TARP

TARP Watchdog Finds Yet Another Bank Subsidy That "Warrants" Investigation

Moe Tkacik | May 22, 2009, 3:22PM

As we've explained here before, the government didn't just give all that TARP money away to those 579 banks for nothing: it got warrants to buy stock in the banks at certain prices over a ten-year time horizon. And as we informed you last month, no sooner did the banks start making noises about repaying the TARP money did they also begin referring to the cash they were forking over to buy back said warrants as a supposed "early repayment penalty" and angling for a discount on buying them back. JP Morgan CEO Jamie Dimon brought up the issue with Barack Obama himself, while a little bank in West Virginia called Centra sent its CEO and vice president on the media circuit blasting the "penalty" as usurous and "un-American."

But would the Treasury Department really cave to this spin by giving banks that repaid TARP funds early another subsidy? The answer appears to be "yes," at least on the basis of the deal it cut with Indiana's Old National Bancorp, which bought back an estimated $5.81 million worth of warrants last week for the bargain price of $1.2 million, terms a Bloomberg analysis estimates could shortchange taxpayers to the tune of $10 billion. A source tells TPM Neil Barofksy, the special inspector general assigned to oversee the TARP, plans to "soon" add a special audit into the warrant repurchases to the six separate audits of various eyebrow-raising aspects of the bailout already underway at his office. Only three banks have exited the TARP have bought back their warrants thus far -- with disturbing (though strangely mixed) results.

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