General Motors Starts to Talk up its IPO

Is the US Treasury Insisting to Wall Street that the IPO Get Done?

July 23, 2010 -- Is the GM initial public offering (IPO) a sanity test for Wall Street?  In recent weeks GM’s management has been talking up the company’s IPO.

It seems that the Obama administration wants the IPO for the nationalized GM completed before the mid-term congressional elections as a way of proving to the American public that the GM bailout was a good deal for taxpayers.  The government also wants to prove that it can recoup some of its TARP (Troubled Asset Relief Program) investment in GM.

U.S. government influence has already appeared.  There is no question that a combination of governmental pressure, as well as public opinion have influenced the two most likely underwriters, J.P. Morgan Chase and Morgan Stanley to accept only 25% of their normal commissions.

It appears that the IPO would include the sale of about 20% of the U.S. government's 61% stake with a value of around $12 billion. This would make the GM IPO the U.S.'s second-largest IPO in a decade, second only to the $20 billion IPO of Visa in 2008

One has to wonder how excited investors will be about the IPO.  While it was easy for Washington to get investment banks to agree to a reduced commission, it’s an open question as to how excited investors will be to buy the IPO shares.  The biggest task for underwriters is to persuade investors, many of whom were GM shareholders and who were burned by the government takeover and the unusual GM bankruptcy proceeding to once again purchase GM shares. And, one has to wonder what kind of pressure the Obama administration will put on investors to “encourage” them to buy the IPO shares.