TARP came about because in just three months, $5 trillion dollars of American household wealth evaporated during the waning months of the Bush Administration. Economic activity and global trade ground toward a halt. We are still feeling the negative effects, but TARP worked. Now, Treasury is getting out of the auto business.
The U.S. Department of the Treasury today announced that it will sell all of its investment of 500.1 million shares in GM stock during the next 12-15 months, subject to unspecified “market conditions.” General Motors at the same time said it would purchase 200 million shares of GM common stock from Treasury at $27.50 per share – a 7.9% premium over the closing price on 18 December 2012 – in a deal expected to close by year-end.
It appears that Treasury is making a very bad decision here based on ideology, not good old American pragmatism. It was ideologues who opposed the successful TARP bailouts, and now Treasury – the government agency that is supposed to understand money and stock markets – is also taking an impractical position based also on ideology. Since the end of September taxpayers earned more than $1.5 billion from the increase in value of GM stock. The U.S. auto industry is recovering and sales and profits are increasing. Why dump and run now? No surprise here at AutoInformed that most Americans are disgusted with government’s management of their money.
Including GM’s purchase of common stock from Treasury announced today, Treasury has recovered more than $28.7 billion of its investment in GM to date through repayments, sales of stock, dividends, interest, and other income.
GM expects to take a charge of approximately $400 million in the fourth quarter, which will be treated as a special item. GM said its balance sheet would show an estimated liquidity of approximately $38 billion at the end of 2012, following the closing of the share buyback.
With today’s $5.5B purchase, the outstanding balance is $20.9 billion. For the government to break even with the remaining shares, the share price would need to be about $69.72. This means that taxpayers will almost certainly take a loss of the $49.5 billion bailout of GM conducted during 2008 and 2009 under the Troubled Asset Relief Program.
Of the remaining 300.1 million shares, Treasury said it would start selling as soon January 2013 under a written trading plan. “The manner, amount, and timing of the sales under the plan are dependent upon a number of factors.”
“This announcement is 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,” said Dan Akerson, chairman and CEO of GM.
Here’s the math (and it does not include Canadian federal and provincial government support):
- $49.5 billion total U.S. Treasury support: $13.4 billion under Bush Administration, $36.1 billion under Obama
- $6.7 billion loans, $2.1 billion preferred stock, 912 million common shares
- $23.1 billion was repaid up to today ($6.7 debt repayment, $2.1 billion stock repurchase, $0.8 billion interest/dividends, $13.5 billion Net IPO proceeds)
- Today – with $5.5 billion purchase, UST outstanding balance is $20.9 billion so for the U.S. government to break even with remaining shares, the share price would need to be about $69.72
Ideologues will never admit it but the rescue of the American auto industry helped save more than 1 million jobs. Moreover, since June 2009, the auto industry has added a quarter of a million new jobs.
“The government should not be in the business of owning stakes in private companies for an indefinite period of time,” claimed Timothy G. Massad of Treasury. “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.”
How taxpayers facing an almost certain loss are being “protected” is an Orwellian twist of logic in our view.
Earlier this week, Treasury said it expected to make significant additional progress winding down TARP’s bank programs in 2013. Last week, Treasury sold its final shares of AIG common stock. (Read AutoInformed on U.S. Treasury Sells Final Shares of AIG Common Stock. Taxpayers Earn $22.7 Billion! More Profits to Come from the Bailout) Overall, to date, through repayments and other income, Treasury has recovered more than 90% or $381 billion of the $418 billion in funds disbursed for TARP.
