GM Says It Straight and Simple: Shares Are Going to Zero

Footnoted points out that GM says it straight and simple in a latest SEC filing: Don't buy GM (GMGMQ.PK) shares, it is going to zero.

GM management has noticed the continuing high trading volume in GM’s common stock at prices in excess of $1. GM management continues to remind investors of its strong belief that there will be no value for the common stockholders in the bankruptcy liquidation process, even under the most optimistic of scenarios. Stockholders of a company in chapter 11 generally receive value only if all claims of the company’s secured and unsecured creditors are fully satisfied. In this case, GM management strongly believes all such claims will not be fully satisfied, leading to its conclusion that GM common stock will have no value.

As Footnoted points out, it is nice to see honesty, but it's funny when you tell the shareholders you work for that their stake is worthless. I guess that's akin to saying "We don't work for you anymore". Which, fair enough, is true.

In other thoughts, I'm guessing GM shares essentially can't be shorted these days due to lack of borrow. (Or is there a ban remaining?) You know, one could pass the remaining share value as a few last perhaps lazy or psychologically-unwilling-to-take-the-loss-yet hold-outs if GM was at an all-time low but what's very interesting is that the shares at $0.82 are actually well above their 52-week low of $0.27. So there has actually been an improvement in the chances for some sliver of value for shareholders. Maybe some are thinking debt gets converted to equity, massive dilution, and current shareholders hold a tiny diluted sliver that's worth $0.82? Probably not. It's more likely simply greater fool theory. Play the final, violent death throes of GM stock. It worked at $0.27. Not that this is ever my style.

It would be interesting to know what kind of investor base, with what kind of ideas, remain... so we took a jaunt to the Yahoo message boards. Unfortunately almost all the remaining posts are simply arguments against the UAW/Obama/US judges. Except for one, which might provide insight to what kind of person still hangs on...

DOWN 8% TODAY SO FAR

That's good enough for one day.

I don't like to see it plunge and then have a V-bottom recovery. I just like a nice drop, and then languish awhile until the next one. I don't know what I'm gonna do once this goes to zero. Write my book, I guess. LOL.

This guy falls into the clearly "Given Up" category. Essentially he's likely lost so much already that selling now to recover 2% of his initial investment would destroy more pride than it would salvage in cash. By the way, you know it's pretty bad when even the message boards can't proffer some kind of wild upside story for the shares.

Disclosure: The author does not own any GM shares.

Comments

[Mad Hedge F...:]

Unbelievable! It’s not often that the investor’s relations department of a company you follow sends you an e-mail telling you their stock is worthless. Neverless, that was the message I received from General Motors (GMGMQ) yesterday. Since the company filed for chapter 11, it has traded between $0.25 and $2.25, and has often been the best percentage gainer of the day ($0.50 to $0.75 is a 50% move up). No doubt, most of this is hedge fund buying of stock to close out short positions. Otherwise, the bean counters may force you to carry the positions for years, tying up capital and deferring your performance bonus. But then again, there are always some dummies out there who think the stock is cheap at $0.25, on its way back up to $150.

Jul 05 08:59 AM

[J. Crighton:]

Look at it this way: At least there's one company you can count on to honestly tell what their stock is worth.

Jul 05 12:21 PM

[Evan Grey Owl:]

NO. The company, and all the brokerages, needed to have told clients and investors this fact a long time ago. Not a single person I asked would give me a straight answer as to what happens to shares if a company declares bankruptcy, until it was too late. As a beginning investor, one would not automatically know this. Some employees at brokerages even told me it depends on the case, and shareholders might retain value, and it was impossible to know. The banks that back the company, they seem to want to pretend that the bankruptcy may not happen until it is already a done deal, so they can make sure they have best positioned themselves at small shareholders expense, who are kept in the dark. GM and other companies going bankrupt; they do not get ANY points for honesty. It is not enough to tell the truth eventually. You have to tell the truth to your investors in the time frame that matters. There will be a price to be paid for our government and courts allowing the small shareholders to be wiped out, while the bankers pulling the strings give themselves salary increases.


On Jul 05 12:21 PM J. Crighton wrote:

> Look at it this way: At least there's one company you can count on
> to honestly tell what their stock is worth.

