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TriPoint Capital Advisors, LLC

PNC's Bailout Warrants May Be Worth $253.3 Million

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By: Peter Eichenbaum | February 07, 2010

PNC Financial Services Group Inc. warrants held by the U.S. bailout program may raise $253.3 million for taxpayers if the government auctions the securities, according to Pluris Valuation Advisors LLC. The Treasury Department could get about $15 for each of 16.9 million warrants, which convey a long-term option to buy an equal number of common shares at $67.63 a piece until Dec. 31, 2018, said Espen Robak, president of New York-based Pluris. Shares of Pittsburgh-based PNC traded at $50.75 as of 4:15 p.m. in New York Stock Exchange composite trading.

Treasury officials are counting on warrant sales to help make up for losses incurred by the Troubled Asset Relief Program. Auctions of warrants from lenders including JPMorgan Chase & Co. generated less than some Wall Street estimates because the securities are thinly traded and concerns remain about the banking system’s health, said Robak, whose firm specializes in pricing assets that aren’t actively traded. “There’s quite a bit of illiquidity discount in the numbers, and there’s still an awful lot of risk in terms of bank stocks,” Robak said.

The U.S. demanded preferred stock and warrants to compensate taxpayers for rescuing the banks during the depths of the financial crisis. President Barack Obama has vowed to recover “every single dime” of public money used to bail out banks. Lenders have bought back $121.9 billion in preferred stock from the TARP’s Capital Purchase Program, with almost $83 billion still outstanding, according to a Feb. 5 transaction report. The agency has collected about $4.03 billion from the sale of warrants in about 35 banks.

Nomura Estimates

Bernard Chriqui, a trader at Nomura Securities International Inc., estimated PNC’s warrants may sell for $10.50 to $13.50 each. That would generate $177.3 million to $228 million, making the sale one of the 10 most-lucrative under the TARP, based on figures in the Feb. 5 report.

The biggest return came from Goldman Sachs Group Inc., which paid $1.1 billion to buy back warrants in July.

PNC said Feb. 2 that it reached a deal with the U.S. to repurchase $7.58 billion in preferred stock later this month. Lenders have 15 days after repaying bailout funds to make an offer for the warrants, triggering an appraisal process and negotiations. If both sides fail to agree on a price, the Treasury may auction the securities, which the agency has done with warrants from New York-based JPMorgan, Capital One Financial Corp., based in McLean, Virginia, and Wayzata- Minnesota-based TCF Financial Corp.

“PNC hasn’t made an announcement on its intentions with regard to the warrants,” bank spokesman Fred Solomon said today in a telephone interview. Treasury spokesman Andrew Williams didn’t respond to an e-mail.