Treasury Sells Capital One Warrants - Analyst Blog

The U.S. Treasury Department said on Tuesday that it will auction 12.7 million warrants to buy common stock of Capital One Financial (COF) on Thursday. This is the latest government effort under the Troubled Asset Relief Program (TARP) set up during the height of the financial crisis last year to shore up the financial system. 

The Treasury would also auction warrants it received from JPMorgan Chase & Company (JPM) and TCF Financial Corporation (TCB) that received bailout money under the government's $700 billion TARP. 

Capital One received $3.55 billion in taxpayer funds at the height of the financial crisis last year in exchange for stock warrants and preferred shares. The bank repaid the entire bailout money earlier this year. 

The proceeds of this sale will provide additional revenue to the taxpayers over and above the dividend payments it has already received on the related preferred stock of Capital One. 

The minimum bid size is 100 warrants. Each warrant gives the right to purchase one share of Capital One at an exercise price of $42.13. The warrants will expire on Nov 14, 2018. 

Treasury will sell the warrants through a modified Dutch auction, at which investors can submit bids at increments above a set price. 

The government still holds warrants of 261 banks, out of which only 15 have paid back the bailout money but have not repurchased their warrants yet. 

Many other financial institutions that have already repaid bailout money include American Express (AXP), Goldman Sachs (GS), Morgan Stanley (MS), BB&T Corporation (BBT) and US Bancorp (USB). Also, banks like Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C) are expected to exit TARP over the next 12 to 18 months. 

We think that the repayment of government money and repurchase of warrants can be viewed as a sign of recovery of the institutions and the economy. Also, the full repayment of government money by the bailed-out firms will help protect their executive compensation packages.
Read the full analyst report on "COF"
Read the full analyst report on "JPM"
Read the full analyst report on "TCB"
Read the full analyst report on "AXP"
Read the full analyst report on "GS"
Read the full analyst report on "MS"
Read the full analyst report on "BBT"
Read the full analyst report on "USB"
Read the full analyst report on "BAC"
Read the full analyst report on "WFC"
Read the full analyst report on "C"
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