Who Will Lose the Most From the GM Bankruptcy

Big investors, retirees, everyday savers—and GM executives—stand to lose a bundle.

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Dealers will close. Jobs will disappear. Customers may flee. With General Motors in bankruptcy, millions of GM workers and other Americans will suffer the collateral damage.

So will the investors who own (make that owned) GM stock. GM's share price peaked in 2000 at over $90, then fell steadily over the following years as GM's market share dwindled and its earnings turned from positive to negative. In October 2007, GM stock was worth about $42. Now, those old shares are effectively worthless, and new shares will be issued to bondholders, the government, and an auto-workers' trust fund.

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The losers will include retirees, conservative investors who bought for the long haul, and GM loyalists who showed their support for America's biggest automaker by investing in it. The pain will hit GM headquarters, too. GM's biggest individual shareholder in 2008 was former CEO Rick Wagoner, who held about 196,000 shares, according to Thomson Reuters. (Shareholder data is reported to the government with a significant lag; the numbers provided by Thomson are the latest available.)

Wagoner acquired his shares over time, and it's oversimplistic to assign a single value to them, since shareholders don't typically liquidate their entire portfolio all at once. Yet a few informal calculations show how the fortunes of GM executives have fallen along with the company. At the beginning of 2007, when GM's stock was at $30.30, a block the size of Wagoner's would have been worth nearly $6 million. By the beginning of 2009, the same number of shares were worth about $627,000—roughly 90 percent less.

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Other GM executives have salvaged a few bucks from their company shares. Vice Chairman Bob Lutz, GM's second-largest individual shareholder, sold about 81,000 shares on May 8, netting $131,000. That's better than nothing, but the same number of shares would have been worth about $2.5 million at the start of 2007.Group Vice President Gary Cowger, GM's No. 3 individual shareholder, sold about 35,000 shares on the same day as Lutz, for about $56,000. The 2007 value of those shares was $1.1 million. Since April, at least a dozen top GM executives have sold shares.

GM board members stand to lose, too, although they hold relatively small amounts of GM stock. Director Kent Kresa, who's also interim chairman, holds about 8,200 shares, which would have been worth $248,000 at the start of 2007. GM's other directors hold about 30,000 shares combined, a tiny percentage of all outstanding shares.

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Executives and directors, of course, are usually awarded stock as part of their compensation package. So they're not gambling by buying shares at one price and hoping they'll go up. But the big investors who own most of GM's shares did gamble, and most of them guessed wrong.

State Street Global Advisors, for example, is an investment firm that's long been GM's biggest shareholder. At the end of April it held about 27 million GM shares, according to Thomson Reuters. That amounted to 4.4 percent of the company, with a market value of $51 million. Two years earlier, the same stake would have been worth nearly $800 million.

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Since State Street bought its shares at many different times and prices, it's difficult to calculate a single loss for the firm from public data. But State Street's losses on GM could easily total billions of dollars. Just this year, the firm has unloaded more than 76 million GM shares, cutting its holding by 75 percent, as of April 30. And after accumulating GM stock for years, State Street has been selling while share prices have been hitting one historic low after another. Investing scenarios don't get much worse.

Hundreds of other institutional investors have dumped their entire stake in GM over the last year, cutting their losses. The remaining big shareholders include some of the most familiar names in the financial industry: Vanguard, Credit Suisse, Goldman Sachs, TIAA-CREF, and a number of pension funds. Most have been selling their shares.

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But not all. Vanguard, the huge mutual fund manager, bought about 2.4 million GM shares in the first three months of 2009. Other recent buyers include the Bass Brothers of Texas and investment funds run by D.E. Shaw, JP Morgan, Nomura, and Charles Schwab. If they were gambling on a GM turnaround—and hoping to profit from it—they guessed wrong. Now they'll have to wait for a restructured GM to issue stock, once it's out of bankruptcy. And hope that the new GM turns out to be a better investment than the old one.