Lenon’s main business news

WASHINGTON — Thousands of first-time home buyers will be able to get short-term loans so they can quickly make use of a new $8,000 tax credit to pay for some of the costs of buying a home.

The Federal Housing Administration on Friday released details of a plan in which borrowers who use FHA loans can get advances from lenders that let them in effect receive the credit in advance, so they don’t have to wait to get the money from the Internal Revenue Service.

Most borrowers still will have to come up with the FHA’s required 3.5 percent down payment, unless they work through a state or local housing agency or an approved nonprofit. Ten states have such programs in place, according to the National Council of State Housing Agencies.

The tax credit was included in the economic stimulus package signed by President Barack Obama in February payday loan. It is not available to individuals with incomes above $95,000 or couples with incomes above $170,000 and expires Nov. 30.

Real estate agents and home builders generally welcomed the change.

Jerry Howard, chief executive of the National Association of Home Builders, called it a "great step in the right direction."

Still, some real estate agents were concerned that many buyers won’t benefit at all if they can’t use it for a down payment — a big hurdle for many first-time buyers.

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Colombia’s central bank will probably cut its benchmark interest rate to a record today in an effort to ward off an extended recession as inflation eases.

Policy makers, led by central bank chief Jose Dario Uribe, will reduce the interbank rate by a full point to 5 percent, according to 17 of 25 economists surveyed by Bloomberg. The other analysts forecast cuts of 0.5 point to 0.75 point.

Latin America’s fifth-biggest economy probably contracted for a second straight quarter in the first three months of 2009 after shrinking in the fourth quarter of 2008, the first drop since 1999. The slump will damp spending, helping slow annual inflation to within the bank’s target, and allow the central bank to continue its longest rate-cutting cycle in more than six years, Uribe has said.

“Internal demand continues to show extraordinary weakness, and that highlights that risk remains on the downside,” said David Duarte, a Latin America analyst at 4Cast Inc. in New York, who expects the lending rate to be 4 percent by year-end. “Inflation will continue to decline and allow aggressive rate cuts.”

Policy makers this year have said the economy is weakening faster than they anticipated. Still, Uribe has cautioned against keeping rates low for too long, saying that by encouraging borrowing they run the risk of fueling inflation. The board targets inflation this year of 4.5 percent to 5.5 percent. The bank has missed its annual target two years in a row.

Colombia’s consumer prices rose 0.32 percent in April from the previous month and the annual inflation rate fell to 5.73 percent from 6.14 percent in March. Inflation ended 2008 at 7.7 percent, the highest year-end rate since 2000.

Inflation Risk

“If the economy improves strongly in the last quarter, low interest rates for too long would be inflationary,” said Jaime Rodriguez at Bogota-based brokerage Asesores en Valores, who expects the board to cut the rate to 5 no fax payday loans.25 percent today.

At 5 percent, the rate would be the lowest since 1998 when the bank began targeting inflation principally through its overnight lending rate.

Surging consumer demand in Colombia since President Alvaro Uribe took office in 2002, pledging to make the nation safe from drug-funded violence, helped drive the economy in 2007 to 7.5 percent growth, its fastest expansion in three decades.

That pace slowed to 2.5 percent last year as the central bank’s 16 interest rate increases in 28 months and the global economic slump choked bank lending and sapped consumer confidence.

Colombian retail sales have fallen for seven straight months through March while industrial production declined for seven months through February. Manufacturing rose 0.4 percent in March from a year earlier when factories were closed for the Easter holiday.

‘Expansionist’ Policy

Finance Minister Oscar Ivan Zuluaga on May 21 said there is still room to cut rates as part of the bank’s “expansionist monetary policy” to bolster economic growth. The government expects the economy to grow 0.5 percent to 1.5 percent in 2009, while the central bank sees growth at slightly above zero.

“The situation is getting better,” Rodriguez said. “We should see improvements in the housing market, which is picking up again, and in the export sector.”

The bank may also acknowledge that the international economic outlook is improving, said Alberto Bernal, head of emerging markets research at Bulltick Securities Corp.

“Credit dynamics appear to be becoming less bearish internationally,” said Bernal, who expects the bank to hold rates when they reach 4.5 percent. “Higher commodity prices will also at some point translate into better growth dynamics.”

