TARP Warrants

[Guest misterstockwell]

I have been looking at the publicly traded TARP warrants, and I thought I would list them out for everyone else that might be interested. Here are the underlying symbol, warrant symbols(your quote provider may differ), and strike price. All expire 2018/19.

 

COF     COF+     42.13

JPM     JPM+     42.42

TCB     TCB+     16.93

PNC     PNC+     67.33

VLY     VLY+     19.59

CMA     CMA+     29.40

WFSL     WFSLW     17.57

TCBI     TCBIW     14.84

SBNY     SBNYW     30.21

BAC     BAC+A     13.30

BAC     BAC+B     30.79

WFC     WFC+     34.01

SBIB               7.18

FFBC    FFBCW            12.90

The last two have not started trading yet--let me know if you see any mistakes or additions needed

 

[T-bone1]

Yes, I bought the WFC+ and plan to sell higher volatility short term (out of the money) calls over them for the next 8 years

[MVP444300]

Where do you find the price quotation for these warrants?  I can't find it on Google or Yahoo Finance under those ticker symbols.

[Grenville]

Where do you find the price quotation for these warrants?  I can't find it on Google or Yahoo Finance under those ticker symbols.

 

I found a quote through my brokerage scottrade for the wells fargo warrants. You need to do a symbol lookup under wells fargo and find the symbol for the warrants. The symbols are funny and can be specific to the brokerage house you use.

 

I haven't found a symbol on google finance yet.

 

[nodnub]

Google finance is slow to pick up on changes and new listings on stuff like this.

 

nasdaq.com has them listed under JPM.WS, WFC.WS  etc.

Use the symbol search on their page if you are having trouble finding other tickers.

 

They have last sale price and volume but no bid/ask posted.

[Guest misterstockwell]

I added the symbol FFBCW for FFBC's warrants which started trading today. They actually look quite attractive! I just read a Howe Barnes upgrade note on FFBC.

[SmallCap]

another auction of tarp warrants coming up

 

http://finance.yahoo.com/news/Treasury-announces-new-apf-288467893.html?x=0&sec=topStories&pos=3&asset=&ccode=

 

[Uccmal]

Some of these are awesome investments.  To value them any better than Francis Chou has, is obviously impossible.  However, they have some interesting advantages over common stock and common options:

1) They are the same as holding the common stock in that you dont need to realized any capital gains for a few years, or ever, if you choose.

2) You get paid the dividend as it rises beyond the bogey but dont pay taxes on it until you sell the security.

3) Your downside is a total wipeout, which can be taken at your convenience as a tax loss.  By this, if BAC stock goes to an extremely low level the warrants dont need to be exercised until your convenience. 

 

I picked up a small position in both WFC and BAC.WS.A. 

 

If these banks hold true to form they will raise their dividends as things recover, which lowers the cost basis.  The best thing is that holding a small position makes them easy to ignore.

 

[elltel]

fyi...

 

http://www.bloomberg.com/apps/quote?ticker=WFC%2FWS:US

 

 

 

[elltel]

out of interest.. Chou mentions that many of the tarp warrants adjust down for dividends paid by the underlying banks. Is this a one-for-one basis, ie future quarterly dividend of 30cents from Bank of America makes the strike price reduce from $13.30 to $13.01. just wondering that's all.

 

 

[Uccmal]

out of interest.. Chou mentions that many of the tarp warrants adjust down for dividends paid by the underlying banks. Is this a one-for-one basis, ie future quarterly dividend of 30cents from Bank of America makes the strike price reduce from $13.30 to $13.01. just wondering that's all.

 

 

 

I believe that is correct.  I had a good look at the terms in the prospectus.  The way I had it worked out was that any dividend above 0.04 per annum for BAC gets taken off my purchase price for the warrrant when I calculate my adjusted cost basis.  I paid just above $7 for the warrants so it is actually conceivable that over 8 years my ACB could go below zero - unlikely I grant you.

