John Snow may have been a lousy Treasury Secretary, but his lobbying skills are not in doubt.
Snow, who was Treasury Secretary before Paulson, works for Cerberus Capital which was the largest shareholder of GMAC:
The move represents the second tranche of government aid that redounds to the benefit of giant private-equity firm Cerberus Capital Management, which owns Chrysler and, until these recent moves, a majority stake in GMAC. John Snow, a top player at Cerberus, was the Bush administration’s Treasury secretary before Henry Paulson.
[Cerberus - Greek Mythology - a monstrous watchdog with three (or in some accounts fifty) heads that guarded the entrance to Hades.]
Cerberus 49% stake will be diluted to a max of 33%. Certainly, they would have been diluted a little more in bankruptcy court where GMAC belonged.
Thanks to John Snow the wealthy investors at Cerberus get bailed out and the management at Cerberus doesn’t even have to take a pay cut:
As part of the deal, GMAC agreed to limit compensation on its top 25 executives including a ban on severance packages for the top five employees. The limits won’t apply to executives at Cerberus.
Cerberus made some lousy investments buying Chrysler and GMAC. Why should taxpayers be forced to bail them out? Disgusting…
+++Crony Capitalism at GMAC
John Snow may have been a lousy Treasury Secretary, but his lobbying skills are not in doubt. The government threw a little more money GM’s way last night (via WSJ):
WASHINGTON — The federal government Monday deepened its involvement in the U.S. automotive industry by committing $6 billion to stabilize GMAC LLC, a financing company vital to the future of struggling car maker General Motors Corp.
In response, GMAC said Tuesday that it will immediately resume auto financing for “a broader spectrum of U.S. customers.”
The company said it will modify its credit criteria to include retail financing for customers with a credit bureau score of 621 or above, compared with the 700 minimum score it put in place two months ago as its troubles deepened. The median US consumer credit score is 723.
“The actions of the federal government to support GMAC are having an immediate and meaningful effect on our ability to provide credit to automotive customers,” said GMAC President Bill Muir said in a prepared statement.
Because you know, what people with low credit scores really need is a new car and a little more debt. Snow, who was Treasury Secretary before Paulson, works for Cerberus Capital which was the largest shareholder of GMAC:
The move represents the second tranche of government aid that redounds to the benefit of giant private-equity firm Cerberus Capital Management, which owns Chrysler and, until these recent moves, a majority stake in GMAC. John Snow, a top player at Cerberus, was the Bush administration’s Treasury secretary before Henry Paulson.
[Cerberus - Greek Mythology - a monstrous watchdog with three (or in some accounts fifty) heads that guarded the entrance to Hades.]
Maybe if GMAC had stuck to financing cars, they wouldn’t be in this mess, but they were neck deep in the mortgage market too. Now GMAC is a bank holding company and gets to access the TARP as well as having new debt guaranteed by the government. Existing debt holders participated in a debt for equity swap. Cerberus 49% stake will be diluted to a max of 33%. Certainly, they would have been diluted a little more in bankruptcy court where GMAC belonged.
Thanks to John Snow the wealthy investors at Cerberus get bailed out and the management at Cerberus doesn’t even have to take a pay cut:
As part of the deal, GMAC agreed to limit compensation on its top 25 executives including a ban on severance packages for the top five employees. The limits won’t apply to executives at Cerberus.
Cerberus made some lousy investments buying Chrysler and GMAC. Why should taxpayers be forced to bail them out? Disgusting…
Update: I didn’t notice this earlier. Not only is GM going to use these bailout funds to finance buyers with low credit scores but they’re offering 0% financing to boot. The dividend on the preferred we taxpayers just bought is 8%. How exactly will GMAC make money on that deal? Let’s see…pay 8% for money and then loan it at 0%. What do you think the chances are that we’ll ever get our money back from these financial geniuses?
2 Responses to “Crony Capitalism at GMAC”
DEALTALK-GMAC bailout could give Cerberus a floor and exit
(For more Reuters DEALTALKs, click [DEALTALK/])
By Jui Chakravorty Das
http://uk.reuters.com/article/marketsNewsUS/idUKN3033869120081230
NEW YORK, Dec 30 (Reuters) - The federal bailout of auto lender GMAC LLC puts a floor under the potential losses for its owner Cerberus Capital Management and could provide a roadmap for the private equity firm and its investors to cash out with their remaining capital.
