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Fiat Chrysler’s Wall Street Debut Draws Muted Response


Investors cautiously greeted the Wall Street debut on Monday of Fiat Chrysler Automobiles (FCA), a move that shifts the carmaker’s center of gravity away from Italy and caps a decade of canny dealmaking and tough restructuring by Chief Executive Sergio Marchionne, reported Reuters.

“We’re finally taking Chrysler back” to the U.S. stock market, Marchionne said Monday on the floor of the New York Stock Exchange. “One of the Detroit Three is coming home.”

Investors in the United States and Europe approached the new listing gingerly, as analysts expressed reservations about the company’s prospects.

FCA shares opened at $9.00 in New York and rose as high as $9.55 before closing at $8.92, up 2.5 percent from a Friday close of $8.70 for the predecessor company Fiat SpA. In Milan, where FCA will keep a secondary listing, shares rose more than 4 percent during the session and closed up 1.2 percent.

Trading was muted, with about 5.8 million shares changing hands on the NYSE.

Marchionne rang the closing bell at the NYSE on Monday to mark the milestone for the 62-year-old CEO who revived one of Italy’s top companies and helped rescue Chrysler along the way.

The world’s seventh-largest auto group sought the U.S. listing to help establish itself as a leading global player through access to the world’s biggest equity market and the cheaper, more reliable source of funding it ultimately offers.

Marchionne on Monday said FCA might raise debt funding to help finance its $60-billion five-year investment plan.

Fiat took management control of bankrupt Chrysler in 2009 and completed its buyout this year. It is now combining all of its businesses under Dutch-registered FCA, which will have a UK financial domicile and small London headquarters, with operations centers in Turin and Detroit.

But Marchionne has picked a difficult moment to woo U.S. investors. Analysts think U.S. car sales are nearing a peak, while Europe is struggling to recover from years of decline and growth in China and Latin America has slowed.

“Only those willing to accept the risks of a highly leveraged turnaround situation in a competitive, capital-intensive, highly cyclical industry should consider investing,” Richard Hilgert, an analyst at Morningstar, said in a note.

IHS Automotive, a leading industry research firm, said on Monday that it expects FCA will miss Marchionne’s aggressive sales targets for the company as a whole and several of its brands, including Jeep and Alfa Romeo.

IHS “does not currently expect this plan to succeed,” said analyst Ian Fletcher in a midday note.

The company has projected a 60 percent boost in sales to 7 million vehicles and a fivefold increase in net profit to as much as $6.9 billion by 2018, the year Marchionne has said he would step down as CEO.

IHS is forecasting more modest growth, to 5.1 million sales in 2018.

Marchionne said “I have all the best intentions” of nearly doubling global Jeep sales to 1.9 million by 2018, but that FCA needs to boost annual China sales of Jeep to 500,000 to meet that target. A second Jeep assembly plant in China will open in 2016, he said.

DETROIT POWER STRUGGLE

In comparison with GM and Ford, FCA is seen as less attractive because of its aging model line-up, high debt, weaker margins in North America and small presence in China.

“Ford and GM offer much stronger cash generation and balance sheets, and are thus in a position to return cash to shareholders, while FCA still needs to raise capital,” Exane BNP Paribas analyst Stuart Pearson said in a note.

Marchionne hopes to see more than half of FCA stock changing hands in New York instead of Milan, but appetite will take time to build, especially as FCA has yet to switch to U.S. accounting principles and to reporting results in dollars.

Marchionne will hit the road next month to spread the word. He believes FCA’s cause will be aided by Chrysler’s brand strength in the United States, now the main profit center for the combined group.

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Fiat Chrysler Crowns Merger With Wall Street Debut


Fiat Chrysler Automobiles (FCA) makes its Wall Street debut to great fanfare on Monday, shifting the carmaker’s center of gravity away from Italy and capping a decade of canny dealmaking and tough restructuring by CEO Sergio Marchionne, reported Reuters.

The world’s seventh-largest auto group has sought the U.S. listing to help to establish itself as a leading global player through access to the world’s biggest equity market and the cheaper, more reliable source of funding it ultimately offers.

But Marchionne has picked a difficult moment to woo U.S. investors. The American auto industry is nearing its peak, the European market’s recovery from years of decline is proving elusive and weakness persists in Latin America.

Few, however, would question his business credentials. Marchionne and FCA Chairman John Elkann will ring the closing bell at the New York Stock Exchange on Monday to mark the milestone for the 62-year-old chief executive who has revived one of Italy’s top companies and helped to rescue Chrysler from bankruptcy along the way.

“Half of our car volumes are in the United States. I want this to be a U.S.-listed company,” Marchionne has said, having deliberately chosen to list on the day that celebrates Christopher Columbus’s arrival in America.