[Josh4580]

BofA May Owe $20 Billion in Mortgage Buybacks, Insurers Say

 

http://www.bloomberg.com/news/2010-09-13/bofa-may-owe-20-billion-in-mortgage-buybacks-insurers-say.html

 

Not good news for BAC, WFC in the near & medium term

[Myth465]

I still have banks in the too hard pile. At least with manufacturing / service companies I know how I got screwed. It seems like with banks you can be hit with a huge loss out of nowhere.

[Uccmal]

Not to be crass but 2018-19 is hardly short term.  I had only one stock in my portfolio 8 years ago that I hold today (FFH).

 

Of course there is going to be crap along the way.  Just ask yourself where BAC stock will trade in 8 years.  They obviously are in retrenchment mode at the moment but at some point growth will normalize.  They also ate some dinner a couple of years ago that is still digesting.   Suppose 10% per year growth in book over 7 years - low for a bank and a valuation of book value. Stock would be around $45 per share in the weakest scenario.  Warrants would trade at about $30, which is a gain of about 17% per year.  - reasonable.  Under a return to value scenario with 15% growth and a move back to 1.5 book value the stock would be worth around $90.  Warrants would be worth $77.00.  That's significant.  Even more significant would be a future p/b of 2.5-3x.  The Canadian Banks all trade in this realm.  That is really what this bet is.  It is a bet with a low chance of ending in zero and a high chance of a return of far > 12%.

 

The same goes for Wells Fargo.  

 

[Guest misterstockwell]

I like FFBCW best. Smaller bank, not very many warrants, already deep in the money, good prospects, good reports on them. Unfortunately, hard to buy in bulk.

[RRJ]

 It is a bet with a low chance of ending in zero and a high chance of a return of far > 12%.

 

The same goes for Wells Fargo.  

 

 

This was exactly my analysis in buying the Wells Fargo tarp warrants.  High chance of upside, with no limit to upside; low chance of zero return, with downside limited to warrant price.  Also hold WFC common, but this is the better investment at this point in time.

[Myth465]

Not to be crass but 2018-19 is hardly short term.

 

 

You are probably right, but I learned over the last few years that buying something you kind of have a grasp (in reality you dont) on can really burn you. I know investment banks arent in my circle of confidence and dont really understand regular banks. I get the concept but cant see how it translates into the numbers. I know in 8 years they will be higher but I think or hope I can get 12% in much easier ways.

 

Either that or work to understand these things.

[SmallCap]

Has anyone found the ticker symbols for these warrants in Google finance yet?

[Parsad]

Just use Yahoo Finance.  They are usually the ticker symbol, hyphen, "WT".  Add an "A" or a "B" for BAC warrants.  Cheers!

[ValueBuff]

What is your opinion of the Warrants vs. the common sanjeev?

[Parsad]

It's all dependent on the duration, the current price and exercise price.  In some cases, the common equity is a better investment in the shorter term.  But the options in most cases will give a bigger bang for the buck over a longer period of time. 

 

One boardmember sent me a terrific spreadsheet he developed for the warrants, and I modified it slightly.  It works very well and gives a realistic view of the annual rate of return on various warrants.  I think you really need to do this to get a good idea of what is a deal and what isn't.  Cheers!

[SmallCap]

One boardmember sent me a terrific spreadsheet he developed for the warrants, and I modified it slightly.  It works very well and gives a realistic view of the annual rate of return on various warrants.

 

Does this boardmember feel like sharing it with the board?

[stahleyp]

One boardmember sent me a terrific spreadsheet he developed for the warrants, and I modified it slightly.  It works very well and gives a realistic view of the annual rate of return on various warrants.

 

Does this boardmember feel like sharing it with the board?

 

I second this! :)

[shalab]

I third this :-). I have done my analysis and will be happy to share it with the board. There is plenty of liquidity in most of these issues not to impact anyone.

[damianolive]

I believe Sanjeev might have been referring to an excel I sent him. I have it in the office, so I'll post it on Monday. It will also give me the chance to update the excel with financial data from the third quarter now that most of the large banks have reported.

 

Regards