dfalter

It's Good to Be Goldman Sachs

Have you actually even bothered to look at the quarterly results of GS or the other banks?

You'll notice that the majority of revenue was under the category 'FICC' - i.e. credit, currency, interest rate and commodity trading.

High-frequency trading would fall under the category 'Equity Trading', which in total only came to about 16% of revenues at GS for example and includes many other equity trading activities.

GM's Surge: Proof Insanity Knows No Limits

Only rational explanation I could think of is that there is massive open interest in the June and July puts on GM (about 15% of GMs market cap total, about 5% of GMs market cap on the 1$ June puts alone) and it is very hard to properly hedge those because it is very expensive to short the underlying and most calls are far out of the money.

So one possible explanation would be options market makers trying to keep the stock up until expiry (plus momentum traders picking up on the trend that created). For anyone who wrote the 1$ June puts it is obviously cheaper to buy below 1$ now, if that means they have a better chance of not having the puts exercised at 1$ later.

That is all a bit of a game of chicken though.. At some point, someone is going to flinch and it's going to go towards zero rather quickly. Question is just.. is that going to be before or after the June options expiry.

GM: Still Think the Market Is Efficient?

The market is very efficient at one thing and one thing only... reflecting the market participants' average expectation of what is going to happen.

Taking market prices as the absolute gospel of what 'value' a certain asset has is essentially the same as always picking the audience lifeline at 'Who wants to be a Millionaire'. It's going to be relatively accurate quite often - especially if the questions are relatively easy - i.e. market conditions are calm and there are clear trends - but can be horribly inaccurate at other times when things are more uncertain.

GM Has Been Bankrupt for Years

No need to look at foot-notes even.. Simply the head-line balance sheet numbers were enough.. GM has had a negative equity book value since 2006.

In many legislations (but not including the US), a company with a negative equity balance is legally required to declare bankruptcy.

General Motors and CDS Leeches

Please check outstanding CDS amounts published weekly at dtcc.com/products/deri...

You will find that the net amount of oustanding CDS on GM is 2.3 billion, a small fraction of GM's total liabilities and that there are many many other CSD reference entities with much larger amounts outstanding.

The GM Bondholders' 'Legal Rights' Meme

On Jun 01 07:59 PM babyray wrote:
> Nowhere in the GM bond prospectus does it guarantee anything!! When
> you invest there is a little thing called RISK!!!!

That is strange.. the prospectuses linked on the GM webpage all quite clearly state:

"These senior debt securities will rank equally and pari passu with all of our other unsecured and unsubordinated debt"

And in 2007, the UAW, in return for other labor concessions, decided to restructure their retiree benefits (which previously had a privileged position in GM's capital structure) into the current VEBA structure holding... guess what... unsecured debt issued by GM.

The GM Bondholders' 'Legal Rights' Meme

'pari passu' as a legal term means exactly that - receiving a pro-rated equal share of proceeds in case of a bankruptcy/liquidation.

If you have four credit cards and declare a personal bankruptcy.. they will indeed be paid off in equal shares with the proceeds of whatever is still left at that point - although in the case of a personal bankruptcy there are obviously likely not many assets left.

While outside a bankruptcy, it is of course completely legal to pay off however much you want in whatever order you wish.. but for obvious reasons GM has not been able to repay any of its debt pre-bankruptcy as it would have been allowed to.

In a bankruptcy, normally the only way that a certain class of creditors can receive a lower pay-out than another class of creditors they are ranked pari passu with is, if they agree to that treatment with a significant enough majority - as it has happened with a considerable amount of brow-beating and political pressure at Chrysler and is likely going to happen with a slightly lower amount of political pressure at GM.

Because a majority of creditors are likely to agree to being disadvantaged in this way here, noone is technically breaking the letter of the law. If, however, GM bond holders were to vote against the current proposal, that would leave the whole arrangement in a very precarious position and likely cause the whole thing to unravel.

The one thing this unequal treatment does break, however, is the spirit of the law and equivalently the implicit promise of equitable treatment of external investors that has made bonds a relatively cheap source of funding for corporations over the past decades.

The results of that are all too visible already. In the recent past, US corporate bond spreads in areas that have seen significant government interference have compressed a lot less than comparable spreads in Asia and Europe, where creditor rights have a higher standing. For example, the majority of European banks are at CDS spreads of around or below 100 already, whereas most US ones tend to cluster around 200 (with some still way beyond that).

