Taking TARP Funds Can Be Hazardous to Your Bank's Wealth

Jordan, Dan J.; Rice, Douglas; Sanchez, Jacques; Wort, Donald

doi:10.2139/ssrn.1501307

Cited by 11 publications

(3 citation statements)

References 42 publications

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“…Studies of Bayazitova and Shivdasani (2009), Duchin and Sosyura (2009), Taliaferro (2009), Cadman et al (2010, Li (2010), Jordan et al (2010), and Ng et al (2010) look at the characteristics of banks that enter the CPP. The CPP passed out $205 billion from 14 October 2008 to 29 December 2009 to 707 different banks.…”

Section: Review Of the Existing Literaturementioning

confidence: 99%

TARP's dividend skippers

Georgieva

Wilson

2013

IJFSM

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Most of the banks receiving capital injections from the Troubled Asset Relief Programme (TARP) issued preferred stock to taxpayers. This paper presents the factors that affect publicly traded banks' ability to pay the scheduled TARP preferred stock dividends. Smaller banks with weaker capital ratios and more problem loans are significantly more likely to suspend payments of their bailout dividends.

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Section: Review Of the Existing Literaturementioning

confidence: 99%

TARP's dividend skippers

Georgieva

Wilson

2013

IJFSM

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“…Nevertheless, that study finds that TARP recipients' share prices suffered from taking the funds. Jordan et al (2010) finds that banks' market-to-book ratios were lower, given 1 U.S. Treasury, April 5, 2010, "Press Release: TARP Repayments Reach $181 Billion," Office of Financial Stability, accessed online on May 24, 2010, at http://financialstability.gov/latest/tg 04022010.html. 2 The stigma associated with TARP has proven a powerful motivator for managers to exit the unpopular program.…”

Section: Introductionmentioning

confidence: 99%

Escaping TARP

Wilson

2012

Journal of Financial Stability

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“…Examples of this literature are Bebchuk and Goldstein (2009), Philippon and Schnabl (2009), Wilson (2009), Taliaferro (2009), Li (2010) and Wilson and Wu (2010). Many studies have addressed which banks receive or accept capital injections such as Bayazitova and Shivdasani (2009), Duchin and Sosyura (2009), Taliaferro (2009), Cadman et al (2010), Li (2010), Jordan et al (2010) and Ng et al (2010). In contrast to the TARP entry literature, Wilson and Wu (2011) look at the characteristics of the banks that exit the program early.…”

Section: Introductionmentioning

confidence: 99%

Stock demand curves and TARP returns

Wilson

2011

Journal of Financial Economic Policy

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PurposeThe purpose of this paper is to determine if the US Treasury's at‐the‐market sales of 5.27 billion Citigroup shares in 2010 drove down the banks' share price. It attempts to use the evidence of Citigroup's stock returns to accept or reject competing hypotheses of larger stock sales.Design/methodology/approachThe paper uses a geometric Brownian motion model to test if there were abnormal returns at various points in the US Treasury's highly publicized stock sale that lasted from 26 April to 6 December 2010.FindingsThere was a weakly significant drop in the stock price at the announcement of the sale and a weakly significant rise in the stock price just after it ended. This is evidence that the demand curve for the stock had a negative slope.Practical implicationsThe evidence from this study will influence policy makers and investors in the upcoming privatizations of large bailed‐out firms such as American International Group, Ally Financial, Chrysler, and General Motors. The evidence indicates that slow at‐the‐market sales may temporarily depress stock prices more than quicker, underwritten secondary offerings. Patient investors may experience modest abnormal returns from providing liquidity to the US Treasury as it privatizes its holdings.Originality/valueThis is the only paper to study the stock price impacts of the US Treasury's liquidation of its 27 percent stake in Citigroup in 2010. Because the stock sales were delegated to a third party and highly publicized, unlike most other large stock sales, the Citigroup privatization is an unprecedented opportunity to test if the demand curve for common stocks is perfectly elastic.

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Taking TARP Funds Can Be Hazardous to Your Bank's Wealth

Cited by 11 publications

References 42 publications

TARP's dividend skippers

TARP's dividend skippers

Escaping TARP

Stock demand curves and TARP returns

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