The end of Chrysler nears, at least before it is reorganized in bankruptcy court, at which point it may reemerge as concern owned mostly by its unionized worker force and the Italian car maker Fiat, better known to some Americans as Fix It Again Tony.

“The American automaker Chrysler will file for bankruptcy on Thursday, an Obama administration official said. The White House said President Obama and members of the auto task force would address the fate of the company at noon.”

Breakdown: Debt-Holders

·          Last-minute efforts to win-over recalcitrant Chrysler debt-holders failed

·          Administration had the “full support of Chrysler’s key stakeholders”

·          Administration was frustrated with the holdout creditors.

Breakdown: Holdouts

·          Holdout lenders, primarily distressed-debt hedge funds

·          Bought portions of Chrysler’s $6.9 billion of bank debt at a discount

·          Likely to argue that they have the first claim to the carmaker’s assets

·          Would see greater recovery in a liquidation

·          They contend would yield about $.65 on the dollar

·          Treasury Department would have given the creditors $.33 on the dollar

“If all 46 lenders do not agree to the new offer, and a bankruptcy filing occurs, the lenders will be forced to accept the $2 billion they were originally offered or fight in court for a higher amount.”

“People briefed on the negotiations said that while it seemed certain Chrysler would survive and avoid liquidation, it was not yet clear whether it would have to be placed into bankruptcy to sort through any unresolved issues with creditors.”

Breakdown: Prolonged Battle

Bankruptcy filing could lead to a prolonged battle in court

Company’s lenders, dealers and parts suppliers across the country

Government would need to provide financing for the company to operate

Read Article: Final Effort to Avert Chrysler Bankruptcy Falls Short

As Chrysler works against the government clock, it seems as they have come up with a plan that might keep the automaker out of bankruptcy court. Chrysler’s unsecured creditors have reached a preliminary agreement with the Treasury Department and United Auto Works which will change the ownership structure of the company, and keep them making cars.  

The only question that we at Whybanksfail have is, with the UAW and Fiat taking control of the company, what will Cerberus Capital Management get, and what about Daimler AG.

The understanding that WBF has is that Cerberus owned 80.1% and Daimler has the remaining 19.9%, however Cerberus never paid anything to Daimler, it simply stepped in to take over debt, and Daimler already has write their remain ownership stake to zero. So the true value of the company today is the $2 billion dollars that large unsecured debt owners have agreed to, and the value of the secured debt. How does Cerberus make money??? Because you know they will.

It would be very interesting to see how this all plays out in a few months. WBF still feels the best solution here is bankruptcy. It will let us see what’s really under the covers.

Breakdown. Debt Deal

·          $6.9 billion in unsecured debt

·          Debt owners include Citigroup, JPMorgan Chase, and hedge funds

·          All debt to be canceled in exchange for $2 billion in cash

The two sides had been far apart in negotiations ahead of a Thursday deadline, but they have significantly narrowed the gap in recent days.

Breakdown: Union Deal

·          Chrysler reached deal with the United Auto Workers

·          Union would own a 55% stake in the newly reorganized automaker

·          Italian automaker Fiat and US government would likely own the rest

·          The agreement with the UAW must be ratified by union members

·          UAW agreement relieves portion of $10 billion owed to retiree health fund

Read Article: Deal Is Set on Chrysler Debt That May Avert Bankruptcy

The Supreme Court will hear arguments today that could change the way big banks are regulated. The case, “Cuomo v. The Clearing House Association” tries to figure out who has the right to regulate national banks, federal or state governments, when it comes to the mortgage business 

“The case began four years ago, when Eliot Spitzer, New York’s attorney general at the time, questioned why some national banks seemed to be making a disproportionate number of high-interest home mortgage loans to black and Hispanic borrowers.”

The hope is that whatever decision the court makes, the language of the ruling will have the appropriate wording so that any future regulatory frame work that is put in place, has a good chance for project customers from bad bank policy’s

Breakdown: 

•  Attempting to enforce anti-discrimination laws
•  Ran up against federal precedent
• Rended to leave regulation of national banks to the Treasury Department
• And Office of the Comptroller of the Currency
• Consortium of banks sued Mr. Spitzer
•  So did the Office of the Comptroller of the Currency 

Read Article: Justices to Hear Arguments on Bank Regulation

The FDIC will take another hit this week, in the tune of $700 million caused by the collapse of 4 regional banks bringing the annual total failure to 29.

