U.S. Picks Citigroup, JPMorgan to Manage GM Shares Sale

The U.S. Treasury Department chose Citigroup Inc. and JPMorgan Chase & Co. to manage the sale of shares in General Motors Co., as the government works to disentangle itself from the biggest U.S. automaker following the $50 billion bailout that began in 2009.

The department announced the selection of the banks in documents on its website yesterday. It holds about 300 million shares after selling 200 million to Detroit-based GM for $5.5 billion in December. The banks will get a commission of 1 cent per share for handling the sales, the Treasury documents show, which would be about $3 million in fees for the entire stake.

The sales may reassure GM investors weary of the government’s influence on the stock. GM had sunk 23 percent from its November 2010 initial public offering price before the sale was disclosed last month. Since going public, GM has announced plans to end losses in Europe by mid-decade and to introduce 13 new Chevrolet models this year to try to increase its share of the U.S. market.

The shares have gained 22 percent in the past year. They advanced 0.6 percent to $29.49 at the close today in New York.

The department said in December that it would sell off the rest of its 19 percent stake within 15 months, starting as soon as January. The U.S. needed to sell its shares for more than $50 each to break even on the GM bailout.

Banks’ Benefits

Citigroup and JPMorgan could potentially make additional money from bid-ask spreads and build relationships with clients, said Kip Weissman, a partner representing banks for Luse Gorman Pomerenk & Schick PC in Washington.

“It’s real important for major firms to be major players and to be able to get customers the stock they want,” said Weissman, whose firm isn’t involved in the sales. “If the customers are clamoring for getting GM at a good price, JPM and Citi will be able to do that, and that means those customers will use them for other services.”

Representatives at Treasury, JPMorgan and Citigroup declined to comment.

For the banks, “there’s a certain level of prestige” in handling the sale, said Stephen Myrow, a former Treasury official in the George W. Bush administration. “They can say, ‘Hey, the U.S. Treasury trusts us.’ JPMorgan and Citi wouldn’t be doing this if they didn’t feel it was in their interests.” Myrow is now managing director at ACG Analytics Inc., an investment research and consulting firm in Washington.

Fee Structure

While the 1-cent-per-share fee rate is very low, the banks may be interested in doing the sale to gain market share, said Jay Ritter, finance professor at the University of Florida in Gainesville. While the deal will give the banks a boost in that respect, it won’t be easy work, said Reena Aggarwal, finance professor at Georgetown University in Washington. Investors perceive rival Ford Motor Co. as better managed, which may make GM shares tougher to sell, she said.

The bailouts of the predecessors of GM and Chrysler Group LLC by U.S. and Canadian governments propped up a light-vehicle industry that has since reported three straight years of at least 10 percent growth. GM received $49.5 billion from the U.S. as part of its restructuring, Treasury said Dec. 19.

Bailout Costs

Last month, Treasury sold its last 234.2 million shares of insurer American International Group Inc., marking the end of the rescue more than four years after the U.S. took over the company to save the global economy. Proceeds from the sale boosted the U.S. profit on the AIG bailout to $22.7 billion.

The Congressional Budget Office projected in October that the Treasury’s Troubled Asset Relief Program, which bailed out companies such as AIG, Citigroup and GM, will cost taxpayers $24 billion, down from an estimate of $109 billion in March 2010.

The Treasury’s latest estimate of the expense to taxpayers for bailing out GM, Chrysler and Ally Financial Inc. amounted to $24.3 billion as of Sept. 30. The department updates the figure on a quarterly basis.

U.S. sales of cars and light trucks totaled 14.5 million in 2012, the best since 2007. The 13 percent gain was the biggest since 1984.

Auto Profits

U.S.-based automakers have said they can now be profitable at industrywide sales of about 10 million vehicles annually in their home market. In 2013, industry sales are projected at 15.1 million, the average estimate of 18 analysts surveyed by Bloomberg.

GM increased sales in its home market by 3.7 percent last year to 2.6 million. Because its growth didn’t match the expansion of industrywide sales, GM’s U.S. market share in 2012 plunged to 17.9 percent, an 88-year-low.

Chief Executive Officer Dan Akerson told reporters earlier this month the company should see “modest” gains in U.S. market share this year.

“It starts and ends with product, that’s what we’ve been focused on since bankruptcy,” Akerson told reporters at the company’s Detroit headquarters. This year and next “will be good years, not only here domestically but on an international basis.”

Before it's here, it's on the Bloomberg Terminal.