Northern Trust buys back warrants to exit TARP

Northern Trust buys back warrants for $87 million to exit TARP

• On 6:17 pm EDT, Wednesday August 26, 2009

CHICAGO (AP) -- Northern Trust Corp. said Wednesday it paid $87 million to repurchase a stock warrant issued to the federal government last fall, completing the final step to exit the Treasury Department's bank rescue program.

Northern Trust's repurchase of the Treasury's warrant to buy about 3.8 million shares of the bank's common stock came more than two months after Northern Trust repaid the $1.58 billion it received under the Troubled Asset Relief Program.

The government launched the $700 billion program to help revive stagnant credit and lending markets during last fall's financial crisis. The government provided banks with capital in exchange for preferred stock and warrants to purchase common shares of the banks at a set price in 10 years.

With the repurchase of the warrants, Northern Trust said it has paid the Treasury a total of nearly $1.71 billion under TARP. That amount includes the repurchase of preferred stock issued to the government, along with the warrants and dividends paid on the preferred stock.

The Chicago-based custody bank said the total payments represent a 14 percent annualized return on investment to the Treasury and taxpayers.

"Although Northern Trust consistently has been a healthy bank, we participated in the Capital Purchase Program to support an important element of the government's effort to stabilize the nation's financial system at a critical time," said Frederick Waddell, president and chief executive of Northern Trust, whose services include investment management and asset and fund administration for corporations, institutions and affluent individuals. "We are grateful for the role taxpayers have played in the response to last year's crisis and are gratified that our participation has provided an attractive return on taxpayers' investment."

Linus Wilson, a professor at the University of Louisiana at Lafayette who independently evaluated the prices Northern Trust and other banks have paid to buy back the warrants through TARP, called Northern Trust's repurchase "a good deal for U.S. taxpayers."

Using pricing models, Wilson estimated the $87 million that Northern Trust paid was 99 percent of the fair market value.

"It appears since late July that there has been a shift in the negotiating stance of the U.S. Treasury to push for better prices for the taxpayers' investments," Wilson said. "The bargain basement deals that characterized the early warrant negotiations are hopefully a thing of the past."

The Obama administration in June established a process to price the warrants, with banks making the first price offer. The Treasury Department then decides whether to sell at that price or make a counteroffer. If the government and a bank can't agree on a fair price, the two have the right to use private appraisers.

Shares of Northern Trust fell 25 cents to close at $59.86.

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