Take GMAC Down

The big news, really, is that GMAC needs $11.5 billion (and will need $4 billion more if it takes on Chrylser financing).  Can you think of anyone who would loan GMAC $11.50 right now, not to mention $11.5 billion?  Who should they even ask?  Well, I can think of one guy.  Can you guess?

OK, him too, but I’m not allowed to blog about Tim Geithner anymore, am I?  Keep guessing.

Getting warmer, but who knows if he’ll be able to stay awake long enough to count out the money (which, yes, he might have on hand). 

You don’t even know who that is, do you?  It’s OK; you’re not alone.  Hint: It’s Gary Locke.  He’s the Commerce Secretary.

Give up?  The auto task force guy with the power of the purse on this one might actually be this guy:

That’s Steven Rattner, the Car Czar.  Not really sure why he’s so far in the back during this Shame on You Chrysler Lenders speech, since he’s apparently the guy who fired Rick Wagoner at G.M. and heavily rumored to be the guy who told Chrysler’s non-complying creditors the White House would destroy them if they didn’t cooperate.  (He’s also, according to that first link, the guy who’s eyeing Tim Geithner’s parking space at Treasury — or at least was before his own possible scandal popped up).  Rattner is also the guy who will be poring over G.M.’s you-have-60-days-to-get-it-together filing, which is due at the end of this month.

Also due 30 days from now (June 8, to be precise)?  A plan from each of the banks listed above that needs to raise capital about how, exactly, those banks plan to raise that needed capital by November. I’m guessing GMAC’s plan can be summed up in two words: Government bailout.

So my thought is this: How can GMAC make any kind of plan without including the viability of GM (and Chrsyler, for which it might be taking up sales financing for) in its plan?  And if it includes those pieces of the puzzle, doesn’t that make Rattner the point man?

This seems like a good thing. Rattner’s the one who spear-headed the Chrysler effort, which ended, you may remember, with not much government concession to bondholders.  Rattner has shown that he’s willing to see a car company fail.  It can’t be that hard for GMAC to imagine that he wouldn’t mind watching a car company’s finance wing fail, too.

And though Treasury has said that they will support GMAC as needed, I’d guess that’s a reassurance meant more for its counterparties than for GMAC itself.  This is a bank that probably needs to go into receivership.  It’s a bank that, as Floyd Norris writes, “concluded, disastrously, that a good way to offset possible losses on auto loans was to get into mortgage lending.”  Going forward, what are the prospects for GMAC to revive?

I’m not convinced that a GMAC failure would be the same systemic threat that a failure of Citi or BoA might be.  First, I don’t think it would send a confidence shock through the system if GMAC went down — in fact, I think it’s more shocking that it’s being allowed to stand.

Second, GMAC does provide financing for dealerships to buy new inventory, and then provides financing for customers to buy that inventory — but if a contraction in that particular market is going to happen anyway (and it certainly seems it will, as part of Chrysler’s bankruptcy deal will include dealership closings), why not just hand GMAC off to the FDIC now?  Why not call this bank, and all of its attached pieces, a failure?

If anyone’s going to have a come-to-Jesus meeting with this bank, Steven Rattner seems like the guy to do it.  He’s probably got the clearest picture of GM’s predicament right now, and I hope that qualifies him to deal with their semi-detached financing arm, too.

Ten Banks Expected to “Fail” Stress Tests

It’s Stress Test Week!  (Again).  But this time, we’re talking results instead of just, you know, hey, guess what’s happening behind closed doors.  The nation’s 19 largest banks have all seen their results by now, and rumors have been flying since Monday about what, exactly, those results showed.  I thought I’d do a round-up of expectations now, and then come back tomorrow and see how the banks fared in reality.  I’ve waxed on about what the tests mean before.  And I’ve said my faith in Treasury rests largely on the results.  So here it is: judgment day.  Rumor has it, ten banks aren’t expected to pass (which is different than a bank failing outright, because if they don’t pass, they’re given time to raise capital).  Here’s the Top Ten:

Citibank is held by Citigroup.  It’s expected to need a major infusion of cash — talk is $10 billion.  Citi apparently appealed the government’s findings.  Just this week, it sold its Japanese finance company, Nikko Cordial, for about $3.4 billion (it bought Nikko in 2008 for around $18B) to raise some much-needed cash.  Citi is largely considered the bell-weather of this test, in that if it’s deemed to “pass,” the rest of the test should be considered a joke.
Current government investment in Citi: ~$45 billion (some in common stock).

