GM to buy stake from US Treasury

Updated 19 December 2012
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GM to buy stake from US Treasury

NEW YORK: General Motors Co. said it will buy back 200 million of its shares from the US Treasury and the government plans to sell its remaining stake within 15 months, all but assuring a multibillion dollar loss.
GM Chief Financial Officer Dan Ammann said the automaker will pay $ 5.5 billion, or $ 27.50 a share, for the Treasury-held shares in a deal expected to close by year-end. That represents a 7.9 percent premium on Tuesday’s closing price. GM shares rose 8.2 percent to $ 27.58.
Treasury said it will sell its remaining stake of about 300.1 million shares “through various means in an orderly fashion,” and could begin the process as soon as January.
The auto giant, dubbed “Government Motors,” received about $ 50 billion from the Treasury as part of its bankruptcy restructuring in 2009 under the Troubled Asset Relief Program (TARP).
The stock sale is part of a broader push to wind down the controversial financial bailout, created by US President Barack Obama’s predecessor, George W. Bush, to prevent the collapse of the US banking industry during the 2007-2009 financial crisis.
On Tuesday, Treasury said it would largely sell its remaining shares in bailed-out banks over the coming 12 months to 15 months. Last week it sold the last of its common stock in American International Group Inc. at a profit.
Obama heavily promoted his decision to use public funds to rescue the auto industry and save jobs as he campaigned for re-election in swing states like Michigan and Ohio. Voters in both states backed him again in the Nov. 6 election, providing critical support in his victory.

The GM sale will raise the proceeds that Treasury has recovered to $ 28.6 billion. With $ 20.9 billion left from the original bailout, the government would have to sell its remaining shares at an average price of $ 69.72 to break even.
If Treasury sold its remaining stock at the price GM is paying now, it would come up short by more than $ 12 billion.
TARP was approved by Congress as a $ 700 billion program, though Treasury eventually disbursed $418 billion. It said yesterday it had recovered $ 381 billion to date, or about 90 percent.
“TARP was always meant to be a temporary, emergency program. The government should not be in the business of owning stakes in private companies for an indefinite period of time,” Treasury Assistant Secretary Timothy Massad said in a statement.
“Moving to exit our investment in GM within the next 12 to 15 months is consistent with our dual goals of winding down TARP as soon as practicable and protecting taxpayer interests.”
After the buyback, Treasury will still own a stake of about 19 percent, down from about 26 percent currently. Ammann said GM will not buy more shares directly from Treasury after this buyback is completed.
Ammann said the move and resulting Treasury plans will remove an “overhang” on the stock that has hurt sales and bring an “element of closure” to the bailout.
GM will end the year with estimated liquidity of about $ 38 billion, even after the deal, he said. That will add to earnings per share by reducing the number of outstanding shares by about 11 percent.
GM will take a charge of about $ 400 million in the fourth quarter tied to the buyback.
In addition, Treasury has agreed to relinquish certain governance rights, including required levels of US manufacturing and barring the purchase of corporate jets, Ammann said. Senior executive payment caps under TARP remain in place.


2 years on, Brexit vote has taken a toll on UK economy

Updated 23 June 2018
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2 years on, Brexit vote has taken a toll on UK economy

  • Big companies are sounding the alarm bell, with plane making giant Airbus this week threatening to pull out of the country, where it employs 14,000, if it gets no clarity on future trade deals
  • The governor of the Bank of England, Mark Carney, estimated recently that average household incomes are around 900 pounds lower than the bank was forecasting on the eve of the referendum

LONDON: While it’s still unclear what Brexit will look like when it happens next year, the decision to leave has already had a clear effect on the economy: households are poorer, companies are more cautious about investing, and the property market has cooled.
In the two years since the vote to leave the European Union, Britain has gone from being a pace-setter among the world’s big economies to falling into the slow lane. And the uncertainty over what relations with the EU will be when Brexit becomes official on March 29, 2019 could make matters worse.
Prime Minister Theresa May’s Conservative government remains split on what those relations should be. There are those who favor a “hard Brexit,” a clean break that takes Britain out of the bloc’s free trade union but also gives it more freedom to strike new trade deals around the world. Others want to keep Britain as close as possible to the EU, Britain’s biggest trading partner, which could mean it has to obey more of the bloc’s rules.
Big companies are sounding the alarm bell, with plane making giant Airbus this week threatening to pull out of the country, where it employs 14,000, if it gets no clarity on future trade deals.
“Thousands of skilled, well-paid jobs are now on the line because of the shambolic mess the government have created over the Brexit negotiations,” said Darren Jones, the lawmaker for the community where Airbus has its plant.
Before the referendum of June 2016, the British economy had been one of the fastest-growing industrial economies for years. Now, it’s barely growing. In the first quarter of this year it expanded by just 0.1 percent from the previous three-month period, its slowest rate in about five years.
For most people, the first and most noticeable impact was the drop in the pound. The currency slid 15 percent after the vote in June 2016 to a post-1985 low of $1.21. That boosted prices by making imports and energy more expensive for consumers and companies — the rate of inflation hit a high of 3 percent late last year.
The weaker pound helped some companies: exporters and multinationals that do not sell mainly in the UK But it hurt consumer spending and businesses that depend on their shopping. The retail industry was hit hard, with high-profile companies like Toys R Us and Maplin going bust, and supermarket chain Marks and Spencer planning deep cuts.
While prices rose, wages lagged, even though unemployment is at its lowest since 1975, at 4.2 percent.
“After Brexit, prices definitely went up,” said Nagesh Balusu, manager of the Salt Whisky Bar and Dining Room in London. “We struggled a bit earlier this year, so now we’ve increased the prices.” The bar is next to Hyde Park, a popular destination for foreign visitors. “The tourists have a good exchange rate. They know they can spend a little bit more than they usually do. But the locals are coming a little less. They are starting to think about how much they spend.”
The governor of the Bank of England, Mark Carney, estimated recently that average household incomes are around 900 pounds lower than the bank was forecasting on the eve of the referendum.
The real estate market, meanwhile, has cooled considerably, with the number of property sales in London near a historic low last year, according to estate agent Foxtons.
While some foreign prospective buyers were attracted by the drop in the pound, others seem to have been scared off by uncertainty over what Brexit might mean for their investment.
House prices are stagnating after years of gains, also due to expectations that the Bank of England will keep gradually increasing interest rates.
Nic Budden, Foxton’s CEO, predicts that the real estate market will remain challenging this year, while Samuel Tombs, analyst at Pantheon Economics, predicts that house prices will flatline for the next 6 months.
Against the backdrop of uncertainty, businesses have become more reluctant to invest in big projects. Because Brexit could lead to tariffs on EU imports of British goods, companies are hesitant to spend big on British plants and office space before they know what the new rules will be.
Benoit Rochet, the deputy chief of the port of Calais, the French town across the Channel from Britain, complained to a parliamentary committee this month that “we know there is Brexit but we don’t know exactly what Brexit means.”
“You are not alone,” responded the Conservative chair of the committee, Nicky Morgan.