Let’s see. Citigroup has gotten $45 billion of TARP funds, and backstops on a net of roughly $250 billion of crappy loans after Ciit’s first loss and allowing for the split between Uncle Sam and Citi on the balance. And it is pretty unlikely that we have seen the end of Citi’s funding needs.
GM and Chrysler, by contrast, have borrowed (un, loans are higher in priority than TARP-y equity) $17.4 billion and are seeking an additional $21.6 billion. So the total they want is less than that already handed to Citi, well less than what AIG received.
The Treasury is threatening to put the two car manufacturers into bankruptcy, and is moving forward in exploring feasibility. This may merely be high stakes poker, but the bluff looks pretty serious.
Do we see anywhere near as rough treatment for companies that not only drove themselves off the cliff, but are taking the economy with them? Ah, but of course. Who has given more to pols in DC, Wall Street or Detroit? Case solved.
From the Wall Street Journal (hat tip reader Dwight):
Outside advisers to the U.S. Treasury have started lining up the largest bankruptcy loan ever, talking with banks and other lenders about at least $40 billion in financing for General Motors Corp. and Chrysler LLC, in case the two auto makers need it, said several people familiar with the matter.
While acknowledging the grimness of the task, administration officials involved in the auto talks said they are trying to find a way to restructure the two companies without resorting to bankruptcy proceedings. They stressed the latest efforts were “due diligence” on the part of the government advisers, and that bankruptcy financing may not be necessary.
Still, people involved in talks with senior Obama administration officials said that the administration believes that the option of Chapter 11 filings by the two auto makers needs to be seriously considered.
“Everything is on the table right now,” one person involved in the matter said, adding that President Barack Obama doesn’t want to see more massive job losses in the auto industry. His administration also doesn’t want to anger the United Auto Workers by appearing to push for bankruptcy, this person added.
Yves here. Well, I’m glad to learn about the solicitude about jobs, but it still begs the question: have we seen anything like an “Everything is on the table” investigation for the dodgy big banks? Back to the article:
The initial discussions call for private banks to provide the financing — known as a debtor-in-possession, or DIP, loan — with the government guaranteeing or backstopping the loan. In this scenario, some of the financing would be used to pay back the $17.4 billion the government lent GM and Chrysler late last year.
Lenders are reluctant to commit funding to GM or Chrysler for several reasons — mostly concern they won’t get all their money back….
The government advisers also are looking at ways the Treasury could “prime” other banks making DIP loans, so the government could be paid back before private creditors. Banks are deeply resistant to such steps. Both GM and Chrysler insist they can avoid bankruptcy, warning that option could cost the government as much as $125 billion in rescue financing. Bankruptcy experts say the sum isn’t likely to be that high.
Even so, the estimated total of $40 billion in DIP financing GM and Chrysler would need would be five times as large as the previous record for such financing,…
Bankruptcy experts say that absent government support, lenders wouldn’t step in to aid GM and Chrysler, given the proposed size of the loan and the tightness of credit markets. Most likely, the bankruptcy loan would roll up — or pay off — the $17.4 billion the government has so far lent the two auto makers. It might also pay off some other debt, including a senior bank facility…
GM said it might need as much as $100 billion in financing from the government if it were to go through the conventional bankruptcy process. GM’s $100 billion estimate stems from the belief that it would suffer “catastrophic revenue reduction impact” in a prolonged conventional Chapter 11 process, as it would expect to sustain as much as an 80% decline in sales after a bankruptcy filing. GM would need financing not only so it could weather the storm, but also to help its suppliers and dealers survive.
Mr. Wagoner, the GM CEO, said the bankruptcy scenarios are “risky” and “costly,” and would only be pursued as a last resort. “We haven’t had extensive discussions yet with the government on DIP financing,” he said. “They asked us to put together and address the topic. We’ve done that in [GM’s viability plan], so I suspect we may enter into those discussions.”
The disparity between the government loan estimates and GM’s is basically the difference between an optimistic and a pessimistic case. One of the repeated errors of the Fed and Treasury in this crisis has been insufficient preparation for reasonable downside scenarios.
What happens, for instance, if the powers that be arrange $40 billion of DIP and the GM is closer to correct than Treasury, sales do decline, and the carmaker needs, say, $70 billion to go through Chapter 11? I would say the odds are high it goes into liquidation, as some (including yours truly) have predicted.
And for background reading, the auto rescue program has already had some big miscues.