WASHINGTON Banks that received and returned government bailout funds have been chafing against the prices they have to pay to fully extricate themselves from government influence, and there were signs Wednesday their struggle could get worse.
Elizabeth Warren, the chairman of the panel charged with overseeing the administration of the Troubled Asset Relief Program, told a House subcommittee that the Treasury Department needed to try to fetch higher prices for the bank stock purchase warrants it holds.
Doing so would be good for taxpayers, but bad for the banks trying to buy back their warrants after repaying Tarp money, which already have complained Treasury's valuation is too high.
"If the warrants" purchased from banks so far "had been sold for the Panel's estimation of market value, taxpayers would have received $10 million more," Warren told the House Financial Services oversight and investigations subcommittee.
Warren acknowledged that Treasury appeared to be getting more aggressive in its pricing of warrants.
Her comments came as Goldman Sachs announced Wednesday that it would agree to pay the Treasury Department's full proposed price of $1.1 billion to repurchase its warrants. That figure matches the Congressional Oversight Panel's best estimate for Goldman's warrants. Warren's panel engaged independent economists to come up with low, high and best estimates for each bank's warrants.
A week ago, U.S. Bancorp agreed to pay $139 million for its warrants, a price Warren noted in her testimony was also higher than her panel's best estimate. The trend "would be good news for taxpayers if it is indicative of how future warrant negotiations with large institutions will play out," Warren told the subcommittee.
Not all banks have been able to reach agreements on warrant prices with the Treasury, however. JPMorgan Chase declined to accept the Treasury's price proposal and, when the bank's own offer was rejected, decided to let the Treasury auction off its warrants on the open market, a practice Warren condoned.
"This has the benefit of stopping any speculation about whether Treasury has been too tough or too easy on the banks that want to repurchase their own warrants," she said in her testimony.
But in a statement at the beginning of the hearing, Rep. Spencer Bachus, R-Ala., warned that forcing banks to pay too much for their warrants could be damaging. "It doesn't help the banks with their capital," he said.
But other lawmakers insisted that Treasury should try to maximize the prices it will receive for selling the warrants to banks.
"Taxpayers must be assured that Treasury is using the best means to recapture taxpayers money," said Rep. Judy Biggert, R-Ill.
Herb Allison, the Assistant Treasury Secretary for Financial Stability, told lawmakers that smaller banks would receive a lower price estimate for their warrants, because there was generally less of a liquid market for their sale to investors.
Other witnesses at the hearing complained that the Treasury hadn't revealed enough details of how it was determining the values of the warrants. Treasury "has yet to provide the level of transparency at the transaction level that would address questions about whether the department is getting the best price for taxpayers," said Tom McCool, the director of the Center for Economics at the General Accountability Office.
But Allison said it was the wrong time to reveal details of the Treasury's pricing methods, since the agency is negotiating the purchases with "several large banks."
