U.S Gets $1.5B from BofA Warrants

The Treasury has received net proceeds of $1.5 billion from the sale of warrants that entitled it to purchase common stock of Bank of America Corp. (BAC - Analyst Report).
 
The Treasury received these warrants as part of its investment in BofA through the Troubled Asset Relief Program (TARP) during the height of the financial crisis. In Dec 2009, BofA repaid the entire $45 billion of bailout money it had received from the government.
 
The current move will completely free BofA from government intervention. This is the largest amount received by the Treasury from the sale of warrants of a single institution.
 
The amount received from the auction of BofA warrants exceeds $1.1 billion raised from the sale of Goldman Sachs (GS - Analyst Report) warrants earlier.
 
The Treasury auctioned one tranche of warrants at $8.35 each and the other at $2.55 each. The 272.17 million warrants were sold by the Treasury in a modified Dutch auction as BofA and the government did not agree on an acceptable price.
 
BofA is the first among four banks whose warrants are scheduled to be sold via auctions this month. The three other banks are Washington Federal (WFSL), Texas Capital Bancshares (TCBI - Analyst Report) and Signature Bank (SBNY - Snapshot Report).
 
In similar transactions in Dec 2009, the Treasury received $1.1 billion from the sale of warrants of JPMorgan Chase & Co. (JPM - Analyst Report), Capital One Financial Corp. (COF - Analyst Report) and TCF Financial Corp. (TCB - Snapshot Report). The government expects to conduct similar auctions in the future for other warrants it holds in approximately 255 banks.
 
We think that the repayment of government money and repurchase of warrants can be viewed as a sign of recovery of the institutions as well as the economy. According to the Treasury, losses on TARP investments are likely to be significantly trimmed with the improvement in the overall financial condition.

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