Liquidity and Private Placement Discounts in the TARP Preferred Stock Auctions

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American Society of Appraisers Business Valuation Review™
Summer 2018 Volume 37, Issue 2 pp. 56-63
Linus T. Wilson
discounts & premiums, valuation method
discount, liquidity, preferred stock

Summary

The liquidity discounts in the first 72 Troubled Asset Relief Program (TARP) auctions of preferred stock averaged 9.6%. The liquidity discounts were significantly lower for publicly held banks and banks that had never missed a bailout dividend. In addition, auction yields were significantly higher, 152 basis points higher, in private placements open only to accredited investors. This paper develops two different valuation frameworks based on accounting: call report data to estimate the yields and present value of untraded preferred stock. The TARP auction yield to maturity averaged 9.85% in the auctions studied.
Liquidity and Private Placement Discounts in the TARP Preferred Stock Auctions
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