The United States Treasury announced on Tuesday plans to auction off 12.66 million warrants to buy stock in Capital One Financial (NYSE: COF). The auction, scheduled for Thursday (starting at 8:00am EST), is the first sale by the Treasury of assets purchased under the governments’ bank bailout program whereby banks received capital injections of taxpayer money in exchange for equity positions.
The Treasury announced back in October that it planned to auction off the warrants of Capital One Financial, as well as its warrant positions in JPMorgan Chase (NYSE: JPM) and TCF Financial Corp (NYSE: TCB). The dates of the sale of JPMorgan Chase and TCF Financial Corp are likely to be announced later this month.
When asked about the destination of the proceeds of the sale of the warrants, the Treasury stated that, “The proceeds of this sale will provide an additional return to the American taxpayer from Treasury’s investment in the company beyond the dividend payments it received on the related preferred stock”. Capital One Financial received approximately $3.55 billion in taxpayer funds last year from the Treasury in exchange for stock warrants and preferred shares. The company has since repaid the bailout money it has received and repurchased all the preferred shares owned by the Treasury. JP Morgan Chase and TCF Financial have also repurchased the preferred stock in their respective companies owned by the Treasury.
Capital One Financial’s fall from grace was one of the more resounding collapses during the economic crisis. Once one of the largest issuers of Visa and Mastercard branded credit cards, they suffered huge losses and were forced to seek bailout money from the government. The stock hit a 13 year low of $7.80 in March of this year, but has since increased almost five fold, and closed on Tuesday at $38.09 on the New York Stock Exchange. Capital One Financial initially focused solely on credit card accounts, but expanded their business (too quickly some may caution) into branch banking after acquiring Hibernia Corp, North Fork Bancorp Inc., and most recently Chevy Chase Bank in the Washington DC area. Their rapid expansion continues to serve as a cautionary tale of over expansion and escalating exuberance.
The minimum lot size for the auction is 100 warrants, and bids will be accepted in 25 cent intervals at any price above the minimum set price of $7.50 per warrant. Each warrant carries the right to purchase one share of Capital One Financial stock at an exercise price of $42.13, and have an expiration date of November 14, 2018. If all 12.66 million warrants are sold as anticipated, the government will have no ownership position in the company.
