Bank of America warrant holders could reap 4,000pc returns

File picture shows the Bank of America logo in New York City, January 10, 2017. — Reuters pic
File picture shows the Bank of America logo in New York City, January 10, 2017. — Reuters pic

NEW YORK, Jan 14 — Holders of a little-known security tied to Bank of America Corp’s stock price may be rolling in the dough.

A series of securities known as Bank of America TARP B warrants, issued in the wake of the financial crisis in 2009 with a strike price of US$30.79, are set to pay out after the stock surged past that point for the first time on Friday. Shares closed at US$31.19, up from US$30.66 a day earlier.

The warrants last traded at US$2.86, the highest price in more than six years. They were issued at US$2.55 and fell to a record low of less than 7 cents in 2016. Holders who bought around that low price have reaped returns of almost 4,000 per cent on their investment.

Michigan’s state treasury is the largest holder, with more than 10 million warrants. Its first registered holding date is Sept. 30, 2014, when the price was 96 cents, and the average cost of its warrants is 79 cents. Billionaire hedge fund manager John Paulson is the next-biggest holder with almost 9 million warrants. Paulson & Co registered its first holding in 2010, and bought the warrants at an average price of US$2.53 each.

The warrants were originally issued to the government through the Troubled Asset Relief Program, and were later auctioned off by the US Treasury. They traded at less than US$1 for more than five years, reflecting investor doubt that Bank of America’s stock would ever reach the strike price.

The bank’s stock traded as low as US$11.16 in 2016, but the price has almost tripled from that point as rising interest rates and decreased regulation under the Trump administration renew investor confidence.

The attainment of the strike-price threshold was reported earlier by the Wall Street Journal. — Bloomberg

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