Treasury wants to become a call buyer...

Discussion in 'Wall St. News' started by scriabinop23, Mar 1, 2009.


    Last updated: 3:50 am
    March 1, 2009
    Posted: 3:00 am
    March 1, 2009

    The US Treasury Department is ready to accept warrants instead of common shares in exchange for billions of dollars in financial aid is order to keep Uncle Sam out of the board room - and thus keep banks from being nationalized, sources said.

    The move to accept warrants - the right to purchase shares in the future at a pre-determined price - will play out next week as Treasury gets results from the first round of its crucial stress tests.

    In addition to keeping banks from being nationalized, the move to accept warrants in exchange for the much-needed federal cash, the recently devised strategy will boost banks' tangible common equity ratios, which appears to the financial standard Treasury will use instead of Tier-1 capital.

    Banks that survive the first round but cannot remain viable during the more strenuous dire depressionary landscape will receive capital through preferred shares to be converted to common shares should the bank need to boost its Tier 1 capital ratio, according to sources inside Treasury.