What General Motors' Bankruptcy Means to Investors

General Motors' bankruptcy filing is particularly devastating for stock investors.

Unless the government intervenes, current shareholders in GM will be wiped out; the stock becomes worthless because shareholders have no claims on GM assets in bankruptcy court. The stock (symbol GM) was unchanged on June 1, closing at 75 cents.

The unlikely steadiness in GM's stock price on the day of the bankruptcy announcement may be attributed to two known groups of investors: speculators, who bought shares expecting that the government would bail out not only the company but shareholders as well, and short sellers, who were betting that the stock's price would fall and covered their positions to lock in gains.

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Here are the next steps in the game plan: The New York Stock Exchange will delist GM shares on June 2. The shares will continue to trade over the counter on the pink sheets and the OTC Bulletin Board. Dow Jones plans to remove GM from the Dow Jones industrial average on June 8 (the company has been a component of the Dow continuously since 1925). Cisco Systems (CSCO), the telecommunications-equipment giant, will replace GM in the Dow industrials.

Actively managed mutual funds abandoned GM before its bankruptcy filing. No actively managed fund is a major holder of GM stock, according to fund tracker Morningstar. Only index funds, which track such benchmarks as Standard & Poor's 500-stock index, owned big positions in GM, relative to their other holdings.

GM bondholders will fare slightly better than shareholders. GM owes a total of $33 billion to bondholders; $6 billion is secured and $27 billion is unsecured. Secured bondholders were willing to accept lower interest payments than unsecured bondholders to be at the top of the list of creditors to be paid back if the firm entered bankruptcy.

Under the agreement GM reached with the U.S. Treasury Department and the Canadian government, unsecured creditors will receive stock in 10% of the "new" GM that will emerge from Chapter 11 if the bankruptcy court approves. "Most likely, secured bondholders will be paid in full, and the remaining $27 billion in unsecured debt will be settled with what's left over," says Cary Carbonaro, a financial planner in New York.

GM-related investments, such as GMAC bonds and Promark investment accounts, are unaffected by the bankruptcy filing. GMAC is not a part of the reorganization and says it does not intend to file for bankruptcy.

Promark funds, which are managed by Promark Global Advisors (formerly General Motors Asset Management), are offered in 401(k) retirement plans of employees of GM and other companies. The bankruptcy filing should have no impact on these 401(k) plans because they are owned by workers, not by GM. "GM's bankruptcy does not affect Promark in any way," says Promark spokeswoman Julie Gibson.