Congressman Weiner should read section 6 of the sales purchase agreement for the preferred shares:
Section 6. Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.
I have checked both the Edgar filings for Bank of America and for Wells Fargo, and the language is identical. The terms of the preferred sale are clear: these shares are not convertible to any other type of security, including common.
Nor is there is an attached put option; the only way that these perpetual instruments can be turned into cash is at the option of Bank of America or Wells Fargo via the redemption features of the agreement. There is no provision in the agreement for the government to force these shares to be redeemed.
Links for these Edgar filings for Bank of America; the relevant document is http://idea.sec.gov/Archives/edgar/data/70858/000119312508220360/dex31.htm; the entire filing for this transaction can be found at http://idea.sec.gov/Archives/edgar/data/70858/000119312508220360/0001193125-08-220360-index.idea.htm.
Links for these Edgar filings for Wells Fargo; the relevant document is http://idea.sec.gov/Archives/edgar/data/72971/000095012308013950/y72262exv4w1.htm; the entire filing for this transaction can be found at http://idea.sec.gov/Archives/edgar/data/72971/000095012308013950/0000950123-08-013950-index.idea.htm.
There is a related issue; as a part of this transaction, both companies also sold a warrant to directly purchase common stock from each company. However, the exercise price is $30.79 per share for Bank of America shares and BAC is currently around $8-$9 per share, so it would make no economic sense for the government to buy shares from Bank of America at $30.79 per share. The exercise price is $34.01 per share in the Wells Fargo warrant, and WFC is currently around $18-$19 per share, and again, it would make little economic sense for the government to exercise this warrant.
Such purchases of common under these warrants would put a relatively small of amount of capital into the companies --- full exercise of the warrants by the government would bring each bank around $3 billion, much less than the $25 billion raised by the sale of the preferred.
Section 6. Conversion. Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.
I have checked both the Edgar filings for Bank of America and for Wells Fargo, and the language is identical. The terms of the preferred sale are clear: these shares are not convertible to any other type of security, including common.
Excellent find. Thanks.