Corrects to replace "Treasury" with "company" in the third paragraph.
The U.S. Department of the Treasury announced Tuesday that it has launched a secondary public offering of about 88.40 million warrants to purchase the common stock of financial holding company JPMorgan Chase & Co. (JPM). The public offering price and the allocation of the warrants in this offering will be determined by an auction process.
These warrants expire on October 28, 2018. Each warrant initially represents the right to purchase one share of our common stock, and the number of shares deliverable upon the exercise of each warrant is subject to the adjustments.
In a filing with the U.S. Securities and Exchange Commission or SEC, JPMorgan noted that each of these warrants represent the right to purchase one share of its common stock at an exercise price of $42.42 per share, subject to adjustment from time to time. On December 7, 2009, the last reported sale price of JPMorgan common stock on the NYSE was $41.25 per share.
The exercise price for the offering cannot be paid in cash and is payable only by netting out a number of shares of JP Morgan common stock issuable upon exercise of the warrants equal to the value of the aggregate exercise price of the warrants. The company will have a total of 4.10 billion shares of common stock outstanding after this offering.
Under the auction process, a bid should me made for a minimum of 100 warrants at a minimum bid price of $8.00 per warrant, and in increments of $0.25 thereafter. The offering is expected to price through a modified Dutch auction methodology that establishes a market price by allowing investors to submit bids at specified increments above a minimum price specified for each auction.
The Treasury noted that the proceeds of this sale will provide an additional return to the American taxpayer from Treasury's investment in the company beyond the dividend payments it received on the related preferred stock. New York-based JPMorgan was bailed-out with $25.0 billion of federal funds under the TARP Capital Purchase Program in October 2008, which was paid back in June 2009.
Earlier on November 19, the Treasury announced its intention to dispose of several warrant positions received in consideration for investments made under the TARP Capital Purchase Program. The Treasury then said that it intends to conduct auctions to sell its warrant positions in JP Morgan Chase, Capital One Financial Corp. (COF), and TCF Financial Corp. (TCB) over the next month.
Each of these banks has fully repurchased Treasury's preferred stock investment. Treasury expects to conduct similar auctions in the future for other warrant positions it holds in banks that have repaid TARP investments. Under the terms of TARP, banks have the right to repurchase the 10-year warrants they gave the government, with the proceeds going to taxpayers as profits. A bank that declines to repurchase its warrants, for whatever reason, triggers an auction at which the government sells the warrants to private sector bidders.
Deutsche Bank Securities Inc. is the sole book-running manager and Ramirez & Co., Inc., The Williams Capital Group, L.P. and Utendahl Capital Group, LLC are the co-managers for the offering. Deutsche Bank Securities revealed that the auction will commence at 8 a.m. Eastern Time on December 10, 2009, and will close at 6.30 p.m. on that same day. The underwriting discounts and commissions are 1.5% of the public offering price per warrant.
Last week, the Treasury launched a secondary public offering of about 12.66 million warrants to purchase the common stock of financial service provider Capital One Financial, which reaped about $147 million. These warrants expire on November 14, 2018. Each of these warrants represent the right to purchase one share of our common stock at an exercise price of $42.13 per share.
More than 600 banks across the country have participated in TARP, representing $199 billion in investments, as part of an effort to stabilize the financial system. After repaying their TARP preferred stock, institutions also have the right to repurchase the warrants issued to Treasury for their appraised market value.
As of date, $73 billion of TARP investments have been repaid to the Treasury. On top of the repayments, Treasury has received $6.8 billion in dividend income and $2.9 billion in warrant related income. It anticipates another $50 billion in repayments over the next 12-18 months.
The TARP was an instrument set up last year to prop up the U.S. financial system after big bets on mortgage-related assets pushed many institutions toward collapse. Following the collapse of Lehman Brothers Holdings Inc. (LEHMQ.PK) and various events that rocked the financial sector last year, Goldman Sachs and the other surviving brokerage giant Morgan Stanley became bank holding companies in September, providing them with access to the federal government's $700 billion rescue plan.
JPM closed Tuesday's regular trading session at $41.21, down $0.04 or 0.10% on a volume of 41.88 million shares, higher than the three-month average volume of 35.83 million shares.
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