“Banks in a bind: The recession has left regional banks reeling, with cash-crunched consumers struggling to pay off their loans.”

The number of banks which have failed in 2009 now totals to 29, four more than the 25 that failed all of last year. The additional 4 failures will cost the Federal Deposit Insurance Corp.’s deposit insurance fund $698.4 million.

Georgia now has 10 bank failures, the most bank closures of any state since the crisis intensified at the start of last year.

Breakdown: First Bank of Idaho

·          Ketchum, Idaho

·          First bank based in Idaho to fail in more than 20 years

·          FDIC appointed receiver by the Office of Thrift Supervision

·          $374 million in deposits

·          $488.9 million in assets

·          Most deposits acquired by U.S. Bank of Minneapolis

·          U.S. Bank paid a 0.55% premium for the deposits

·          U.S. Bank will not assume $112.8 million in brokered deposits

·          Agency will pay brokers directly for the amount of their funds

·          U.S. Bank acquired about $17.8 million in First Bank’s assets

·          Remaining assets will be retained for later disposition

·          Cost to FDIC deposit insurance fund $191.2 million

Breakdown: American Southern Bank

·          Kennesaw, Ga

·          Shut down by Georgia Department of Banking and Finance

·          FDIC was named the receiver

·          Total assets of $112.3 million

·          Total deposits of $104.3 million

·          Bank of North Georgia takes over deposits at a premium of 0.003%, except brokered accounts

·          Cost to FDIC deposit insurance fund $41.9 million

Breakdown: Michigan Heritage Bank

·          Farmington Hills, Mi

·          Shut down by state regulators

·          FDIC was named the receiver.

·          Total assets of $184.6 million

·          Total deposits of $151.7 million

·          Level One Bank takes over deposits at a premium of 1.16%, except those from brokers

·          Level One agreed to purchase $46.1 million in assets

·          Cost to FDIC deposit insurance fund $71.3 million

Breakdown: California: First Bank of Beverly Hills

·          Calabasas, Ca

·          Shut down by State regulators

·          FDIC named the receiver

·          But the FDIC was not able to find a buyer for the local bank

·          Total assets of $1.5 billion

·          Total deposits of $1 billion.

·          Cost to FDIC deposit insurance fund $394 million

Read Article: Bad year for banks: Failures surpass ‘08

We have been hearing a great deal about stress test this week. These are the test the Obama administration announced a few months ago, that will test the financial health of American banking and financial institution. This week we had encouraging news from many of the banks themselves, that first quarter numbers have been very good, and that banks seem to be positioned well, giving hopes that the crisis will loosen in the second half of 2009.

However, there is very little public knowledge of how the stress test have been cared out, and what exactly they are measuring, or what the government is considering the worst case scenario for the economic crisis.

What’s more is how will wall street handle the out come of the test. What will happen if Goldman Sachs passes with flying colors, yet Citibank or Bank of American does not? Will there be a run on Citi or BofA. Will the stock prices of these two companies fall to zero, or close to it. While the price of GS sky rockets. There is great straighten in big the only one around.

The most scary part of all this, is that its never been done before. What will the normal persons on main street reaction be?

Breakdown:

·          Regulators scheduled face-to-face meetings on Friday with nation’s biggest banks

·          Preliminary results of the stress tests.

·          Banks to have until Tuesday to dispute findings

·          Federal officials to disclose the final results on May 4

·          Banks to release findings specific to their institution

“The stress tests are expected to certify which banks are healthy enough to start paying back the government bailout funds they accepted and which need additional capital.”

Breakdown: The test

·          Some of 19 banks undergoing exam will need to raise fresh capital

·          For tests to be credible, not all banks can pass with flying colors

·          Banks will be given the chance to raise money from private investors first

·          Short timetable before the results become public make it increasingly likely that they will return to the government for money.

“Administration officials say that the banks may also be able to convert the government’s existing preferred share investments into common shares, which could lead to significant government ownership of some institutions.”

Read Article: Regulators to Meet With Banks on Friday on ‘Stress’ Tests

There are always winners and loser in any environment. However in the latest round of quarterly results it’s interesting to see who has fallen into want category. What’s doubly interesting is the fact that banks which did take on government help to purchase out asset of fail brothers seem to be making out much better then does that did not have the same opportunity.

The equalizing factor is they all took government TARP cash, and as some want to repay the funds, others are in it for the long haul as meeting numbers might become increasingly difficult given the on going expectations of employment.

