Thursday, October 30, 2008

TARP And Dividend Growth

There are a large number of parameters that are a part of the Treasury's TARP (Troubled Asset Relief Program). One of the aspect of the plan financial investors will want to watch is the dividend increase stipulation. One of the TARP parameters requires institutions that accept TARP funds to obtain the Treasury's approval before any increase in a company's common stock dividend until the third anniversary of the date the treasury invests in the firm. Additionally, the treasury's approval is required before any share repurchases.

A few other TARP parameters:
  • The senior preferred shares will pay a cumulative dividend of 5% annually for the first 5 years and will reset to 9% per year after year 5. These shares will be non-voting.
  • The senior preferred shares are callable at par after 3 years.
  • Prior to the end of 3 years, the shares may be redeemed with the proceeds from a qualifying equity off erring of any tier 1 perpetual preferred or common stock.
  • The Treasury will receive warrants to purchase common stock at an aggregate market price equal to 15% of the senior preferred investment. The exercise price on the warrants will be the market price of the participating institutions common stock at the time of issuance (calculated on a 20-trading day trailing average).

Treasury Announces TARP Capital Purchase Program Description
U.S. Department of the Treasury
October 14, 2008

1 comment :

Anonymous said...

Thanks for those added insights. I'm surprised at the pref share increase to 9% - that's likely a pretty solid incentive for those involved to get their acts together over a 36 month period.