The US treasury may not have fully vetted the settlement of its interest in Chrysler Financial last year and not got a strong enough return for taxpayers, a bailout watchdog said.
The Congressional Oversight Panel says 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.
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Former Delaware senator Ted Kaufman, who headed the group’s last report on the auto sector, said: “The Treasury’s efforts have in some cases lacked transparency and accountability.” He said the group understood the administration faced tough decisions in orchestrating their overhaul and bankruptcy. Despite the criticism, the panel said in the report that the government’s intervention was ambitious and the companies now “appear to be on a promising course.”
However, he said taxpayers will likely lose out over now-public GM, and treasury may have “left money on the table” in its dealings with private equity firm Cerberus Capital Management over Chrysler Financial, the automaker’s one-time consumer financing arm.
Treasury has recovered about half of the US$50bn extended to GM in return for nearly 61% of the restructured company, and about US$2.2bn of the US$12bn given to Chrysler in exchange for a 10% stake.
Treasury assumed 40% of Chrysler Financial’s equity as part of a US$3.5bn pre-bankruptcy loan in January 2009 to the lending unit’s parent, Chrysler Holding, which was owned at the time by Cerberus. Treasury settled for US$1.9bn, a loss of US$1.6bn on the loan, in May last year when transferring the stake to Cerberus, which became the sole owner.
Cerberus then agreed to sell the financing business for US$6.3bn to Toronto Dominion Bank in December, raising eyebrows over Treasury’s handling of the settlement. The Congressional Oversight Panel found that treasury officials apparently conducted “limited valuation due diligence”, expecting that Chrysler Financial would be wound down.
Chrysler Financial, however, continued to make investments in its business before finding a strategic partner in TD Bank.
Treasury disputed the panel’s conclusion saying it conducted several months of due diligence and hired an independent financial adviser to assist in valuation and check for other potential buyers.