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Another 171 Chrysler workers in Fenton have accepted voluntary severance or retirement incentives, a local union official said Wednesday. This brings the total number of local workers opting to leave Chrysler to more than 800.

The bankrupt automaker closed the sign-up window Tuesday, nearly four months after it first announced the offers. The packages depended on years of service and age, and there were several separation and retirement categories. Workers who accepted the offers left the company by Wednesday.

On Wednesday, Joe Shields, president of United Auto Workers Local 110, had a final tally of his workers, which wasn’t available Tuesday evening: 171 of his members accepted one of the offers. Local 110 represents workers who had built minivans at the idled Fenton plant. About 300 members were eligible, Shields said.

As previously reported, about 640 pickup plant workers retired or left the company under the offers. UAW Local 136, which represents the Dodge Ram workers, had about 1,250 eligible members as of March multiple car insurance quotes.

Chrysler announced this round of incentives in February.

The offers include a severance package of $75,000 and a $25,000 new-vehicle voucher for the least senior worker, to a retirement deal composed of a $50,000 payment and a $25,000 new-vehicle voucher for a worker qualified for retirement.

Under the previous round of offers made in November, more than 1,800 Fenton workers decided to leave voluntarily or retire. That offer was extended just weeks after Chrysler ended production at the minivan plant.

In recent weeks, UAW members have faced several more changes. On April 29, the UAW approved labor and health care concessions. Then, the next day, Chrysler filed for bankruptcy reorganization. It slated the Fenton minivan and pickup plants, along with six other locations, for closure.

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The end of the recession is in sight, according to a new survey of leading economists.

While the economy is showing signs of stabilizing, the recovery will be more moderate than is typical following a severe downturn, said the National Association for Business Economics Outlook in a report released Wednesday.

The panel of 45 economists said it expects economic growth will rebound in the second half of 2009. However, the group still expects to see a decline in second-quarter economic activity.

"The good news is that the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010," said NABE president Chris Varvares in a written statement.

Almost three out of four survey respondents expect the recession will end by the third quarter of 2009, the report said.

But 19% predicted that a turnaround won’t come until the fourth quarter, and 7% said it may not come until early 2010. None of the panelists expected the recession to continue past the first quarter of next year.

GDP: The report predicted a 1.8% decline in real GDP in the second quarter of 2009, bringing the total year-to-date decrease to 3.7%. That’s the biggest drop since 1957-1958, the report said.

Still, "a modest second-half rebound in real GDP is expected," the report said, with economic growth turning positive in the third quarter. Real GDP growth over the second half of 2009 is expected to average 1.2%, which is well below average, the report said.

"Growth in 2010 is slated for a return to near its historical trend," the report said, predicting a 2.7% year-over-year increase. The NABE’s February outlook had predicted a 3.1% uptick.

Jobs: The panel forecast a total of 4.5 million jobs lost in 2009, pushing the unemployment rate to 9.8%. Modest gains in 2010 will reduce the rate to 9.3% by year’s end, the report predicted.

Separate reports this month showed the unemployment rate is currently down in 21 states and stands at 8 no credit check payday loans.9% nationally.

Deficit: Government spending "will provide vital support to the economy," and will be the only expenditure sector to grow in 2009, the report said.

But that spending will help push the federal deficit to a record-high $1.7 trillion in the 2009 fiscal year, before falling slightly to $1.4 trillion in fiscal 2010.

Housing: New and existing home sales are close to their lows, with 72% of NABE panelists expecting sales to hit bottom by the middle of 2009. More than 60% of those surveyed said housing starts would also bottom out at the same time.

The panelists were split on the issue of when home prices will hit their lows: 30% said it would happen by the third quarter of 2009; 30% said the fourth quarter; and 40% said declines will continue into 2010 or later. The median prediction is that home prices will rise 1% in 2010, the report said.

Spending: Widespread job losses and weak income growth have reduced consumer spending and boosted the personal savings rate, the report said. The savings rate has seen two consecutive quarters of sharp increases, holding above 4% through March. More than 70% of the panelists expect "more thrifty behavior is here to stay, at least for the next five years," the report said.

Credit: Obtaining long-term and short-term financing is still difficult, which poses a risk to the economy, but 90% of respondents said actions from the Federal Reserve have helped to ease the credit crunch.

