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GM declares dividend on preferred stock. I'm confused

John Ranalletta

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John Ranalletta
First of all, the preferred stock will get dividends or liquidation proceeds before any common stockholder. However, it will be second in line -- or "junior" -- to the Series A preferred shares and all the other debtholders. In fact, GM can issue another series of preferred stock that has a higher priority than the Series B. At the same time, any new debt obligation has priority. Thus, even though the Preferred B shareholders have some protection, the stock is still at the bottom part of the spectrum.


See full article from DailyFinance: http://srph.it/bIe7fM

If I were a preferred shareholder, I wouldn't sleep very easily knowing how pre-bailout bondholder interests were swept aside to create this jury-rigged financial structure. The next bailout will wipe out the preferreds and the common.
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Okay John........I'll try to reply without running afoul of the "no politics" rules.


As someone who understands the basics of corporate finance, and has spent a little time reading things like the Securities Act of '33, the Securities Exchange Act of '34, and the Investment Advisors Act of '40, and now watches our "legislators" and others re-write or re-interpret the rules, it's clear that in extraordinary times, extraordinary measures will be taken. So, don't count on keeping your place in line when the next extraordinary event occurs.

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There is really nothing unusual in the structure. Debt always ranks above preferred which ranks above common. Having a series of preferred is also not unusual. They are just vehicles to attract different investors. As the article says, the preferred is usually purchased because of the yield rather than capital gain interest, which happens but is secondary.


As the article says, the unu8sal thing is the IPO so quickly after the bankruptcy, but obviously Uncle Sam and the unions want to cash out some of their investment in GM and pass it along to others.


The '34 act and the investment company act have nothing to do with this transaction. The initial offering of shares like this is governed by the '33 act.

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John Ranalletta

Signs of trouble in the air?

  • GM limits all "unnecessary" T&E due to problems in Japan?
  • Reportedly, GM is making <$600 per unit sold. (Compared to $3k/unit for BMW!!!!)
  • They're stuffing the dealer channel.
  • GM is depending upon incentives rather than brand appeal and product value to sell cars



The Incentive Genie cheapens the brands, it negatively impacts the resale value to an insane degree, and it leaves the consumer with nothing to go on except the deal, brand image be damned.


As a matter of fact this incentive game played a crucial role in the bankruptcies of two of the Detroit 3 including, of course, GM. So to say that the industry was less than pleased with GM’s recycled incentive strategy was an understatement to put it mildly.


To me it suggests that GM isn’t “targeting” anything with these incentives. Instead, it smacks of short-term thinking and decisions made by executives who haven’t been around this business long enough to know better. And in fact CEO Dan “Lt. Dan” Akerson and CFO Chris Liddell haven’t been to the circus long enough to know what happens when you go down this road. That’s plainly obvious. They only know about short-term performance and what will look good to Wall Street.


The return of short-term thinking doesn’t bode well for GM. They’re going to play this incentive game apparently, until they get burned, but in the meantime they’re in danger of tainting the entire domestic automobile industry with that dreaded “deal” moniker again, and if that happens, everyone loses.

Get ready for Bailout II.




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My point has more to do with how the rules are circumvented when taxpayer dollars are used to bailout failed companies that underwrite credit default swaps. It influences investor behavior.

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  • 2 weeks later...
John Ranalletta

Mr. and Mrs. Bendover Taxpayer were treated to another "I'm going to hold my breath until you bail me out party" at GM.


A shell game inside of a political payoff inside of another shell game, in other words. There’s nothing to not love here…

Sad, sad story here. I just wish those who are celebrating GM's success would just stuff it.

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