Credit Herald

WASHINGTON — The Treasury Department is selling its financial stakes in bailed-out banks for one-third less than they’re worth, potentially shorting taxpayers up to $2.7 billion, a bipartisan congressional watchdog said Friday.

The shortfall estimated by the Congressional Oversight Panel concerns warrants, financial instruments that allow Treasury to buy shares of the firms at a set price in 10 years. If the stock prices of the banks go up, as they are expected to do, taxpayers could reap a healthy profit.

Treasury obtained the warrants when it began injecting billions into the nation’s largest financial institutions in October. They were considered a "deal-sweetener" — a way to help taxpayers benefit from the upside of a financial recovery that depended on billions of federal dollars.

But some banks have started to repay the Treasury Department and been allowed to repurchase the warrants, as well.

Twenty-two smaller banks have repaid their bailout money, and 11 of those have repurchased their warrants unique business cards. If the warrants for those firms "had been sold for their true market values, taxpayers would have recovered $10 million more," according to a report Friday from the Congressional Oversight Panel, which was created by Congress to oversee the $700 billion bailout fund.

If warrants in the more than 600 banks participating in the bailout were sold at such a discount, that would mean taxpayers received $2.7 billion less than the panel estimates the warrants are worth.

The Treasury Department, however, said banks, including JPMorgan Chase & Co., think the department’s asking prices for the warrants are too high.

Unable to agree on a price, some institutions are letting the department sell the warrants in public auctions, the department said.

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