The Treasury Department has received $936.1 million in the sale of warrants it had received from JPMorgan Chase & Co. as part of the support it provided the bank during last year's financial crisis.
The Treasury on Friday said it sold more than 88.4 million warrants in an auction Thursday at a price of $10.75 each. Warrants are financial instruments that allows the holder to buy stock in the future at a fixed price.
The conversion price for the JPMorgan warrants is $42.42 per share. Once the bank's stock hits that price, the warrants can be converted into stock worth $3.75 billion.
JPMorgan's share price fell 47 cents to $40.80 in midday trading. Shares have traded above the $42.42 price in recent months, rising as high as $47.47 in mid-October. The warrants are equivalent to about 2.2 percent of JPMorgan's total outstanding shares as of Oct. 31.
Treasury received the warrants as a deal-sweetener when it injected billions of dollars into capital starting in October 2008 at the height of the financial crisis.
It was the second auction of warrants from financial institutions that had received support from the government's $700 billion financial bailout fund. Besides New York-based JPMorgan, the government last week received $146.5 million in a sale of warrants it had received from McLean, Va.-based Capital One Financial Corp.
The government also has announced that it will hold a third auction later this month for warrants it holds from Wayzata, Minn.-based TCF Financial Corp.
JPMorgan had received $25 billion in support from the bailout fund in October 2008 and paid that money back in June. The sale of the 88.4 million warrants was the bank's remaining tie to the bailout fund.
The government had received nearly 12.7 million warrants in return for providing Capital One $3.56 billion in support in November 2008. TCF received $361 million in government assistance in November 2008 and paid that money back in April. The government holds 3.2 million warrants from TCF.
Banks have been rushing to pay back the support they received from the government and cut their ties to the bailout, known as the Troubled Asset Relief Program, in part to escape related pay restrictions.
Many banks that received aid from the TARP repurchased their own warrants when they returned the government assistance because they did not want to dilute the value of their stockholders' shares in the future.
But the government has the right to schedule auctions if negotiations with the banks fail to arrive at an acceptable price. The Obama administration has wanted to avoid criticism that it accepted prices for the warrants that were too low given the political heat it already has taken for the TARP.
Earlier this week, the administration trimmed by $200 billion its estimate of how much the bailout program will lose. It now projects losses of $141 billion or lower, down from an estimate of $341 billion in August. The revised figure represents faster paybacks from many banks as the financial system stabilizes and lower use of the bailout program than originally envisioned.
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