When the Obama administration sent General Motors into bankruptcy last summer, the automaker wiped out creditors, and critics warned that Wall Street investors would have a long memory.
What a difference a year makes.
Now the biggest names on Wall Street, including Goldman Sachs Group Inc (NYSE:GS), JPMorgan Chase & Co (NYSE: JPM) and Morgan Stanley (NYSE: MS), have lined up for the chance to help bring a government-owned automaker back to the public market -- for a pittance.
The 0.75% underwriting fee on the GM IPO is among the smallest, percentage-wise, of the top 10 IPOs of all time, globally, according to Thomson Reuters data.
But even so, bankers, keen to secure future business with GM GM.UL and secure bragging rights, are jostling for a spot on a deal that will mark GM's historic rebirth as a public company.
"This is a league tables story and not a fee story," said one banker involved in preparations for the upcoming IPO. "Everybody wants to join the club, as there are not too many opportunities out there to improve your position in the tables."
GM -- which struggled to line up private financing before its bankruptcy -- just this week clinched a $5 billion credit line in preparation for its highly-anticipated IPO with 10 banks. Almost all major Wall Street names have committed up to $500 million each. (A list of the banks committed to the credit facility can be seen below.)
Bankers said participating in the revolving credit facility was tied to their chances for an underwriting slot in the upcoming equity offering -- and they could not afford to be left out of a deal expected to raise up to $20 billion in one of the largest U.S. stock offerings ever.
"How lucrative the business is -- it's not the point here," another person familiar with the preparations said. "We can't be that bank that's left out."
SYNDICATE IN FLUX
GM has added Bank of America Merrill Lynch (NYSE: BAC) and Citigroup Inc (NYSE: C) to its slate of lead underwriters for the IPO, but has not finalized the full syndicate, two sources familiar with the situation said on Friday. Morgan Stanley and JPMorgan were picked as lead underwriters earlier this year.
Given the sheer size of the deal, GM will select more banks as joint bookrunners, sources familiar with the matter said.
Banks were desperate to land the deal, sources said. Several proposed to underwrite the deal for somewhere around 2% or 2.5% of the IPO size, which is in line with fees on previous offerings of this size.
Goldman Sachs had an even lower offer, though -- just 0.75 percentage points, according to several sources with knowledge of the offer. But the U.S. government, which had veto power over the choice of underwriters, was reluctant to approve a lead role for Goldman, a person briefed on the matter said.
That reluctance stemmed in part from Goldman's tense negotiations with the Securities and Exchange Commission over a mortgage product that regulators say was improperly marketed, the person said.
Goldman settled civil fraud charges with the SEC for $550 million. The bank did not admit or deny the charges, but did acknowledge its marketing materials contained incomplete information.
JPMorgan, meanwhile, had offered to take its share of the underwriting fee in GM stock rather than cash to show it was literally invested in GM's success, according to sources familiar with the discussions.
That offer was ultimately rejected, in part because of fear shares would rise too much after the offering, netting the bank an out-sized fee that would create a public relations headache, a person briefed in the matter said. Goldman Sachs and JPMorgan declined to comment.
GM will likely list only the two lead firms when it files initial prospectus documents with the U.S. Securities and Exchange Commission in the next few days.
Underwriting stock for the American industrial icon would be a big boost to the reputations of the underwriting banks, and the IPO could be a way into future government deals.
And the sheer size of the deal would guarantee a leg up in league table rankings -- the coveted tally of deal rankings that gives them ample marketing ammunition to court clients.
THE VELVET ROPE
If the IPO raises nearly $20 billion, as expected, banks could net $150 million in underwriting fees. By comparison, all IPO fees in the first half of the year in the United States totaled $700 million, according to research firm Freeman Consulting.
GM is also attractive to investment banks because it is a large, capital-intensive business that will require future financing and banking services.
Banks have already been tapped to help with its planned $3.5 billion acquisition of AmeriCredit Corp (NYSE:ACF), to provide dealer and consumer financing and to back a $5 billion credit line -- all additional sources of fees.
There will also be a series of follow-on offerings as the U.S. government exits its 61 percent stake in GM.
"GM's saying that, if you are in the club right now, you will have a lot of business with us," one banker involved in the deal said.
"So GM feels they don't have to offer windfall fees," the banker said.
The banks that agreed to provide the credit line include: Bank of America Merrill Lynch, Barclays Plc, Citigroup Inc (C.N), Credit Suisse , Deutsche Bank AG , Goldman Sachs, JPMorgan, Morgan Stanley, UBS AG and Royal Bank of Canada.