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— Analysis —
General Motors Corp., they warn, will be next. Which revives the question: Will the banks follow GM? There are striking similarities between Treasury-brokered efforts to keep U.S. carmakers from liquidation and the machinations to shore up finance. "There are certain parallels," admits Jim Eckenrode, a banking analyst at TowerGroup Inc. -- See related story: Now for the main event --
With the proposed settlements (GM floated its own but clearly with the federal sanction), the government would own controlling stakes in GM and Chrysler and would have the right to appoint directors, senior management and influence strategy. "The Treasury's auto task force is making GM get rid of Pontiac and Saturn. I think GM wanted to keep Pontiac, but the government said no," Eckenrode says. Similarly, the task force shot down GM's plan to buy Delphi's global steering business, he notes. "We haven't gotten to such a point of nationalization in the banking industry, but the pressure applied to Bank of America to buy Merrill Lynch has an aspect of that," he adds. Banks so far have more leverage to keep officials at arm's length, he says. For starters, banks really don't face a union with huge pension obligations that could be dumped on the government. The automakers do, and as a result, the government will do whatever it can to preserve jobs and to prevent taxpayers from being saddled with pension costs. Besides, the car companies continue to bleed, where banks are posting relatively positive first-quarter results. "They have a little more wherewithal to hold off government because they don't depend on it as a lifeline," he says. But with the results of stress tests on the 19 largest bank holding companies due to be unveiled May 4, the government will likely be even more involved to ensure they can weather future threats. Taxpayers are already major shareholders in the largest banks through the Troubled Asset Relief Program, and at least six institutions are under pressure to raise more capital. If they don't obtain the funds privately, they may have to take more Treasury money, giving the government an even larger stake. "Because of the financial industry's systemic importance to the economy, banks are viewed as a public good and have always been susceptible to government direction," Eckenrode says. "The stress tests could be the lever that allows the government to take more direct ownership of some of these institutions. The feds are the only ones with money right now." Many of the carmakers' creditors are fighting nationalization. Smaller creditors and hedge funds are opposed to large stakes being offered to the government and unions. But the banks, because they are beholden to the government, can't make too much fuss over the car companies. "The four banks dealing with Chrysler are all sitting on TARP money," says David Bitterman, managing director at Huron Consulting Group Inc. "That gives the government a little bit of a lever. I don't think Jamie Dimon wants to be the guy responsible for the liquidation of Chrysler." Indeed, smaller creditors accuse the big banks of caving to the government. The same day Chrysler filed for bankruptcy, the ad hoc committee of General Motors bondholders unveiled a counterproposal aimed at preventing a similar fate for GM. "We do not believe that nationalizing one of America's largest and most important companies is the right policy decision for our country," proclaims Eric Siegert, senior managing director of Houlihan, Lokey, Howard & Zukin Inc. and financial adviser to the rebel bondholders. Siegert says his group's proposal would allocate new GM equity on a pro-rata share to the union and to GM bondholders according to the funds GM owes to each. Retirees would own 41% of the new GM, and bondholders 58%. Current shareholders, including the government, would retain a 1% share. He predicts the government would have to inject little additional capital into GM beyond the $17 billion provided since December. The notion that neither car company will need more money will likely be viewed as far-fetched both to the markets and to a bankruptcy judge. So confident were White House officials that the fight to keep the company operating would be compelling to taxpayers that President Obama's statement on Chrysler's bankruptcy didn't even include a boilerplate pledge to restrict the government's role to a minimum and restore the free market as soon as possible. Warnings against nationalization, whether applied to GM or the biggest banks, may gain political traction but likely fail to blunt a growing federal role. The government has the only card that matters -- money. |
The maneuvering over Chrysler LLC provoked lenders to decry what they say is a nationalization of the beleaguered car company.
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