General Motors claims profit -- but only if discounts its expenses

Maybe it was naive to have assumed that General Motors, the top U.S. automaker, would have been required to stop playing games and be upfront about its finances as a condition of being saved from the junkyard by billions of dollars from U.S. taxpayers. Well, at least the naivete was short-lived. Today's release of its first detailed financial statement since emerging from bankruptcy protection shows that GM has not forgotten the sleight-of-hand that enabled it to pretend to be solvent for years despite epic mismanagement that caused what was then the world's largest automaker into bankruptcy. Focusing on what it called "positive cash flow of $1 billion since its bankruptcy," GM -- now known as General Motors Co., instead of General Motors Corp. -- said it wasn't counting the more than $4 billion it has to spend to settle with the United Auto Workers union to pay with retiree health benefits, according to the New York Times. If this is an example of what the company called its "fresh start" accounting principles since bankruptcy, it looks like there was nothing learned from its near-collapse as well as nothing to be learned from its official reports. Maybe what GM is doing is standard practice for bailed-out businesses, but it's no more reassuring -- especially since the company is now more than 60 percent owned by the U.S. government. “We don’t need to make that much improvement to get to profitability,” GM Chief Financial Officer Christopher Liddell told analysts and reports in a conference call, the Times said. “It’s getting close to break-even if you get rid of those one-off items that happened in the fourth quarter.” Well, any company would post a profit if it left losses off its balance sheet, right? But would that paint an accurate picture of its financial health? Still, many analysts said GM was considerably healthier than a year ago. “It would be a really impressive achievement if they were able to make a profit,” Rebecca Lindland of IHS Global Insight told the Times. “They’ve been able to do an awful lot, and all of those things should lead to a profitable picture.” GM said it would finish repaying $8.3 billion in loans from the U.S. and Canadian governments by June. The other U.S. automaker that took billions in bailout cash from the government, Chrysler Corp., is expected to release its first financial statement since its bankruptcy later this month, the Times said. Narayanan Jayaraman, a finance professor from Georgia Tech's College of Management, told the Times that he thought GM's prospects were better than Chrysler's. “Between G.M. and Chrysler, if I had to place a bet, I would place it heavily on G.M.,” Jayaraman said. “They seem to be doing the right things. They have some headwinds, so help from the economy would be good, but even in the absence of that they can do well.” He said the government could begin selling the millions of dollars in GM shares no earlier than 2011, after GM has "two or three quarters of profitability." GM's bankruptcy wiped out $83 billion in liabilities, the Times said.

General Motors changes focus to profit, not survival

News from Detroit that General Motors could make money this year after losing as much as $88 billion since 2004 probably comes as a big surprise -- and a good one for U.S. taxpayers, who own 60 percent of the country's largest automaker as a result of government efforts to save the company. GM's new chief financial officer, Christopher Liddell, who left a similar job at Microsoft in December, said the company had a "reasonable chance" of earning money in 2010, according to the New York Times. "Preconditions for success are extremely good," Liddell said at a news conference at GM headquarters. Liddell also said GM was considering a stock offering this year that could substantially increase the value of the government stake, the Times said. "It's an important part of rejuvenation for the company," he said, "but it's important that we do this at the right time." Liddell said GM would wait until the national economy and the automobile market had improved before attempting to sell shares, the Times said. General Motors, once the world's largest carmaker before losing that title to Toyota, emerged from bankruptcy protection last summer. Liddell said the company was in better financial shape than critics contended, and said it had made substantial progress since its bankruptcy filing in 2009.

New York State steps into Bank of America bailout as feds settle

At least somebody in government still thinks it's their job to look out for the beleaguered U.S. taxpayer. We're speaking, of course, of New York Attorney General Andrew Cuomo, who has sued Bank of America for securities fraud over its 2008 merger with Merrill Lynch on the same day that federal authorities who pumped billions of taxpayer dollars into the bank settled their complaints for insignificant amounts of cash. In a lawsuit filed Feb. 5, Cuomo accused the bank and its two top officers of securities fraud in connection with the merger, claiming they misrepresented the financial condition of Merrill Lynch to shareholders as they were voting on whether to approve the deal, according to the New York Times. In the suit, Cuomo said the bank failed to reveal $16 billion in losses to shareholders but told federal officials that the losses necessitated an additional $20 billion from the Troubled Asset Relief Program, set up by the U.S. government to help financial institutions weather the global financial crisis. “They understated the problems, the losses to the shareholders, they overstated their ability to terminate the arrangement to the federal government to secure $20 billion in TARP money, and that is just a fraud,” Cuomo told the Times. “The Bank of America and its officials defrauded the government and taxpayers at a very precarious time.” But the U.S. Securities and Exchange Commission allowed the bank to escape federal charges by paying $150 million in fines, despite Merrill Lynch payments of billions of dollars in bonuses to its executives just before the merger. Bank officials said the fact that the government chose to settle showed that Cuomo's fraud allegations against it and against Chief Executive Officer Kenneth Lewis and Chief Financial Officer Joe Price were not true. “The evidence demonstrates that Bank of America and its executives, including Ken Lewis and Joe Price, at all times acted in good faith and consistent with their legal and fiduciary obligations,” Bob Stickler said in an e-mail to the Times. “The SEC had access to the same evidence as the N.Y.A.G. and concluded that there was no basis to enter either a charge of fraud or to charge individuals." Lewis and Price have since left their posts, the Times said. The SEC settlement still must be approved by a federal judge who already turned down a proposed $33 million settlement of the case. But this time, the bank agreed to have an independent auditor review its disclosures and to give shareholders the right to vote on executive pay, the Times said.

Why are banks so desperate to get out of TARP?

Talk about ingratitude! News that two of the country's largest banks have agreed to raise billions of dollars from investors to pay back bailout loans from U.S. taxpayers seems preposterous on its face and even worse after a little thought. Citigroup has reached a deal with federal regulators to repay $20 billion, after the government sells its $25 billion stake in company stock, according to Cable News Network (CNN), and the government has agreed to a $25 billion repayment in full from Wells Fargo Bank, according to the Reuters international news service. The two banks are the largest still in the Troubled Asset Relief Program, set up by the United States to prop up the ailing U.S. financial system in 2008, and are trying to get out of the stricter regulation required of institutions that accepted taxpayer financing. The announcement coincides with meetings between U.S. President Barack Obama and bank CEOs in Washington, D.C., to discuss the future of the financial system. While it's certainly a good sign that banks are able to repay their government loans, releasing them from regulatory obligations seems counterproductive. Citigroup, for example, is expected to report a $1.1 billion loss in the fourth quarter of 2009. Maybe regulators can explain how a bank losing money can afford to pay a $20 billion bill? Wells Fargo was in much better shape than Citigroup when the financial system tanked, needed less borrowing and agreed to fewer restrictions, Reuters said. Wells Fargo plans to raise most of the money by selling additional stock, Reuters said. The Citigroup deal is more complicated, and involves the issuance of billions of shares of Citigroup common stock, now selling around $3 a share, and the sale of new securities. That's great if the instruments sell, and if the bank can afford the additional burdens. But Citigroup is losing money. What it looks like is that these institutions are desperate to get out of government-imposed restrictions on how much they can pay their top executives. Isn't that the same kind of bad management and poor accounting that got these companies into trouble in the first place?