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[bob ford <bobford79 AT yahoo.com>]

I guess this is the kind of finacial wisom that comes wiyth Ivy League 
degrees.  Once again from our 'best and brightest' 

These are the guys who backed our president -elect's campaugn and are already 
calling collection on their payment......................

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AP IMPACT: Some bailout holdings down $9 billion
 
Stock intended to eventually earn taxpayers a profit as part of the Bush 
administration's massive bank bailout has lost a third of its value — about 
$9 billion — in barely one month, according to an Associated Press analysis. 
Shares in virtually every bank that received federal money have remained 
below the prices the government negotiated.

Most of the Treasury Department's investments since late October have been in 
preferred bank stocks, more than $180 billion worth, with investments in 
giants like Citigroup and JPMorgan Chase, and many small community banks. But 
the government also negotiated options to buy up to 1.2 billion shares of 
common bank stock that was valued at $27 billion.

The Treasury Department said it did not expect these common stock options to 
be profitable immediately and negotiated them so taxpayers could share in the 
wealth if the bank stocks recover.

Now, however, the value of that common stock is worth less than $18 billion. 
If the government exercised all its warrants to purchase the stock today, it 
would lose money on 51 of its 53 agreements. Taxpayers would be out $9.1 
billion.

The government can exercise its options to buy the common stock anytime over 
the next decade, but the options were "immediately exercisable," according to 
banks' securities filings.

"The markets are saying this plan isn't going to work for the banks," said 
Ross Levine, Tisch professor of economics at Brown University. "They're 
asking where this plan is going."

Potential losses among these common stocks include more than $3 billion for 
the administration's biggest deal, a $45 billion injection into Citigroup 
Inc. The government gave the New York-based giant $25 billion on Oct. 28. In 
addition to preferred stock worth $1,000 per share, the deal included 
warrants to pick up 210 million shares of common stock at $17.85. In late 
November, the White House put together a plan to give Citibank another $20 
billion. The deal also included warrants to pick up 254 million shares, with 
the price set at $10.61.

Citigroup stock has since fallen below $8.

The government would only earn a profit if the share price eventually exceeds 
the negotiated warrant price. Under the bailout plan, the common stock 
warrants — effectively treated as stock options for non-employees — would 
allow taxpayers to share the wealth as banks recover.

"We're not exercising the warrants today," Treasury spokeswoman Brookly 
McLaughlin said. "We have 10 years to exercise the warrants, so it's more 
accurate to look at what the market believes are the 10-year prospects for 
these banks."

The Treasury Department projects that the $180 billion in preferred stock 
will generate roughly $9 billion per year during the first five years and 
$16.2 billion per year afterward, assuming the banks remain solvent.

The preferred stock has a fixed value of $1,000 per share, and a 5 percent 
annual dividend for the first five years of the investment.

Treasury Secretary Henry M. Paulson Jr. describes the cash infusion as "an 
investment, not an expenditure."

So far, however, only two of the 53 banks can be considered a good investment.

The AP's analysis found that only HF Financial Corp. of Sioux Falls, S.D., 
and First Niagara Financial Group of Lockport, N.Y., would make money for 
taxpayers if the common stock options were exercised today. According to 
records filed with the Securities and Exchange Commission, both are small 
banks, far removed from the wheeling and dealing of federally insured giants 
that ravaged the global economy by making bad bets on subprime mortgages.

The South Dakota bank, for example, has a market value of $54 million, a 
fraction of the size of JPMorgan Chase, the nation's largest. The Treasury 
Department gave $25 million to HF Financial on Nov. 21 in exchange for 25,000 
shares of preferred stock and warrants that allow taxpayers to buy 302,000 
shares at $12.40 within the next decade. For now, it's a good deal; the 
bank's stock is trading around $13. If the government exercised its option to 
buy HF stock today, taxpayers would collect $63,500.

More companies would be in the black, but the government used a 20-day stock 
price average to set the warrant price, meaning it willingly negotiated to 
pay roughly 25 percent more than the stock was worth on the day it signed the 
deals on behalf of taxpayers.

Nara Bancorp, created in 1989 to serve Southern California's growing 
Korean-American community, borrowed $67 million from taxpayers on Nov. 21, 
when its stock was trading at $7.50 per share. But the government negotiated 
the option to buy 1 million shares of Nara common stock at $9.64, higher than 
its stock is currently trading. 

"It's a complete mistake to think this is a good investment for us," said 
Paola Sapienza, a finance associate professor at Northwestern University's 
Kellogg School of Management, who spearheaded a September protest of the 
bailout by more than 200 of the nation's leading economists. "It's a gamble. 
It's like going to Las Vegas." 




http://news.yahoo.com/s/ap/20081205/ap_on_bi_ge/bailout_returns