Financial Regulatory Forum

American Express pays $340 mln for U.S. bailout warrants

By Reuters Staff
August 5, 2009

By Jonathan Stempel
NEW YORK, July 29 (Reuters) – American Express Co paid the U.S. Treasury Department $340 million on Wednesday to redeem warrants to buy its stock, allowing it to fully escape the government’s bank bailout program.

The New York-based credit card and travel services company joins Goldman Sachs Group Inc, U.S. Bancorp, BB&T Corp and State Street Corp among large financial companies to buy back warrants issued under the $700 billion Troubled Asset Relief Program.

JPMorgan Chase & Co decided to let the government auction its warrants rather than pay a price it thought was inflated.

American Express last month bought back $3.39 billion of preferred shares it had issued the government. The warrants would have let the government buy 24.3 million shares.

Linus Wilson, an assistant finance professor at the University of Louisiana at Lafayette who has monitored warrant repurchases, said the $340 million repurchase price was in line with the $1.1 billion that Goldman paid to buy back its warrants, after repaying $10 billion of bailout money.

“It seems that Congressional pressure has significantly stiffened the negotiation stance of the U.S. Treasury,” Wilson said in an e-mail.

A Congressional oversight panel led by Harvard Law School professor Elizabeth Warren this month cautioned against the government letting companies buy back warrants too cheaply, potentially costing taxpayers billions of dollars.

American Express said the cost of buying back the government’s warrants, together with the $74.4 million of dividend payments it made on the preferred shares, gave the government an annualized 26 percent return on its investment.

“Private capital has replaced taxpayer investments at many banks, and the taxpayers have received a good return,” Treasury spokesman Andrew Williams said. The department had estimated a 23 percent annualized return on the Goldman investment.

Many companies initially welcomed the TARP infusions but later viewed them as a stigma. Some have also chafed at TARP restrictions, including on executive pay.

American Express said the cost to buy back its warrants in part reflects the company’s rising share price, which traded in the teens and low-20s in January.

The shares closed Wednesday up 7 cents at $27.75 on the New York Stock Exchange. American Express is part of the Dow Jones industrial average. (Reporting by Jonathan Stempel; Additional reporting by Glenn Somerville; Editing by Phil Berlowitz, Bernard Orr) ((jon.stempel@thomsonreuters.com +1 646 223 6317; Reuters Messaging: jon.stempel.reuters.com@reuters.net)) Keywords: AMERICANEXPRESS/TARPWARRANTS

Wednesday, 29 July 2009 17:49:52RTRS [nN29136752] {C}ENDS

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