Five-year outlook: More than half of the NABE economists said they expected potential growth of the U.S. economy over the next five years to be between 2% and 2.5%; 37% of respondents forecast growth between 2.5% and 3%, while 7% of the panelists said growth will be higher than 3%. 

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The U.K.’s millionaire club has shriveled by half because of the slump in property prices, falling stock prices and smaller bonuses, the Centre for Economics and Business Research said.

There are currently 242,000 people living in Britain with assets of at least 1 million pounds ($1.6 million), compared with 489,000 estimated in the CEBR’s previous report in 2007, the research group said today in London.

The financial crisis cost British households 1.9 trillion pounds of their wealth since July 2007, according to a report in March by PricewaterhouseCoopers LLP. With the property market extending its slump and the economy mired in a recession forecast by the government to be the worst since World War II, the number of millionaires may keep falling this year.

The drop “reflects the collapse in the property market, the fall in the values of shares and the 70 percent drop in City bonuses,” Douglas McWilliams, chief executive of the CEBR, said in a statement. “With property prices near to bottoming out, we would expect the number of millionaires to start to rise again in 2011.”

Other analysts are more pessimistic. Savills Plc said May 1 that the property market may not recover until 2012, a year later than projected previously, as unemployment rises and the crisis deters buyers same day cash loans. Jones Lang LaSalle Inc. said today that U.K. house prices may fall as much as 14 percent this year.

Wealth Drop

Britain’s millionaires, who more than doubled in number between 2003 and 2007 as property prices soared, have seen their wealth drop by almost a quarter in the past year, the CEBR said.

“It looks as though the experience for millionaires is relatively similar to that chronicled by the Sunday Times for their rich list, which showed a fall in the number of U.K. billionaires this year from 75 in 2008 to 43 this year,” the CEBR said.

The newspaper showed a 38 percent drop in the wealth of those on the list of the nation’s richest individuals, larger than the 24 percent decline estimated for the average U.K. millionaire in today’s report, the CEBR said.

The wealth squeeze has also hurt luxury goods sales. The CEBR cited reports saying that sales of Bentley Motors Ltd. cars fell by two-thirds so far this year, while Bayerische Motoren Werke AG car sales are down 35 percent.

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Dubai, home to the man-made Palm Jumeirah and World island developments, suffered the biggest reversal among global housing markets following the collapse of an investment bubble, Knight Frank LLP said.

House prices in Dubai, the second-largest of the seven sheikhdoms that make up the United Arab Emirates, fell 32 percent in the 12 months ended March 31, according to a report by the London-based property broker published today. A year earlier, homes appreciated at an annual rate of 48 percent.

Dubai “is in a mess,” said Nick Barnes, head of international residential research at Knight Frank. “A lot will depend on developers and how long they can hold on before getting into fire-sale territory.”

The sheikhdom was hurt more by the global financial crisis than other property markets because of the construction boom that created thousands of new homes just as demand began to evaporate. Within a year, Dubai went from being the fastest rising of 46 markets monitored in the Knight Frank global house- price index to the second-biggest decliner after Latvia.

Deyaar Development PJSC, the Dubai-based company that put a quarter of its projects there on hold, will announce a 500 million-dirham ($136 million) property fund to buy distressed assets within three weeks, Chief Executive Officer Markus Giebel said in an interview on May 14 payday loan.

In the first quarter of 2009, house prices in Latvia dropped 36 percent, while Singapore was the third-worst performing market with a slide of almost 24 percent. They were followed by the U.S. and the U.K., where prices declined about 17 percent.

The biggest increase in property values tracked by Knight Frank was for Israel, where homes appreciated by almost 11 percent. The Czech Republic and Jersey came second and third respectively, the broker said.

“In Israel, demand still outweighs supply,” said Werner Loval, founder of Anglo-Saxon Real Estate, an Israel-based property broker. Israel’s largely Jewish foreign buyers are motivated “more by sentiment” than by speculation, he said.

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South Africa’s economy has entered its first recession in 17 years after a slump in export demand forced manufacturers and miners to slash output, figures out tomorrow may show.

