NO QUARTER FOR CORRUPTION (Focussing on The Fed./FRBS)

[Vexari]

How banks are obtaining money to re-pay TARP

They are not getting it from operating surplus or stock sales

They are selling warrants, which are contracts that give buyers the future right to buy stock at a stated price

in this case, a price that seems low in terms of past prices but high in terms of continuing losses

Warrants are derivatives, and those who purchase them are gambling, not investing

It is not unreasonable to think if whoever is buying them might be privately assured

that they will be bailed out by the government and the Federal Reserve if their gamble should sour..



Bank of America warrants sale raises $1.54 billion

By Martin Crutsinger,
Ap Economics Writer
Thu Mar 4, 3:31 pm ET


WASHINGTON – The Treasury Department has received a record $1.54 billion from the sale of warrants it received from Bank of America as part of the support it provided during the financial crisis.

The Treasury said Thursday it sold 272.17 million warrants in an auction held because Bank of America and the government could not agree upon an acceptable price. Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.

The $1.54 billion total is the largest amount raised from a single institution from the sale of warrants as part of the government's $700 billion financial rescue effort.

The amount raised in the Bank of America auction exceeds the $936.1 million raised from a December auction of JPMorgan Chase & Co. warrants and the $1.1 billion raised from the sale of Goldman Sachs warrants.

Goldman Sachs bought back its own warrants after the company and Treasury were able to agree upon a price. The warrant auctions are being held in cases where the government and the financial institution are not able to agree upon a price.

Treasury held the first three warrant auctions last year. Bank of America was the first of four auctions that are scheduled to be held this month.

Treasury split the Bank of America warrants into two groups representing the two blocks of support Bank of America, based in Charlotte, N.C., received during the height of the financial crisis in late 2008 and early 2009.

Bank of America repaid the government's $45 billion of support in December. The warrant auction on Thursday represented the last link the bank had with the $700 billion bailout fund, known as the Troubled Assets Relief Program.

In the auction, Treasury sold 150.38 million warrants that it labeled "A warrants" with a minimum bid price of $7 per warrant. It received a price of $8.35 for each for those warrants. The purchasers of those warrants have the right to buy a share of Bank of America stock for $13.30 for the life of the Group A warrants which will expire on January 2019.

Treasury set a minimum bid price of $1.50 for the 121.79 million in Group B warrants. It sold those warrants at the auction Thursday for a price of $2.55. The purchaser of the Group B warrants have the right to buy Bank of America stock at $30.79 through the life of these warrants which will expire in October 2018.

In the way the warrants work, a holder of the Group A warrant will be "in the money," or in the position to make a profit if Bank of America stock increases to $21.65. That would equal the $8.35 paid for each warrant and the $13.30 strike price that it would pay for each share of stock.

For a holder of a Group B warrant, the "in the money" price would be $33.34. That figure comes from the $2.55 paid for the warrant and a $30.79 strike price set for the Group B warrants.

On Thursday, stock in Bank of America was trading around around $16.42 per share. The banking giant's shares traded above $50 as recently as 2007.

The buyers of both groups of warrants are betting Bank of America sharea are headed significantly higher.

In afternoon trading Thursday, the Group A warrants rose 15 cents, or 1.8 percent, to $8.50, while the Group B warrants gained 25 cents, or 9.8 percent, to $2.80.

Linus Wilson, a finance professor at the University of Louisiana at Lafayette and an expert in stock warrants, said he would give Teasury a high grade for how it has handled the auctions so far.

"These are great results. I think the auctions have had a significantly positive impact on the prices that Treasury has obtained for the warrants," Wilson said.

The administration in January said in a report to Congress that it had made $4 billion from the sale of warrants in 2009. Of that amount, $2.9 billion came from 31 institutions that repurchased their own warrants and the other $1.1 billion came from the JPMorgan auction and two other auctions.

The administration in January said in a report to Congress that it had made $4 billion from the sale of warrants in 2009. Of that amount, $2.9 billion came from 31 institutions that repurchased their own warrants and the other $1.1 billion came from the JPMorgan auction and two other auctions.

Financial institutions have been eager to exit from the TARP program to escape various restrictions imposed on institutions receiving the government support including limitiations on executive compensation.


http://news.yahoo.com/s/ap/20100304/ap_on_bi_ge/us_bailout_warrants;_ylt=ApCQMk4fJl9XiZy2rh181y.s0NUE;_ylu=X3oDMTFmajA1YjNzBHBvcwMxMDMEc2VjA2FjY29yZGlvbl9idXNpbmVzcwRzbGsDYmFua29mYW1lcmlj