Thursday, March 4, 2010

US Treasury Gets $1.54 billion for Bank of America Warrants

WASHINGTON (from the AP & USA Today) — The Treasury Department has received a record $1.54 billion from the sale of warrants it received from Bank of America as part of the support it provided during the financial crisis.

Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.

The Treasury said Thursday it sold 272.17 million warrants in an auction held because Bank of America and the government could not agree upon an acceptable price. Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.

The $1.54 billion total is the largest amount raised from a single institution from the sale of warrants as part of the government's $700 billion financial rescue effort.

The amount raised in the Bank of America auction exceeds the $936.1 million raised from a December auction of JPMorgan Chase & Co. warrants and the $1.1 billion raised from the sale of Goldman Sachs warrants.

Goldman Sachs bought back its own warrants after the company and Treasury were able to agree upon a price. The warrant auctions are being held in cases where the government and the financial institution are not able to agree upon a price.

Treasury held the first three warrant auctions last year. Bank of America was the first of four auctions that are scheduled to be held this month.

Treasury split the Bank of America warrants into two groups representing the two blocks of support Bank of America, based in Charlotte, N.C., received during the height of the financial crisis in late 2008 and early 2009, an amount that Bank of America has repaid.

Treasury said that one batch of warrants brought a price of $8.35 and the other group brought a price of $2.35 to bring the total to $1.54 billion.

The administration in January said in a report to Congress that it had made $4 billion from the sale of warrants in 2009. Of that amount, $2.9 billion came from 31 institutions that repurchased their own warrants and the other $1.1 billion came from the JPMorgan auction and two other auctions.

The warrants represent the last tie the financial institutions have with the controversial $700 billion bailout fund, known as the Troubled Asset Relief Porgram.

Financial institutions have bene eager to exit from the TARP program to escape various restrictions imposed on institutions receiving the government support including limitiations on executive compensation.

On a related note - AIG says it still needs Government help...

AIG said it lost $8.87 billion in the fourth quarter as its general insurance business remained weak and it ran up expenses from paying back government loans.

The troubled insurer also said in an annual regulatory filing that it may need additional support from the government. However, AIG has included such warnings in past filings with the Securities and Exchange Commission.

The fourth-quarter results were an improvement from the $61.7 billion AIG lost in the year ago period, but they were worse than analysts expected. They also followed two straight profitable quarters.

The company reported a 2.2 percent drop in new premiums in its Chartis general insurance business, compared with a year earlier, and attributed the slide in part to the weak economy. It also had lower sales of life insurance products.

AIG also reported $6.2 billion in expenses from repaying government loans.

Investors weren't happy with AIG's news, and bid its stock down nearly 6 percent in pre-opening trading.

The concern in the market is that AIG's insurance business, which was not the cause of its near-collapse in 2008, needs to be stronger for the company to keep repaying the government and become independent again.

New York-based American International Group Inc. said Friday it lost $65.51 per share in the last three months of 2009. The compares to a loss of $458.99 per share in the fourth quarter of 2008.

On average, analysts surveyed by Thomson Reuters forecast a quarterly loss of $3.94 per share.

AIG was bailed out in September 2008 by the government as the financial crisis spiraled out of control. The insurer has received aid packages with a total value of $182.5 billion from the government. In return for that financial support, the government received an 80 percent stake in AIG.

The company was undermined by underwriting risky credit derivatives contracts. A plunge in the value of those contracts was the primary driver of AIG's near-collapse.

AIG has been working for the past year and half to sell assets and streamline operations in an effort to repay government debt. Since receiving government bailout funds, AIG has completed 19 unit sales or asset transactions.

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