Gross domestic product dropped an annualized 3.9 percent in the first quarter, after declining 1.8 percent in the previous three months, according to the median estimate of 22 economists surveyed by Bloomberg. The statistics office will publish the data at 11:30 a.m. in Pretoria.

Anglo Platinum Ltd., Lonmin Plc and other miners are firing thousands of workers, while manufacturers such as ArcelorMittal South Africa Ltd., Africa’s biggest steelmaker, have scaled back output as the worst global recession since World War II curbs demand. That may prompt the Reserve Bank to cut its key interest rate by half a point to 8 percent on May 28, the fifth reduction since December, according to 13 out of 22 economists surveyed by Bloomberg. The rest expect a 1 percentage point rate cut.

“The GDP number is going to be a dismal one,” said Johan Rossouw, chief economist of Vunani Securities in Cape Town. “Manufacturing contracted big time in the first quarter. We are probably going to see negative to neutral numbers for the second and third quarters.”

Manufacturing, which accounts for 16 percent of the economy, plunged 11.7 percent in March from a year ago, the statistics office said on May 12.

Rate Cuts

The central bank, which has lowered its key lending rate by 1 percentage point at each of its past three meetings, may reduce the magnitude of rate cuts as inflation stays above 8 percent. That is higher than the central bank’s 3 percent to 6 percent target freecreditscore.

“As we get to the bottom of the interest rate cycle, the Reserve Bank has to begin fine-tuning,” Rossouw said. “We expect inflation to remain sticky, with the biggest culprit being services inflation. Oil prices have also shot up again.”

The statistics office will probably say on May 27 that consumer prices rose 8.3 percent in April from a year ago, down from 8.5 percent in March, according to the median estimate of 22 economists surveyed by Bloomberg. Producer-price inflation probably slowed to an annual 3.7 percent from 5.3 percent over the same period, according to the survey.

Consumers have cut back on borrowing, easing pressure on inflation. Credit demand from consumers and businesses probably rose 8.4 percent in April from a year ago, little changed from 8.5 percent in March and down from a high of 19.6 percent in same month last year, according to economists surveyed by Bloomberg.

Trade Gap

The South African Revenue Services will publish trade data on May 29 that may show a widening in the deficit to 3.4 billion rand ($408 million) in April from 0.5 billion rand in the previous month, another survey showed.

Last week, the benchmark FTSE/JSE Africa All Share Index climbed 3.3 percent, with Lonmin Plc gaining 12 percent, the biggest increase of the top 40 listed stocks. Anglo American Plc, owner of the world’s biggest platinum company, added 11 percent.

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AIG Chief Executive Edward Liddy announced Thursday that he plans to step down from the company once the insurer’s board of directors finds a replacement.

"Much work remains to be done at AIG, but much has already been accomplished," Liddy said in a statement. He noted that the company’s recovery "is likely to take several years [and] AIG should have a leadership team committed to a similar time horizon and prepared to carry the plan to completion."

Liddy had previously indicated that he would stay at the company for a limited amount to time, but he did not give an exact time frame. "[He] said he would know when the time was right," said AIG spokesman Mark Herr. "He stabilized the company, reduced its risk issues, and institued a plan to pay back the taxpayers. He decided now the time is right for someone else to oversee the next phase for the company."

Liddy, who serves as both chairman and CEO, was appointed by the Federal Reserve to head the company in September, after the troubled insurer received billions of dollars in federal aid.

Liddy also recommended that the CEO and chairman roles be split — a move the current board has indicated it will do.

AIG will elect six new board members at its annual meeting on June 30. The slate of six includes former executives from American Express, Boeing, KPMG, Delphi, Sears and Northwest Airlines. On Thursday, the company also announced it will vote on a 20-1 reverse stock split at the meeting fast cash advance loan.

Liddy had come under intense scrutiny from lawmakers and the public in March after it was revealed that AIG (AIG, Fortune 500), recipient of $182 billion of taxpayer funds, had paid out $165 million to executives in the company’s financial products division, the unit that dragged the company to its knees.

Liddy had argued that all of the bonuses were needed to retain top talent, to prevent an "uncontrolled collapse" of the financial products unit and to maximize return on taxpayers’ near-80% stake in the company.

But after much prodding by Congress and the Obama administration, Liddy asked employees who took home more than $100,000 in bonuses to return at least half. So far, AIG said about a third of the bonuses were returned.

