Two alarming reports out of Reuters this evening. Apparently GM is issuing $60B in shares and Bank of America needs an additional $34B in capital. The GM news would effectively wipe out current shareholders. If the Bank of America news is true Ken Lewis should be fired tomorrow for repeatedly telling shareholders that they would not need further capital.
S&P futures are taking a hit on the news. You know the old saying: so goes GM so goes….Let’s hope not.
Update – Bloomberg has more on this story here.
Under GM’s latest proposal, the U.S. would control at least 50 percent of 60 billion shares in the restructured GM and a union-run health-care fund would get 39 percent. Unsecured bondholders would get 10 percent and existing shareholders would get 1 percent, GM said. After the exchange was complete, the company would do a 100-for-1 reverse split of the shares.
If 90 percent of the bondholders don’t sign up for the GM offer of 225 shares in the new automaker for each $1,000 in principal they hold by May 26, GM plans to file bankruptcy, Henderson said after unveiling the offer.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.