It's a bit funny that political risk, usually more commonly associated with countries like Russia, now becomes an issue in the good old US of A.

GM Bankruptcy: Who Stands to Gain

On Jun 01 01:25 PM dybydx wrote:
> well lets be clear about 1 thing. GM Asia and GM EU is doing fine.
> so yes, GM products CAN make money.
>
> but... GM Asia/EU doesnt sell V8's like GM NA.
GM EU ceased to be a part of GM today - with only a minority share holding remaining. :)

GM Common Stock Is Worth More than You Think

That is... it would go to bond holders.. unless this tax loss asset is also transferred to the 'New GM' via some legal hocus pocus.

GM Common Stock Is Worth More than You Think

Any proceeds resulting from a sale of the shell company with tax losses would go to bond holders, not share holders.

When Bankruptcy Is Good for Bondholders

The warrants actually significantly increase the recovery rate.

With the old offer, recovery would be around 7.3% - 18.4% (depending on where the new GM lands in the range of market cap from 20 to 50 billion).

The recovery rate of the new offer is 8.7% - 33.5% for the same market cap range. So if GM ends up at the higher end of the range, recovery would almost have doubled compared to the previous offer.

Why Selling Your GM Stock Makes Sense, Even If Bankruptcy Is Averted

On May 28 12:02 PM fuzzy wrote:
> If I had 10k shares of old GM stock will I still have 10k shares
> under the new GM?

If you buy 10k shares of old GM stock.. you will continue to have 10k shares of old GM stock until they eventually get de-listed.

Can Fiat Pull It Off?

An integration with Opel would be fairly realistic to pull off. Opel and Fiat operate in more or less the same markets covering a similar range of products, so it's easy to see where synergies would be.

It also so happens to be that the Opel deal is the only deal Fiat is actually willing to commit itself to properly - as in promising to take a majority stake and repay the government funds with the capital of the joint company after a few years.

The Fiat-Chrysler deal looks to me more like a shoot in the dark. Fiat commits no capital whatsoever and only gets a minority stake, so if it happens to work out, they have the potential of increasing their stake and trying to turn it into a proper joint venture. If it doesn't work out, they can just write off the stake they got for free and have no significant loss whatsoever. As such.. it does make a lot of sense to try it for Fiat.. they are getting a chance of entering a new market relatively cheaply at very little risk, if it doesn't work.

You can say many things about Fiat.. but two thing they are definitely not: bad at writing up contracts or crazy. Remember the last time they had an international tie-up, it ended up with GM paying them 2 billions for the privilege of dissolving it. So I'm quite sure they structured the Chrysler deal in such a way that would allow them to extricate themselves from it, if it goes pearshaped.

Such a deal is of course not going to be very advantageous for either the US government or Chrysler, if it fails to work.. but beggars can't be choosers, there was no other bidder available.

GM Bondholders vs. UAW Retirees: False Equivalence

On May 28 02:20 AM User 413089 wrote:
> So here's the deal. As an informed investor, I don't think current
> holders of GM bonds have any right to their original principal.
> Who are these investors and what was their intention? As an investor,
Noone is asking for the original principal.. only a fair recovery not by an order of magnitude worse than other creditors with the same type of legal claim.

GM Bondholders vs. UAW Retirees: False Equivalence

On May 27 03:51 PM ssejhill wrote:
> Don't confuse a Chapter 7 Bankruptcy (liquidation) with a Chapter
> 11 Bankruptcy (reorganization). In a Ch7, secured lenders do line
> up first to get the benefits of sales of the assets, with unsecured
> lenders only getting pennies on the dollar if at all. A Ch11 bankruptcy
> is in the hands of the bankruptcy judge to decide what is best.
> A "cram-down" is called what it is for a very good reason. Bankruptcy
> reorganization plans are frequently crammed down on secured and unsecured
> lenders in order to benefit other classes and groups (ie. the UAW
> VEBA plan and the US Treasury will be examples in Chrysler's bankruptcy
> and also GM's if the do go that route).
VEBA is a unsecured lender.

The UAW gave up its privileged position in the capital structure 2 years ago.