"Our Children and Grandchildren are not merely statistics towards which we can be indifferent" JFK

Tuesday, December 28, 2010

TARP Bailout Banks thank Geithner with Lofty GM Price Targets

By Andrew Ross Sorkin
DealBook NY Times
The New York Times

The initial public offering of the year, without question, was General Motors’ return engagement to the stock market, selling more than $23 billion in shares amid strong demand. Now, the newly public company has received additional plaudits from Wall Street.

A slew of analysts initiated coverage of G.M. on Tuesday with strong recommendations.

Citigroup analysts rated the company a “buy,” saying that G.M. is well-positioned to profit as it heads into its 2011-2014 product cycle. “G.M. may be the most compelling 1-3 year auto turnaround story in our universe,” Citigroup says.

Bank of America-Merrill Lynch also has a “buy” recommendation. Emerging from bankruptcy as a leaner company, the company should benefit from a cyclical recovery in United States auto sales, the bank’s analysts write. “Furthermore, we expect new leader to provide an opportunity to reinvigorate G.M.’s corporate culture,” they write.

Both Citi and BofA have price targets of $45 on G.M. shares.

JPMorgan gave a price target of $44 and an overweight rating. Barclays Capital recommended G.M. with an overweight rating and a price target of $42. Credit Suisse gave the company an outperform rating and a target of $43.

Shares of G.M. are up nearly 5 percent from their I.P.O. price of $33 on Nov. 18. and they are poised to rise further today.

The offering in November was intended in large part to cut some of the bonds between the auto maker and the United States government, which invested $50 billion to keep it going. The I.P.O. cut the Treasury Department’s stake to 26 percent from 61 percent, but that ownership continues to be a “headwind” for G.M.’s stock, Bank of America noted. The government’s exit strategy will be “a material overhang for the stock.”

Andrew neglected to mention the IPO "quiet period" ceased today.

Major Underwriters of GM IPO and their Price Targets:
JPMorgan Chase ($44)
Morgan Stanley ($50)
Bank of America ($45)
Citigroup ($45)

And the underwriters payday:
How did the investment bankers, the chief managers of this marketing and sales campaign, earn their fees, estimated at $248 million? By creating the image of a huge hit.

A Reminder on GM Bailout
The U.S. government invested $49.5 billion to save GM. So far, it was recouped about $23 billion, including the IPO proceeds. It will still own a third of GM after the IPO. If it sold this remaining stake at $33 a share, Treasury would lose money on its investment.

That has raised questions about why the IPO was increased in size in recent days. If fewer shares were sold now and GM stock climbs in the future, the government might have been able to sell at higher prices, recouping more of its investment.

Senior administration officials said Wednesday that Treasury tried to strike a balance between selling at the right price, to get as much back for taxpayers, and exiting the investment as soon as practicable.

The ultimate loss or return on the government’s investment in GM won’t be known until Treasury sells all its shares.

Treasury agreed to a six-month lockup on its remaining GM stake after the IPO.

When does the U.S. Govrnment Break Even
on the GM Bailout You Ask?
The Treasury needed to sell all of the GM shares it held at an average price of $43.67 to break even on its investment. That would require its remaining 500 million shares to be sold at $53.07 each.

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