GM to buy stake from Treasury; government may lose billions

Wed Dec 19, 2012 4:07pm EST
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By Ben Klayman

(Reuters) - The U.S. Treasury plans to sell its stake in General Motors Co (GM.N: Quote) over the coming year, all but assuring a multibillion-dollar loss in a move that will end the automaker's "Government Motors" era.

Treasury's plan - a two-step process that includes a $5.5 billion stock sale to GM - is part of a broader push to wind down the controversial financial bailout under the Troubled Asset Relief (TARP) program. TARP was created by former president George W. Bush to prevent the collapse of the U.S. banking industry during the 2007-2009 financial crisis.

The planned GM sale will raise the proceeds that Treasury has recovered to $28.6 billion of the $50 billion bailout GM received. With $20.9 billion left from the original bailout, the government would have to sell its remaining shares at an average price of $69.72 to break even.

GM shares were up 7.1 percent at $27.31 on Wednesday afternoon on the New York Stock Exchange.

If Treasury, which will reduce its stake to about 19 percent when the buyback closes this month from about 26 percent at present, sold its remaining stock at the price GM is paying now, it would come up short by more than $12 billion.

"GM wins," Jefferies analyst Peter Nesvold said, pointing to the elimination of the government stake that has been acting as a drag on the stock price and to eventual higher earnings per share. "From a government standpoint, it's a mixed bag, but they went into it to save jobs, not as an investment." He said the buyback was lower than the $30 a share he had expected at the very least and was occurring earlier than anticipated.

GM's planned buyback of 200 million shares will give it more freedom from government oversight and likely result in a sales boost as some consumers unhappy over the U.S. taxpayer-funded bailout give the automaker a second look, GM Chief Financial Officer Dan Ammann said.

"This is very attractive to the company, to our shareholders," he told reporters at GM's Detroit headquarters. "It obviously brings some clarity and certainty around the U.S. Treasury exit.   Continued...

The General Motors logo is seen outside its headquarters at the Renaissance Center in Detroit, Michigan in this file photograph taken August 25, 2009. REUTERS/Jeff Kowalsky/Files