August 5, 2009 / 7:25 PM / 10 years ago

UPDATE 2-Bank of NY Mellon pays $136 mln for TARP warrants

* Warrants covered 14.5 mln shares

* Joins Goldman, US Bancorp, others to quit TARP

* Shares rise 3 percent (Adds professor estimate of warrants’ value, closing price)

By Jonathan Stempel

NEW YORK, Aug 5 (Reuters) - Bank of New York Mellon Corp (BK.N) on Wednesday said it paid the U.S. Treasury Department $136 million to redeem warrants to buy its stock, becoming the latest big lender to exit the federal bank bailout program.

The company joined Goldman Sachs Group Inc (GS.N), U.S. Bancorp (USB.N), American Express Co (AXP.N), BB&T Corp (BBT.N) and State Street Corp (STT.N) among large financial companies to buy back both preferred shares and warrants issued under the $700 billion Troubled Asset Relief Program.

JPMorgan Chase & Co (JPM.N) also bought back its preferred shares, but chose to let the government auction its warrants. Morgan Stanley (MS.N) and Capital One Financial Corp (COF.N) are among other banks that repurchased their preferred shares but not their warrants.

Bank of New York Mellon in June bought back $3 billion of preferred shares it had issued the government. The warrants would have let the government buy 14.5 million shares.

The repurchase price was below the $160 million that a congressional oversight panel led by Harvard Law School professor Elizabeth Warren had in July estimated the warrants were worth, with a range of $120 million to $240 million.

That panel cautioned against the government letting companies buy back warrants too cheaply, potentially costing taxpayers billions of dollars.

Linus Wilson, a finance professor at the University of Louisiana at Lafayette who has studied TARP warrants, estimated the warrants as of Tuesday were worth between $118 million and $241 million, with a best estimate of $204 million.

He said the differences from the panel’s estimate reflects subsequent changes in stock prices and interest rates.

Bank of New York Mellon said the cost of buying back its warrants, together with dividend payments made, gave the government a roughly $231 million return, or 12 percent annualized, on its investment. American Express provided a 26 percent return, and Goldman a 23 percent return.

Hundreds of companies are still holding TARP funds. Many initially welcomed the money but later viewed them as a stigma, including for restrictions on such things as executive pay.

Bank of New York Mellon shares closed up 87 cents at $29.40 on the New York Stock Exchange. (Reporting by Jonathan Stempel; Editing Bernard Orr)

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