Tags: Watchdog US May Not Have Fully Vetted Chrysler Financial Pact

Watchdog: US May Not Have Fully Vetted Chrysler Financial Pact

Thursday, 13 Jan 2011 02:13 PM

The U.S. Treasury may not have fully vetted the settlement of its interest in Chrysler Financial last year and not gotten a strong enough return for taxpayers, a bailout watchdog said in a report issued Thursday.

The Treasury settled its interest in the former financial arm of the automaker for a loss in May last year.

Private equity firm Cerberus Capital Management then became the sole owner and agreed in December to sell the financing business for $6.3 billion to Toronto Dominion Bank, raising eyebrows over Treasury's handling of the settlement.

Treasury may have "left money on the table" in its dealings with Cerberus, said former Delaware Senator Ted Kaufman, who headed the bipartisan Congressional Oversight Panel's final report on the auto sector.

"The rush to exit Chrysler Financial compounded by incomplete due diligence may have resulted in an unnecessarily subpar return for taxpayers, preventing Treasury from recouping more of its prior $1.6 billion loss," said the report.

The deal illustrated a broader finding of the panel: that the Obama administration may be too enamored of the politically appealing scenario of quickly cutting its stake in the auto business rather than patiently managing taxpayer interests.

"Treasury's efforts have in some cases lacked transparency and accountability," said Kaufman on a conference call with reporters.

Treasury disputed the findings, saying it had hired an independent financial adviser to assist in valuing Chrysler Financial and to check for other potential buyers. It said its exit was done responsibly.

The oversight panel was appointed by Congress to review bailouts under the Troubled Asset Relief Program.

Kaufman stressed that his group understood the administration faced tough decisions in orchestrating the bankruptcy overhaul General Motors Co. and Chrysler in 2009. The panel said the government's intervention was ambitious and the companies now "appear to be on a promising course."

However, Kaufman said taxpayers will likely lose billions on now-public GM and with Chrysler, now under the management control of Italy's Fiat.

Treasury has recovered about half of the $50 billion extended to GM in return for nearly 61 percent of the restructured company, and about $2.2 billion of the $12 billion given to Chrysler in exchange for a 10 percent interest.

Bill Visnic, senior editor of Edmunds AutoObserver.com, said the auto bailout was an attempt to prevent harm to the economy and should not be viewed as an investment.

"It had to be done," Visnic said. "Anything you get back is a bonus."
Treasury assumed 40 percent of Chrysler Financial's equity as part of a $3.5 billion pre-bankruptcy loan extended in January 2009 to the lending unit's parent, Chrysler Holding, which was owned at the time by Cerberus.

Treasury settled for $1.9 billion — a loss of $1.6 billion on the loan — in May 2010, transferring the Chrysler Financial stake to Cerberus, which became the sole owner ahead of the deal with Toronto Dominion Bank.

The panel found that Treasury officials apparently conducted "limited valuation due diligence, focusing on the merits of the offer from Cerberus," the report said.

Treasury, the panel said, expected that Chrysler Financial would be wound down, which would limit its value. But Chrysler Financial continued investment in its business before finding a strategic partner in TD Bank.

Treasury responded saying it does not "engage in market timing." The recovery, it said, was significantly more than expected.

Ron Bloom, the administration's pointman on auto restructuring, said in Detroit this week that the bailouts prevented widespread economic hardship.

He also said the agency is moving responsibly to exit the business and that turnarounds at GM and Chrysler have "yielded concrete returns remarkably quickly."

© 2017 Thomson/Reuters. All rights reserved.

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The U.S. Treasury may not have fully vetted the settlement of its interest in Chrysler Financial last year and not gotten a strong enough return for taxpayers, a bailout watchdog said in a report issued Thursday. The Treasury settled its interest in the former financial...
Watchdog US May Not Have Fully Vetted Chrysler Financial Pact
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