Wall Street Breakfast: Must-Know News

• GM drives into bankruptcy. General Motors (GM) will file for bankruptcy today. The U.S. government, which is providing $30.1B in bankruptcy financing, will end up with a 60% equity stake but wants a "quick, clean exit as soon as conditions permit." The Canadian government will get a 12% stake and lend the company $9.5B. Al Koch, a managing director at the advisory company AlixPartners LLP, will reportedly become GM's chief restructuring officer. The new GM will be smaller and built to survive in a market of 10M annual U.S. car sales, down from 16M. Officials say GM could be a publicly traded company again within 6-18 months.
• Fall-out from GM. The restructuring faces several potential risks, including legal challenges, shaky consumer demand and a dragged-out process for shedding unwanted parts of GM. Current shareholders will be wiped out, while dealers and suppliers will continue to struggle. The government will be forced to navigate new conflicts, as it simultaneously serves as GM's shareholder, regulator, tax collector, customer, pension backstop and lender. In the short-run, the estimated losses from quick bankruptcy restructurings at GM and Chrysler are 63,200 jobs this year and 179,400 jobs next year. However, the filing may lift the economy in the long-run as poorly utilized workers and resources are reallocated to more productive sectors.
• Chrysler sale gets green light. A bankruptcy judge approved Chrysler's plan to sell most of its business to a group led by Fiat, despite the 300+ objections filed against the sale. The automaker could exit bankruptcy reorganization as soon as today, after barely a month in Chapter 11 protection.
• Ford pushes forward. Ford (F) plans to ramp up its Q3 production of cars and trucks by around 10%, hoping to gain market share at the expense of rivals Chrysler and GM (GM). It will be Ford's first major production increase in almost two years, while GM and Chrysler plan to shut down their plants for nearly all of Q3.
• Geithner reassures China on deficit. Geithner is in China for his first trip as Treasury secretary and is trying to deepen economic cooperation between the two countries. Responding to concerns about the safety of China's dollar assets, Geithner said "no one is going to be more concerned about future deficits than we are," and committed to controlling borrowing at a 'sustainable' level and shrinking the U.S. deficit to 'roughly 3%.' Geithner repeated his call for a more flexible yuan, but declined to repeat comments from earlier this year that China is 'manipulating' its currency. (Read Geithner's remarks)
• Goldman sells ICBC shares. Goldman Sachs (GS) is selling around 20% of its stake in Industrial and Commercial Bank of China, totaling up to $1.9B worth of shares, at a discount of 4-6% below ICBC's Monday closing price. In March, Goldman pledged to keep 80% of its ICBC shares.
• Prudential snubs Treasury program. Prudential Financial (PRU) announced a $1.25B common stock offering this morning, and said it won't participate in the Treasury's Capital Purchase Program. Shares -2.3% premarket (7:00 ET).
• Elan shops around. Biotech firm Elan (ELN) is reportedly in advanced talks to sell a minority stake to Bristol-Myers Squibb (BMY), and an agreement could come sometime this week. Elan is also said to be in talks with a second suitor, but details are sketchy. The move could be the first step in an outright sale of Elan. ELN +10.7% premarket (7:00 ET).
• Emulex strikes back. Emulex (ELX) ramped up its fight against a $764M hostile takeover bid from Broadcom (BRCM), filing a lawsuit alleging Broadcom can't be trusted because it hasn't fully disclosed details of drug-related and stock-option-backdating charges involving its former CEO. The suit asks for an injunction against Broadcom to 'prevent fraud and irreparable injury' from a takeover.
• Greenback falls amid green shoots. The dollar fell to its lowest level this year against a basket of currencies as optimism about a global economic rebound drives demand for riskier assets. Risk appetite got a boost this morning from China, where the Purchasing Manager’s Index showed manufacturing expanded for the third month in a row in May, and as the decline in European manufacturing moderated.
• Japan car sales fall. Motor vehicle sales in Japan fell 19% in May, led by a 24% drop from Toyota (TM). Nissan (NSANY) sold 9.1% fewer units, while Honda (HMC) posted a 4.5% gain. Despite the decline, May's 19% drop was still markedly better than April's -29% and March's -32%. U.S. vehicle sales data will be released tomorrow, and analysts say the U.S. auto market may have contracted by 35% in May.

