Today General Motors announced it will spend $5.5 billion to repurchase 200 million shares from the U.S. Treasury at about $27.50/shr. In turn Treasury announced its intent to sell its remaining stake of about 300 million shares within the next 12-15 months. GM will not be the buyer. Instead the government intends to liquidate its position “through various means in an orderly fashion.”
Today’s announcement all but ensures a multibillion dollar loss to the American taxpayer. GM received about $50 billion from Treasury under the Troubled Asset Relief Program (TARP). Today’s sale recovers roughly $29 billion for Treasury leaving about $21 billion outstanding. GM’s stock price will need to rise from its current $27.50/shr to almost $70/shr simply for Treasury to breakeven. To put this another way if Treasury were to sell its stake at today’s price it would lock in a $12 billion loss for the American taxpayer.
While we’re on the subject of the American taxpayer – many of whom are being vilified for not paying their “fair share” – it’s important to note GM retains $45 billion of NOLs (Net Operating Losses). Should GM ever turn a profit (and this is a big IF) the first $45 billion will be tax free. Tax free! At the 35% corporate tax rate that’s $15.75 billion of tax revenue that Treasury will not collect.
For all the vilification of AIG, Bank of America, Citi, et al. each one of these deals brought a profit to Treasury. Treasury’s losses on GM could total close to $28 billion between stock sales and lost tax revenue.
President Obama heavily promoted his decision to use public funds to “rescue the auto industry” when he campaigned for re-election in important swing states like Ohio and Michigan. Was this $28 billion loss ever mentioned during his rallies?
When it comes to fairness our “leadership” has made clear that fair is more than literally a four letter word.
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