AIG’s board and trustees have said all along that they support Liddy and his plan to spin off some of the insurer’s most valuable assets to pay back the government. Earlier this week, the company said it would speed up plans to list its Asian subsidiary through an IPO that could raise more than $4 billion

Liddy "answered the call of his country and the needs of AIG without reservation amid one of the darkest periods of the current financial crisis," said Stephen Bollenbach, AIG’s lead director, in a statement. "We wish him well in his return to retirement. He deserves it." 

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Paula Daigneau makes $18.60 an hour directing traffic for the repaving of Main Road in Tiverton, a town of 15,000 in eastern Rhode Island. She says that’s twice what she would have earned doing chores on a friend’s farm.

“The jobs were getting pretty limited,” said Daigneau, 51, a flagger who signals drivers with a sign she pivots from “Stop” to “Slow.”

Daigneau and 31 full-time co-workers are beneficiaries of President Barack Obama’s $787 billion spending program aimed at reviving the U.S. economy. To Michael D’Ambra, president of the construction company that landed the $2.4 million contract, the Main Road project shows the effort is succeeding.

“It appears that the stimulus is doing its job,” D’Ambra said. “It’s putting people to work.”

To critics, the Tiverton project, which is scheduled to end in September, illustrates the stimulus program’s weaknesses: They say it may be creating too few jobs, too slowly, for too short a time.

Once the stimulus money is spent, “that’s the end of it,” said Harry Staley, chairman of the Rhode Island Statewide Coalition, a group that advocates responsible government spending. He said he’s concerned that the money is going to “projects that are not in fact critical” and won’t provide a long-lasting boost to the economy.

3.5 Million Jobs

When Obama signed the stimulus bill on Feb. 17, the administration said it would create or save 3.5 million jobs by the end of September 2010. Through May 5, according to a May 13 report released by Vice President Joe Biden, $28.5 billion, or 3.6 percent, of the stimulus money had been disbursed, counting tax cuts, benefits such as Medicaid payments to states, education and construction projects. About 150,000 jobs had been created or saved, a news release said.

The U.S. economy lost a combined 1.2 million jobs in March and April, and the unemployment rate rose to 8.9 percent last month from 8.1 percent in February, according to the U.S. Labor Department.

The question for some economists is whether the money is being doled out fast enough. According to the plan, 70 percent of the total is to be spent through next fiscal year, and all of the funds won’t be distributed until 2011 or beyond.

“One of the criticisms of the stimulus package has been that it’s somewhat backloaded,” said Dean Maki, co-head of U.S. economic research at Barclays Capital Inc. in New York. “So the more of these projects that can be started now when the labor market is so weak, the better for helping achieve sustainable growth over time.”

Caterpillar’s Complaint

Caterpillar Inc., the world’s largest maker of earth-moving equipment, is among critics saying the money isn’t being spent quickly or widely enough. The U.S. “missed an opportunity to correct past underinvestment in U.S. infrastructure,” the company said in an April 21 economic commentary.

“The net-net effect of the construction spending in the short run is probably close to zero,” said Robert Stein, senior economist at First Trust Advisors in Lisle, Illinois. “We expect the economy to rebound for a variety of factors having nothing to do with the stimulus bill health insurance quotes.”

Construction is already underway on about 303 highway and bridge projects nationwide, the Transportation Department said. The agency is still tallying how many jobs the projects are creating, said Maureen Knightly, a spokeswoman.

“We are at the beginning of the construction season and over the next five or six months, there will be an enormous number of people working,” Transportation Secretary Ray LaHood said yesterday in an interview. “There’s going to be billions of dollars paving over America.”

Rhode Island Woes

Stimulus transportation projects are creating 1,500 jobs in Rhode Island, including those in Tiverton, according to Rhode Island Transportation Department Director Michael Lewis. Tiverton’s is one of the first transportation stimulus projects in the country to get started.

Rhode Island needs the work. The state’s April unemployment rate was 11.1 percent, up from 10.3 percent in January, and the fourth-highest in the country. The rate was the highest since the Labor Department began reporting the figures in 1976.

