A few months ago, I wrote a series of posts about anomalies in the pricing of Citigroup common and preferred stock (see
). At the time, Citi's common stock traded at prices that appeared to be way too way relative to the preferred stock (which has since converted into common).
Limits on short-selling appeared to be the best explanation for that anomaly.
In today's New York Times, Floyd Norris notes that the same thing is happening to shares of Motors Liquidation Company (symbol MTLQQ). Motors Liquidation is what remains of the bankrupt General Motors. It has no ownership in the new, post-bankruptcy GM and, as far as I can tell, everyone believes that ML's common stock is worthless. Yet, as Norris shows in an accompanying chart, the stock has persistently traded above $0.50 per share:
(One nit: I don't think the top chart should be labeled "General Motors stock price …"; it should be "Motors Liquidation stock price …")
Norris argues, correctly I think, that the difficulty of shorting ML common stock is why it trades at a positive price. Potential sellers have been unable to drive the price down where it belongs (close to zero) and, indeed, are occasionally forced to buy back shares to close their positions. Thus, the stock trades around $0.60 per share, and the number of shorted shares has been declining.
As a contrast, Norris points to Delta Airlines which went through bankruptcy back in 2006-7. In that case, short sellers increased their positions over time, and the stock price worked its way down to zero.