The development underscores how the deepening government support for the U.S. auto industry has spread to include help for the battered sector's most controversial participant, Cerberus, a private Wall Street firm with deep connections to the Republican Party.
Not that Cerberus, which bought a 51-percent stake in GMAC from General Motors Corp (GM.N: Quote, Profile, Research) two years ago, won't take its licks as well. It will become a much smaller shareholder in the finance firm under a government-brokered restructuring.
GMAC won approval from the Federal Reserve to become a bank holding company last week, giving the auto finance company access to government lending programs.
Late on Monday, the U.S. Treasury also announced it would provide a cash infusion of $6 billion into GMAC under the $700 billion Troubled Asset Relief Program.
"It's a good thing for GMAC -- it literally throws GMAC a lifeline," said David Kudla, chief investment strategist of Mainstay Capital Management LLC. "So in that regard it's good for Cerberus and good for GM. They are stakeholders. GMAC desperately needed capital."
As a condition for winning bank status and access to low-cost funding from the Fed, Cerberus will have to reduce its 51 percent stake in GMAC to 33 percent of total equity and 14.9 percent of the voting shares.
Under the Fed's plan, Cerberus' co-investors will take control of their own holdings in GMAC rather than through Cerberus' fund. Cerberus has not detailed its co-investors in GMAC, but they include Japan's Aozara Bank Ltd. (8304.T: Quote, Profile, Research)
General Motors Corp (GM.N: Quote, Profile, Research), which owns the rest of GMAC, will have to shrink its stake to 10 percent by transferring the rest of it to a trust. The trust will have to dispose of that stake within three years, prompting several investment bankers to expect an offering of GMAC stock.
Such an initial public offering could also allow Cerberus and its co-investors to cash out their 2006 investment in GMAC, a goal that had been thrown into uncertainty by the deepening crisis at the firm.
JP Morgan analyst Himanshu Patel said in a research note on Tuesday that GMAC could eventually go public, helping the Treasury and the firms' existing investors sell their stakes.
'A SMALLER STAKE IN A VIABLE COMPANY'
GMAC had been pushed to the brink of bankruptcy as it struggled amid a deepening credit crunch that raised its borrowing costs sharply and a housing crisis that hammered its residential mortgage lending unit, ResCap.
But GMAC has now avoided that hard landing with government assistance, a positive for Cerberus, analysts said.
"It's a smaller stake in a viable company as opposed to a larger stake in a bankrupt company," said Mirko Mikelic, a portfolio manager at Fifth Third Asset Management in Grand Rapids, Michigan.
GM also stands to benefit from a better-capitalized GMAC that can get back to its core business of providing loans for car shoppers in GM showrooms.
GMAC said it would provide loans to a wider range of borrowers as its own access to credit eases, and GM's North American sales chief Mark LaNeve said he expected that would spur sales and dealer orders.
A Cerberus spokesman declined comment on the government bailout.
The restructuring of GMAC will take the firm in a different direction than the private equity firm had envisioned.
Cerberus, which also owns a majority stake in Chrysler LLC, had been in talks with GM about a potential merger with Chrysler and was clearly eager to hold on to GMAC.
Early on in talks with Chrysler, Cerberus had floated the possibility of swapping Chrysler's auto company for the remaining 49 percent stake in GMAC, sources familiar with the talks had told Reuters.
That option would appear to be off the table now as Cerberus' total stake in GMAC is reduced and its co-investors control their own holdings.
The timetable and more details on the transfer will be provided by GMAC early next year, according to a person with direct knowledge of the transaction, who was not authorized to discuss it publicly.
Cerberus is not obligated to disclose its losses because it is a private company.
Cerberus paid a net $6.4 billion for its share of GMAC including a later, offsetting payment from GM.
One investment banker, who asked not to be named, estimated that the current value for GMAC would be near $9.25 billion, or roughly the book value of the firm.
