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May 24, 2010
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The Treasury announced on Friday that it will earn $840 million from the sale of warrants that it obtained as part of its investment in Wells Fargo & Co. (WFC) through the Troubled Asset Relief Program (TARP) during the height of the financial crisis. In October 2008, Wells Fargo received $25 billion from the bailout fund, which it paid back in December 2009.
Wells Fargo itself bought 70.2 million warrants from the Treasury to purchase its common stock in the auction held by Deutsche Bank Securities. This represents 63.6% of the total 110.3 million outstanding warrants.
The price per warrant was $7.70, though the government had set a minimum bid price of $6.50 per warrant. The transaction is expected to close on or before May 26, 2010.
The holders have the right to purchase one share of common stock for each warrant at an exercise price of $34.01. The warrants will expire on Oct 28, 2018.
Government supported the troubled institutions with $700 billion financial bailout, under which the banks would pay dividends on the fund they received as relief and would also provide the government with warrants. Warrants received by the government act as bonus for saving the banks during the financial crisis. The holder gets the right to purchase common stock at a fixed price for warrants.
The sale of the warrants will end all ties of Wells Fargo to TARP and the company will be freed from various restrictions imposed on the banks.
The Treasury Department has authorized five auctions of bank warrants over the next six weeks to recoup taxpayer money from the controversial financial bailout program, which include Wells Fargo, PNC Financial Group Inc. (PNC), Valley National Bancorp (VLY), Sterling Bancshares Inc. (SBIB) and First Financial Bancorp (FFBC).
In December, 2009, Wells Fargo’s closest competitor Bank of America (BAC), repurchased all shares of the TARP preferred stock, issued to the U.S. Treasury in 2008 and early 2009, by using $25.7 billion from excess liquidity and $19.3 billion in proceeds from the sale of 1.3 billion units of Common Equivalent Securities (CES) valued at $15.00 per unit. In March, 2010, The Treasury Department received $1.54 billion from the sale of 272.2 million warrants it received from Bank of America.
In addition to Bank of America, Treasury held auctions for three other banks including Washington Federal Inc. (WFSL) of Seattle, Texas Capital Bancshares Inc. (TCBI), and Signature Bank (SBNY) in March 2010.
On Friday, the Treasury sold 11.5 million warrants of Comerica (CMA) at a minimum bid price of $16.00 per warrant, yielding a net profit of $181.1 million. Comerica, headquartered in Dallas, received $2.25 billion from the bailout program in November 2008.
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.
Read the full analyst report on "WFC"
Read the full analyst report on "BAC"
Read the full analyst report on "PNC"
Read the full analyst report on "VLY"
Read the full analyst report on "SBIB"
Read the full analyst report on "FFBC"
Read the full analyst report on "SBNY"
Read the full analyst report on "WFSL"
Read the full analyst report on "TCBI"
Read the full analyst report on "CMA"
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