Treasury gets $146.5M for Capital One warrants

AP News
Posted: Dec 04, 2009 6:12 PM

The Treasury Department said Friday it received $146.5 million for the warrants of Capital One Financial Corp. in the first auction of the warrants the government received as part of the $700 billion financial system bailout.

The auction, conducted by Deutsche Bank Securities Inc. on Thursday, resulted in a price of $11.75 per warrant. Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.

Each warrant gives the owner the right to purchase one share of Capital One stock at a price of $42.13. The warrants will expire on Nov. 14, 2018. Capital One stock closed trading Friday at $37.92 Friday, up from Thursday's close of $36.92.

The government had received nearly 12.7 million warrants in return for providing Capital One $3.56 billion in support from the financial rescue fund in November 2008 at the height of the financial crisis.

The auction was held because McLean, Va.-based Capital One and the government could not agree on a price for the warrants after months of negotiations.

Most banks wanted to repurchase their warrants so they would avoid diluting the value of their stockholders' shares in the future, but the government was concerned that it could be accused of accepting prices that were too low.

The government announced last month that it would also hold warrant auctions for JPMorgan Chase & Co. and TCF Financial Corp.

All three companies have paid back the original support from the government and the only remaining issue was the disposition of the warrants.

Bank of America announced on Wednesday that it had reached an agreement with the government to repay $45 billion in federal bailout funds, an action that will allow it to escape pay restrictions imposed on financial institutions receiving exceptional assistance from the government.

The announcement was the latest evidence that large parts of the banking industry have been able to recover from the most serious financial crisis since the 1930s.

Treasury Secretary Timothy Geithner said Friday that the administration planned to lay out some proposals in "the next couple of days" for handling the remaining resources in the government's $700 billion financial rescue fund. The administration must decide by the end of the year whether to shut down the bailout fund or extend the program.

"We're going to explain that we're going to have substantial savings, that we're going to have very substantial resources that we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal challenges," Geithner said in an interview on Bloomberg Television's "Political Capital" program. "These resources are going to be very, very substantial."

Geithner did not go into more detail on how the TARP money might be used but House Democratic aides are eyeing up to $70 billion in unused borrowing authority from the rescue fund for jobs-related efforts.

Geithner said in the interview that the administration expected to have $175 billion in repayments from the banking system by the end of next year which he said was "substantially more than we anticipated even just a few months ago."

Treasury has spent about $450 billion from the rescue fund, known as the Troubled Asset Relief Program, including around $290 billion poured into banks. Before the Bank of America announcement this week, nearly 50 financial companies have returned a total of $72.3 billion in bailout money. They have also paid the Treasury $7 billion in dividends.