Fiat took management control of Chrysler in 2009 after the American carmaker emerged from government-sponsored bankruptcy and completed its buyout of the company this year. It is now combining all of its businesses under Dutch-registered FCA, which will have a British financial domicile and small London headquarters, with operations centers in Turin and Detroit.

AMBITIOUS AGENDA

Wall Street is the first item on an ambitious agenda for the next five years as Marchionne gears up for the launch of dozens of new models, from funky Fiat 500s to sporty Maseratis.

The target is a 60 percent sales boost to seven million vehicles and a fivefold increase in net profit to as much as 5.5 billion euros ($6.9 billion) by 2018 – the year Marchionne has said he would step down as CEO after seeing through his investment plan.

FCA’s growth plans won’t come cheap, though, and Marchionne will need to be at his persuasive best if analysts are right with predictions that the group will need to raise more capital.

“It’s not the right time to list an auto stock anywhere,” said Arndt Ellinghorst, a London-based analyst with ISI Group. “This is happening in the middle of a major profit warning from Ford and people are still very concerned about GM. It’s going to be tough for Marchionne to convince investors.”

Ford has hacked back its profit forecast for this year, citing recall costs in North America and steeper losses in Russia and South America.

Marchionne maintains that FCA should not be tied to Ford’s woes, saying that its strong position in Brazil gives it an advantage over competitors, and this month reiterated full-year guidance despite market expectations of a cut to forecasts.

DETROIT POWER STRUGGLE

Using the other two Detroit giants GM and Ford as a benchmark, FCA is seen as the least attractive because of its aging model line-up, high debt, weaker margins in North America and its minimal presence in China.

“Ford and GM also offer much stronger cash generation and balance sheets, and are thus in a position to return cash to shareholders, while FCA still needs to raise capital,” Exane BNP Paribas analyst Stuart Pearson said in a note.

FCA will decide on future financing options this month, though Marchionne insists it does not need a capital increase.

The group has a stronger premium brand portfolio than either Ford or GM, with an attractive carrot for investors in the form of luxury brands Ferrari and Maserati, the promise of a relaunched Alfa Romeo marque and Jeep.

“We see FCA’s Asia weakness as a huge upside opportunity because with Jeep they have the right product for Asia,” Barclays analyst Kristina Church said.

Monday’s listing is seen as a purely mechanical exercise, one U.S. investment banker said, adding that the true test will come once FCA seeks to access U.S. capital markets. “Now would be the worst possible time to ask investors for money,” he said.

Marchionne, meanwhile, has a clear criterion for Wall Street success: more than half of the merged company’s shares changing hands in New York instead of Milan.

American investors said that appetite will take time to build, especially as FCA has yet to switch to United States accounting principles and to reporting results in dollars.

LOST IN TRANSLATION?

“You have an Italian company buying out a U.S. one, but the holding is registered in Amsterdam with an HQ in London – that’s a lot to get your head around, and without a (pre-listing) roadshow they are not doing themselves a favor,” a second U.S. banker said.

Marchionne will hit the road next month to spread the word and has said that FCA could also sell treasury shares and other stock after the listing in an attempt to boost trading volumes.

He believes that FCA’s cause will be aided by Chrysler’s brand strength in the United States, now the main profit center for the combined group. FCA sold more cars in North America last month than Toyota, the world’s largest automaker.

“Given where Chrysler was five years ago, that achievement gives us some satisfaction,” Marchionne said at the Paris auto show. “I believe the stock will interest American investors.”

The stock opens at 0930 ET in New York and shortly afterwards in Milan, where the group will keep a secondary listing. Monday’s opening price will be benchmarked against Fiat’s previous close of 6.94 euros ($8.76).

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Industry Reacts to S&P Downgrade


Chris Stinebert, president and CEO of the American Financial Services Association (AFSA), said it’s too early to know the full impact of the S&P’s downgrade of U.S. debt, especially with the Dow Jones Industrial Average switching between big gains and losses each day this week. His concern is what the actions taken by Standard and Poor’s last week, coupled with turmoil on Wall Street and in Washington, D.C., will do to the still-jittery consumer psyche, according to F&I and Showroom magazine.

“We don’t expect the downgrade to have a major impact on the auto finance industry,” said Stinebert, who noted mortgage rates dropped even during Monday’s turmoil on Wall Street. “Our biggest concern is the downgrade’s impact on consumer confidence, which could cause consumers to delay buying vehicles. It’s a little early to tell the full impact, especially since the markets bounced back on Tuesday.”

The markets, however, whipped back the other way on Wednesday, with the Dow dropping 519 points after jumping 429 points on Tuesday. That was after the Dow dropped 634.76 points on Monday, the worst point decline in more than 100 years.

