Friday, December 21, 2007
chrysler is going away
The banks, led by JPMorgan Chase, and including Goldman Sachs Group, Bear Stearns, Morgan Stanley and Citigroup, have tried several times to sell some of these loans, and each time the offering has been postponed. In November, the banks tried to sell a portion of the debt at 97 cents on the dollar and found no takers. With the news that Chrysler's financial situation is "serious", the value of these loans has probably dropped sharply.
this is the worst-case scenario for the involved banks -- a classic m&a failure leading to an irretrievable pier loan.
mergers and acquisitions is a line of bank business that i haven't written as much about as some others, but is has been a revenue keystone for american money center banking that has almost completely gone away since july. i was frankly shocked to see sam zell complete the deal for tribune company in this environment, as it shows some pipeline m&a business is getting done. but the failure of the chrysler deal is likely the punch in the nose that will keep bankers whimpering in their doghouses for some time to come. it's all just another aspect of the credit crunch that first surfaced in the first quarter of 2007 and has since deepened in spite of ever-larger central bank liquidity injections.
american automaking has been in decline for many years, and could well be following the path of american steelmaking. i noted back in 2005 the day the debt of general motors and ford were cut to junk. i didn't appreciate at the time that many institutions could sell their downgraded holdings in the carmakers and redeploy capital to highly-rated mortgage backed securities and CDO tranches which were being churned out of the housing and financial sectors en masse at that time. that, of course, isn't working out very well for them.
chrysler employs some 130,000 people, many of whom are having a pretty uncertain christmas. god bless and good luck to them all.