Treasury Chasing JP Morgan for Warrant Price to Compensate Taxpayers.

    Another major beneficiary of our Federal Taxpayer Money is in the news for low-ball offers to repurchase their warrants.   After Goldman Sachs reported high-end profits so far this year, so reportedly did JP Morgan Chase.  Both entities reportedly fattened up on profits through Federal Government largesse.  See Graham Bowley, "2 Giants Emerge From the Ruins of Wall Street" p. A1, col. 6 (New York Times Nat'l ed., Friday, July 17, 2009).

    Among the gratuities received by JP Morgan (and by Goldman Sachs, as previously posted here), was an infusion of Federal Taxpayer Money based in part on collateral in the form of warrants on stock.  A "warrant" is defined by Wikipedia this way: 

In finance, a warrant is a security that entitles the holder to buy stock of the company that issued it at a specified price, which is usually higher than the stock price at time of issue.

JP Morgan's Jamie Dimond is calling the Treasury's bluff.  If Treasury will not pay the low offer of JP Morgan, then he urges the Treasury Department to put up the warrants at auction, betting (a way of life, apparently) that the auction price would be much lower and thus make JP Morgan's low offer more attractive.  Parenthetically, a later-published news story has it that the current Treasury Secretary says that "the auction would protect the Treasury from any criticism that it had cut a backroom deal."  Jackie Calmes and Louise Story, "In Washington, One Bank Chief Still Holds Sway" p. 1, col. 1 (New York
Times Nat'l ed., Sunday, July 19, 2009).

    Here is an alternative.  I offer it free of charge to Mr. Geithner and to the Treasury Department.

    Negotiate.  Even supposing that JP Morgan's warrants are likely to command low offers at auction, they nonetheless have a value to JP Morgan's competitors.  While few of those competitors are left following the destruction of both Lehman Brothers and Bear Stearns, others are doing quite well such as Goldman Sachs and to a lesser extent but only when compared to the likes of the Goldman Sachs, Morgan Stanley.  Offer them or both of them the JP Morgan warrants at a price starting at 150%, say, of what JP Morgan is willing to offer.  Start from there and negotiate a higher price with JP Morgan's competitors than it is willing to pay.  Soon JP Morgan will pay more than their offer to date, that is a certain outcome and one that benefits Federal Taxpayers who were put on the hook for the financial successes of these entities while the Taxpayers themselves were losing their jobs and their paychecks.

Please Read The Disclaimer.