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Treasury Effect on GM Wanes

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Shares of General Motors Company (GM - Free Report) failed to uphold the increase seen last week after the U.S. Treasury revealed that it has recovered $570.1 million of its bailout loan to the company. The recovery came from the Treasury’s sale of the company’s shares in September.

The amount raised by the stake selling in September took the Treasury’s total recovered amount of General Motors’ bailout to $36 billion. As a result, the department’s stake in the automaker reduced to 7% from about 61% taken in exchange for the bailout under the Troubled Assets Relief Program (TARP).

The Treasury announced the third phase of divestiture of its stake in General Motors on Sep 26. As of that date, the Treasury held 101.3 million shares or 7.3% stake of the company, down from the 500.1 million or 33% it had after General Motors’ initial public offer (IPO) in Nov 2010. The fast pace of the sell-off by the Treasury indicates that it might divest its entire stake in the company before its deadline of Apr 2014.

The Treasury department provided a bailout loan of $49.5 billion to General Motors following its bankruptcy in 2009. Post bankruptcy, the company was primarily owned by the U.S. and Canada governments, and the UAW retiree health care trust fund.

In Nov 2010, General Motors initiated an IPO of common stock that helped it repay $23.1 billion to the U.S. government. The Treasury was left with roughly 500.1 million shares of General Motors.

In Dec 2012, General Motors repurchased about 200 million shares from the U.S. government for $5.5 billion, leaving nearly 300 million shares with the Treasury. Post-sale, U.S. Treasury’s stake in the company was reduced to nearly 18% from 26.5%.

In January this year, the Treasury initiated a plan to sell the remaining shares by next year and hired JPMorgan Chase & Co. (JPM - Free Report) , Citigroup (C - Free Report) and Morgan Stanley & Co. (MS - Free Report) for conducting the sale. The department revealed that the banks will get a penny for every share they sell, for a fee of up to $3 million.

In the first part of the pre-arranged trading plan, which was completed on Apr 11, 2013, the Treasury sold 58.4 million shares of General Motors for $1.6 billion. Thereafter, in June, the department sold another 30 million shares for $1.03 billion in an underwritten public offering.

In August, the Treasury raised another $811.1 million by selling the shares of General Motors. As of Sep 26, 2013, the department had recovered $35.4 billion of the amount it spent on the company via repayments, stock sales, dividends, interest, and other income by the end of August.

Apart from General Motors, the Treasury department is recovering the money spent on other companies under TARP as well. It has recovered almost $404.9 billion or 96% of the $420.92 billion spent under the program. In fact, the department has made a profit of $1.58 billion under TARP, after including the additional income made from the beneficiary companies. However, the treasury expects to incur losses of $15 billion on the total bailout money ($85 billion) spent on the automobile industry.

Following the uptick, the stock price of General Motors dropped 0.06% to $35.33 on Oct 14, following reports that the company increased the price of two of its full-size pickup trucks, 2014 Chevrolet Silverado and GMC Sierra, by $1500.

General Motors currently carries a Zacks Rank #2 (Buy).

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