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Treasury to sell GM stake over 15 months

Plans call for the U.S. to sell its remaining 500 million shares back to General Motors for $5.5 billion.

December 20, 2012|By Jim Puzzanghera and Jerry Hirsch, Los Angeles Times
  • The sale of Treasury's GM stock would be its first since the restructured automaker's initial public offering in 2010. Above, a 2013 Cadillac ATS rolls off the assembly line at a General Motors plant in Lansing, Mich.
The sale of Treasury's GM stock would be its first since the restructured… (Bill Pugliano, Getty Images )

WASHINGTON — More than four years after the U.S. began pouring money into ailing banks and automakers, the Obama administration is moving more quickly to shut down the controversial $700-billion bailout fund and rid Uncle Sam of its holdings in private companies.

The latest move came Wednesday when the Treasury Department announced plans to sell its remaining 500 million shares of General Motors Co. over the next 15 months — even if that means taking a loss.

The task will begin with the sale of about 40% of the government's holdings to GM at $27.50 a share by the end of the month, reducing the U.S. stake in the company to less than 19%. At its peak, the U.S. owned 60.8% of GM after a government-led restructuring.

Obama administration officials have been clear that they don't expect to recover all the money given to GM from the Troubled Asset Relief Program, or TARP. If the remaining shares were sold at the current price, they would generate about $8.2 billion, leaving the U.S. with a loss of about $12.6 billion.

Peter Nesvold, an analyst with Jefferies & Co. said the Treasury Department had been expected to start selling off its remaining shares but "the actions were earlier than we expected and at a lower price."

Nesvold said he had anticipated a price of about $30 a share, given the potential value of GM.

"The auto industry rescue helped save more than a million jobs during a severe economic crisis, but TARP was always meant to be a temporary, emergency program," said Timothy Massad, assistant Treasury secretary for financial stability.

"The government should not be in the business of owning stakes in private companies for an indefinite period of time," he said.

That philosophy has been clear recently.

Last week, the Treasury sold its final shares of insurance giant American International Group Inc., ending the largest single bailout in the financial crisis. The Treasury ended up with a gain of $5 billion on its portion of the complicated, $125-billion AIG bailout, which was funded with TARP money. The Federal Reserve earned a $17.7-billion profit on its part of the rescue.

And Treasury officials said Tuesday that they planned to sell the government's stake in about two-thirds of the 218 mostly small banks that still have not repaid their bailout money. The banks owe a combined $8 billion.

The government pumped about $245 billion into 707 banks to help stabilize the financial system in 2008 and 2009. Most of the money went to large banks, which have repaid the money with interest and dividends. So far, the banks have repaid $268 billion, including dividend payments and other income.

The U.S. lost $1.3 billion on its $12.5-billion rescue of Chrysler Group. Treasury closed the books on that bailout last year.

Congress authorized $700 billion for TARP, but the program only disbursed $418 billion to banks, GM and Chrysler before its authority to distribute any more money ended in 2010.

So far, Treasury has collected $381 billion in repayments, dividends and other income from the bailouts. TARP also has been used to fund mortgage aid to homeowners, and that money is still being spent.

In October, the Congressional Budget Office projected that TARP would end up losing $24 billion.

The sale of Treasury's GM stock would be its first since the restructured automaker's initial public offering in 2010. Treasury said it could start selling more GM stock as early as next month. The plan is to get rid of all of it in 12 to 15 months, "subject to market conditions," the agency said.

GM will purchase the 200 million shares at $27.50 apiece, almost 8% above Tuesday's closing price, but that price is little more than half what the government needs to break even on the $49.5 billion it pumped into the automaker starting in late 2008.

The sale will generate $5.5 billion, bringing the amount recovered from GM to $28.7 billion.

"Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests," Massad said.

GM Chief Executive Dan Akerson said the Treasury's plan was "an important step in bringing closure to the successful auto industry rescue."

"It further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM's progress and our future," he said.

GM shares rose $1.69, or 6.6%, to $27.18 on Wednesday.

The deal will not affect the automaker's credit because it has more than enough cash to handle the transaction, said Robert Schulz, an analyst with Standard & Poor's Ratings Services.

Since the government bailout, GM has said it would invest more than $7.3 billion in the U.S. to expand its product line, update factories and add jobs.

It remains the largest seller of autos in the U.S., though it will lose the top ranking globally to Toyota Motor Corp. this year.

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