Puts and Calls: Chrysler and Germany’s case on Greece
More short bans? The Financial Times reports that European politicians have proposed a complete ban on naked short selling, significantly widening the German ban last week on naked short-selling of European government bonds, credit default swaps and some stocks. Last week, the European Parliament’s Economic and Monetary Affairs Committee proposed a total ban on naked short selling – the process of selling a financial instrument that is neither owned nor borrowed by the vendor. The move is not supported by all European regulators; last year the UK’s FSA said that naked short selling provides some “legitimate behaviour which can provide beneficial market impacts.” This could lead to confrontation in European markets as Germany did not signal its ban to the markets and refused to back down when other E.U. members protested the ban. Business reaction has been stronger. The chief currency strategist at BNP Paribas reportedly said: “As a German citizen, I wish to apologise for the stupidity of my government.”
Banks may foot the bill for the Greek bailout: The German agreement to participate in the European bailout of Greece has been cited by many as a positive sign for financial markets and one reason for the late uptick in the U.S. markets last week. Germany has said its involvement in the Greek bailout is predicated on either a financial-transaction tax or other bank taxes on a European Union level to recoup the bailout funds. President Obama reportedly has been a strong supporter of that bailout, and a strong supporter of bank taxation in the U.S. It may be worth keeping an ear open for any news coming out of U.S. Treasury Secretary Geithner’s meetings this week U.K. chancellor of the exchequer in London, the European central bank president in Frankfurt and the German finance minister in Berlin.
No fraud case against AIG: Federal prosecutors have decided not to bring charges against Joseph Cassano, the former chief executive of AIG’s Financial Products unit. Mr. Cassano, who ran AIG’s financial products division from London with virtually no U.S. regulation, resigned in late February 2008 after AIG wrote down $11 billion on the insurance it had underwritten on mortgage securities, resulting in an $180 billion U.S. government bailout of AIG. Investigators were looking into whether financial products officials tried to deceive investors and AIG’s auditors, PwC, by misstating the accounting value of a credit default swap portfolio. But it was well known by April 5, 2010 that prosecutors had PwC notes from a November 2007 meeting that appear to show Mr. Cassano informed the auditor about the adjustment and its potential positive impact.
“What a coincidence” department: In early April, the long-awaited case against AIG was falling apart, just as the administration needed a poster child of financial abuse to support the financial reform efforts. On April 16 — the same day a scathing internal report on mishandling a billion dollar fraud is issued — the SEC brought a novel case against Goldman Sachs for a 3-year-old deal in which the named injured investors had not themselves brought an action. Although the case is replete with holes, it became the much-needed banner for public outrage and is critical in overcoming objections to the legislative proposal. What luck!
U.S. to sell GM in an IPO: Top White House economic adviser Lawrence Summers said last month that GM’s better-than-expected progress had improved chances the U.S. government would sell its stake sooner than anticipated. Last Friday, Treasury announced that, on Monday, it had hired Lazard Freres & Co. as its adviser to prepare for an initial public stock offering by General Motors Co. The agreement signed with Treasury said that Lazard will analyze and review alternatives for the government’s ownership stake including giving advice on the use of “underwriters, brokers or other capital market advisers for the best means and structure to dispose of such assets.” To keep GM alive and through bankruptcy, Treasury provided GM with $50 billion. GM repaid $6.7 billion — with some of the $50 — and the remaining $43.3 billion was converted to the 61 percent stake.
Would you buy a used car company from this man? Chrysler will “probably” also launch its public offering in 2011, its chief executive said on Thursday. Sergio Marchionne, who also heads Fiat, thinks there is plenty of room for share offerings by both Chrysler and General Motors in the next 12 to 18 months, and that he would not mind if GM went first. Marchionne also expects Chrysler to get clearance for U.S. Department of Energy loans for green car manufacturing in the third quarter of this year. In 2008, the U.S. government stepped in with $15.5 billion in aid and appointed Fiat to run the new Chrysler. Less than a week ago, the Treasury Department admitted that it will lose $1.6 billion on a loan made to Chrysler in early 2009.