TARP CPP Redemptions Begin

March 31, 2009

Authored by: Robert Klingler

On March 31, 2009, five banks announced that they had completed redemptions of their TARP preferred stock.

In their respective press releases, four institutions emphasized in one form or another their financial strength following the redemption.  Two institutions emphasized the changing operating restrictions of participation that caused them to decided to repurchase the preferred shares.

Under the terms of the TARP CPP Repurchase Agreements, the Securities Purchase Agreement, the preferred stock and the warrant, each institution redeemed the preferred stock at its liquidation value plus the amount of dividends that had acrrued since February 15, 2009 (the last dividend payment date).  Each likely also had to accelerate recognition of the discount at which the preferred stock was issued due to the accompanying warrant.  Each company now has a right, for 15 days, to repurchase the warrant held by the Treasury, or the Treasury will liquidate the warrant in the open market.

Under the terms of the Securities Purchase Agreement, the warrant may be redeemed at its “Fair Market Value” as determined by the institution’s board of directors based upon an opinion of a nationally recognized investment banking firm.  Each of the institutions’ warrants are currently out of the money but the “Fair Market Value” of the warrants should still be positive based on an option pricing model such as the Black Scholes Model, as the warrant would still have a significant period of time in which it can be exercised.

  • Signature Bank – $30.21 exercise price; $28.23 closing price on 3/31
  • Old National Bancorp – $18.45 exercise price; $11.17 closing price on 3/31
  • IBERIABANK Corporation – $48.74 exercise price;$45.94 closing price on 3/31
  • Bank of Marin Bancorp – $27.23 exercise price; $21.51 closing price on 3/31