These Bank of America Warrants Are Finally Worth Something
January 13 2018 - 10:59AM
Dow Jones News
By Rachel Louise Ensign
It seemed so unlikely a few years ago that investors weren't
willing to bet a dime on it. But on Friday, Bank of America's stock
price reached $30.79.
That was the price Bank of America's stock needed to hit for
some esoteric securities to have any value. These securities, known
as Bank of America TARP "B" warrants, had been bought by a varied
group of investors ranging from hedge-fund managers like John
Paulson to the Michigan Department of Treasury.
Now, some are sitting on eye-popping gains.
Yet it was a bet few had the stomach for -- even less than two
years ago when the bank's stock was reeling. In 2016, with Bank of
America shares trading for much of that year below $15, the
warrants traded for as little as 7 cents.
The warrant price reflected investor views that there was little
chance Bank of America stock would ever reach the $30.79 strike
price.
But since that year's presidential election, Bank of America's
stock has been on a tear as rising interest rates and tax cuts
helped profits and the bank put legal and credit issues behind it.
Earlier this month, the lender's stock crossed the $30 mark for the
first time since 2008. On Friday, the shares closed at $31.19.
Over the last 12 months, the bank's shares have risen 36%, the
most of any big bank.
The warrants have done even better: they are up more than 4000%
since their low in August 2016. They now trade at $2.86.
The warrants were originally issued to the government during the
2008 bank bailout. Many of them from a variety of banks were later
auctioned off to private investors.
Essentially, for these buyers, the warrants were like lottery
tickets. If the stock stayed below the strike price, the warrant
would end up worthless. If it rose above the strike, big gains
could be in store.
Investors have until October 2018 to redeem the Bank of America
B warrants before they expire.
Bank of America reports earnings next Wednesday.
Write to Rachel Louise Ensign at rachel.ensign@wsj.com
(END) Dow Jones Newswires
January 13, 2018 10:44 ET (15:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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