Should Goldman Sachs Take a Restructuring Cue from Ford?

Editor's Note: Great article describing how even some Goldman Bondholders may eventually have to convert to equity.

Should Washington & Wall Street Take a Lesson from Bill Ford?
by: The Institutional Risk Analyst

"What's right about America is that although we have a mess of problems, we have great capacity - intellect and resources - to do some thing about them." - Henry Ford II(1917 - 1987)

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As in the case if GM, we think it is time for President Obama to suggest to the bond holders of GMAC, C, Bank of America (NYSE:BAC) and other weak BHCs that they need to start talking about a conversion plan into equity. Just as negotiations are now underway between GM and its bond holders, and Chrysler and its creditors, GMAC and the other newly minted BHCs like Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and American Express (NYSE:AMX) need to start a conversation with the true "owners" of these companies, namely the bond holders.

The good news is that as and when an adult conversation does begin between the bond holders and the managers of these zombie BHCs, we will be on the path to recovery. Remember, whether you talk about GS or MS or any of the other "new" BHCs, paying back the TARP equity is not the issue. The key issue is where can these BHCs fund themselves in the capital markets without a government guarantee? Point is, F has already restructured itself financially and thus can now focus entirely on rebuilding its operations. The rest of the marketplace needs to take notice of the F example.

We suggest that until there is an explicit understanding between the debt holders of the major BHCs and commercial companies such as GM, the managers and the US government, all of this talk about repaying TARP equity and a recovery in financials is pointless. Ultimately the choice facing bond holders at C, GM, GMAC and even GS is conversion or liquidation.

To us, until the debt holders stop whining and step up to the plate to support these enterprises in the same way that F's creditors have helped that large automaker, we cannot end the crisis of confidence that will prevent all of these wounded firms from funding themselves in the private markets. When that decision is eventually made, however, the recovery will have well and truly begun.

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