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The disciple of doom, is at it again. Economist Edward Altman, who once told The Deal, "the more bankruptcies, the better," on Tuesday warned that Ford Motor Co. and General Motors Corp. are "on the verge of bankruptcy."
Using his Z-score mathematical formula that measures bankruptcy risk, the professor at New York University's Stern School of Business told Bloomberg that the two largest U.S. automakers have about a 46% chance of default within five years. Interestingly, according to Bloomberg, Altman back in 2005 said GM had a 47% chance of default within five years. But as we've seen recently, times are different. In the wake of Bear Stearns Cos.' sudden collapse, the mere mention of the evil word "bankruptcy" usually sends shares plummeting and causes Carl Lewis-like runs on banks. In 2003, Altman admitted to a fascination with companies that go bust, telling The Deal's Matt Miller, "People say I have this perverse enthusiasm for negative economic phenomena, and it's true. ... I'm not sadistic. [But] as a scientist and researcher in this area, the thing you need is data. So the more bankruptcies, the better." These days, Altman must be over the moon with all the data he must be getting. Only time will tell if the professor's prediction on GM and Ford will come to fruition (the Z-score correctly predicted more than 70% of all bankruptcies two years prior to the event in the '90s, according to a study cited in The CPA Journal). Thus far, Altman's prophecy seems to have fallen on deaf ears, since shares of Ford and GM were both up slightly in midday trading on Wednesday. But the economist is no slouch. The Turnaround Management Association in May named Altman to its inaugural class of inductees for the Turnaround, Restructuring and Distressed Investing Industry Hall of Fame. - John Blakeley Bloomberg article Categories Deal Video
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