As of early morning Thursday, the Dow had increased more than 200 points following a positive report from the U.S. Department of Labor. It showed the number of claims for unemployment benefits fell by 7,000 from July to a four-month low.

Stinebert said the association wasn’t surprised by the S&P’s actions. The 105-year-old ratings agency had been warning about its potential downgrade. What’s encouraging, he added, is that Moody’s and Fitch Ratings maintained their AAA rating of U.S. debt, and U.S. Treasuries remain strong. “The quality of auto finance has been strong and the underlying assets are well understood. Over time, rates will go up, but only as the economy improves.”

That was the message the Federal Reserve sent on Tuesday when it said it would hold short-term interest rates near zero through mid-2013 to prop up the credit markets. Whether that will help boost consumer confidence remains to be seen, especially since the Fed did not announce any new measures to stimulate growth.

On Monday, Bandon, Ore.-based CNW Research reported that its Jitters Index experienced the largest month-over-month increase since the firm introduced the metric in 1996. It jumped 6.9 percent in the first seven days of this month vs. July and 5.5 percent vs. August 2010.

Research firm Consumer Edge Research reported on Wednesday that its Interim Consumer Economic Index dropped 8.5 points from July’s full-month reading of 55.4. One analyst for the Stamford, Conn.-based firm said the steepness of the drop could mean that confidence among high-end consumers is weakening.

Edmunds.com, however, said on Wednesday that the stock market turmoil and decreased consumer confidence had yet to impact car sales. It reported that new-car sales in August were tracking at a 12.1 million-unit year. That projection, however, includes fleet sales, which are typically strong in August.

“The downgrade of U.S. debt has not negatively affected car-buying conditions,” said Lacey Plache, Edmunds.com’s chief analyst. “While the risk to new-vehicle sales from falling consumer confidence is undoubtedly higher as a result of the downgrade, favorable buying conditions — increased vehicle availability, increased incentives and continued low interest rates — should offset much of the debt downgrade’s effect on consumer confidence.”

The AFSA’s Stinebert added that he doesn’t expect the downgrade to impact the ability of finance sources to access the asset-backed securities (ABS) market for funding, which has been key to the recovery of the auto finance industry.

“The performance of auto ABS has been very good; the collateral and returns for investors have been good,” he said. “Investors are searching for yield and auto ABS has been fertile.

“We’ll keep close watch on showroom traffic,” he added. “This time of year is typically busier with the introduction of new models.”

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Architects of GM’s IPO Sought to Limit Windfall for Wall Street


Want to underwrite one of the largest initial public offerings in history? Chop your usual fee by three-fourths and commit to limiting Wall Street’s windfall.

That was the deal David Miller and Tim Massad, the unheralded government architects behind the General Motors Co. stock offering, gave investment banks interested in handling the deal. When the two U.S. Treasury officials made their expectations clear, “we could kind of hear their jaws drop over the phone,” said Massad, Bloomberg Businessweek reported.

Massad, acting assistant secretary for financial stability, and Miller, chief investment officer for the Troubled Asset Relief Program, were President Barack Obama’s dealmakers on the Nov. 17 sale of GM stock, along with two Obama aides -manufacturing czar Ron Bloom and economic adviser Brian Deese.

The IPO, led by JPMorgan Chase & Co. and Morgan Stanley, was a nail-biter for Massad and Miller, who also manage the government’s bank and insurance company investments.

“You want the deal to go well” without looking overly optimistic in pricing the shares, Miller said. “At the same time, we don’t want it to go up way too much” because that would mean taxpayers left money on the table on the first day of trading.

GM’s shares, initially priced at $33, rose 3.6 percent on Nov. 18, the first day of trading – exactly the “sweet spot” Miller and Massad wanted. Of the nearly $20 billion raised, almost $12 billion went to the U.S.

Treasury officials “passed with flying colors,” said Jay Ritter, a finance professor at the University of Florida in Gainesville who studies IPOs.

No Break Even

Taxpayers, however, haven’t broken even on GM. The government needed to sell its entire stake for about $44 a share for that to happen. The U.S. would need to sell its remaining 37 percent ownership of GM at $53 a share for taxpayers to be made whole.

Miller and Massad said they aren’t waiting for the stock to reach that level.

“We’re not a private equity fund,” Massad said. “We believe that promoting financial stability means we should exit as soon as we can.”

Of the $50 billion the government gave GM in 2008 and early 2009 when the auto industry was near collapse, Treasury says it will recover $9.5 billion through interest, loan repayments, and preferred stock dividends.

Ultimately, the government may lose $5 billion to $7 billion of the $85 billion auto industry rescue effort, Steven Rattner, former head of the President’s auto task force, said in a Nov. 17 Bloomberg Radio interview.

