Tags: 10b5-1 plans, Bailouts, buybacks, GM, TARP, Treasury
One thing to savor about Treasury’s plan to get out of GM is how many corporate-governance hot buttons it gently caresses. “GM will purchase 200 million shares of GM common stock from Treasury at $27.50 per share” translates into news reports as “Treasury is losing a bazillion dollars,” since after all Treasury paid rather more than $27.50 per share originally, but there are other ways to look at it. One is that Treasury seems to have agreed a deal with GM after the 12/18 close at $27.50 for a stock that had closed at $25.49 and hasn’t touched $27 in ten months; i.e. GM overpaid for stock from a favored/nudgy insider by $400mm. Normally, privately negotiated buybacks from favored shareholders at a premium to market prices are criticized. Normally, privately negotiated buybacks from nudgy, “ooh-don’t-buy-a-corporate-jet” activist shareholders are called greenmail.
That doesn’t mean such buybacks aren’t market-pleasing, by the way. Much like Buffett’s recent slightly-above-market buyback, GM’s above-market buyback seems to have boosted the stock. Delightfully part of the boost is accounting-related. From the Journal: Read more »
Tags: Bailouts, Banks, papers, TAF
While we’re celebrating successful bailouts I suppose it’s worth looking at this VoxEU post and related paper from two Swiss economists about the Fed’s Term Auction Facility, which provided short-term secured funding to U.S. banks who might otherwise have trouble getting such funding between December 2007 and March 2010. The authors ask the questions that we’ve seen asked before about a variety of bailouts, roughly:
- Were the bailed-out banks worse than the non-bailed-out-banks, pre-bailouts?, and
- Did they stay worse after the bailouts?
The answer to the first question is always yes, which you could figure out a priori.1 The answer to the second question is usually yes too. As I said about a previous study, “bank bailouts are designed to let banks keep getting up to their old tricks; if you wanted them to stop doing that you’d let them go bankrupt.”
But here it’s no, so, yay! The authors are looking specifically at interactions of TAF funding and liquidity risk; the idea is something like “a lot of banks did too much short-term funding of long-term assets, and when the funding markets blew up they were in trouble, and TAF was designed to save them, and it did, but did they learn any lessons?” And they did:
In words: Read more »
Tags: AIG, Bailouts, Neil Barofsky, PPIP, Robert Benmosche, TARP
A while back I built a spreadsheet to do math about AIG, and it took me a long time and led to basically one short post with what I still think was a rather lovely blobby picture, so I’m just going to shamelessly reuse that spreadsheet with slight updates and be all OOH LOOK AN IRR:
So yeah: as the AIG bailout saga comes to its sort-of conclusion, we can sort of conclude that the government made a 5.6% return on its money. Assumptions etc. in the original post; the accounting profit ties out reasonably well, if you squint, with the Treasury’s official math.
Herewith some random observations and questions on AIG:1 Read more »
Tags: Bailouts, Banks, small business, Small Business Administration, TARP
Why would you bail out a bank? Theories abound; perhaps you want to keep the capital markets functioning, or prevent contagion to other systemically important financial institutions, or perhaps you just like banks and bankers and would be sad if there were fewer of them or they had less money. Somewhat less likely, you could think to yourself “I want there to be more lending to small businesses, and the best way to go about that would be to buy preferred stock in a bunch of banks.” If that was your goal, and TARP was your bailout, then you failed:
A new report commissioned by the Small Business Administration confirms what a lot of business owners felt in the four years since the financial crisis: The government bailouts for banks did little to relieve the credit crunch for Main Street companies.
In fact, banks that took taxpayer money during the financial crisis of 2008-09 cut their lending to small businesses more than other banks did, according to the paper by Rebel Cole, a DePaul University economist. … TARP banks cut their lending to small businesses by 21 percent in that period, compared to a 14 percent drop at other banks, according to the paper.
Here’s the paper and here is a sad little chart from it:
Other not-quite-epiphanies abound: Read more »
Tags: Bailouts, GM, Treasury
I’m pretty sure that there’s one or two or thirty investment bankers currently handholding at the U.S. Treasury and General Motors in their debate over when and at what price Treasury should get rid of its remaining GM shares. I’m also pretty sure that those bankers are fed up with their principals’ childishness. Thus, I guess, this Wall Street Journal article. On the one hand, you’ve got Treasury and its unfamiliarity with the concept of sunk costs:1
Earlier this summer, GM floated a plan with Treasury officials to repurchase 200 million of the roughly 500 million shares the U.S. holds in the auto maker, according to people familiar with the discussions. Under the plan, Treasury would sell the remaining shares through a public stock offering.
But Treasury officials aren’t interested in GM’s offer at the current price and aren’t in a rush to offload shares, according to people familiar with the matter. The biggest reason: A sale now would leave the government with a hefty loss on its investment.
At GM’s Friday share price of $24.14, the U.S. would lose about $15 billion on the GM bailout if it sold its entire stake. While GM stock would need to reach $53 a share for the U.S. to break even, Treasury officials would consider selling at a price in the $30s, people familiar with the government’s thinking have said.
On the other hand, you’ve got, um, this: Read more »