Bank of France calls gold sales necessary to FX diversification

Section:

By Aleksandrs Rozens
Associated Press
via Flint (Michigan) Journal

http://www.mlive.com/newsflash/regional/index.ssf?/base/news-
29/1132080249270260.xml&storylist=newsmichigan

NEW YORK -- An increasing number of investors are betting that
General Motors Corp., the world`s largest automaker, may be forced to
seek bankruptcy protection within the next six to 12 months as it
struggles to overcome slumping sales and the high cost of health care
benefits for workers and retirees.

"The markets are telling you that more traders are starting to see a
greater risk that a default scenario could happen sooner in time than
later," said John Tierney, a credit strategist at Deutsche Bank
Securities in New York. "You cannot deny there is a pattern here."

At issue is the nearly $31 billion in debt related to GM automaking
operations that ratings agencies already have downgraded to junk
status, or below investment grade. Dubrowski said GM`s total debt,
including debt sold by its General Motors Acceptance Corp. unit, now
stands at $276 billion.

Michiko Whetten, a quantitative credit analyst at Nomura Securities
International Inc., said GM debt had previously never traded on an
upfront basis. But now that it is, it puts GM in an unenviable
category with Delphi Corp. and Delta Air Lines Inc. other companies
whose debt traded on an upfront basis ahead of their petitioning for
bankruptcy.

GM lost nearly $4 billion in the first nine months of this year. The
Detroit-based company has been hammered by high labor costs and
rising prices for raw materials like steel. And while it recently
reached agreement with the United Auto Workers union to temper the
rise in health costs, GM still has been losing U.S. market share due
to competition from healthier foreign rivals and weakened demand for
sport utility vehicles, its longtime cash cows.

These losses may not actually occur, but the pricing moves in the
swaps market are a good indication of how Wall Street traders and
investors are judging the risk of a GM default.

"When you`re buying a car it`s a very different thing," Wagoner
said. "It`s a massive financial commitment. You expect to own it for
a long time, and (bankruptcy) is something that`s going to have an
impact in the consumer`s mind."

On Monday, GM, whose stock is trading at nearly half of its 52-week
high, announced price cuts to shore up its sales. Its shares fell 40
cents, or 1.7 percent, to $23.34 in afternoon trading Tuesday on the
New York Stock Exchange.

That triggered what is known as an inversion in the credit swaps
curve -- a measure of risk between short- and long-term GM debt --
meaning that Wall Street traders are betting the risk of GM declaring
bankruptcy is greater in the next six months to a year than over a
longer period of time like five years.

According to Deutsche Bank`s Tierney, the accounting problems caught
investors by surprise and "contributed to a sense that GM problems
are very deep."

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