Banking Fees

Investment banking fees were one of the trickiest parts of the deal, said Herb Allison, the former Fannie Mae and Merrill Lynch executive who led Treasury’s financial stability office from June 2009 through September 2010.

If the government were too soft on the investment firms, Wall Street would profit at taxpayer expense. If too strict, the best firms might walk away. “That was a difficult decision,” Allison said of Treasury’s demand for a 0.75 percent fee. “I think it proved to be the right one.”

Massad, 54, is a former corporate lawyer at Cravath, Swaine & Moore who has worked on hundreds of IPOs, although this is his first one as the client. He earned undergraduate and law degrees from Harvard.

Miller, 34, worked on deals in Goldman Sachs Group’s special situations unit, laying the groundwork for his job managing TARP’s complex mix of preferred shares, common stock, warrants, guarantees and dividend agreements. Before going to Harvard Business School he studied economics at Dartmouth, where he also minored in film studies.

Auto Stake

The pair’s labors aren’t over yet. They still need to manage the rest of the government’s auto stake, along with its holdings in American International Group Inc., Citigroup, and hundreds of smaller institutions.

“We have responsibility for almost $200 billion of assets and only one of those, which is very important, is General Motors,” Miller said. “While it would have been nice to spend the day watching and feeling good about it, there was other business to attend to.”

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GM’s Stock Offer: Goldman Sachs Undercuts Rivals as it Loses Top Role


NEW YORK – Wall Street banks led by JPMorgan Chase & Co. and Morgan Stanley stand to make a combined $120 million on General Motors Co.’s initial public offering. If it weren’t for Goldman Sachs Group Inc., they could have made four times as much, Bloomberg reported.

In a pitch to the U.S. Treasury in May, Goldman Sachs offered to accept a fee of 0.75 percent, according to people with direct knowledge of the matter. That’s a fraction of the 3 percent banks typically charge on the largest IPOs and well below the 2 percent offered by Bank of America Corp. and other banks that presented to Treasury, said the people, speaking anonymously because the matter is private.

Goldman Sachs, which had just been sued for fraud by federal regulators and has ties to GM competitor Ford Motor Co., didn’t get a top role in the IPO. The government imposed the fee pitched by Goldman Sachs President Gary Cohn and his five-person team on all underwriters, angering the banks, the people said.

“The fact the other banks are furious at Goldman is not surprising,” said Samuel Hayes, a professor emeritus of investment banking at Harvard Business School in Boston. “They feel it gave the government a real lever to force down fees on the underwriters. But the deal still has a lot of marquee value.”

Banks involved in the deal include lead managers JPMorgan and Morgan Stanley, as well as Bank of America and Citigroup Inc., among others. Some banks made different concessions in their pitches to the Treasury. Charlotte, N.C.-based Bank of America and Zurich-based Credit Suisse Group AG offered to use some of their fees to buy GM vehicles or to subsidize employee purchases of GM cars and trucks, according to the people with knowledge of the matter.

Goldman Sachs spokeswoman Andrea Rachman and spokespeople for the other banks declined to comment. Treasury spokesman Mark Paustenbach also declined to comment.

Goldman Sachs will have a role in the offering, as will Credit Suisse, said the people. Five U.S. banks pitched GM and the Treasury on May 19 in Washington, and non-U.S. lenders made presentations in early June. All sent top executives, such as JPMorgan CEO Jamie Dimon and John Mack, chairman of Morgan Stanley.

Treasury officials including Ronald Bloom, chief of the auto task force, and GM executives were concerned that if it became public the government hadn’t picked Goldman Sachs’s low bid, they would face criticism for wasting taxpayer money because of a bias against the firm, the people said. The officials and executives decided, in conjunction with Lazard Ltd., which is advising Treasury, to use the Goldman Sachs bid and impose it on other banks.

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GM’s Stock Offering May Hand Bankers Lowest Fees Since 1999


WASHINGTON – Wall Street bankers may be pushed to charge the lowest fees in at least a decade to arrange the Treasury’s sale of General Motors Co. in what could be the second-largest initial public offering in U.S. history, Bloomberg reported.

Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley are vying to lead the automaker’s share sale, which may raise as much as $12 billion, an estimate by Independent International Investment Research plc showed.

The U.S. government may seek underwriting fees of as low as 2 percent, according to finance professors at Cornell University and Georgetown University. That’s less than any U.S. IPO over $5 billion since 1999, Bloomberg data show.

The Treasury, which owns a 61 percent stake in GM, will pressure the banks to accept fees that may be less than half the 5.5 percent average for all IPOs in the past decade after spending $150 billion in taxpayer money on the same financial firms during the credit crisis, the professors said.

The underwriters would make as much as $360 million in an initial offering of GM based on the average 3 percent fee for past deals over $5 billion, data compiled by Bloomberg show.

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