US Treasury Begins Two Secondary Public Offerings Of BAC Warrants
March 01 2010 - 4:50PM
Dow Jones News
The U.S. Treasury Dept. is poised to earn more than $1 billion
this week auctioning warrants in the nation's largest bank by
deposits.
The Treasury Dept. on Monday announced it would auction warrants
it obtained by rescuing the Bank of America Corp. (BAC) in 2008 and
2009 on Wednesday.
Treasury owns two separate blocks of warrants in Bank of
America.
Treasury plans to start bidding for 150.4 million warrants with
a strike price of $13.30 a share at $7.00 each. It plans to start
bidding on 121.8 million shares with a strike price of $30.79 at $7
each.
Taxpayers earned more than $1 billion in December when Treasury
auctioned warrants in three banks, including J.P. Morgan Chase
& Co. (JPM). The gain could be higher in this round of four
auctions headlined by Bank of America.
Warrants are essentially options with much longer exercise
periods--nine years in the case of these bank warrants. They give
the holder the right to buy common shares at a set price in the
future.
Linus Wilson, professor of finance at the University of
Louisiana, estimates the first 121 million warrants have modest
value of between $1.65 and $5, with a mid-range value of $2.90.
The second block of 150 million warrants is much more valuable,
according to Wilson. He estimates these warrants are worth between
$5.31 and $9.08, with a mid-range value of $6.87.
Combined, the two blocks of warrants are worth between $1
billion and $1.9 billion with a mid-range value of $1.3 billion, he
estimates.
In its annual report filed Friday, Bank of America discussed its
$45 billion federal Troubled Asset Relief Program, or TARP,
investment and said it expected the Treasury Dept. to auction its
warrants soon.
By comparison, Wells Fargo & Co. (WFC), which also filed its
annual report last week, didn't mention an auction. Wells Fargo
repaid its $25 billion TARP investment at nearly the same time as
Bank of America, but its annual filing only says that "Treasury
continues to hold the warrant."
In addition to Bank of America, Treasury has disclosed its
intent to sell warrants in three smaller banks: Texas Capital
Bancshares Inc. (TCBI), Signature Bank New York (SBNY), and
Washington Federal Inc. (WFSL) of Seattle.
Wilson estimates the mid-range of value for the warrants in
Texas Bancshares at about $4.3 million, Signature Bank $7.9 million
and Washington Federal at $11.2 million.
-By Meena Thiruvengadam and Steven D. Jones, Dow Jones
Newswires; 202-862-6629; meena.thiruvengadam@dowjones.com
Texas Capital Bancshares (NASDAQ:TCBI)
Historical Stock Chart
From Mar 2024 to Apr 2024
Texas Capital Bancshares (NASDAQ:TCBI)
Historical Stock Chart
From Apr 2023 to Apr 2024