The Treasury Department has received $15.39 million from the sale of warrants it received from Washington Federal Inc. as part of the support it provided from the government's $700 billion bailout program.
The Treasury said Wednesday that it sold 1.71 million warrants in an auction that took place the previous day. Warrants are financial instruments that allow the holder to buy stock in the future at a fixed price.
The auction for the Seattle-based bank followed one held last week in which the government raised a record $1.54 billion from the sale of warrants received from Bank of America.
The Treasury said that the Washington Federal warrants brought an auction price of $9.15 per warrant, above the minimum bid of $5 per warrant set by Treasury.
Under the terms of the auction, the owner of the warrants will have the right to purchase Washington Federal stock at a price of $17.57. That would mean shares of Washington Federal would have to be above $26.72 for investors to break even in terms of getting back the amount paid for the warrant plus the amount the investor would pay for the stock at the strike price of $17.57.
Washington Federal shares rose 45 cents to $19.83 in late afternoon trading.
Analysts said that the price that Treasury was able to get for the warrants showed that investors have an optimistic outlook about the prospects for community banks and smaller regional banks.
"Investors seem to be eager to bet on the recovery of U.S. bank shares," said Linus Wilson, a finance professor at the University of Louisiana at Lafayette. "With the larger banks constrained in their growth by regulatory pressure, the smaller banks have the most scope to expand their operations over the decade."
At the height of the financial crisis, Washington Federal received $200 million in November 2008 from the government's $700 billion bailout fund, known as the Troubled Assets Relief Program.
Financial institutions have been eager to exit from the TARP program to escape various restrictions imposed on institutions receiving government support including limitations on executive compensation.
Washington Federal operates 150 offices in Washington, Oregon, Idaho, Utah, Nevada, Arizona, Texas and New Mexico.
(This version CORRECTS Subs pvs to correctLY show the break-even point for an investor and UPDATE stock price. Moving on general news and financial services.)
