Author Topic: BAC-WT - Bank of America Warrants  (Read 2014816 times)

treasurehunt

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Re: BAC-WT - Bank of America Warrants
« Reply #7290 on: July 02, 2018, 06:39:32 PM »
Tax on warrants

I am not sure. I will post couple of opinions

https://www.strictlybusinesslawblog.com/2012/11/02/stock-options-versus-stock-warrants-whats-the-difference/

http://ww2.cfo.com/accounting-tax/2009/02/lets-be-clear-there-is-a-tarp-tax-exception/

https://www.irs.gov/pub/irs-drop/n-09-14.pdf

Thanks for these links, indirect. I was considering exercising my remaining WFC TARP warrants close to the expiry date, but now I think I am better off selling them (long-term capital gains tax rate versus marginal income tax rate; my cost basis in the warrants is just over $8 per warrant). The information you provided here seems quite definitive. Why are you still unsure about the tax treatment?


indirect

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Re: BAC-WT - Bank of America Warrants
« Reply #7291 on: July 02, 2018, 08:04:29 PM »

treasurehunt

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Re: BAC-WT - Bank of America Warrants
« Reply #7292 on: July 03, 2018, 08:47:14 AM »
If IRS considers TARP warrants as options then,

https://www.marketwatch.com/story/how-stock-options-are-taxed-2015-03-18

Ok. I guess taxation at exercise applies only to employee stock options, not to regular call options. So if warrants are treated as options, warrant exercise is not a taxable event? I'll go back to my plan to exercise and not sell. Should have just bought the damn things in an IRA.  :)

racemize

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Re: BAC-WT - Bank of America Warrants
« Reply #7293 on: July 03, 2018, 08:55:21 AM »
If IRS considers TARP warrants as options then,

https://www.marketwatch.com/story/how-stock-options-are-taxed-2015-03-18

Ok. I guess taxation at exercise applies only to employee stock options, not to regular call options. So if warrants are treated as options, warrant exercise is not a taxable event? I'll go back to my plan to exercise and not sell. Should have just bought the damn things in an IRA.  :)

This is how I've understood it.

MVP444300

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Re: BAC-WT - Bank of America Warrants
« Reply #7294 on: July 11, 2018, 03:00:15 PM »
I use Fidelity as one of the brokers I use.   When I asked them what the process would be to convert my A Warrants to common stock they said the strike price would be $12.66 which I agree with totally but that the number of commons that I will be able to convert would be far less than the # of warrants I have.... about 40% less.   In other words if I bought 10 shares of warrants i would only be able to convert 6 shares at a strike price of $12.66.   Fidelity said that Computershare would be handling the conversion and that they would be charging a fee that would take the 40% 

I thought for every warrant you buy it would entitle you to 1 share of common (maybe a little more with the reduction in strike price).  If I bought 10 warrants that would entitle me to buy 10 commons at the $12.66 strike price.

Anyone else having this issue converting or have any advice?     
« Last Edit: July 11, 2018, 03:04:14 PM by MVP444300 »

globalfinancepartners

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Re: BAC-WT - Bank of America Warrants
« Reply #7295 on: July 11, 2018, 03:24:12 PM »
I don't have any advice but I think it's important to note whether you do, in fact, have such a small position in the warrants that the expenses of converting are 40%.  For instance, was 10 warrants an example or your position size?

lschmidt

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Re: BAC-WT - Bank of America Warrants
« Reply #7296 on: July 11, 2018, 03:33:37 PM »
Fidelity is correct. B of A warrants can only be converted via cashless exercise. This means that for every share of BAC common you receive, you give up one warrant and $12.66 cash for the strike price. Simply take the total value of the warrants, divide by the market price of BAC common, and that's how many BAC common shares you should receive as an equivalent.  60% common to warrant ratio sounds about right. Fidelity should charge no fee, the 40% is the strike price.

MVP444300

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Re: BAC-WT - Bank of America Warrants
« Reply #7297 on: July 12, 2018, 09:11:06 AM »
I don't have any advice but I think it's important to note whether you do, in fact, have such a small position in the warrants that the expenses of converting are 40%.  For instance, was 10 warrants an example or your position size?

My position is much larger than 10 shares.  lol  I was giving an example of what my broker was telling me.   I got it resolved though.   Thank you

MVP444300

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Re: BAC-WT - Bank of America Warrants
« Reply #7298 on: July 12, 2018, 09:14:48 AM »
Fidelity is correct. B of A warrants can only be converted via cashless exercise. This means that for every share of BAC common you receive, you give up one warrant and $12.66 cash for the strike price. Simply take the total value of the warrants, divide by the market price of BAC common, and that's how many BAC common shares you should receive as an equivalent.  60% common to warrant ratio sounds about right. Fidelity should charge no fee, the 40% is the strike price.

I'm an idiot!  This is my first time dealing with warrants, or any option for that matter, so I didn't quite understand what the broker was telling me when he said conversion from warrants to common would be about 40% less warrants ie 10 warrants would give me 6 common shares.   I was expecting a 1 to 1 conversion. 

I got on IR with BAC who explained it to me and confirmed what you said above.   Thanks

lschmidt

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Re: BAC-WT - Bank of America Warrants
« Reply #7299 on: July 12, 2018, 10:01:57 AM »
No worries, I converted a few months ago with Fidelity as well. They calculated the conversion correctly, and the conversion took 2 days without any problems. Interestingly, a friend did the same with Wells Fargo - they did the calculation wrong by about 3%, requiring many angry calls to the brokerage desk.