When you need more and more money from an ever-larger group of lenders, you can’t let a little thing like the LIBOR scandal stop you. And the Treasury Department (soon to be under new management?) isn’t, insisting that it will offer its first-ever floating-rate bonds within the next year.
But first, it’s got to figure out exactly what they will float on. And none of the options seem like good ones. The first new Treasury product since TIPS is likely to be a big deal, so we can’t have people like those guys on top of the giant Deutsche Bank logo in the North Sea messing around with it. Which leaves us with the two real bad options: Rely on the increasingly unreliable repo rates, or have the Treasury set them itself. Read more »
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 »
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 »
In New York this week, John Heileman repeats reports that Tim Geithner wants to resign as Treasury Secretary this year after the debt ceiling talks are resolved, and kind of surprisingly gives the nod to Facebook COO Sheryl Sandberg as the most likely successor, adding to talk of her shortlisting from earlier this month. His logic is here, and includes Sandberg’s growing national reputation (especially after this week’s New Yorker profile), her history as chief of staff to Larry Summers at Treasury, and her appeal to the business community without any Wall Street/GE-doesn’t-pay-taxes baggage for the, um, anti-business community.
It’s hard to argue with Sandberg’s timing so far – she joined Google pre-IPO, cashed out after their 2004 IPO, and jumped to Facebook in 2008. So the next sensible new-media thingy would seem to be Twitter, and the Obama administration has that covered as well. Read more »
Blanche Lincoln’s famed derivatives legislation, which would basically prevent any big bank from ever trading CDS again, has already been chastised by Barney Frank. Now, a senior Treasury official has essentially delivered another blow to the Lincoln legislation.
In a briefing for reporters today, Assistant Treasury Secretary Michael Barr said the derivatives rules were not part of the administration’s four “core objectives” for financial reform. Translation: The Lincoln legislation can die a slow death for all we care. Read more »
The Treasury Department said today it has lowered the projected cost of the Troubled Asset Relief Program by $11.4 billion to $105.4 billion. We’re still in the hole on the auto companies and AIG – and there’s that bailout of Fannie and Freddie – but we’ll take what we can get. Read more »
Ooo, ooo, Charlie Gasparino knows! It’s because of their image problem. According to Chaz, people at the Treasury were worried about Blankein running his mouth re: Hova (again), among other things. Read more »
The United States may be hurtling headlong into a debt disaster, but that didn’t seem to bother creditors today.
Sure, the national debt now exceeds $12 trillion, and simply servicing that mountain of IOUs is going to cost almost $1 trillion a year in a decade. Still, bidders today drove down the yield on two-year Treasury notes to an all-time low, as though the U.S. isn’t facing a fiscal reckoning of seriously unpleasant proportions.
Read more »
The Acting Assistant Secretary for Financial Markets, Karthik Ramanathan, gave a bit of a pep talk yesterday regarding US debt issuance for 2009 and 2010. People should take comfort knowing that the US has funded nearly 80% of its total “expected borrowing needs” of $2 trillion to fund the fiscal deficit for this year and is “well situated” on its funding needs for next year. However, left out of this feel good speech was any guidance on the administration’s demand forecast for US debt that falls into the “unexpected borrowing needs category” on the off chance the government’s macroeconomic assumptions are a tad too optimistic.
US Treasury: Funding Needs Large But “Manageable” [Dow Jones via Nasdaq]
It is almost a foregone conclusion that the CMBS market is headed for some real pain over the next couple of years. The problem is so glaring that even the Treasury is aware of it and looking for ways to avoid a complete meltdown. A major issue confronting the market is the reluctance of CMBS servicers to even talk to investors or property owners before the underlying loans become delinquent due to tax considerations.
When CMBS offerings are created, the underlying mortgages are legally held by tax-free trusts. The trusts can be forced to pay taxes if the underlying loans are modified before they become delinquent, according to current CMBS rules.
The solution seems pretty clear- allow for loan modification while avoiding any negative tax consequences. But time is ticking and the Treasury’s record of avoiding major market meltdowns is disconcerting at best. Your move Timmy.
Relief for Commercial Real-Estate Debt? It Seems Possible [WSJ]
Jeb Mason, the Treasury’s liaison to businesses. [NYT]
Earlier: Treasury Porn