Quote Of The Day: Wall Street's Burden Edition

Edward Niedermeyer
by Edward Niedermeyer
quote of the day wall street s burden edition

Handling [GM’s] IPO assignment is something of a vanity project for the Wall Street banks, given the relatively small fees the banks will earn through the process. One person familiar with the offering said that the banks may earn less than 1% of the overall deal. At a valuation of $10 billion, that would equal a total fee pool of $100 million.

The Wall Street Journal [sub]’s take on the forthcoming GM IPO. Persons anonymous tell The Journal that Morgan Stanley and JPMorganChase are the frontrunners in the vanity project sweepstakes. But as charitable as the one-percent arrangement seems, the Wall Street mavens have their work cut out for them…

Full payback of the taxpayers’ $40b-ish remaining “investment” requires a $67b valuation (less $670m in fees, apparently). I doubt many would argue for the likelihood of that scenario. But what if GM’s IPO valuation is equal to or less than the total remaining government investment? In symbolic terms at least, there’s a definite line there.

Ford is worth $38.75b right now. In Q1 2010 Ford had $28b in sales revenue, GM had $31.5b. Ford turned a $2b net profit, GM brought in $865m. On that basis alone, it seems that GM will be lucky to be worth as much as the government put into it. Maybe, just maybe, the bankers aren’t being charitable… they’re just positioning themselves for disappointment.

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  • Buickman Buickman on Jun 11, 2010

    our friendly bankster/underwriters will simply take the stock themselves in the wake of investor apathy. such wonderful folks who are willing to reclaim what they stripped and flipped to the government, rinsed thru bk, and then use to reap untold billions when they and their international financier partners loosen the pursestrings. a beautiful plan, absolutely legal, and perfected on an unwise public.

  • MU78 MU78 on Jun 11, 2010

    Past performance is no guarantee of future profits. Investors are looking for investments that will grow profits. GM has to have prospects of doing better than a profit of 865m. The reason BP's stock has been hammered is that investors rightly see future earnings as getting hammered. The fact that they had billions in profits in previous years is irrelevant to anyone buying the stock now. No one expects GM to grow profits like Google but they had better grow their profits above the 865m and prove to investors that their costs (read UAW) are under control.

  • ClutchCarGo ClutchCarGo on Jun 11, 2010

    "the banks may earn less than 1% of the overall deal. At a valuation of $10 billion, that would equal a total fee pool of $100 million." Only on Wall St would a $100M take be deemed 'charitable'. Especially on the IPO of the company that was arguably pushed into BK by the credit crisis caused by Wall St's hubris and reckless behavior. (Yes, GM would almost certainly have slid into BK eventually due to decades of their own reckless behavior, it was given the final push down the hill by Wall St.)

    • See 1 previous
    • Porschespeed Porschespeed on Jun 12, 2010

      @Ron, You're being sarcastic right? The remora class is hardly excited by prospects of a 100MM USD profit. They make that in a few weeks letting the computers run HFT programs....

  • JimC JimC on Jun 12, 2010

    The missing piece of the IPO puzzle is for a few major credit rating agencies to rate GM as gold plated/AAA. The financial crisis, subprime meltdown, etc. showed us that this process is above the board and beyond repute. Hey, how hard can that be?? /sarcasm Sorry, I'm feeling a little froggy this morning.