Chrysler's Bankruptcy Hiccup

News that Supreme Court Justice Ruth Bader Ginsburg has granted a stay on Chrysler's sale to Fiat makes a cameo appearance on the front page of the New York Times, the Wall Street Journal, and the Washington Post. The surprise action caught even the creditors, led by three Indiana pension funds, off-guard. In months of arguments, "the Indiana funds [contended] that the sale trampled on their rights as senior lenders because they would recover less than junior lenders. The funds also claim that the manner of the sale did not comply with bankruptcy law, and that the Treasury illegally used billions from the federal Troubled Assets Relief Program, meant for financial institutions, to prop up Chrysler," the WP writes. Under the current deal, a United Auto Workers retiree health care trust got a 55 percent equity stake and $4.5 billion note, and Fiat stands to get an initial 20 percent stake. 

Justice Ginsburg left little room to parse her words: She said a mere 53 words when granting the stay, which is in place until further notice. However, that one line left plenty of room for speculation. The papers say that if the court elects to hear an appeal, it could delay the Chrysler-Fiat deal past June 15, the date that Fiat can walk away from acquiring the majority of the automaker's assets. If that happens, Chrysler could go out of business since Fiat is the only company that has shown interest in partnering with the burdened automaker. The deal could have closed last night if the stay hadn't been put in place. And while it's not unusual for the court to issue a stay while it considers whether to hear a case, it rarely grants the "kind of expedited hearing on the merits that the Indiana funds are seeking," according to the NYT.  Indeed, the WSJ says the court has been known to issues such delays, but most often in cases involving death penalty cases. "It only rarely orders emergency full reviews, as the Chrysler creditors are requesting. In recent years such reviews have occurred in terrorism cases and a campaign-finance case."

According to the Times, "the delay came as a shock to the Obama administration, which strongly believed last week that Chrysler was set to sail through bankruptcy court." When President Barack Obama announced General Motors' bankruptcy filing June 1, he cited Chrysler's" swift passage through court as a cause for optimism and a sign that GM's larger and far more complex case would move briskly, too." The pension funds' lawyer, Thomas Lauria, told the WSJ that he is now in discussions with a group of GM bondholders irked by the debt-for-equity swap that gives the UAW and the government unfairly large stakes in the reorganized company.

Bloomberg breaks the news that the Treasury is set to announce today 10 banks that have been given the green light to repay TARP loans. JPMorgan (JPM) is definitely among them, and the site speculates that Goldman Sachs Group (GS), American Express (AXP), and State Street Corp. (STT) could be, too. "The number of banks likely to be allowed to retire government shares indicates the Treasury will receive more than the $25 billion of repayments that the department anticipated this year. JPMorgan alone received $25 billion of TARP funds last year and Goldman Sachs got $10 billion. American Express has received $3.4 billion, Bank of New York Mellon Corp. (BK) has taken $3 billion and State Street has $2 billion," Bloomberg says. Meanwhile, the Fed has approved capital-raising plans for the 10 banks that have been instructed to cushion their balance sheets as a result of the stress tests. For the banks that the government still has sizeable stakes in, the Treasury is expected to issue guidelines for executive compensation on June 10.

Sticking with the stress tests, CNNMoney reports that the Congressional Oversight Panel, a government watchdog group, wants a do-over of the stress tests in the wake of a jobs report released Friday that saw the unemployment rate jump to 9.4 percent, the highest its been since 1983. "Banking regulators that devised the stress tests had said in their most 'adverse' case scenario that the jobless rate would hit 8.9% in 2009," the site says. The unemployment rate is important to banks because "loan losses tend to track the rate of unemployment, as out-of-work consumers typically find themselves unable to stay current on their monthly payments including car loans, mortgages and credit cards." Regulators that oversaw last month's stress tests have said their projections are spot-on. "By being overly severe, officials feared that banks would not only balk at the results, but that many lenders would find themselves with an excessive amount of capital." The panel's chairwoman, Elizabeth Warren, will appear at a hearing in front of Congress' Joint Economic Committee this morning to discuss the report.

Finally, much to the disappointment of Steve Jobs fans—not to mention Apple shareholders—the elusive CEO was a no-show at Apple Inc.'s (AAPL) developer conference yesterday, where the company unveiled a faster iPhone and a cheaper MacBook Pro notebook. The third model of the iPhone, the 3G S, "looks physically identical to the last version" but includes internal hardware and software improvements, such as a three-megapixel camera that also records video, an internal digital compass and voice-control features that let owners use spoken commands to make calls and play music," the Times writes. A team of managers introduced the products in Jobs' stead, a move an analyst tells Bloomberg will help separate Apple from Jobs' iconic status. "The absence of Jobs let Apple make the case that the company is built on more than one man," said Gene Munster, an analyst with Piper Jaffray & Co. in Minneapolis. Jobs is expected to return to work at the end of the month after an extensive medical leave. For Reuters' video coverage of the conference, click here.