The U.S. Treasury is set to receive $30.06 million from the sale of 17.9 million stock warrants of SunTrust Banks Inc. (STI). On September 22, the Treasury had conducted the modified Dutch auction of these warrants, which it had received in exchange for $4.85 billion bail-out money.
STI warrants included 6,008,902 in “A” warrants (minimum bid price of $2.00) and 11,891,280 in “B” warrants (minimum bid price will be $1.05). Deutsche BankSecurities, a unit of Deutsche Bank AG (DB) and Lebenthal & Company ran the auction. The transaction is expected to close on September 28. Additionally, STI acquired 4,008,902 warrants at $2.70 each, representing 67% of “A” warrants.
The buyers of the warrants will have the right to purchase an equal number of STI shares at a fixed price – $33.70 for the “A” warrants and $44.14 for the “B” warrants, with expiry dates of December 31, 2018, and November 14, 2018, respectively.
In 2008, the Treasury had received these warrants in two tranches as a part of its investments in STI through the Troubled Asset Relief Program (TARP) during the height of the financial crisis. In March 2011, STI repaid the entire bailout money it had received from the government.
The $700 billion TARP, which was initiated in 2008 to rescue the nation’s financial industry, remains a success story. In order to support the financial system under this program, as well as other programs, the Treasury had invested $245 billion in more than 700 banks and financial institutions. Meanwhile, as of June 30, 2011, the Treasury has already recovered $256 billion and is expected to realize further profit from these programs.
With the sale of these warrants STI will be completely free from any government intervention. However, the company is subjected to annual stress tests conducted by the Federal Reserve in order to determine the health of its balance sheet.
Currently, STI shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
DEUTSCHE BK AG (DB): Free Stock Analysis Report
SUNTRUST BKS (STI): Free Stock Analysis Report
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