John Olagues

How Treasury Favors Banks over Taxpayers in Warrant Negotiations

I would say that in all probability everyone of the banks that accepted TARP money needed and wanted the TARP funds. For example Goldman Sachs accepted $10 Billion when just weeks earlier they accepted $5 Billion from Warren Buffett where GS gave him 45 million warrants and 10% interest on the Warrants. That deal was far more onerous to GS than the TARP money.

The banks are probably borrowing from the FED at 1/2 % and paying off the TARP money which requires 5% and are trying to buy back the warrants for 50% of their value.

Perhaps executives like those at JPM who received $85 Million of SARs and Restricted stock in January 2009 which is now valued at $175 million should forfeit 50% of their gains back to JPM. JPM would be able to pay off the Treasury at its contractual value instead of begging for more subsidies from the Treasury.
John

How Treasury Favors Banks over Taxpayers in Warrant Negotiations

I believe that Linus is correct in general. But I believe he is too kind to those criminal bankers on welfare. My general observation is that their theft is far greater than he estimates.

Its really sad that the commentators (except "no money mo"...) are so ignorant of how options and warrants work and have the nerve to be critical of someone that is trying to shed some light on the subject.

I actually believe no one can be as stupid as the top six commentators and that leaves only one answer to why they spew such drivel. They are shills for criminals.

I am certain that none of the first six commentators have the ability to understand, analyze or value a warrant or a stock option.

john Olagues

Taxpayers Will Benefit from JPMorgan's Exit from TARP

In March and April , 2008 J.P. Morgan bought Bear Stearns with $55 Billion in Bail Outs to J.P. Morgan. The $55 Billion consisted of two loan facilities from the New York FED. One was a $25 Billion loan to Bear Stearns and another was a $30 Billion loan to JPMorgan. Both were collateralized solely by Bear Stearns assets of dubious quality. $29 Billion of the $30 Billion was a non recourse loan to JPM from the New York Federal Reserve Bank.

During the entire time, Jamie Dimon was on the Board of Directors of the NY FED and is still there today. He is of course the CEO of JPM.

His actions are subject to Title 18 section 208 USC which makes his decisions vis-a-vis the NY FEDs granting those bail out funds to JPM a felony. Just because he hasn't been charged with the crime doesn't lessen the fact that he did it.

Now we find that Dimon is negotiating with the FED and Treasury for a bargain on the warrant re-purchase, while he sits as Director of the NY FED, again a felony under Title 18 section 208.

Where is the FBI and why won't they enforce the law against Dimon.

On Jan 20, 2009 executives of JPM received enormous equity compensation far greater than the amounts alleged to be paid the executives at AIG or Merrill. The value of the equity to the top 15 at the day of grant was over $80 million, which now has a street value of over twice that much as of June 2, 2009.

Dimon himself "bought" over 4 million shares when the stock was in the neighborhood of 20 (now 36). He did not want to show it as an equity grant so the equity position shows as a "purchase". My speculation is that the "purchase" was with a low interest, non-recourse loan from JPM, which essentially is a grant of options.

Can't everyone see that these are merely hogs feeding at the trough, unrestricted by "law enforcement".

John Olagues

Treasury Accepts Lowball Price for TARP Warrants

Linus;

As you know, the "fair value" of those warrants can be calculated quite precisely using theoretical pricing models.

Given the extreme recent historical and implied volatilities of the banks, the warrants "fair value" are very high. I am certain that the Treasury, under criminals like Geithner will not receive anything near "fair value". If the Treasury wants to sell their warrants to third parties, I am certain that the third parties will get great buys as they can immediately sell listed calls and short stock and hedge away most of the risk and pocket high theoretical advantages.

But I am confidant that the third party buyers will be friends of Geithner and Dimon and Paulson and Bernanke and other errand boys.

Please ignore the "comments" of the banking shills who seems to immediately rise when their darlings are spotlighted.

John Olagues

Goldman Sachs' TARP Went to Buffett

Comment to Linus Wilson:
Below is a sentence from the GS 10K referring to a reduction of the warrants by half if GS raises $10 Billion.

" If, on or prior to December 31, 2009, the firm receives aggregate gross cash proceeds of at least $10 billion from sales of Tier 1 qualifying perpetual preferred stock or common stock, the number of shares of common stock issuable upon exercise of the warrant will be reduced by one-half of the original number of shares of common stock."

My estimate was that Goldman would raise the $10 Billion prior to Dec 31, 2009. So I assigned a 69% probability to the event thereby arriving at the expected number of warrants to be 8 million, rather than 12.1. But the value each of the 8 million expected warrants are higher now with the stock much higher (98 to 123). However, Buffet's warrants are less valuable now that he has lost some time value to erosion and the stock is a bit lower that when he received the warrants.

If Goldman Repays, Where Does That Leave Regulatory Reform?

Where can I find the exact specifics of the deal between the Treasury and Goldman on the $10 Billion in exchange for warrants and 5% preferred. By exact specifics I mean the price of the GS stock when the deals began, the terms at which Goldman may terminate prematurely etc. I want to compare it with the deal that Buffet got with his $5 billion.

John Olagues

Banker CEOs Lied to Congress

I am not a journalist. I was an options market maker on the CBOE and on what was once the Pacific Stock Exchange in San Francisco for 5 years each.

I personally traded and maintained some of the largest positions of anyone who worked on those exchanges.

Employee stock options and other forms of equity compensation are not too different from exchange traded stock and options, although there are certainly some differences.

In 2006 The SEC and FASB required that companies account for their options and other hybrid forms of equity compensation in a manner that they felt appropriate. My calculations are consistent with their suggested methods.

The values that I outlined are certainly higher than their values now because the stocks are much lower.

However, those executives surely understood the true financial status of their companies far better than you or I and probably made short sales, sold calls and bought puts on a basket of stocks highly correlated with their own companies. Perhaps they even "parked" short sales in their own companies in the accounts of colleges and still maintain those short sales.

Knowing what I know, I would say its highly probable that they did make such short sales to hedge their grants. But they did it in a manner disguised from the public.

So the father those options are out of the money the better, from the view of those who hedged their grants.

Good luck

John Olagues