Treasury sells Bank of America warrants for $1.54 billion
Friday, March 5, 2010
The Treasury Department said Thursday that it sold its warrants to buy Bank of America stock for $1.54 billion, fetching a much higher price than what market analysts and federal officials expected.
After the auction, the warrants, which are contracts that allow the holder to buy more of a firm's shares in the future at a fixed price, soared as much as 12 percent in New York Stock Exchange trading, a sign of the intense investor interest in owning shares of big banks as they recover from the financial crisis.
"These proceeds provide an additional return to the American taxpayer from Treasury's investment in the company beyond the dividend payments it received," the department said in a statement.
Banks were required to hand over warrants to Treasury as a condition of taking money from its $700 billion Troubled Assets Relief Program, or TARP. The goal was to ensure that the government would see a return once bailed-out financial firms recovered their health.
So far, the warrants have earned more than $3.5 billion for Treasury. J.P. Morgan Chase's warrants were auctioned for $936 million, while Goldman Sachs bought back its warrants for $1.1 billion. Treasury is still seeking to sell the warrants it holds from other big banks that have paid back their TARP funds, including Citigroup and Wells Fargo.
While the warrants provided a return for the government, they also hindered the effectiveness of the TARP program. Many banks have declined federal aid, which could help them boost small-business lending, because they do not want the government to have the option to buy stakes in their firms. In essence, these banks would rather let their lending levels fall than take bailout money. Treasury officials are now seeking permission from Congress to ease the conditions placed on future distributions of TARP funds.
Bank of America gave the warrants to Treasury when the company took a $45 billion aid package during the height of the financial panic. The bank paid back that money in December and had the option to buy back the warrants. The two sides could not agree to a price, so the auction was held.
Shares of Bank of America, which does not receive any money from the auction of the warrants, ended the regular trading session at $16.40. In March of last year, shares hit a low of $3.17.