Treasury exits GM

By Felix Salmon
December 19, 2012

At some point in the next 15 months, assuming everything goes according to plan, the US government will no longer have a stake in General Motors. Treasury announced today that it’s selling 200 million of its 500 million shares back to GM, at $27.50 per share; it will then sell the other 300 million “pursuant to a pre-arranged written trading plan”. Interestingly, the news that a monster block of GM equity is about to hit the market did not have the effect you might think: GM stock is up 7% today, at $27.27.

This sale raises the tantalizing possibility that the government might actually manage to exit the GM bailout without losing all that much money. It invested a total of $49.5 billion in 2008 and 2009, and has managed to get back $28.7 billion to date; that number is now going to rise to $34.2 billion after the GM buyback. Which means that the government is in the hole to the tune of $14.8 billion, with 300 million shares remaining. If it can sell those shares at $50 apiece, it will even end up making a profit. That’s not likely: the highest the stock has ever traded is $39.48, in early 2011. But the stock is on something of a tear right now, hitting a new 52-week high today, so anything is possible.

GM stock has, frankly, been a bit of a disappointment to Treasury: it burst out of the IPO gate in November 2010 at $35 per share, but rapidly fell back. If you look over the course of its 25-month life, the volume-weighted average price is $27.95 per share, which means that in aggregate, investors in GM stock have lost money on it at these levels.

It’s no coincidence that Treasury’s sale of AIG stock, where the TARP fund is making a profit, was announced before the election, while the sale of GM stock, where the TARP fund will take a loss, is being announced after the election. In the grand scheme of things, a few billion dollars here or there doesn’t really make much difference: the purpose of TARP was never to make money, but rather to provide the last-resort liquidity needed for the nation’s banks and automakers to stay functioning. But there’s a symbolic importance to TARP’s profitability, which is why things like AIG’s favorable tax treatment is never taken into consideration when the numbers are summed. And when the symbols are disappointing, you release the news when it is likely to have zero electoral consequences.

It’s impossible to know why GM stock rose today, rather than falling: Vipal Monga hazards a few ideas, but none of them are particularly compelling. It does seem that the market is pretty happy that GM is no longer going to be a state-owned company — even though there has been very little evidence of meddling from GM’s largest shareholder. Still, the big news here is the fact that the government is able to exit its stake at all. Would that they could do the same with Fannie and Freddie.

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