DealZone

from Breakingviews:

GM needs to double earnings to repay taxpayers

General Motors' much anticipated initial public offering filing finally landed on Wednesday. But investors shouldn't get too caught up in the hype. Sure, the automaker looks in pretty decent shape thanks to last year's bankruptcy clean-up, and car sales are motoring away from last year's lows. But to repay U.S. taxpayers in full, GM needs to at least double its earnings.

That's assuming the carmaker is valued at the same earnings multiple as Ford Motor. Granted, GM and its bankers could argue that it has advantages over its cross-town rival that may warrant a higher valuation. It has far less debt, for starters. And it has a stronger position in fast-growing China.

But operationally GM is still lagging: the pre-tax margin on its global autos business was 5.7 percent in the second quarter. After years of losses and in a fairly low-margin industry, that's worth shouting about. But it falls shy of Ford's 7.2 percent margin in the same period. There's an even bigger gap of more than three percentage points between the margins the two manufacturers make in the key North American market.

Being generous to GM, assume the company should trade on the same price-to-earnings multiple as Ford -- 6.4 times next year's consensus earnings estimates, according to Reuters. The U.S. Treasury converted $43 billion of emergency loans into a 61 percent equity stake in the revamped GM that emerged from Chapter 11. That means the Motown manufacturer has to be worth about $70 billion for Uncle Sam to break even.

On Ford's PE multiple, GM needs to earn just shy of $11 billion next year to hit the desired target. Extrapolating earnings in the second quarter, GM would make as much as $5 billion this year. But thanks in part to higher commodity prices and other costs expected in the second half of the year, that figure is probably flattering.

Citi selling its jewels

Occidental Petroleum is buying Citi’s commodities trading unit Phibro for roughly its net asset value. How much that is, exactly, is hard to tell. Occidental said its net investment in Phibro is expected to be about $250 million.

The bigger figure, of course, is the $100 million associated with star trader Andrew Hall. His pay package has been the subject of much hand-wringing at Citi and in Washington.

Phibro’s management team, headed by Hall, and its employees will remain with the unit after the sale, expected to close by year-end. Citigroup shares were fractionally lower in morning trading on the New York Stock Exchange, while Occidental shares were up about 1 percent.

Road to fortune or highway to hell?

GM-OPEL/That will ultimately be the question asked about what kind of a future the German carmaker Opel faces.

Parent General Motors said on Thursday that it indeed wanted
to sell a majority stake in the unit to Canadian auto parts
group Magna and Russia’s Sberbank, a decision long favoured by the German government under Chancellor Angela Merkel.

With about two weeks to go until a general election in
Europe’s biggest economy, this would clearly be a political
victory — but the question remains whether it will also be an
economic one.

GMAC’s Christmas present

Santa ClausThe Fed donned the red suit on Christmas eve for GMAC, giving the troubled auto finance company the nod to become a bank holding company.

The speedy approval should not come as a surprise, given that GMAC lends to consumers and GM depends on the finance company to sell cars — factors that could make its survival seen as key to fixing the economy.

The new status gives the company access to government lending programs and should allow it to continue financing loans for GM cars.

Yahoo’s deal with Google: Band-Aid

So Yahoo and Google scaled back the terms of their search advertising deal in what looks like a last-ditch, attempt — at least for Yahoo — to get it past U.S. regulators.

Some analysts called it the Band-Aid deal, while others said it smacks of desperation.

Frost & Sullivan’s digital media global director Mukul Krishna said the revised terms were “more of a Band-Aid than the extensive surgery” Yahoo needs.

AIG says to report ‘earnings’. Really???

American International Group, the once giant insurer which has become best known as a sinkhole for government money, says it will report third-quarter results on Nov. 10.

Most notable was how AIG described what almost certainly was one of the ugliest reporting periods in financial history: “AIG’s earnings release and financial supplement will be available in the investor information section” of its website.

Earnings? According to the Merriam-Webster dictionary the use of the word “earnings” means money was earned during the quarter, or that the company will report there was money left in the coffer after pay outs. That is unlikely, at least based on analysts’ expectations.