Friday, July 10, 2009

Financial Headlines 7/10/2009

  • GM has emerged from bankruptcy, as the recently bankrupt automaker completed the sale of its best assets to the new government and union-owned company. The asset sale to the new company allows GM to shed half its US brands, cut more than 6,000 salaried jobs and idle or close 16 factories. Now if they could just get consumers to buy some cars...
  • The FDIC is unwilling to guarantee CIT's debt through the TLGP due to the credit risk associated with the struggling lender's portfolio. If you happen to have some FDIC-backed bank deposits, you should send a thank you note to Sheila Bair for having the sense to draw the line on this one. As I've said many times before, I want my FDIC to guarantee my bank deposits and only my bank deposits, not some crappy commercial lender's bad lending decisions (or some investment bank's trading operations, but it's too late to stop her on that one...)
  • The trade deficit unexpectedly narrowed in May to $26 billion down from $28.8 billion in April. May exports were up slightly to $123.3 billion, while imports were lower at $149.3 billion. The decline in imports was due primarily to decreases in crude oil and auto parts imports. Hmmm, wonder why we're not importing that many auto parts anymore. At any rate, a shrinking deficit is positive for GDP, so I'll label this "unexpectedly good news."
  • AIG is once again risking a public flogging by seeking permission to pay previously agreed-to retention bonuses to its employees. This time they have to clear it with the new Comp Czar, Kenneth Feinberg. The last time the folks at AIG were paid bonuses was in March, which led to quite the public outcry. And it is now July, and unemployment has ticked higher, so I guess we're due for more public protests. I know that everything was contractually guaranteed and agreed to before the company punted $100 billion and required a government bailout, but bonuses every three months? No wonder they went bankrupt.
  • JP Morgan has decided not to repurchase the warrants that the government acquired during the apex of the crisis when former Treasury Secretary Hank Paulson forced government money down the bank's throat. CEO Jamie Dimon disagrees with the valuation methods that the government is using to value the warrants and refuses to pay the price the government is requiring for the repurchase. Mr. Dimon is instead choosing to opt out and allow the government to hold a public auction. The results of the auction should be very interesting as most other banks also believe that the government is placing too high of a value on the TARP warrants and don't appear to want to repurchase the warrants at those prices. So, if I were a competing bank that also didn't want to overpay, I'd probably sit out the auction for the JP Morgan warrants, so as not to push the price too high and support the pricing on JP Morgan's warrants. I'm not sure who, outside of the large banks' derivatives desks, would be buyers of the warrants, but certainly the results will be enlightening.


mrbogue said...

"The trade deficit unexpectedly narrowed in May..."

Good, i'm glad the majority of Americans are starting to get sensible with their dollars. Maybe theres hope for us yet :-)

Mr Wrightwood said...

If I had to bet, I'd guess that the banks have started to have some success squeezing the marginal dollars out of Americans' "spendable" pile. My guess is that bank earnings will be great this quarter, all extracted at the expense of the taxpayer/consumer.

Oscar said...

they gotta save them for higher taxes.