Today's Markets

Strong manufacturing reports helped lift markets in Asia, with Europe and the U.S. set to follow suit.
• In Asia, Nikkei closed +1.6% to 9,768. Hang Seng +3.95% to 18,889. Shanghai +3.4% to 2,721. BSE +1.5% to 14,841.
• In Europe at midday, London +1.6%. Paris +2.1%. Frankfurt +3.2%.
• U.S. futures: Dow +1.4%. S&P +1.6%. Nasdaq +1.4%. Crude +2.4% to $67.90. Gold +0.8% to $986.60.

Monday's Economic Calendar

• 8:30 Personal Income and Outlays
  10:00 ISM Manufacturing Index
  10:00 Construction Spending

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[doubleguns:]

Looks like we will have only ONE auto manufacture as a US auto manufacture now. Chrysler (fiat) will now be a foreign auto company and GM a partial (10% Canadian) foreign auto company.

Ford will now be the only completely US auto manufacture.

Jun 01 07:45 AM

[david roper:]

manufacturer

Jun 01 08:07 AM

[spald_fr:]

What will happen if and when environmentally-friendly GM cars are not purchased by the American public? What if Ford sells the cars the public wants?

Will the UAW strike Ford because they are a GM stakeholder? What type of oversight is in place?

Jun 01 08:49 AM

[don miguel:]

Ford may now have a brighter future...
at the cost of market share to GM in particular!

Jun 01 08:51 AM

[robert.b.fe...:]

Will Ford (F) be able to compete with Government Motors (GM) and Chrysler as a Goverment Sponsered Enterprise? Will team Obama allow the new companies to go into chapter 7 liquidation in a couple of years when they get in trouble again? Isn't it reassuring to have Tim the tax cheat who never met a bail ouit he didn't like cosying up to the Chinees and telling them he is dedicated to controlling spending? I wonder if they are laughing as hard as I am? Is everyone on board with the new economic theory that not as bad as expected is actually good? Tell you what: Lets all develope real low expectations and then all news will be good news? We can call it the Eyor theory of economic data analysis. Happy Monday all and remember to aim low to avoid disapointment.

Jun 01 08:51 AM

[axelrod608:]

>> "Greenback falls amid green shoots." >>
Rachael, could you please not use the "green shoots" euphimism. A deteriorating economy that is still deteriorating, but at a slower rate is not a good thing. Less bad, yes. Good, no.

The only "green shoots" are of next year's crop of what our leaders are smoking.

Jun 01 08:56 AM

[axelrod608:]

GM has factories around the world. They already produce small efficient vehicles elsewhere. It's not that they're being asked to do something they've never done before. They just either need to retool to make 'em here or ship 'em here.

Jun 01 09:01 AM

[spald_fr:]

On Jun 01 09:01 AM axelrod608 wrote:

>>GM has factories around the world. They already produce small efficient vehicles elsewhere . . .<<

I recently traveled to Brazil on business. GM produces cars the size of the Cobalt in Brazil that have the capability to consume fuel composed of 100% ethanol to 100% gasoline and any ratio in between.

Jun 01 09:05 AM

[AndrewBaker:]

The US can't compete on price and quality with car manufacturers from eastern and emerging economies. This is because our costs are so much greater. In technology the US is ahead because those other countries don't have anything like the US expertise at the cutting edge. This is how it is generally: western countries win on new products, techniques and inventions whilst the emerging and second world countries can copy and produce product at lower prices, so we buy their products that we made the technology for and they bougt from us.

This works. We can have a smaller car industry making specialist and popular models, but those thousands soon to be without a job will need to retrain. Hopefully into an industry where we are still ahead and likely to remain so for some time.

Silicon Valley and Seattle don't have to be the only places where technology thrives. We've got the people and we've got the ability.

Jun 01 09:12 AM

[don miguel:]

Prospective buyers in the future may hesitate to buy from GM (Government Motors) by what may be considered as unfavorable prejudice and action by Govt.

How will this impact their market share?

Jun 01 09:20 AM

[bobbobwhite:]

You are on the right track but it needs more to succeed. A process of selling our tech to lower cost producing countries can only last so long as there is a stream of readily functional tech to sell that will provide steady employment for Americans while providing less expensive products made oversees. If it is not steady and consistent, there will be massive unemployment and social discontent just as we have now when it is in a down cycle, so I do not think we can rely on this "system" as being any better than what we now have. We also need to have a self supporting manufacturing structure of our own that operates as the Germans and Japanese(and the Koreans coming up fast) do....... make finest quality signature products that are the the best in the world, and leave the "consumer quality" goods to the scratch-and-scramble world market. Perhaps then "It has to be good, it's American" will again be heard round the world. It can happen again if we truly want to be a quality-first country again.


