Treasury will auction off Capital One warrants

AP News
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Posted: Dec 01, 2009 4:30 PM

The Treasury Department said Tuesday it will begin auctioning warrants of Capital One Financial Corp., marking the latest government effort to rein in emergency rescue programs set up during the height of the financial crisis last year.

Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.

Treasury said it would auction nearly 12.7 million warrants to buy Capital One stock. The auction, which is being conducted by Deutsche Bank Securities Inc., will be conducted from 8 a.m. to 6:30 p.m. EST on Thursday.

Proceeds from the sale will provide taxpayers with an additional return, beyond the dividend payments already received from the McLean, Va.-based bank.

Capital One has repaid the taxpayer-funded bailout money it received as part of a larger government effort to shore up the financial system during last year's crisis.

Treasury got the warrants as a deal-sweetener when it injected capital into the banks. They allow taxpayers to benefit from the upside of a financial recovery supported by billions of their dollars.

The "modified Dutch auction" means bidders will choose how many shares they want to buy and at what price.

The process is designed to get Treasury the maximum return based on the market's demand for the warrants. While risky for both sides, the auctions give Treasury political cover from criticism that its policies are too easy on big banks.

Treasury last month said it also will auction warrants for JPMorgan Chase & Co. and TCF Financial Corp.