Jul 05 04:05 PM

[sethmcs:]

As soon as the government announced 60% stake, I got out at $2.00. The amazing thing was I could get out at $2.00. Thank you index funds.

Jul 05 08:54 PM

[Cicerone:]

yes but if the govt has a 60% stake, pension plan has 10%, we are still left with 30% which means the stock is a buy around a dollar since the 30% at 82 cents had capitalization of 500 million. The 30% in time will probably go up to 15 billion, so around 25 bucks.

Jul 06 12:02 AM

[casey00001:]

Cicerone:
What will happen is they will eliminate the stock symbol entirely, and the "new" company will create a new stock ticker symbol. The old stock will not be converted to the new symbol and then they stop trading the old stock ticker symbol. You will get wiped out.


On Jul 06 12:02 AM Cicerone wrote:

> yes but if the govt has a 60% stake, pension plan has 10%, we are
> still left with 30% which means the stock is a buy around a dollar
> since the 30% at 82 cents had capitalization of 500 million. The
> 30% in time will probably go up to 15 billion, so around 25 bucks.

Jul 06 08:48 AM

[yes4aapl:]

What will happen to GM shareholders?
NT is under CH11 and they ignore shareholders.
NT shareholders are denied ASMeeting.
BoD and CEO are still in power stilling in legal form the rest of cash, around $2.5 bill.
Creditors have no say at this moment, too.

Jul 06 10:16 AM

[bowman711:]

I once had a stock whose balance sheet showed between $5 and $6 of assets for every $1.00 in debts . . . when it declared bankruptcy. I thought surely that should be safe. By the time they finished liquidating, the stock, it was worthless - a total loss. I doubt that GM's balance sheet looks even as good as this company's, so I wouldn't count on getting anything if I owned any GM. [The last time I owned GM stock (and my first job out of high school was in the GM world headquarters so I am kind of partial to GM) I sold for a good gain somewhere in the $36 range.]

Jul 06 12:17 PM

[dw57:]

Hate to tell you, but that 30% is already spoken for.
the split is this

treasury 60%
VEBA 17.5 %
Canada 12.5%
secured creditors 10%
not sure why any one was buying GM's stock of late,
being in bankruptcy should have been a clue

be
\and



On Jul 06 12:02 AM Cicerone wrote:

> yes but if the govt has a 60% stake, pension plan has 10%, we are
> still left with 30% which means the stock is a buy around a dollar
> since the 30% at 82 cents had capitalization of 500 million. The
> 30% in time will probably go up to 15 billion, so around 25 bucks.

Jul 06 03:16 PM

[Windsun33:]

What is it that people don't understand about this stock being totally worthless? It had some value for a few days, since it was still in some index funds, but now there is no reason at all to hold or buy any of it.

I would buy some if I could get the actual stock certificate, just for a souvenir to hang on the wall.

Jul 06 03:31 PM

[BeachRider:]

The hierarchy of asset distribution has the common stock holders near the bottom of the bankruptcy totem pole.

Ever since this went onto the Pink Sheets, that was a clear signal that the stock could-well go to zero. Pink Sheets trading is ALWAYS extremely dicey as many of the trading rules are suspended. Any broker that told you otherwise was negligent.

The comments above that Pink Sheets trading is for index traders and short-covering are on-target. You don't want to be trading with those guys.

Sorry if you waited for this notice to figure out the GM was going to zero-out the common stock, but it was widely discussed here (I commented on it a couple of times).

Jul 06 04:35 PM

[Fighting Yoda:]

There are always plenty of fools in the market who think something is cheap- they end up paying a litle more price, likes of GM holders.

Jul 06 05:24 PM

[bagnap:]

Wow....Currently GM has a market cap of $428 million....and they are telling you its going to zero?

Is there any way to profit out of this, at all?

Jul 06 07:22 PM

[banyon:]

This stock appears to have been held up rather artificially (SEC, *cough, cough*) by some sellers of the June 09 $1 Puts. It appears to have sunken once the puts expired and magically, all of the identically bundled purchases and sales in 500 unit lots have somehow stopped transacting on the pink sheets ticker. Ain't no oversight grand?

Fortunately for me, I hold July and September puts. I'd like to see them try to hang on til september!

Jul 06 08:24 PM

[Moon Kil Woong:]

The bigger question is do shorts have to buy back the stock before the stock becomes worthless?

