Activists protest JPMorgan stance on Chrysler debt

Activists protest JPMorgan stance on Chrysler debt
By Bernard Simon in Toronto and Julie MacIntosh and Francesco Guerrera in New York
Copyright The Financial Times Limited 2009
Published: April 9 2009 17:59 | Last updated: April 9 2009 17:59
http://www.ft.com/cms/s/0/37176738-251c-11de-8a66-00144feabdc0.html


US social activists have called for a boycott of JPMorgan Chase to protest the bank’s opposition to government demands it forgive a large portion of its Chrysler debt to keep the embattled Detroit carmaker afloat.

The activists, led by the Washington-based Firedoglake blog and Progress Michigan, an advocacy group, argue that as a recipient of billions of dollars in taxpayers’ money, JPMorgan has a duty to help save jobs at Chrysler.

The activist groups have urged JPMorgan clients to transfer their accounts to a local bank or credit union, and to cut up their Chase credit cards. One member of a Facebook group set up by the activists commented on Thursday that “if [JP Morgan] wants our money, they’d better do what they can to save our jobs”.

JPMorgan, which is the largest holder of Chrysler debt, declined to comment but people close to the bank said the government’s request for a steep “haircut” in the debt holdings of Chrysler creditors would hurt the company and its shareholders.

Chrysler has so far received $4bn in emergency loans from the government, and has asked for more. But Washington has threatened to pull the plug if the company does not finalise concessions from lenders, the United Auto Workers union and others by the end of this month.

The government’s auto task force and the 50-strong group of creditors – which also includes other recipients of government aid such as Citigroup, Goldman Sachs and Morgan Stanley – have been locked in talks to resolve the stalemate.

The lenders have rejected the government’s initial proposal for a reduction of their combined $6.8bn debt in Chrysler to around $1bn-$2bn, according to people close to the situation.

The government has since sweetened its offer with the promise that some of the debt could be converted into equity but lenders are still pushing for more concessions, bankers said.

The banks own high-priority debt backed by Chrysler’s assets.

They argue they might recover more money by letting Chrysler slip into bankruptcy and putting its brands and other assets up for sale, rather than accepting heavy losses that they believe are worse than what the union is taking, according to people close to the talks.

JPMorgan holds about $2.5bn of Chrysler debt, while Citigroup holds about $1bn, according to people close to the matter. Goldman Sachs sold off much of its exposure to other parties.

The governor of Michigan, Jennifer Granholm, stepped up the pressure on the banks earlier this week, saying that ”those same bondholders who received Tarp money should be willing to take a haircut in order for this industry and certainly Chrysler to survive”.

The banks and the US Treasury hold Chrysler’s “first lien,” or highest-priority, debt, while buy-out firm Cerberus and German automaker Daimler hold second-lien debt that they may convert into a combined equity stake of less than 10 per cent, according to people close to the matter.

The UAW has a greater relative claim at GM than it does at Chrysler, where its unsecured claims rank below those of the debtholders. A bankruptcy by Chrysler could be disastrous for labour if a judge rules that its claims should remain at the bottom of the heap.

For that reason, people close to the Chrysler talks expect the union to try to strike a deal to be given equity in the restructured company before the end of this month. Talks with both the UAW and the banks are likely to come down to the wire, however, as both groups try to discern what the other is willing to accept and then secure a better deal for themselves.