Taxpayers should realize a profit when the government sells its remaining shares in Citigroup. Image from Wikimedia Commons.

After being lent billions in emergency loans, Citigroup may be the model that firms receiving bailouts should follow. Citigroup will end up turning a profit for taxpayers when the Treasury sells its shares. The company stands to have produced a net gain of $12 billion or more for the government.

Emergency loans to Citigroup pay off

More than two years ago, Citigroup asked the U.S. Treasury for some hefty emergency loans, saying it direly needed some instant cash or the firm would perish. The bailouts, and the Troubled Asset Relief Program or TARP, have been the subject of a lot of controversy. However, a recent announcement ought to please even the most ardent fiscal conservative. The Treasury will be selling the rest of its shares in Citigroup; it holds more than 2 billion common shares in the company, according to USA Today. The shares were given to the Treasury as a condition of receiving secured loans. If everything goes according to plan, taxpayers stand to profit about $12 billion from the loans to Citigroup.

Citigroup would net Treasury a 27 percent profit

The government held about 7.7 billion shares in Citigroup as a result of the bailout. The Treasury had sold 5.3 billion of those shares as of Monday. The remaining 2.4 billion shares are worth about $4.35 a piece as of Monday, and the sale of those remaining shares should net a quick payday of about $31.8 billion, plus another $2.9 billion in interest and dividends. Combined with the payments Citigroup has already made, more than $20 billion, the Treasury should take in an estimated $57 billion for the $45 billion in loan cash and guarantees to Citigroup. That’s a simple profit of about 26.7 percent.

Model bailout

If the sale of Citigroup shares by the Treasury does result in a profit of that much, or even close, that would make Citigroup a model bailout company.  Ideally, the shares of other bailed out firms, such as GM, will have a similar outcome.

Sources

USA Today

The GM IPO date is at hand after the company went bankrupt making huge SUVs like the Hummer that no one bought. Image from Wikimedia Commons.

Recently GM announced it would  hold its IPO on Nov. 17. Since then, many have been patiently waiting for the outcome of the initial public offering of stock in the company. The GM IPO has been a hot topic for months.

GM IPO date approaches

General Motors had to give the U.S. Treasury the majority of the company’s shares as part of the terms of the auto bailout and the GM bankruptcy more than 18 months ago. Since the company emerged from bankruptcy, an initial public offering was talked about for months. The company finally announced that a GM IPO would take place, and eventually the GM IPO date was set for Nov. 17. However, according to USA Today, members of the general public are not going to have GM shares made available to them. For an initial public offering, that is actually par for the course, as large investment houses are often given first choice by IPO underwriters. The idea is to get as high a stock price as possible right off the bat. General Motors has been posting consecutive profits all year.

Treasury could shed half its stake

On Tuesday, General Motors announced it was increasing the number of shares by 31 percent, up to 478 million from 365 million, according to Fox News. In the GM IPO, the U.S. Treasury could be selling as much as 50 percent of its stake in General Motors. However , if the share price doesn’t increase by at least 50 percent from the initial price of between $32 and $33 per share, the government will likely take a loss. Since the bankruptcy filing and the auto bailout, General Motors has shed underperforming brands such as Hummer, Saturn and Pontiac to focus on the brands that do well and emerged from bankruptcy shortly thereafter.

Remaining shares to be sold over time

General Motors, and the Treasury, announced previously that government shares would be released over time. Shares sold in the GM IPO won’t pay dividends until the government’s stake is completely gone. However, GM profits have been the largest in years.

Sources

USA Today

Fox News

Austerity measures aimed at deficit-financed social programs drew mobs of protesters in 12 European capitals Wednesday. Image: CC Teemu Mantynen/Flickr

Europe roiled with strikes and marches as citizens protested austerity measures — which cut government spending, benefits and public services and could increase taxes –  taken by governments trying to climb out of the European debt crisis. Europeans are upset that while governments spent billions to rescue banks, ordinary citizens were being forced to accept the consequences of austerity. Meanwhile, a top U.S. Treasury official warned European governments that economic recovery, not austerity, should be the priority.

