Banks, Treasury will haggle to set price of stock warrants

WASHINGTON -- The administration has established the process for determining the price for millions of stock warrants the government holds that represent the final ties many large banks have to the $700 billion bailout program.

The Treasury Department said Friday the banks have an initial 15-day period when they can make an offer for how much they are willing to pay for the warrants. Treasury will use various methods to determine whether to make a counteroffer.

If the government and a bank cannot agree on a fair price for the warrants, the two sides will have the right to use private appraisers.

Some of the nation's largest banks, including JPMorgan Chase and Morgan Stanley, have been eagerly awaiting Treasury's decision. They are among a group of 10 banks that repaid a total of $68 billion in bailout funds last week.

Taxpayers are expected to receive billions of dollars in exchange for the warrants, but negotiations on how to value them have taken longer than expected. That's partly because the value of the underlying bank stock has fluctuated during the financial crisis. Treasury has wanted more money for the warrants it holds than the banks have been willing to pay.

Under the Treasury guidelines, the banks will have 15 days from when they repaid their bailout funds to submit an offer for what they would be willing to pay to buy back the stock warrants.

Treasury will then have 10 days to respond. If Treasury objects to the bank's offer, it can make a counteroffer, using a range of pricing methods.

If the two sides cannot agree on a price, appraisers for each side will be appointed. If those appraisers remain apart, then a third appraiser will be brought in, according to Treasury's guidelines.