In Tiverton, workers are resurfacing and installing new sidewalks and curbs along 2.3 miles of Main Road, a street of tanning salons, car repair shops and chain drugstores. Sidewalks stop and start along the strip, so pedestrians sometimes have to walk on the shoulder.

‘Would Have Been Bleak’

The project in Tiverton, whose biggest employer is the town government, wouldn’t have happened this year if not for the stimulus package, Rhode Island’s Lewis said.

“It would have been very bleak in Rhode Island, not just for infrastructure but for the contracting community and for the engineering community” without the projects funded by the act, he said.

The Tiverton work may not generate many so-called indirect jobs, which the government includes in its estimate of how many will be created by the stimulus program.

National Grid Plc, which distributes electricity and natural gas, is doing gas line maintenance as Main Road is resurfaced, but that work would have been done anyhow and hasn’t required any new hiring, said company spokesman David Graves. National Grid’s U.S. headquarters is in Westborough, Massachusetts.

Packed Lunches

The road workers, from Rhode Island and nearby Massachusetts, aren’t spending much money in Tiverton because most pack their lunches for their 30-minute lunch break, said D’Ambra, the construction company’s head.

Aside from renting an office and buying fuel, “I don’t think we really bring a lot of dollars and cents into that town,” said D’Ambra, whose company is based in Warwick, Rhode Island, about 35 miles from Tiverton.

“What the project’s going to mean to me is short-term, we may lose business,” said Doreen Rapoza, co-owner of the Hair Reflections salon. “But after, it may do well because more people will be walking with sidewalks.”

Main Road flagger Daigneau, a divorced mother and grandmother, says she’s optimistic she’ll find work after the stimulus project ends in September.

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Banks negotiating to reclaim stock warrants they granted in return for Troubled Asset Relief Program money may shortchange taxpayers by almost $10 billion if Treasury Secretary Timothy Geithner’s first sale sets the pace, data compiled by Bloomberg show.

While 17 financial institutions have repaid TARP funds, only one has come to terms with the U.S. on the value of the rights to buy stock that taxpayers received for the risk of recapitalizing the industry. That was Old National Bancorp in Evansville, Indiana, which gave the Treasury Department $1.2 million for warrants that may have been worth $5.81 million, according to the data.

If Geithner makes the same deal for all companies in the rescue program, lenders may walk away with 80 percent of profits taxpayers might have claimed.

“For once we’d like to get a fair value when we come into contact with the banking system,” said Representative Brad Miller, a North Carolina Democrat and chairman of the Investigations and Oversight Subcommittee of House Science and Technology Committee. “We don’t want a ruthless bargain.”

Under the Old National warrants formula, Bank of America Corp. would save $2.03 billion, followed by Wells Fargo & Co. at $1.48 billion and JPMorgan Chase & Co. at $1.46 billion. Morgan Stanley’s benefit would be $983 million, Citigroup Inc.’s would come in at $965 million and Goldman Sachs Group Inc. would have $693 million, according to the data compiled by Bloomberg.

For the 20 largest TARP recipients, the total savings would be $9.985 billion, the data show.

‘Stronger Incentives’

Geithner wants to move swiftly to sell the TARP warrants, he said on May 20. Their worth depends on assumptions made about the chances the underlying stock will go higher than the rights. Depending on the input, different valuation models reach a range of conclusions.

Lenders shouldn’t be trusted to make suppositions that would be to the advantage of taxpayers, said Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.

“Bank managers have stronger incentives than Treasury personnel to get a better deal for their constituents,” said Wilson, who has written about appraising warrants.

Because Old National was the first to repay TARP money and buy its rights back, the May 11 transaction “sets the price point for the whole program,” said Simon Johnson, a fellow at the Peterson Institute for International Economics in Washington who testified on the securities before Miller’s subcommittee on May 19.

‘Doing Our Best’

“The point of the warrants is that taxpayers participate in the upside,” Johnson said in an interview. “It defeats the whole purpose if you’re going to sell them way below market price.”

Treasury Department spokesman Andrew Williams declined to comment on Old National.

“We’re doing our best to protect the taxpayers’ interest and make sure we get fair market value,” he said.

The department has a “robust process” evaluation process, using two modeling systems, consulting with an outside asset manager and collecting bids from market participants, Williams said.