Austerity draws a crowd

In a day of austerity protests on Wednesday, hundreds of thousands of people marched across Europe. Reuters reports that the protests were led by trade unions, which say austerity will slow economic recovery and punish the poorest citizens. Trade unions organized protests in 12 European capitals to demonstrate against spending cuts and pension and labor market reforms. In Brussels, Belgium, a crowd of about 60,000 gathered from across Europe, waving union flags and carrying banners saying “No to austerity” and “Priority to jobs and growth.”

Austerity targets social programs

The austerity protests in Brussels coincided with a proposal from the European Union Commission for new penalties that punish member states gripped by unemployment for running up deficits to fund social programs. As reported in the Huffington Post, the EU proposal, sponsored primarily by Germany, is receiving stiff resistance from France, which wants politicians to decide on sanctions, not a set of rules carved in stone. Elsewhere in Europe, Greek doctors and railway employees walked out. Spanish workers shut down trains and buses. In Ireland, a man blocked the Irish parliament with a cement truck in protest of the country’s massive bank bailouts.

U.S. urges Europe to go light on austerity measures

Amid all the austerity protests, a top U.S. Treasury official visiting Frankfurt implored European officials to exercise restraint. The Wall Street Journal reports that Americans and Europeans disagree about whether stimulus or austerity is the solution to a weak global recovery. The U.S. is urging more stimulus as Europe heads further toward tax increases and spending cuts. U.S. Treasury Undersecretary for International Affairs Lael Brainard said with weak global demand and low inflation, supporting a lasting recovery, not austerity, must continue as the primary objective.

General Motors posts profits for the first time in years. Image from Wikimedia Commons.

After GM and Chrysler went to the government asking for a bailout, and got one, General Motors has posted a profit for the first quarter of 2010.  It is the first time the company has posted numbers in the black since 2007.  GM recently repaid a portion of the auto bailout it was lent and is thought to be on the path to profitability. Ford Motor Co. also posted recent gains, so it seems auto companies are getting back on track, though they still have plenty to repay from the emergency loans they received from taxpayers.

GM posts first quarter gains

For the first time since 2007, GM has posted a first quarter profit. According to the New York Times, GM garnered about $865 million in profits for first quarter 2010.  It posted revenues of $31.5 billion, and cash flow about $1 billion in the positive.  It’s an overall positive sign for the beleaguered car maker, who previously had to ask the government for more than $50 billion in assistance. One year ago, the company posted losses of $6 billion.

Payment on the loans begun

Weeks ago, GM made payments on a portion of the loans from the Treasury.  The actual loans to GM and to Chrysler were bundled loan packages, and they paid off one of the portions, years before it was due.  While this was touted as a victory by GM and also Chief Executive Ed Whitacre, it was only a payment of $8.2 billion to the governments of America and Canada.

Not out of the woods

Despite the return of GM profits, the company is still heavily in debt.  The loans it received from the U.S. and Canadian governments totaled more than $50 billion. GM has been making obvious positive strides but isn’t completely free yet. At present, the U.S. Treasury still owns more than 60 percent of GM, and those ownership stakes can only be bought by stock offering when the company goes public again. According to the same piece in the New York Times, they will potentially make a public offering by year’s end.

General Motors makes $6 billion payment

General Motors wired the final payment Tuesday night on $6.8 billion in installment loans from U.S. and Canadian governments. More than $1 billion went to the Canadian government, and $4.7 billion went to the U.S. Treasury. According to Reuters, the U.S. Treasury has confirmed that General Motors has paid its loan obligation a full five years before the maturity date of the loan.  The loans made to General Motors and Chrysler were part of the TARP program.

General Motors to begin mass production of Chevy Volt

Production has already commenced on the Chevy Volt, the plug in hybrid.  It is being manufactured at the Hamtramck plant near Detroit.  General Motors Chief Executive Ed Whitacre has also, according to CNN, announced they will invest $136 million into the Fairfax, Kansas and $121 million into the Hamtramck, Michigan plants for production of the next generation Malibu. The Fairfax plant also produces the Buick LeSabre, and the Hamtramck plant produces the Buick LaCerne and Cadillac DTS models, among others.

