Around 3PM today, FINRA halted trading of the Old GM Stock GMGMQ. The company, which has been renamed Motors Liquidation Company, has stated repeatedly that common shareholders are unlikely to see any value, since liabilities far exceed assets.
Usually in a chapter 11 process, the new company does not emerge until the liqudation is completely, at which point in time the old shares are canceled. However with the Government backed fast-track, the new GM has emerged before liquidation. This caused a lot of confusion among casual investors, who hear great stuff about the new GM, and wish to invest. The ended up purchasing GMGMQ shares, which are not related in any way to the new entity, and will NOT become new GM shares.
The GMGMQ stock was up 40% today until FINRA has finally decided it’s seen enough. The stock is no longer traded, and chances are will be cancelled to prevent market confusion.
disclaimer: I own July $1 puts.
“GM stock is expected to be worthless,” said Tom Wilkinson, director of GM News Relations. “We are not sure why anyone is still buying it.”
Now even people at GM are echoning what I’ve been saying for weeks. GM shares will soon be worthless, yet has been going up by 20% daily for the past few days. Short covering? manipulation by put writers? pure pump and dump daytrading speculation?
Whatever it is, my advice is to stay away. Good luck for those long GMGMQ.
The corporate laws of the United States is so complex such that few understand what happens when a company goes chapter 11. Working in a brokerage firm, when a company announces its bankruptcy, we notice that there are always buyers, hoping to get a piece of the new company by buying the old company’s shares. Do NOT do this! The old shares will be canceled, and you will NOT get new shares in return. http://www.sec.gov/investor/pubs/bankrupt.htm
In this case of GM, I suppose Obama is partly to blame. Despite GM being kicked off the Dow and delisted from NYSE, you constantly hear in the media that Obama states: “through sacrifices, GM will be saved“. What investors need to understand is, GM as a brand will be saved, GM as an entity will re-emerge as a privately held comporation (owned by taxpayers, ironic, huh?), and new GM shares will be issued. Old-GM, which is in billions of debt, will have its assets sold to debt holders, employee retirement funds, unpaid bills, etc. Common stock holders usually NEVER get anything. In most cases, the bankruptcy court will simply declare the stock worthless.
If you do own GM, now might be a good time to sell, which the less informed still cling onto the hope that they get something of new GM. These people are keeping the stock at inflated prices. Now that GM is off the Dow and SP500, many institutional investors will be forced to sell their GM assets, so this price might be gone in days.
Finally, a quick disclaimers. I own puts of GM for July. So I want GM to go to $0. However I am also stating this based on experience. I made a bad bet last year, and lost everything when Lehman went bankrupt.
