GM’s Opel future in question

German Economics Minister Karl-Theodor zu Guttenberg and his U.S. trip dominate the headlines. But the real struggle for the future of the precarious imbalance in auto manufacturer General Motors (GM) and its German subsidiary Opel plays behind the scenes from: The negotiations between the U.S. government with the bondholders. “This is the drama that is in the next two weeks to play,” says a senior American government official.

At the end of March will be in the United States to decide whether GM and Chrysler will receive more state capital or not. So far, the Detroit based Washington Group with $ 13.4 billion, GM CEO Rick Wagoner is currently asking for more $ 16.6 billion. The approval depends on the bondholders from: They hold $ 27 billion to GM bonds, two-thirds of these liabilities will be converted into equity capital.
But the talks to drag on. Steven Rattner, auto advisor to President Barack Obama, was indignant: “The creditors are very good at their own interests. I hope that all stakeholders, the seriousness of the situation, and each victim brings.” The creditors’ committee defended itself against the accusation. “We are ready to do our part to help reach a solution,” told the creditors’ committee in an opinion.

Historical parallels are there. In the case of state rescue Chrysler in 1979 was similar procedures. At that time, the creditors were in the nursing major equity stake in the company. According to analysts of the Research House Credit Sights profited at the end of all this approach: “The Chrysler example shows that it is in pain is something to gain if all behave correctly.” For the current negotiations, the experts see major risks: “The creditors have the power, which burst to leave.”

Uncertainty in relation to bank creditors

The negotiations between U.S. government and GM bond investors fit into a broader picture. The basic question is: What role should the creditors in the event of nationalization or government rescue of a company play? What is the contribution they make? Opinions about this far apart. Some high-ranking experts such as Willem Buiter of the London School of Economics, for example, demand that also support actions by creditors suffer losses.

The discussion, to what extent a creditor of nationalization are concerned, is currently mainly in banks. It is primarily concerned with the creditors of so-called subordinated debt. In a bankruptcy, these creditors until after the other uses, in return, there is a higher interest premium on the bond. Borrowing creditors of banks, the national rescue parachutes fled receive partial or no interest payments have even more to expect the loss to be involved.

On the bond markets, there is uncertainty, especially with regard to banks. Investors fear that institutions which have received state aid from the government urged that could be to suspend interest payments. German Finance Minister Peer Steinbrück (SPD) is examining the financial regulator BaFin to permit such distributions will be prohibited to the capital base of the banks concerned to spare.

For this reason, the European Commission BayernLB prohibited interest payments on hybrid capital to afford. Also, Deutsche Bank, are not sought for help has flushed the credit markets, when they announced in December, a subordinated bond is not as usual early to want to pay back.

In addition, bondholders do not know how they are treated nationalisations – as for example in the Hypo Real Estate (HRE) is probable. In Britain, for example, there is no clear line: The nationalization of Northern Rock lost only a few papers to the lowest form of subordinated capital (Tier 1) complete its value, at Bradford & Bingley were all there.

Source of capital for banks threatened to exhaustion

These uncertainties could cause investors to pull back – and banks is another important source of capital to lose. For them, it is already difficult and enormously expensive, money market on record. The prices of subordinated securities have already fallen.

The analysts from Morgan Stanley expect about that bad news, prices for animal-1-Bonds plunge further authorized. “These include more nationalisations, bank restructuring, more animal-1-papers, which downgraded to junk status, are not received interest payments and depreciation on the sum owed,” they wrote in a note. Also dealing with bondholders of the HRE is an important factor for further development. There may be up to two years until the market recovers, the analysts estimate.