Tuesday, April 28, 2009

GM Bondholders, BAC, C Shareholders – Not Happy With Government

Not surprisingly, GM’s unsecured bondholders weren’t pleased with the offer from the government of 10% equity plus zero cash, particularly since the UAW would wind up with 39% of equity plus 50% cash recovery. Bondholders are preparing a counteroffer, one that perhaps involves meeting everyone in a bankruptcy courtroom.

Meanwhile, in top leaked news, Bank of America and Citigroup may be required to raise more capital according to “people familiar with the situation.” I’ll never understand why people familiar with the situation felt it was wise to leak the news a week before the results of the stress tests were due, but I suspect it may just be someone who has a bone to pick with Ken Lewis, who is already facing a world of hurt from angry shareholders for not informing them in December that Bank of America was about to pay far too much for Merrill Lynch’s pile of garbage. Everyone knew Citi would need more capital, but Bank of America was perhaps tougher call. Both banks will contest the government’s findings, but this could mark the end of the road for Mr. Lewis’s career at B of A. Prepare yourselves for more leaks about other banks’ conditions in the next week. While the government may not want you to think that the need to raise capital is a sign of insolvency, it’s hard to take the news in any other way.

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