CHARLOTTE, N.C. (
Bank of America
may pay back TARP by year-end, but the government will still have a less prominent stake in the bank through related warrants.
Bank of America announced its plan to buy back $45 billion worth of preferred stock from the Treasury Department on Wednesday. However, the bank said it "is not exercising its right to repurchase the related warrants at this time."
As a result, the government can still technically regain an ownership stake in the bank, although that scenario seems improbable. More likely, the bank will have to pay another sizable fee to extinguish the warrants.
The Treasury's preferred stock came with 272 million warrants to purchase common stock at a set price. The strike price of roughly 55% of the warrants is $13.30, and the strike price of the rest is $30.79.
Linus Wilson, a finance professor at the University of Louisiana at Lafayette, is well known for his research into TARP warrants. He told
that, depending on how they are valued, Bank of America may need to pay anywhere from $943 million to $2.5 billion to cut the federal government's last thread of ownership.
Warrant negotiations between banks and regulators have ranged from breezy and profitable -- like
-- to lengthy and cantankerous, like
to get what it deems a fairer price.
Auctions for JPMorgan,
yet to be finalized
Bank of America has accomplished a large feat in negotiating the TARP payback alone, with a complex repayment plan that includes an roundabout common stock offering, a shareholder vote, asset sales and restricted stock offered to employees. When asked why the warrants weren't included in a one-shot deal, spokesman Robert Stickler indicated that the bank isn't concerned about that just yet.
"Our priority was to reach an agreement on repaying TARP," said Stickler. "We can deal with the warrants later."
Bank of America shares were recently up 10 cents at $15.75 just prior to the closing bell.
-- Written by Lauren Tara LaCapra in New York