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Treasury Could Recover GM Investment – Sort Of.

Obama investment likely to be reclaimed; Bush bailout lost.

by on Nov.04, 2010

The White House couldn't get the "Obama number," a proposed $30 IPO price, but still hopes to cut its losses with GM's stock sale.

Just how much money will the U.S. Treasury lose when General Motors holds its long-awaited IPO later this month?  That depends on who you ask and how you count, it seems.

By one accounting, taxpayers could get all their cash back – or at least all the cash committed to save GM by the Obama Administration.  Money previously invested by former Pres. George W. Bush, however, is gone for good, apparently.

On Wednesday, the restructured GM provided key details of the upcoming initial public offering, most importantly noting it will be priced between $26 and $29 per share.  Missing in the GM announced was the precise timing of the IPO, which most sources indicate will be staged on November 18th.

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Senior GM managers have already begun fanning out around the world to pitch the merits of the stock sale, which will notably take the government’s stake down from 60.1% to around 40%.  That would make the Treasury a minority shareholder – but still give it the single biggest block of GM stock.

Even now, however, it appears that having a majority stake didn’t ensure the White House got everything it wanted.

Bloomberg News, for example, is reporting that representatives of the government pressed for the “Obama number,” a price of $30 a share.  That figure would have ensured that the Treasury wouldn’t post a lost for the $36.1 billion the current administration came up with, post-Chapter 11.

Even that figure would fall share of recovering the full $49.5 billion GM bailout, leaving for a loss the billions initially invested during the final days of the Bush Administration.  To recover that money, as well, would require a $44 share price – and that after a 3-for-1 split of the government’s stock.

Underwriters, including Citigroup and JPMorgan Chase, had wanted an even lower number, perhaps $20 a share, which would make GM look even more appealing based on earnings; the maker yesterday projected it would show a profit of as much as $2.1 billion for the third quarter, its third quarterly profit in a row, following its emergence from bankruptcy last July.

Ultimately, all sides agreed on the current range – the bottom number apparently set while watching the performance of Ford Motor Co. stock, which has staged a more than tenfold run-up since early 2009.

Depending on what the final price settles in at during the IPO, the government could lose as much as $5.4 billion.  But the hope is apparently that by delaying the sale of the remaining 40% held by the Treasury, GM shares will zoom even higher, reducing future losses.

As things stand, the projected losses for all auto-related bailouts, including Chrysler and what is now known as Ally Financial, could come in at $17 billion – but that’s still down from earlier estimates of $28 billion.

A spokesman for the White House, Robert Gibbs, called “encouraging” initial indications of support for the upcoming IPO.  He also denied that the administration had approved the use of private planes to make it easier for senior GM officials to conduct their “road show” with potential investors.

Less confident was Senator Charles Grassley, an Iowa Republican and critic of the bailout.

“Short of a miracle, the initial public offering won’t repay the taxpayers. The onus is on the Treasury Department to come up with a plan to make sure taxpayers get their money in full,” Grassley told the Detroit News.