Not out of the woods just yet

The U.S. and Canadian governments are still majority shareholders of General Motors.  Currently, according to this article in The Guardian, the US and Canadian governments collectively hold 73 percent of GM stock, the U.S. holding 60 percent.  General Motors received about $50 billion from the U.S. Treasury in TARP funds, and the plan is that once GM is allowed to go public for stock purchases again, the taxpayers will get back something on their investment. Chrysler is still struggling, though it has begun to make positive steps.  The Wall Street Journal reports that Treasury Secretary Tim Geithner will be meeting with Whitacre soon.

So is it ok to buy GM again?

Many people were dissatisfied with the involvement of the Treasury, and also the fact that one of the largest manufacturers of domestic automobiles slipped so badly.  The car manufacturing industry is also one of the largest employers in the US, and thousands were laid off in the wake of the General Motors and Chrysler bankruptcy.  This is proof that GM is returning to not only solvency, but perhaps to profitability, and with the upcoming release of the Chevy Volt, Detroit may soon see the dawning of a new day.

(Photo Credit: http://www.flickr.com/photos/jm3/ / CC BY-SA 2.0)

Consumers look to personal loans to help with finances during this recession. Will gains made at the G-8 conference trickle down and help their finances? (Photo: wikipedia.org)

Consumers are still looking to personal loans for financial aid as the world recovers from the recession.  Later this week, the G-8 nations are gathering to discuss the economic recovery.  Despite anticipating change, they warn that it is too soon to announce the end of the global crisis as many countries are still stabilizing from the recession. The full impact of the economic crisis has yet to be felt by some economies and the G-8 nations want to give the world time before they start generating short-term solutions.

“Operating Well Below Potential”

US Treasury Secretary Timothy Geithner stated, “These early signs of improvement are encouraging, but the global economy is still operating well below potential and we still face acute challenges… Economic and financial recovery will be stronger and more sustainable if we make clear today how we get back to fiscal sustainability when the storm has passed.”  Additional numbers are suggesting that there will be many economic challenges to overcome before the world returns to any state of normalcy.  The World Bank is projecting the global economy to shrink by three percent this year, which is much worse than their previous projections of only 1.75 percent.

In addition, a two-day summit that included the US, Japan, Germany, France, Britain, Italy, Canada, Russia and the European Union concluded that the “situation remains uncertain and significant risks remain to economic and financial stability.” They also confirmed their decision to provide additional stimulus as needed upon reassessment of the global economy.

Help Us, International Monetary Fund

The summit leaders asked the International Monetary Fund to help the assessment process, giving viable exit strategies from world-wide stimulus plans. They believe that tax cuts and decreased interest rates are keys to encouraging “sustainable recovery over the long term.” Though this sounds like a good solution, some countries aren’t as supportive. In particular, Germany has been an opponent of continued usage of tax cuts and lowered interest rates, warning that it could cause higher inflation and increase the deficits even more.

Despite opposition, there are some accepted precepts of the G-8 meetings.  They confirm that to get the global economy back on track new rules must be created. These rules need to focus on transparency in the global marketplace and finance. This transparency is crucial to producing trust throughout the world population.

What This Means for Americans

In the short-term, this means that more tax cuts may be on the way for Americans. In addition, lower interest rates will be available.  This is all good news to a nation that has relied heavily on personal loans, credit cards and business loans to finance lifestyles as the recession hit hard.  One supporter of the G-8 summits is Dallas, Texas resident Crone Adkisson. Adkisson stated, “I’m delighted that the entire world is gathering to find some answers to our problems. I know the recession isn’t completely over, but I want to be prepared financially to handle things when it is.”

The World’s Plan

The U.S. is asking foreign banking regulators to create methods of quickly resolving failures of cross-border financial firms. They also want to address poverty in third-world countries and how to best handle climate changes. With a full agenda, the G-8 leaders agree that the meetings probably “won’t find agreements, but we will need to have political compromises.”

U.S. Consumers’ Future

Polls are showing that U.S. citizens are encouraged by the meetings, hoping that the full brunt of the recession will soon be revealed.   Many families have relied on personal loans, family aid and government grants to help them through the economy for far too long.  They want to be met with an economy that is reinvigorated and is providing adequate jobs, moderate interest rates and affordable mortgages once again.

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