What’s going to be interesting to see is why some banks are writing down the value of real estate and other assist as others are not.  We are not out of the woods yet folks, and I think we are entering the interesting point of the on going recession, or for some the depression.

Remember it’s a recession if your neighbor losses his job. It’s a depression if you loss yours.

Breakdown: Morgan Stanley

·          Bank lost $177 million, or 57 cents per share

·          Weak commercial real estate market hits revenue

·          Cuts dividend

·          Much bigger-than-anticipated loss

·          Revenue at equity sales and trading plunged 74% from a year ago

·          Paid $401 million in preferred dividends tied to the government

·          Reported a net loss to common shareholders of $578 million

·          Slashed quarterly dividend by 81%, to 5 cents from 27 cents,

·          Trying to conserve $1 billion in cash annually

Last quarter, Morgan Stanley posted a $2.3 billion loss.

Breakdown: Losses

·          $1 billion in losses on real estate investments

·          $1.5 billion of lost revenue tied to changes in the value of the bank’s liabilities

·          Revenue in equity sales/trading group plunged to $900 million from $3.4 billion a year ago

·          First-quarter revenue, which plunged 62% from a year ago to $3 billion.

“bank was the top performer in the merger-and-acquisition rankings during the quarter, and like its peers Goldman Sachs (GS, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), made significant sums trading plain vanilla fixed income products in the interest rate, commodity and credit arenas.”

Read Article: Morgan Stanley suffers another loss

Recently Wall Street has been blushing with optimism, based largely on good returns from the American Banking sector. However many question have come up with regards to how those numbers where reached, and how the banks accounted for the large loans received via the Government bailout program, TARP. The program allowed the banks great freedom to do as they please with the money.

Breakdown: International Monetary Fund Estimates

·          Global Economic Downturn deepening

·          Confidence in the financial system still elusive

·          Financial institutions face losses of $4.1 trillion in holdings as a result of crisis

·          Banks are expected to shoulder about two-thirds of the write-downs

Breakdown: Losses in loans and securities originating

·          United States estimated at $2.7 trillion

·          Up from $2.2 trillion in January and $1.4 trillion last October

·          Europe estimated at $1.12 trillion

·          Japan estimated at $149 billion

Banks have raised about $900 billion in fresh capital since the crisis began, which is outweighed by $2.8 trillion in credit-related losses. The banks have already taken about one-third, or $1 trillion, of those write-downs, but there is a long way to go. If the economic engine does not start to pump demand up for goods and services, the losses will have to be booked at some point in the near future.

Breakdown: Uneven pace of the response to the crisis

·          US banks reported $510 billion in write-downs in 2008

            Face additional $550 billion in 2009 and 2010

·          Euro Zone, banks reported $154 billion in write-downs in 2008

            Face additional $750 billion

·          British banks reported $110 billion

            Face additional $200 billion

Read Article: I.M.F. Puts Losses From Crisis at $4.1 Trillion

How much can the average American Joe take, as their political leaders show greater willingness to feed the rich and care little for the everyman? After the September 11 attacks, Americans where asked to go out and spend. The strength of American was in its ability to spend money like there was no tomorrow. As it turned out, there was a tomorrow, and we are living in it.

Fundamental nothing has changed. The prices of homes are only down to levels seen in 2003, not back to the 98 levels that they need to reach before we can say its worth buying a home. Inflation of homes really happened in 2000, fueled by the fake profits taken before the dotcoms finally failed, and a new bubble was created.

It seems that the only options we have are based on consumer spending, not on the creation of true wealth. We are an economy based on the next bubble. Be it the dotcom, housing or banking bobbles. All this is fueled on create and then sold off to the rest of world, because the rest of the world still knows who has the best military.

We must once again find the American spirit of innovation if we expect to return to our former glory. We must start to save and invest, build, create and be seen as leaders in the creation of true wealth. That is the only way to get out these cycles of bubble and burst we have become so accustomed to.

GM is closing plants in the US with hopes to avoid bankruptcy, but they have willingness to build new factories in China to maintain the surge in demand.

“Operations in China are profitable and in the future China can finance its own growth,” Nick Reilly, the company’s Asia-Pacific president, said at the Shanghai auto show today. He didn’t give a timeframe for the new plant.

GM is the biggest overseas automaker in China with sales of 38% By contrast, the company’s US sales slumped 45% on the recession.

Read Article: GM ‘Likely’ to Build in China as U.S. Factories Close