If returns from past auctions are any hint of what may be made on the Bank of America (NYSE: BAC) warrants being auctioned off in the next month, investors may be lined up at the door. The coming auction will be the largest conducted since December, when the Treasury auctioned off about 88 million warrants for JP Morgan (NYSE: JPM)
The U.S. Treasury plans to auction off the 272.2 million warrants it received when providing the bank with bailout funds last year. The auction is happening because the Treasury and Bank of America could not agree on a price to resell them back to the bank. Warrants are securities that give an investor the option to buy stock in the future at a specific price.
The Treasury raised $950 million from the JP Morgan auction in December, and investors were rewarded for snatching up the securities as the warrants surged 36 percent over the next 29 days, according to a Bloomberg report.
The Treasury, which has been unloading its investments in banks, is likely to raise more than $1 billion from the Bank of America warrant auction. Those funds will go directly toward refunding taxpayers dollars, something President Obama has stressed, aiming to recover every dollar of bailout money.
The upcoming warrant auction covers two different sets of Bank of America warrants. One is a set of 121.8 million warrants that have an exercise price of $30.79 a share. The other is for 150.4 million warrants carrying an exercise price of $13.30 a share. Both sets have 10-year durations.
Shares of Bank of America have traded around the $16 mark in recent days.
