Wall Street’s major credit ratings agencies downgraded the outlook for Detroit’s struggling automakers – publicly-held Ford and General Motors – after reviewing the Bush Administration’s $17.4 billion low-interest loan agreement intended to keep the automakers afloat. Analysts on Wall Street warned that a bankruptcy is still a risk despite the low-interest loans.
GM shares saw a 22 percent drop yesterday in response to comments like Credit Suisse analyst Christopher Ceraso’s lowered price target of $1 – formerly $2.
“Over the next two months, as bondholders, union representatives, and company management meet to hammer out concessions, we think it will become increasingly clear that the enormous sacrifice of value on the part of the union and bondholders will require the complete or near-complete elimination of the existing GM equity,” Ceraso wrote in a research note given to the media.
J.P. Morgan auto analyst Himanshu Patel said that the loans don’t eliminate the risk of bankruptcy for the automakers. A Chapter 11 bankruptcy reorganization by GM “should not be dismissed,” Patel wrote.
Standard & Poor’s, a credit-rating agency, downgraded Chrysler from CCC+ to CC, pushing the automaker further into “junk” status yesterday.
Robert Schulz, the credit analyst behind the report, said that a CC rating is given when a company is “expected to undertake a distressed exchange of its debt.” Standard & Poor’s issued the same rating to GM a few weeks ago.
Moody’s Investors Service lowered Ford’s outlook to “negative” yesterday, as well, further expanding the beating the automakers took on Wall Street.
12/23, 10:07 AM
posted by:
RaineMan
Can the citizens of the United States downgrade Wall Street?
12/23, 10:17 AM
posted by:
DB9
This is News?/! I love timely research notes. This one reminds me of the Johnny come lately notes on WCOM, NT… etc., 8 years ago during the tech wreck:-))) Shareholder equity destroyed – really!/? Ya Think? The only stakeholders now are the US government and secured debt holders.
What’s more interesting, especially to us motor heads, is who will be left globally when the dust settles. There is going to be a massive consolidation in the industry over the next couple of years. I would not hold any security from any company in this sector. Approximately 95% of new auto transactions involve some form of financing. Considering how important the US Market is for most mainline/premium global brands what does this foretell? As bad as it is now the second shoe has yet to drop! Next up is the over leveraged consumer – How many Trillions in debt? Should you be afraid? Honda (HMC) and Toyota (TM) are…what do you think is driving the Yen?
So, the question becomes who is going to remain standing – Not just GM, Ford (F)…
DB9
12/23, 10:31 AM
posted by:
Borat
I think US government will be in place backed up by Chinese ownership of US national debt. And the only way to repay it will be to sell (give away) Alaska and maybe California. There was a silly tune in 80s’ “I think I am turning Japanese” – make it Chinese. They owe our ass! Oh, yes, the car companies – in 4 years they will be gone at a cost of 350 billions. This is almost scientific number: the pundit testified to Congressional committee that it will take 150-175 bn to “fix” auto industry. Congress does not “fix” anything at face value: there is a lot of pork to go around. I may be even a bit optimistic at 350 bn. With our elected officials it can quadruple. And who said that pundit was estimating correctly?
12/23, 10:41 AM
posted by:
oldraven
Damn I despise Wall Street analysts.
Step 1. Short GM stocks.
Step 2. Claim they’re going to go bankrupt.
Step 3. Profit!
12/23, 10:41 AM
posted by:
uruyorker
LOL(ironically) Who rates Wall Street crap before the subprime crisis? Isn’t the subprime crisis that drive ALL economy towrads a black hole?
S&P, Lehmann & Bros, Fannie & Freddie, Credit Suisse, Merryll lynch
12/23, 11:03 AM
posted by:
yarddog82abn
I down grade Wall st.
12/23, 11:16 AM
posted by:
Bubs Solo
oldraven you are once again dead on… there is you tube footage of CNBC’s Mad Money Ahole Kramer explaining how he used this tactic with RIM a few years back.
12/23, 1:37 PM
posted by:
Gundy
“Wall Street” sucks. They, in general, are as crooked as it gets. Talk about manipulation to make profits, that’s what they literally do for a living! Downgrade stocks so they crash, then buy them up. Then, 10 years later, which is the trend, make them crash again and buy them up again. They’re nothing but sanctioned, legal corporate raiders. Bring back the Vikings, at least they had cool boats… (no idea what that meant)
12/23, 5:47 PM
posted by:
Gundy
(wow, I don’t sound too bitter do I?…)..