On Jun 01 09:12 AM AndrewBaker wrote:

> The US can't compete on price and quality with car manufacturers
> from eastern and emerging economies. This is because our costs are
> so much greater. In technology the US is ahead because those other
> countries don't have anything like the US expertise at the cutting
> edge. This is how it is generally: western countries win on new products,
> techniques and inventions whilst the emerging and second world countries
> can copy and produce product at lower prices, so we buy their products
> that we made the technology for and they bougt from us.
>
> This works. We can have a smaller car industry making specialist
> and popular models, but those thousands soon to be without a job
> will need to retrain. Hopefully into an industry where we are still
> ahead and likely to remain so for some time.
>
> Silicon Valley and Seattle don't have to be the only places where
> technology thrives. We've got the people and we've got the ability.

Jun 01 10:15 AM

[yolosetodo:]

I guess Ford can Kiss their Government fleet production good buy. My guess is GM will be getting all those contracts now. Would we see Cadillac Sevilles instead of Crown Victorias as replacement to hihgway patrols?

Jun 01 11:07 AM

[Michael Del...:]

Everybody wonders why our automobile manufacturers cannot produce small efficient cars like they do in Europe and Brazil and sell them here. Then they elect people to go to Washington to enact laws requiring safety crash tests and pollution controls that are much less stringent in Europe and Brazil. Don't you think GM, Ford and Chrysler know more about making cars than you do? And more than our elected officials do? And don't you think GM, Ford and Chrysler would produce a high-mileage, low-pollution, crash-safe, and affordable vehicle if the technology is available?

Everything is a trade-off. If you want to trade a less safe vehicle (lighter weight) for more fuel economy and fewer emissions (lighter weight can use smaller engines), then let Washington know. Say what you want about big SUVs. They are safe and as long as gas is cheap, the public will want them.

Jun 01 12:17 PM

[bbowen7:]

Ayn Rand would drive a Ford, made by John Galt. I'm betting that private enterprise will defeat state/union capitalism.

Jun 01 12:28 PM

[IndidnaJohn:]

Hay Rachel, -- you didn't mention that some 31 year old Tribal Junior, Brian Deese is overseeing GM's bankruptcy. That's the news, HootHoot.

Jun 01 01:41 PM

[Joseph Sherman:]

Chrysler, GM, Ford - What do you do in a hard market? This is when you find out who your true friends are - the people who will always drive a Chevy because "Friends don't let Friends Drive Fords" or the die hard fans who will always keep their classic 1967 Mustangs running in top condition. Focus on the fans who will stay by you, not those looking for a cheap deal. Sell off everything else to the multinational conglomerates and focus on the tribe.

Jun 01 01:55 PM

[Joseph Sherman:]

Chrysler, GM, Ford - What do you do in a hard market? This is when you find out who your true friends are - the people who will always drive a Chevy because "Friends don't let Friends Drive Fords" or the die hard fans who will always keep their classic 1967 Mustangs running in top condition. Focus on the fans who will stay by you, not those looking for a cheap deal. Sell off everything else to the multinational conglomerates and focus on the tribe.

Jun 01 01:56 PM

[Joseph Sherman:]

Chrysler, GM, Ford - What do you do in a hard market? This is when you find out who your true friends are - the people who will always drive a Chevy because "Friends don't let Friends Drive Fords" or the die hard fans who will always keep their classic 1967 Mustangs running in top condition. Focus on the fans who will stay by you, not those looking for a cheap deal. Sell off everything else to the multinational conglomerates and focus on the tribe.

Jun 01 01:56 PM

[White Shield:]

Let's all thank "the money elf" for his reassurance: "...committed to controlling borrowing at a 'sustainable' level and shrinking the U.S. deficit to 'roughly 3%.' ". Which statement is more laughable?

China would have been within their rights to seize him and put him on trial for international embezzlement.

Jun 01 02:05 PM

[AndrewBaker:]

The market today has shown clearly that the lunatics are in charge of the asylum. Spin and greed (= fear of missing out) is pushing this rally ever higher, and the spin is running out. Regardless of bull or bear beliefs, this market has gone too far too soon, and will correct. Don't say no-one told you.

Jun 01 04:02 PM

[White Shield:]

It appears the media-puppet-masters have yanked down all video, but here's the "old-fashioned" version:

www.gata.org/node/7461

(I told you it was laughable - GO TIMMY!)

Jun 01 06:42 PM