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It seemed so unlikely a few years ago that investors weren’t willing to bet a dime on it. But on Friday,
stock price reached $30.79.
That was the price Bank of America’s stock needed to hit for some esoteric securities to have any value. These securities, known as Bank of America TARP “B” warrants, had been bought by a varied group of investors ranging from hedge-fund managers like
to the Michigan Department of Treasury.
Now, some are sitting on eye-popping gains.
Yet it was a bet few had the stomach for—even less than two years ago when the bank’s stock was reeling. In 2016, with Bank of America shares trading for much of that year below $15, the warrants traded for as little as 7 cents.
The warrant price reflected investor views that there was little chance Bank of America stock would ever reach the $30.79 strike price.
But since that year’s presidential election, Bank of America’s stock has been on a tear as rising interest rates and tax cuts helped profits and the bank put legal and credit issues behind it. Earlier this month, the lender’s stock crossed the $30 mark for the first time since 2008. On Friday, the shares closed at $31.19.
Over the last 12 months, the bank’s shares have risen 36%, the most of any big bank.
The warrants have done even better: they are up more than 4000% since their low in August 2016. They now trade at $2.86.
The warrants were originally issued to the government during the 2008 bank bailout. Many of them from a variety of banks were later auctioned off to private investors.
Essentially, for these buyers, the warrants were like lottery tickets. If the stock stayed below the strike price, the warrant would end up worthless. If it rose above the strike, big gains could be in store.
Investors have until October 2018 to redeem the Bank of America B warrants before they expire.
Bank of America reports earnings next Wednesday.
Write to Rachel Louise Ensign at email@example.com