GM Strikes Deal With CAW

General Motors' (GM) imminent (and no-longer-disputed) bankruptcy filing dominates the pages of today's business press. Bloomberg reports that on Monday, the Canadian Auto Workers union approved a deal with the automaker that freezes pension payments until 2015 and pays new hires less, with 86 percent support. The agreement would pay newly hired employees 70 percent of what workers are getting now, though the wage would increase to 100 percent over six years. It would also cut one week of paid time off and "set the groundwork for negotiating a health-care trust to cover retiree medical costs." The CAW represents about 9,000 GM hourly workers. "Approval of the deal positions the automaker to receive unspecified Canadian government aid the CAW said was necessary to keep GM Canada from being liquidated," Bloomberg says. Details of a tentative agreement with the United Auto Workers union have not been disclosed, but, as Reuters reports, officials from the UAW, which represents 54,000 hourly GM workers, will gather in Detroit today to vote on the potential accord, which among other things, would change payment terms on $20 billion owed to a UAW trust fund.

CNNMoney points out that once an agreement with the UAW is signed, the last major hurdle to avoid bankruptcy—and one that will not likely be met—is that GM will have to convince bondholders, who currently own 40 percent of the company's debt, to take a 10 percent stake in the restructured company in return for forgiving the debt. The Treasury, meanwhile, would get about a 50 percent stake. In a show of just how large the divide between the government and the bondholders is, the bondholders have issued a counter-offer that would give them a 58 percent stake in the company with the Treasury receiving none. Under that arrangement, the automaker would have to pay back the near $20 billion it owes the government.

The New York Times, leading its business section, takes a look at what a bankruptcy filing would mean for lawyers and experts in the field, many of whom are already devoting so many resources to Chrysler, the joke is that there may not be enough manpower left. But, of course, given the expected windfall the filing is expected to generate for the firms involved, every major law firm that handles restructuring is likely to be involved in some way or another. In fact, hundreds of lawyers from each of the major firms have already put in months of preparation, as each party—the Treasury, the carmaker, the UAW, suppliers, dealers, etc.—will all require legal counsel.

Part of the reason so many lawyers are required is that the reorganization, "as envisioned by the automaker with support from the federal government," will be extremely complex. It will include slitting good assets from bad; spinning off "desirable brands," such as Chevrolet and Cadillac; and eventually liquidating the bad assets. Indeed, the filing will generate so much economic activity—think hotel bookings, restaurant dining, and office rentals—that Detroit is hoping that the case will be filed in the local bankruptcy court; however, the filing is likely to be worked out in New York or Delaware. In New York, which is the most likely host of the two, there are talks to create a separate computer server devoted to the filing, the papers say.

The Wall Street Journal leads its business news with the Justice Department's augmented effort to crack down on foreign bribery, a development has companies re-evaluating their practices and in some cases hiring costly consultants to make sure they comply with the revitalized post-Watergate law. The Foreign Corrupt Practices Act "prohibits U.S. companies from paying, or offering to pay, foreign-government officials or employees of state-owned companies to gain a business advantage. It covers non-monetary gifts or offers in addition to cash payments, and is worded broadly enough that it's spawning an army of consultants, some of whom once prosecuted bribery cases for the Justice Department, who offer to interpret the gray areas."

At least 120 companies are under investigation, according to Mark Mendelsohn, a deputy chief in the Justice Department division overseeing the prosecutions, up from 100 at the end of last year. He now has eight FBI agents working for him, up from five. Sun Microsystems (JAVA) and Royal Dutch Shell (RDS.A) are among the companies currently under investigation, according to the paper. "If companies sniff out problems in-house, many have felt compelled to come clean to the Justice Department, which has given a break to some that do so," the WSJ says.

For example, in 2007, Lucent Technologies (ALU) settled charges for failing to properly record millions of dollars in travel to Disney World, Las Vegas, and some other tourist-y attractions for about 1,000 Chinese foreign officials who worked for state-controlled telecom companies. The company originally called the trips factory tours but later fessed up and paid $2.5 million in fines.

Bloomberg gets technical with a look at how JPMorgan Chase (JPM), Wells Fargo (WFC), Bank of America (BAC), and PNC Financial Services Group (PNC) are poised to benefit from an accounting rule that will allow them to transform bad loans from the companies' respective takeovers of Washington Mutual, Wachovia, Countrywide Financial, and National City into income. "The deals provide a combined $56 billion in so-called accretable yield, the difference between the value of the loans on the banks' balance sheets and the cash flow they're expected to produce," the site says. The purchase-accounting rule, known as Statement of Position 03-3, gives banks an incentive to mark down loans they acquire "as aggressively as possible."

"By applying the measure to mortgages and commercial loans that lost value during the worst financial crisis since the Great Depression, the banks will wring revenue from the wreckage," Robert Willens, a former Lehman Bros. Holdings Inc. executive who runs a tax and accounting consulting firm in New York, told Bloomberg. JPMorgan, for one, is likely to reap $29 billion. For Wells Fargo, the Wachovia loans added $561 million to the bank's first-quarter interest income, leaving Wells Fargo with a remaining accretable yield of almost $10 billion.  

Keeping with mortgages, the Washington Post leads its business section with new legislation signed by President Obama last week to simplify and, in turn, revive Hope for Homeowners, "a stalled government foreclosure prevention program that could restore equity to hundreds of thousands of borrowers whose home values have plummeted." The program is now seeing some unexpected support from investors, who had previously refused to consider the program's requirement that they forgive a portion of a borrower's mortgage balance if the home is worth less than is owed. In the eight months since it was created, Hope for Homeowners has helped just one borrower secure a more affordable loan, according to the paper.

The program works by sweeping defaulted loans off lenders' books. The government refinances the borrower into a new loan that can be held by a different investor. "The program creates a market for these loans that institutional investors otherwise would struggle to sell, officials in the financial services industry said. And as the industry strives to put the growing losses of the housing crisis behind them, in some cases it may be better to accept them now than hope to sell the securities later."