We Are All Banks Now
GMAC wins bank status–gains access to TARP.
Optimistic emptywheel:
One of the critical problems in the auto industry is the absence of credit (I’ve heard folks under 750 can’t get a car loan, for example). By making GMAC a bank, you relieve one of the biggest problems in the sickest parts of the auto industry, and thereby stimulate one of the key segments of the economy, and you begin to get to get money the economy moving again.
Pessimistic emptywheel:
Dan Quayle and John Snow have an (increasingly limited) ability to suck at the federal teat to make their private profit.
The small print:
GM must now reduce its stake in the auto lender below 10 percent, from 49 percent. GM has three years to sell the rest of its shares, which in the interim will be placed in a trust that the company does not control. The automaker and GMAC also agreed to unwind a number of exclusive agreements, freeing GMAC to offer financing on equal terms to customers of other car companies.
Cerberus and its chief, Steve Feinberg, must reduce their stake below 15 percent, from 51 percent. The private equity fund plans to distribute its GMAC shares proportionally among its investors.
This is getting confusing! The quote makes it sound as if any given Cerberus investor will wind up with exactly the same position in GMAC as before the divestiture, except that 71% (=36/51) of it will now be held directly (because of the distribution) with the remaining 39% (=15/51) still held through Cerberus. So the existing shareholders per se will remain in the same participation position w/r/t GMAC that they have now; it’s only Cerberus the corp that’s getting a suck-cap slapped on. I guess the Cerberus shareholders come out ahead since any profit in GMAC accrues to them directly rather than having Cerberus skim a cut off.
Betcha Cerberus makes out like a bandit. Because they are.
Here’s a question: Who are the Cerberus investors? Beyond Quayle and Snow, I mean. It’s a hedge fund.
I ain’t no frickin BANK
I gots my pride, ya knows
I wass born a bookie, an I’ll die a bookie
but I ain’t no fookin banker
(actually, we prefer the term “Illegal Book Maker” cuz it makes us sound like a literate profession an stuff …)
next you’ll be callin us “lawyers” or somtin
we got some scruples round here, they might not be the scruples you would pick, but they’re scruples just the same
(wink)
if anybody asks me what I think, I just tell em “what emptywheel said …”
HAPPY HOLIDAYS FOLKS
Only 15 more shopping days left till the BCS Championship Game
BOOMER SOONERS
I was in total agreement with your post, thinking it well founded and reasonable until you said:
At which point I understood that you were completely delusional! I suppose I will pull for the ONCE DEFEATED Sooners since they are,
somemany would claim illegitimately, representing the conference.45-35
Yep, you ain’t the only one non-plussed by the Sooners.
O gag the Sooners ….;) I was about to say something about the Christmas Grinch for giving us a picture of the aging Mr Quayle…what a night at the Lake.
Merry Christmas Freep and Happy Holidays!
Pssst: I am on to you, you are closer to a soft old wookie than a bookie. But I won’t tell.
Wink!
Wow. Is this the reason Cerberus is hanging onto cash now? Are they going to buy the rest GMAC?
Ugh…it was a happy holiday right up until that thought.
No, per the agreement to get GMAC to bank holding company status, Cerberus has to divest down to less than 15% ownership.
More than one way to skin a cat, bmaz. Something smells here, not certain exactly what it is, but I’ll bet there’s no way Cerberus will walk away altogether if it can make a buck on this deal.
I don’t think they are walking away as much as divesting. Masaccio seems to think it will be parcelled out to Cerberus’ investors. So be it, but that gets Cerberus out of direct voting control. That is a good thing. It isn’t all going to be gravy for us. The most important thing is to make sure the industry survives – Ford, GM and, well, I don’t think Chrysler as we know it is too long for existence, but I sure hope I am wrong.
Brer Rabbit & the Briar Patch
Or Cerberus and the Forced Sale
“Oh please don’t make me sell my GMAC share,
please, don’t, anything but that,
please don’t make me sell my GAMC shares now it’s a bank and funded by the taxpayer…
Please don’t make me take a profit…”
When the idea of making GMAC a bank holding company was first announced, one of the requirements was that 75% of GMAC bondholders, including holders of bonds issued by the wholly-owned ResCap, exchange their bonds for a security of the bank holding company. ResCap is a wholly-owned subsidiary of GMAC, which is infected with subprime mortgages. The NYT article says the new security is preferred stock but the Bloomberg story is unclear, and the CNN story cited in EW’s post below says it is a debt instrument.
Bloomberg says that the bond exchange did not meet the levels demanded by the Fed. One large holder of bonds, Pimco, refused to exchange because it would “lock in losses”.
This is from today’s NYT:
The extra equity would provide a cushion for the preferred stock. Maybe Pimco thought it could drive a harder bargain because it is protected to some extent by CDSs, so why would it exchange bonds unless it thought it was getting a better deal than waiting for collapse and collecting on its protection. Now that the Fed has approved the deal without the exchange, maybe this theory is undercut, especially because as EW noted a couple of days ago, apparently the CDS will be rejiggered because of the restructured deal.
So maybe it will be in the best interests of everyone to do the exchange. If so, it will be a case of CDSs affecting the interests of stakeholders in unexpected and complex ways.
Digg!
OT but really big financial news on the municipal bond market:
State, county and municipalities are struggling to make budgets 2007 and 2010 the cost of bonds are going up and ratings down. Layoffs and thousands of public work projects are in the tank on hold.
Moorlach Sees Up to 10 Municipal Bankruptcies in Coming Year
Californis $42 Billion in the hole despite $50 Billion in bonds issued rating was lowered by Moody and S&P
Who is going to buy muni bonds…how will states operate…the whole system is rotten…wall street won’t say it but we are into a depression as governments lay off and renegotiate retirement fund for fire and polce unions. Who’s going to buy those cars from Detroit?
Won’t Cerberus simply create new “entities” to spin off their ownership of GMAC? I mean, there’s an infinite number of “entities” possible as long as Lord Paulson is King, right?
Ironically, It should be interesting to see Paulson answering DiFi’s and Snowe’s cries for transparency on where the TARP funds are going… Pass the popcorn…!
Demos will roll over again and give the rest of $ and let go of were did it all go.
GM workers are toast, only the who didn’t deserve the money will get repaid something.
jo6pac
The race to the bottom continues.
I am the First National Bank of the Sacred Kitchen Utensil.
My assets are frozen. (a pkg of peas, half a box of fish sticks and something brown from last March) I need an infusion of $53,563,468.12 but will forgo the $8.12 as a gesture of frugality.
I will use these funds to make batches of chocolate chip cookies to worthy accolades of kitchen utensils.
Gee! aren’t the banks the biggest share of our problems, making more of them, bailing them out, and letting them run the show shure sounds a little strange. The joke that we are stock holders in some and that will someday make us a buck is funny. If people can’t get auto loans now, making GM give less sounds like it will make things better. If we wonder why we have so many problems just look at what we do in this country.