In its first sale of assets acquired under the unpopular bank bailouts, the U.S. Treasury will auction warrants to buy stock in Capital One, one of the top credit card issuers, at a minimum price of $7.50.
Capital One shares closed at $38.09 on Tuesday on the New York Stock Exchange.
Capital One received $3.55 billion in taxpayer funds last year. The Treasury, in return, acquired stock warrants and preferred shares after Capital One was hobbled by huge credit card losses. The auction will mark the first of three such sales of bank stock warrants under the U.S. government’s $700 billion Troubled Asset Relief Program (TARP).
The Treasury also has plans to auction off its warrant positions in JPMorgan Chase & Co, the nation’s top credit card issuer, and TCF Financial Corp. All three banks have fully repurchased the Treasury’s investment in preferred stock. The Treasury said it will have no remaining holdings in the banks if the warrants are sold.
Much like options, stock warrants give the buyer the right to purchase common stock at a predetermined “exercise price” within a specified period of time. In the case of the Capital One warrants, the exercise price is $42.13 per share. Each warrant represents one share of stock and up to 12,657,960 warrants will be up for sale on Thursday. The warrants will expire on Nov. 14, 2018.
Bids will be accepted at any price in increments of 25 cents at or above the minimum bid price of $7.50 per warrant. The minimum bid size is 100 warrants.
Click here to view Capital One’s filing with the Securities Exchange Commission in connection with the auction.
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