That would imply that Cerberus had lost about 26 percent of its investment in GMAC before Monday's bailout was announced and would exclude the unspecified additional capital that Cerberus had invested. (For more M&A news and our DealZone blog, go to www.reuters.com/deals) (Additional reporting by Kevin Krolicki in Detroit)
===Cerberus Capital Management, L.P.
http://en.wikipedia.org/wiki/Cerberus_Capital_Management
is one of the largest private equity investment firms in the United States. The firm is based in New York City, and run by 48-year-old financier Steve Feinberg. Former U.S. Vice President Dan Quayle has been a prominent Cerberus spokesperson and runs one of its international units.
Contents[hide] |
[edit] History
Founded in 1992, Cerberus is named for the mythological three-headed dog that guarded the gates of Hades. While many of its peers have bought out companies in order to strip assets and sell on for a profit, Cerberus builds its reputation on identifying firms that are undervalued, and assisting in rejuvenating them by working with current management.[1] Feinberg has stated to his employees that while the Cerberus name seemed like a good idea at the time, he later regretted naming the company after the mythological dog.[1]
The company has been a very active acquirer of businesses over the past several years and now has sizable investments in automotive, sportswear, paper products, military services, real estate, energy, retail, glassmaking, transportation, and building products. In 2006, its holdings amounted to $24 billion.
On October 19, 2006, John W. Snow, President George W. Bush's second United States Secretary of the Treasury, was named chairman of Cerberus.
During the U.S. automotive industry crisis of 2008, Cerberus was lobbying for a government bailout of troubled automaker Chrysler Corporation, of which it owns 80%, but refused to inject cash into Chrysler,[2] as Sen. Bob Corker pointed out at a hearing about the economic needs of the American automobile industry on December 4, 2008. In response to questioning at a hearing before the House committee on December 5, 2008 by Rep. Ginny Brown-Waite, Chrysler President and CEO Robert Nardelli said that Cerberus' fiduciary obligations to its other investors and investments prohibited it from injecting capital[2].
J. Ezra Merkin is a partner in Ceberus.
[More:
http://en.wikipedia.org/wiki/Cerberus_Capital_Management ]
===
Cerberus Capital Management
http://www.nndb.com/company/698/000124326/COMPANY
Hedge fund operated by Steve Feinberg.
Official Website:
http://www.cerberuscapital.com/
Industry:
Private Equity
Ticker:
(private)
Corporate headquarters:
New York City
EXECUTIVES
| Name | Occupation | Birth | Death | Known for |
|---|---|---|---|---|
| Frank W. Bruno | | Cerberus Global Investments | ||
| Thomas A. Dattilo | | CEO of Cooper Tire & Rubber, 2000-06 | ||
| Steve Feinberg | | Cerberus Capital Management | ||
| W. Grant Gregory | | Chairman of Touche Ross, 1982-87 | ||
| Mark A. Neporent | | COO of Cerberus Capital Management | ||
| Seth P. Plattus | | CAO of Cerberus Capital Management | ||
| Dan Quayle | | Vice President under George H.W. Bush | ||
| John Snow | | US Secretary of the Treasury, 2003-06 | ||
| Lenard B. Tessler | | Cerberus Capital Managment |
CURRENT BOARD MEMBERS OR DIRECTORS
| Name | Occupation | Birth | Death | Known for |
|---|---|---|---|---|
| John Snow | | US Secretary of the Treasury, 2003-06 |
EXTRANEOUS
| Name | Occupation | Birth | Death | Known for |
|---|---|---|---|---|
| Kathleen Ligocki | | CEO of Tower Automotive, 2003-0 |
===
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I do not agree with the government solution, of just throwing money, at the problem. Do we even know, what the balance sheets of this and/or any of these bailout companies are ? We, the little people, will be paying for this bailout, sooner or later, but we will pay. Why ? Simple, our government doesn’t have this money, but never gets denied for a loan. Amazing…I should go apply for a bailout too…
Peter,
Part of the deal was the debt for equity swap so we will know what the balance sheet looks like. I’m with you though; it really doesn’t matter. We’ll have to pay for this and all the other bailouts through higher future taxes.
As for the US never getting denied a loan, well that will not last forever. At some point our creditors are going to have a problem accepting more depreciating dollars.