WASHINGTON – The Treasury Department has chosen Citigroup and JPMorgan Chase to manage the sale of shares in General Motors 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 last week. It holds about 300 million shares after selling 200 million to 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 governments influence on the stock. GM, which has a truck plant in Allen County and a foundry in Defiance, Ohio, 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 were trading near $30 near the end of last week.
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.
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 in Washington.
Its real important for major firms to be major players and to be able to get customers the stock they want, said Weissman, whose firm isnt 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, theres 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 wouldnt be doing this if they didnt feel it was in their interests. Myrow is now managing director at ACG Analytics Inc., an investment research and consulting firm in Washington.
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 wont be easy work, said Reena Aggarwal, finance professor at Georgetown University in Washington. Investors perceive rival Ford as better managed, which may make GM shares tougher to sell, she said.
The bailouts of the predecessors of GM and Chrysler Group 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.
Last month, Treasury sold its last 234.2 million shares of insurer American International Group, 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.
Tim Higgins, Craig Trudell and Lee Spears contributed to this story.