The U.S. Treasury sold 272.12 million warrants that it received from Bank of America® as part of the $700 billion TARP bailout fund. The auction for the Bank of America® warrants led to a sale worth $1.54 billion, which now holds the record of the largest total amount raised from a single institution from the sale of warrants.

Warrants Are Much Like Stock Options

Warrants are very much like stock options but with a longer period before expiration. Holders of a warrant have the right to buy a stock for a certain price before the expiration date of that warrant. The holders of a warrant would reap a profit if the price of a share exceeds the cost of the warrant plus the strike price of the stock.

Institutions may buy back the warrants if they can come to an agreeable price with the holders of those warrants. Goldman Sachs Bank USA was able to buy back their own warrants for $1.1 billion from the Treasury. In December, another auction was held in order to sell warrants from JPMorgan Chase & Co. in order to raise $936.1 million when it couldn’t agree upon a price with the Treasury.

The Treasury auctioned the Bank of America® warrants in two groups. It sold 150.38 million Group A warrants for the price of $8.35 for each warrant. Group A warrants allowed holders to buy a share of Bank of America® stock at $13.30 until expiration on January 2019. Also, the Treasury sold 121.79 million Group B warrants for the price of $2.55 for each warrant. Group B warrants gave holders the right to buy a share of Bank of America® stock at $30.79 until expiration on October 2018.

The Rush to Withdraw From TARP Program

Institutions may buy back the warrants if they can come to an agreeable price with the holders of those warrants. Last year, the Treasury made roughly $4 billion in sales of warrants from institutions that participated in the TARP program. Goldman Sachs Bank USA was able to buy back their own warrants for $1.1 billion from the Treasury. In December, another auction was held in order to sell warrants from JPMorgan Chase & Co. in order to raise $936.1 million when it couldn’t agree upon a price with the Treasury. Thirty-one other institutions repurchased their own warrants, which accounted for $2.9 billion raised by the Treasury.

Like many other financial institutions, Bank of America® has been aggressive in completing its exit from the TARP program due to restrictions that came with the bailout money. In addition to the $45 billion repaid to the government, the sale of the warrants ends ties between Bank of America® and the government ever since receiving support during the financial crisis.

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