The U.S. received rights to buy 1.4 billion common shares in exchange for $287 billion in TARP capital, according to data compiled by Bloomberg. A company that accepted aid had to grant warrants equal to 15 percent of the TARP investment at a strike price equal to the 20-day trailing average of the shares. A strike, or exercise, price is that at which an option can be exercised.

Option-Implied Volatility

Now that Goldman Sachs, JPMorgan and Morgan Stanley have applied to return the $45 billion they received, they may also reclaim their warrants.

Those are worth about $4 billion, data compiled by Bloomberg show. If the U.S. followed the Old National formula for the three New York-based banks, taxpayers would receive less than $1 billion.

JPMorgan spokesman Joseph Evangelisti declined to comment. Mark Lake, a spokesman for Morgan Stanley, said the bank “would support any program that is focused on benefiting the U no fax payday advances.S. taxpayer.” Goldman Sachs spokesman Michael DuVally said company officials have “always said the taxpayers should benefit from the value associated with these warrants.”

In the case of Old National, each of the 813,000 warrants had a strike price of $18.45.

‘Good For Taxpayers’

On May 11, the day the U.S. announced the sale, the stock’s option-implied volatility, derived from market prices of stock options that are traded daily, was 61 percent, according to data compiled by Bloomberg. The risk-free rate of return, or the yield of government debt, was 3.47 percent that day.

Based on that volatility and that rate, the Black-Scholes options valuation tool appraised one Old National warrant at $7.18. The bank paid the U.S. $1.48 for each.

“We were able to reach a deal that was good for our shareholders and Treasury felt was good for taxpayers,” Old National Chief Executive Officer Bob Jones.

The bank, with more than $8 billion in loans and branches in Kentucky and Illinois, hired an appraiser to evaluate the warrants, Jones said. He said the government rejected his first offer of $600,000.

Old National closed down 12 cents at $12.27 yesterday in New York Stock Exchange composite trading.

Three Volatility Assumptions

Black-Scholes, a risk management device, was developed in 1973 by Fischer Black and Myron Scholes to estimate the fair market value of stock-option contracts. Williams, the Treasury spokesman, declined to say whether Black-Scholes is one of the two models the department employs.

At the University of Louisiana, Wilson used Black-Scholes and two other systems to evaluate Old National’s warrants, plugging in three volatility assumptions: 37.1 percent, 59.72 percent and 72.89 percent.

The lowest, calculated from the bank’s stock price movements over the past seven years, yielded the smallest warrant value, ranging from $2.50 to $6.72 per warrant. The highest, based on changes since Jan. 1, 2008, returned a range from $8.88 to $11.05. The middle estimate — the options-implied volatility — said a right to buy the stock was worth from $5.93 to $9.69.

Wilson said the government would serve taxpayers better by auctioning off the securities to investors. The law that established TARP allows for an auction.

‘Onerous Exit Fee’

Miller, the North Carolina congressman, said the Treasury should have insisted on terms for taxpayers similar to those Warren Buffett secured for Berkshire Hathaway Inc. shareholders when he invested $5 billion in Goldman Sachs in September.

Buffett received 43.5 million warrants valued by Black- Scholes at $3.6 billion, or $82.18 each, on the date of the transaction, data compiled by Bloomberg shows. Taxpayers injected twice as much into Goldman Sachs and got 12.2 million warrants worth $882 million, or $72.33 each.

The American Bankers Association said in an April 16 letter to Geithner that a company that wants to get out of TARP now faces an “onerous exit fee” because it has held the investment for so little time.

“There is no reason for Treasury to impose such a punitive obstacle to exiting,” said Diane Casey-Landry, the association’s chief operating officer in Washington.

‘Tough Penalty’

After Shore Bancshares Inc. returned $25 million in TARP money, plus $208,333 in interest, it offered to buy its 173,000 warrants, according to CEO Moorhead Vermilye. He declined to disclose the bid, which he said the U.S. rejected.

The Easton, Maryland-based bank’s warrants were valued yesterday at $12.33, or $2.1 million, according to data compiled by Bloomberg and modeled by Black-Scholes. Paying that to reclaim them would amount to an annual interest rate of more than 30 percent a year.

“It’s a tough penalty for the short time we had the money — three months,” Vermilye said.

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