The GM (er, Motors Liquidation) Stock Anomaly

A few months ago, I wrote a series of posts about anomalies in the pricing of Citigroup (C) common and preferred stock (see here for the final installment). At the time, Citi’s common stock traded at prices that appeared to be way too high relative to the preferred stock (which has since converted into common).

Limits on short-selling appeared to be the best explanation for that anomaly.

In Saturday's New York Times, Floyd Norris notes that the same thing is happening to shares of Motors Liquidation Company (MTLQQ.PK). Motors Liquidation is what remains of the bankrupt General Motors. It has no ownership in the new, post-bankruptcy GM and, as far as I can tell, everyone believes that ML’s common stock is worthless. Yet, as Norris shows in an accompanying chart, the stock has persistently traded above $0.50 per share:

(One nit: I don’t think the top chart should be labeled “General Motors stock price …”; it should be “Motors Liquidation stock price …”)

Norris argues, correctly I think, that the difficulty of shorting ML common stock is why it trades at a positive price. Potential sellers have been unable to drive the price down where it belongs (close to zero) and, indeed, are occasionally forced to buy back shares to close their positions. Thus, the stock trades around $0.60 per share, and the number of shorted shares has been declining.

As a contrast, Norris points to Delta Airlines (DAL) which went through bankruptcy back in 2006-7. In that case, short sellers increased their positions over time, and the stock price worked its way down to zero.

Comments

[Joe Snow:]

They should not allow shares in companies that are in liquidation to be traded once the liquidation commences. Anyone who got stuck with old GM shares should have gotten out by now. These shares will never be worth anything as there is no longer an operating company attached to them. The only thing that can happen with these shares is the speculators trading in them get burned when they are delisted without prior notice.

Nov 02 01:25 PM

[a. palmer jr.:]

I think it'd be cool to own one share of a company that once was a great corporate conglomerate just for old time's sake, a collector's item if you will.

Nov 02 03:08 PM

[BeachRider:]

Everyone knows that MTLQQ is a zombie stock. If there is novelty in getting certificates of MTLQQ, then let the market set the price for zombie certificates. There are no more 'GM' certificates being done, however.

I never understood what part of 'Pink Sheets' don't people understand. Sometimes these online trading services make it attractive to take-a-shot at penny-stocks. People should just understand that this is like roulette (really it is worse), the longer you play, the certainty encroaches that you will lose all your money.

Go out and get a 100,000 Yen note or something if you want to own something that diluted. At least the Yen won't lose value like MTLQQ will...

Nov 02 03:40 PM

[User 158164:]

Hey - it's financial Darwinism. If you are SO STUPID, that you don't understand what "Motors Liquidation" means and put any significant money into this stock, that money belongs with someone at least smart enough to keep it under his bed.

"Stock Certificates"? When did you last buy stocks, 1982?

These guys are playing musical chairs. They trade these stocks while the music plays, except when this music stops, there are no chairs at all.

Let them lose their money.

Nov 03 08:45 AM

[omnimoeish:]

I was wondering myself why people weren't shorting like mad, the stock seemed pretty stable for a bankrupt company. Oh well. I guess some people thought the bankruptcy judge would have GM buy back the stocks or something at the end?

Nov 03 11:00 AM