The net proceeds from auction for Bank of America will surpass JPMorgan Chase warrants totalling $936m. That auction was held in December.
The record amount will allow for taxpayers to “get a return for their very risky investment that they made in Bank of America and many other banks,” said Linus Wilson, associate professor of finance at University of Louisiana at Lafayette.
The Treasury auctioned one class of warrants at $8.35 per warrant and a second class at $2.55.
The 272.17m warrants to purchase common stock in Bank of America were priced in a modified Dutch-style ˚auction, the department said.
The sale marks the disposal of the government’s remaining investment in the banking giant, the department said. The Treasury received the warrants last year in exchange for $45bn in bailout money.
The closing of the sale is expected to occur on or about 9 March, the department said.
Deutsche Bank Securities was sole underwriter, with Blaylock Robert Van, CastleOak Securities, Guzman & Co, Loop Capital Markets, MR Beal & Co and Toussaint Capital Partners as co-managers.
“The money that is raised from these warrant auctions will help offset losses from other investments that will not turn out so well,” Wilson said.One such investment, CIT Group, the large US commercial lender that filed for bankruptcy in November and emerged the following month, said this week it lost about $900m in the fourth quarter and $4bn in all of 2009.
Warrants are a right to buy stock at a certain price on a fixed date. Each Bank of America warrant will give a holder the right to buy one share of Bank of America. The exercise price for one class of 121.8m warrants is set at $30.79 and expires October 2018. The exercise price for the second class of 150.4m warrants is set at $13.30 and expires January 2019. The sale is the latest in a series of Treasury auctions of warrants received from banks that accessed the $700bn TARP programme.