UPDATE 2-US should weigh trust for GM, Chrysler stake-panel

Wed Sep 9, 2009 3:15pm EDT

Related Topics

 * US won't recoup total investment in GM, Chrysler
 * Trust could help manage exit of federal investment
 * GM says it will repay taxpayer
 (Recasts, adds Warren interview, Treasury reaction, trust
 By John Crawley
 WASHINGTON, Sept 9 (Reuters) - The U.S. government should
consider a trust for its stake in General Motors Co and
Chrysler to ensure independent oversight and facilitate an exit
strategy, a congressional watchdog found on Wednesday.
 A report by the Congressional Oversight Panel for the
Troubled Asset Relief Program (TARP) also supported prevailing
assumptions that taxpayers will not likely recoup their nearly
$65 billion investment in the auto companies. The payout
included bankruptcy financing at both automakers this year.
 "The ultimate recovery on this investment will depend on
what those companies are worth," said Elizabeth Warren, a
Harvard Law School professor who chairs the TARP panel that
issues monthly reports on the $700 billion bailout program.
 TARP funds were first extended to the financial sector and
then to autos.
 The government holds a 60 percent stake in GM and 8 percent
of Chrysler. Since January, the Treasury Department, through
the government's autos task force, has invested more than $50
billion in GM and $14 billion in Chrysler.
 The Treasury Department has said it plans to sell the
shares in initial public offerings as soon as 2010 for GM and
later for Chrysler. The government, which has appointed several
board members at both companies, has promised to stay out of
management affairs.
 But the panel noted that the Treasury Department may make
decisions that affect industry. Warren told Reuters Financial
Television a trust would be preferable to protect the
investment from any political interference and effectively
manage an exit.
 "No matter how much Treasury says, 'We're not going to get
involved,' there's going to be a question on when to sell those
shares. That's an investment decision. Leave it to investment
professionals," Warren said.
 Treasury officials said they are committed to managing the
investment in a "commercial manner" and a trust may violate
federal law in the case of carmakers.
 "It's unclear that the recommendation would be an
improvement," they said.
 The report also said there were "significant obstacles" to
GM and Chrysler achieving the "level of profitability" that
would permit return of the entire taxpayer investment.
 It is also unclear whether GM and Chrysler will have to
borrow from private markets, and analysts have said their
performance would have to exceed levels not seen in years.
 "The automotive sector in the United States is risky and
these companies have a legacy of failure," the report said
about repayment. "Treasury's best estimates are that some
significant portion of those funds will never be recovered."
 GM said in statement that it was confident it would repay
the government because it has reduced debt, and has a stronger
balance sheet and a competitive product mix.
 Chrysler had no comment on the findings.
 A proposal by Sens. Bob Corker, a Republican, and Mark
Warner, a Democrat, would require a trust for any
TARP-ownership stake exceeding 20 percent.
 Shares related to the $80 billion U.S. bailout of American
International Group (AIG.N) in 2008 have been placed in trust.
 The report was posted at cop.senate.gov/.
 (Reporting by John Crawley; Editing by Toni Reinhold)