Jul 07 08:20 AM

[Stockpickin...:]

I certainly hope that no one is buying as an investment? I have traded in and out a couple times, but I would not hold it overnight!.

Jul 07 08:59 AM

[Harry Tuttle:]

Why do people buy GM stock? because MOST equity "investors" do not understand basic accounting.

Equity "investing" in the USA is about "the story" CNBC-style.

A fool and his money should considered themselves lucky to have been together for a while.

Jul 07 10:02 AM

[Mark Anthony:]

Why would you receive an email from GM if you did not have any GM position? So you've got to be one of the GM bag holders.

This case is pretty curious. One thing I could suspect is that once certain hedge fund try to buy up ALL GM shares and more than that, at 25 cents, owning more than 100% of GM shares, and they do not sell. This makes it impossible for teh shorts to cover as all the shares have been sucked up by this one hedge fund. Eventually he gets to name the price at which shorts must buy from him to cover shorts.

Could such a hypothesis be possible?
seekingalpha.com/autho...

On Jul 05 08:59 AM Mad Hedge Fund Trader wrote:

> Unbelievable! It’s not often that the investor’s relations department
> of a company you follow sends you an e-mail telling you their stock
> is worthless. Neverless, that was the message I received from General
> Motors (seekingalpha.com/symbo...) yesterday. Since the
> company filed for chapter 11, it has traded between $0.25 and $2.25,
> and has often been the best percentage gainer of the day ($0.50 to
> $0.75 is a 50% move up). No doubt, most of this is hedge fund buying
> of stock to close out short positions. Otherwise, the bean counters
> may force you to carry the positions for years, tying up capital
> and deferring your performance bonus. But then again, there are always
> some dummies out there who think the stock is cheap at $0.25, on
> its way back up to $150.

Jul 07 02:15 PM

[r5r5r5:]

why in the world doyou think capital is tied up/required for a short position valued at (near?) zero . Only a minimum per share might be required at some houses.


On Jul 05 08:59 AM Mad Hedge Fund Trader wrote:

> Unbelievable! It’s not often that the investor’s relations department
> of a company you follow sends you an e-mail telling you their stock
> is worthless. Neverless, that was the message I received from General
> Motors (seekingalpha.com/symbo...) yesterday. Since the
> company filed for chapter 11, it has traded between $0.25 and $2.25,
> and has often been the best percentage gainer of the day ($0.50 to
> $0.75 is a 50% move up). No doubt, most of this is hedge fund buying
> of stock to close out short positions. Otherwise, the bean counters
> may force you to carry the positions for years, tying up capital
> and deferring your performance bonus. But then again, there are always
> some dummies out there who think the stock is cheap at $0.25, on
> its way back up to $150.

Jul 09 08:30 PM

[r5r5r5:]

to Mark A, ' s "certain hedge fund try to buy up ALL GM shares and more than that"..........court order has precluded such (over 5%) to preserve NOL tax carryover laws



On Jul 07 02:15 PM Mark Anthony wrote:

> Why would you receive an email from GM if you did not have any GM
> position? So you've got to be one of the GM bag holders.
>
> This case is pretty curious. One thing I could suspect is that once
> certain hedge fund try to buy up ALL GM shares and more than that,
> at 25 cents, owning more than 100% of GM shares, and they do not
> sell. This makes it impossible for teh shorts to cover as all the
> shares have been sucked up by this one hedge fund. Eventually he
> gets to name the price at which shorts must buy from him to cover
> shorts.
>
> Could such a hypothesis be possible?
> seekingalpha.com/autho...
>
> On Jul 05 08:59 AM Mad Hedge Fund Trader wrote:

Jul 09 08:43 PM

[peter299:]

I have 100 shares of GM,can anyone tell me if they are worth anything?

Jul 11 12:43 PM

[peter299:]

thats is the truth,don't blame the workers at GM or Ford or any other company. They negotiated there benefits,and the company should have been worried about gas mileage instead of Hummers and Suvs, The Japanese did it with the Prius,what were our executives doing? As for a benefit package the President has a nice one,work eight years,enjoy full retirement benefits,full insurance package(family plan),secret service protection for at least ten years,and the best Hospitals and medical care in the world.Not bad,and you say the auto workers make too much money!!!!

Jul 11 12:52 PM