Treasury to auction its warrants in four TARP banks

The Treasury Department will auction the warrants it holds in Bank of America Corp., Washington Federal Inc., Texas Capital Bancshares Inc. and Signature Bank.

The four banks have repaid the money they received through the Troubled Asset Relief Program and redeemed the preferred stock they issued to the Treasury; once the warrant auctions are compete, Treasury will no longer have any stake in the companies.

The department touted the forthcoming sale as a way to "provide an additional return to the American taxpayer from Treasury's investments" in the banks.

Under TARP, the Treasury provided money to banks in return for a special class of preferred stock, along with warrants to buy a set amount of common stock at a predetermined price. The stronger the banks get -- and the higher their share prices climb -- the more valuable those warrants become.

Banks that pay back their TARP aid are given the opportunity to repurchase Treasury's warrants. If they decline, the department can sell them at auction. The banks are eligible to bid on those warrants, and some may do so if they believe they can get them for a cheaper price at auction than they would have paid Treasury.

Deutsche Bank Securities Inc. will be the auction agent for the upcoming warrant sale.

Bank of America repaid its TARP funds in December, while Washington Federal, Texas Capital and Signature Bank all made their payments last spring.

Treasury's warrant holdings in the banks, according to the latest warrant disposition report, include:

-- 121,792,790 shares of Bank of America, exercisable at $30.79 per share.

-- 1,707,456 shares of Washington Federal, exercisable at $17.57 per share.

-- 758,086 shares of Texas Capital, exercisable at $14.84 per share.

-- 595,829 shares of Signature Bank, exercisable at $30.21 per share.

Bank of America's stock is trading well below the exercise price of the government's warrants. However, the shares of the other three banks are currently above the exercise price of their warrants.

Treasury also holds warrants in 14 other banks that have repaid their TARP money, according to the report.

Last year, the government earned $1.1 billion by auctioning off warrants in JPMorgan Chase & Co., Capital One Financial Corp. and TCF Financial Corp. It earned an additional $2.9 billion from 31 other banks that repurchased their warrants without auctions.