warrants at prices equal to about 2.7% of their Treasury investments.

The comparison is complicated by the fact that private banks have no public shares against which to estimate the value of a warrant. Private institutions also traditionally pay more for capital. But even after these considerations, the spread illustrates that while the intent of the emergency aid was to revive banks, some are getting more nourishment than others.

"The one-size-fits-all deal did not work from a fairness perspective," said Diane Casey-Landry, chief operating officer of the American Bankers Association. "It ends up meaning small community banks will pay more."

First Manitowoc Bancorp Inc., a closely held Wisconsin bank, recently redeemed its $12 million Tarp investment and repurchased warrants for $600,000.

Two other closely held banks, First ULB Corp. of California and Centra Financial Holdings Inc. of West Virginia, have also redeemed their Tarp investments and warrants at similar expense.

By contrast, Old National Bancorp of Indiana repurchased its warrants for 1.2% of the value of its original Tarp investment. SCBT Financial Corp. of South Carolina paid about 2.2% of its investment. First Niagara Financial Group Inc. of New York paid an amount equal to 2.9% of its investment.

Private banks traditionally pay more for capital, said Linus Wilson, assistant professor of economics and finance at the University of Louisiana at Lafayette, who is studying warrant-pricing.

In negotiation with 11 publicly traded banks Wilson has studied, the Treasury has achieved only 79% of the low end of fair value for the warrants. That is roughly 2.7% of the total value of warrants, below the 5% private banks are paying.

"Conceivably," Wilson said, "if the Treasury were negotiating to actually receive fair value for the warrants, then public banks would also be paying close to 5% like the privates.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.