Treasury To Be "Patient" In Selling Off GM Shares

October 4, 2011
On Monday, General Motors stock fell to another all time low, trading briefly at $19.65 a share. That’s the first time the stock has dropped below $20 per share since GM went public last November, and it also represents a 40-percent drop in stock value since GM’s initial public offering at $33 per share.

If you’re an average investor in General Motors, that’s bad news. If you own 500 million shares of GM stock, like the Treasury Department, it’s a major headache that just won’t go away.

Based on current GM stock prices, The Detroit News reports that divesting in GM would produce a net loss of $16.5 billion on the government’s $49.5-billion bailout of the automaker. For the Treasury Department to break even, GM shares would have to sell for $53, and no one expects that to happen any time soon.

No actions are planned until GM reports its third-quarter earnings in November, even though the Treasury Department has had the ability to sell off the stock since a lock-up period expired last May.

In an interview with CNBC, Treasury’s Assistant Secretary for Financial Stability, Tim Massad, was quoted as saying, “We have to balance the goal of divesting these stakes ... with the goal of maximizing taxpayer returns.” We doubt that taxpayer returns will ever be maximized, so the only real question becomes how much of a loss is the Treasury Department willing to take?

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