NEW YORK (Fortune) -- Bank of America is leaving the Troubled Asset Relief Program with a bang.
The government said Thursday it will net $1.54 billion in selling the stock-purchase warrants it received from BofA (BAC, Fortune 500) in exchange for multibillion-dollar emergency loans during the financial crisis. The auction, completed Wednesday, ranks as the Treasury Department's most lucrative warrant transaction since sales began last summer.
The auction comes at a time when the bailout bill has shrunk, thanks to last year's market rally, and just a few big banks retain TARP ties.
Recent estimates from the Congressional Budget Office suggest Treasury will roughly break even on its loans to banks, though support for housing and the auto industry are still likely to result in substantial losses.
"TARP has been billed as a banking bailout, but it's the banks that are making taxpayers whole," said Donald Marron, a visiting professor at the Georgetown Public Policy Institute and a former CBO acting director.
The CBO estimated in January that the TARP program would cost taxpayers $99 billion over its lifetime. The administration's Office of Management and Budget recently produced a similar estimate.
That is a considerable improvement from far gloomier estimates just a year ago. Last March, when bank watchers were predicting insolvency and nationalization for big institutions, the CBO projected the TARP program would cost $356 billion.
"There is a growing consensus on lifetime costs for TARP," said Douglas Hamilton, deputy director of the economic policy group at the Pew Charitable Trusts. "These numbers are a lot lower than they were last year, mostly because the stock market values have improved so much."
Not all the bailout bills are declining, of course. The CBO estimates federal support to the government-sponsored mortgage buyers Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) added $291 billion to the federal deficit in 2009 and will cost an additional $81 billion through 2019.
And the stock market rally owes much to investor-friendly federal policies ranging from near-zero short-term interest rates that boost bank profits to cheaper credit via Federal Reserve mortgage purchases and Federal Deposit Insurance Corp. loan guarantees -- all of which carry costs of their own.
Still, it's clear the government stands to recoup some of those costs in the sale of the warrants, which give holders the right to buy a stock at a certain price by an agreed-upon date. The TARP warrants being auctioned Wednesday expire in 2018 and 2019 and have a strike price nearly double Bank of America's recent stock price.
Linus Wilson, an assistant finance professor at the University of Louisiana-Lafayette, projected ahead of Thursday's announcement that Treasury would get between $1 billion and $1.9 billion in the BofA auction. BofA took $45 billion of TARP funds in 2008 and 2009 and repaid the loans last December.
Goldman Sachs (GS, Fortune 500) paid $1.1 billion to repurchase its warrants in July, after repaying $10 billion of TARP loans, and Morgan Stanley (MS, Fortune 500) paid $950 million to buy back warrants tied to a $10 billion loan a month later.
In December, Treasury held its first warrant auctions, which allowed the government to liquidate warrants issued by banks that decided not to repurchase the warrants after repaying TARP loans. Among those auctions was one that raised $950 million via the sale of JPMorgan Chase (JPM, Fortune 500) warrants. JPMorgan had taken $25 billion in TARP funds.
The last two megabanks to have repaid TARP, Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500), have yet to declare whether they will repurchase their warrants or opt for an auction. Wilson said the two companies' warrants could fetch $1 billion or more combined.
But the auctions represent a step forward, Marron said, because they eliminate questions about whether the government is treating some banks with kid gloves.