JPMorgan Chase ( JPM) and other banks are reportedly complaining that the U.S. Treasury is demanding too high a price to buy back the warrants associated with the government's bailout of the sector last fall. Treasury has rejected as too low most of the valuation proposals received from banks looking to repay the warrants, which were issued to the government along with preferred equity stakes through the Troubled Assets Relief Program, according to The Wall Street Journal, citing people familiar with the matter. JPMorgan Chase's Chairman and CEO Jamie Dimon told Treasury Secretary Timothy Geithner that he disagrees with some of the methods that the government is using to value the warrants, the Journal said. JPMorgan Chase has also apparently waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which it says will result in an actual market price, according to the Journal. Last month 10 banks have repaid capital received from the government under the TARP -- JPMorgan Chase, Goldman Sachs ( GS), Morgan Stanley ( MS), US Bancorp ( USB), BB&T ( BBT), Capital One ( COF), American Express ( AXP), State Street ( STT), Bank of New York Mellon ( BK), and Northern Trust ( NTRS). But the government still owned warrants associated with those preferred stakes. Last month Treasury established a procedure for which banks that have repaid TARP could begin the process for repurchasing warrants. JPMorgan's contention is just one example that banks are increasingly disagreeing with Washington's expectations of the TARP program. The Congressional Oversight Panel issued a report on Friday titled "TARP Repayments, Including the Repurchase of Stock Warrants," in which it examines whether Treasury is valuing the warrants in a way that maximizes the taxpayers' investment in the financial institutions. The panel also conducted its own detailed technical valuation of the warrants Treasury holds, according to a release.
So far 11 banks have repurchased warrants from the Treasury at an estimated 66% of the government's estimate of their value. If the warrants had been sold for the best estimate of their current market value, taxpayers would have recovered $10 million more, the release said. The 113-page report offers a range of estimates based on high-, low-, and best-estimate assumptions for certain key variables and it compares its estimates with other valuations, it said. Still, because banks have so far only bought back a fraction of 1% of all warrants issued, the prices paid "may not be representative of what is to come." The report further analyzes how Treasury is "constrained by the provisions of the contracts governing the TARP investments in the banks and recognizes that the panel's valuations do not include the liquidity discounts and other adjustments contemplated." It also acknowledges how Treasury must balance public interest in financial stabilization and economic growth, the release says.