Bank of America is the nation’s largest retail bank, as of last fall when it bought Merrill Lynch — and is also expected to be the bank in the most trouble, since last fall it — hey! — bought Merrill Lynch.  BoA is expected to need a whopping $33.9 billion in additional capital post-test.
Current TARP investment in BoA: ~$45 billion (unless you count the government’s asset guarantees in.  Then we’re talking 45 + $142 billion = $187 billion).

Wells Fargo was considered in prime shape this fall when it bought out troubled Wachovia, and it took money from the TARP — but only under duress.  Now, despite the CEO’s protests that the stress tests are “asinine,” the bank is considered one of the most likely to be under pressure to raise new capital.  Warren Buffet, whose Berkshire Hathaway investment group owns shares of Wells Fargo (and US Bancorp, SunTrust, and BoA) and pushed for the Wachovia takeover, called Wells and US Bancorp “extremely strong banks” Monday.
Current TARP investment: ~$25 billion.

KeyCorp owns the Key Bank franchises.  It’s considered to be widely and heavily exposed in the commerical real-estate market, which is taking some significant hits as businesses suffer during the recession.  Analysts at several research/investment firms have said KeyCorp is quite likely to need to raise additional capital, and it has shown a loss in all of the last four quarters.
Current TARP investment: ~$2.5 billion

Regions Financial is in about the same boat as KeyCorp.  Oppenheimer analysts said late last month that they expected Regions to fail the stress tests and have to raise more capital.  Regions posted a 92% loss in the first quarter.  Holy mackeral.
Current TARP investment: ~$2.5 Billion

US Bancorp owns U.S. Bank, the sixth largest commercial bank in the country.  It’s not widely expected to need a big capital raise; it cut dividends earlier this year by 88 percent to maintain its capital cushion.  Its CEO also announced late last month that US Bancorp is ready to repay its TARP money as soon as possible.  The bank had a $529 million profit in the first quarter, down significantly from past years but a better showing than expected.
Current TARP investment: $6.6 billion

Fifth Third Bancorp is another regional bank expected to need additional capital.  It’s based in Florida, where the burst of the housing bubble is still taking down everything in its path.  Like Regions, were the government to convert its preferred shares to common shares, it would own a majority stake (54 percent) of Fifth Third.  One wonders if that’s enough ownership to induce a name change.
Current TARP investment: $3.4 billion

Like Fifth Third, Georgia-based SunTrust is a considered a regional bank likely to be told to get thee more capital, according to a report issued by Mogan Stanley last month.  Then again, Morgan Stanley though BoA fell into a “grey zone” and might not need new capital, so who knows. SunTrust wrote off $610 million in bad loans just in the first quarter this year, and apparently holds a big balance sheet of home mortgage loans in the Southeast.  Last week, a huge Georgia banker’s bank with similar ugly exposure became the fifth largest bank failure this year.  In January, analysts were already predicting SunTrust would need another $2 billion.  They went back for $1B from TARP, so at this point, I’d guess they’ll need at least $1B.
Current TARP investment: ~$5 billion.

PNC Financial Services Group posted a profit last quarter, mostly on the strength of its acquisition of National City — a move that some say gave the bank a needed capital boost.  Analysts at Keefe, Bruyette and Woods say PNC is likely to need more capital despite cutting dividend payments earlier this year.
Current TARP investment: ~$7.5 billion

And lucky number 10.  Capital One Financial Group is mentioned with some regularity as a bank expected to need additional capital.  Its exposure is largely in credit cards, and as unemployment rises (in the stress tests, it went over 10 percent) so do expected defaults on credit card payments. 
Current TARP exposure: $3.5 billion

Ten banks are expected to have “failed,” or, in the nicer terminology, to need to raise new capital so as to have a nice cushion in case of the economy continuing to decline.  The remaining nine banks are considered variably secure right now, though BB&T is mentioned in several articles as likely to be asked to raise capital, too, and I’m a little surprised that no one thinks GMAC is going to need any further funding.
Current BB&T TARP Investment: ~$3 billion

Current GMAC TARP Investment: $5 billion

The remaining banks (bank holding companies) are:

• J.P. Morgan Chase.  Current TARP Investment: $25 billion
• Goldman Sachs Group.  Current TARP Investment: $10 billion
• Morgan Stanley.  Current TARP Investment: $10 billion
• State Street Corp.  Current TARP Investment: $2 billion
• Bank of New York Mellon.  Current TARP Investment: $3 billion
• American Express Co.  Current TARP Investment: ~$3.4 billion
• MetLife.  No TARP Investment.

Well, so, let’s see what happens now.