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Treasury to Sell Warrants as 3 Banks Exit Bailouts

In another sign that the government's emergency financial programs are being reeled in, the Treasury Department said Thursday it will auction off warrants for three banks that it acquired as part of last fall's bailouts.

Treasury will auction warrants for JPMorgan Chase, Capital OneFinancial and TCF Financial. over the next month. The three banks received bailouts totaling $28.9 billion, which they have since repaid.

Warrants are financial instruments that allow the holder to buy stuck in the future at a fixed price.

Treasury got the warrants as a deal-sweetener when it injected capital into the banks. They allow taxpayers to benefit from the upside of a financial recovery supported by billions of their dollars.

The price at which banks could buy back the warrants from Treasury became a contentious issue as banks started repaying their bailouts and exiting the government's care over the past year. Most banks wanted to repurchase the warrants so they could not dilute the value of their stockholders' shares in the future.

But Treasury and the banks had trouble agreeing on prices. The auctions were designed as a last resort in case Treasury and the banks could not agree on a purchase price.

The auctions for JPMorgan , Capital One and TCF are the first to be announced officially. They will take the form of a "modified Dutch auction"—meaning bidders will choose how many shares they want to buy and at what price.

The process is designed to get Treasury the maximum return based on the market's demand for the warrants. While risky for both sides, the auctions give Treasury political cover from criticism that its policies are too easy on big banks.

Deutsche Bank , a German bank that benefited only indirectly from the U.S. bailout programs, will run the auctions.

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