Banks, Treasury Play Chicken on Chrysler Deal

A group of big banks balked at the Treasury’s proposal that they slash 85% of Chrysler’s debt, the government’s second such request. Instead, in what the Wall Street Journal calls a “significant act of brinkmanship” as an April 30 deadline looms, the banks, including bailout recipients Citigroup, JPMorgan, Goldman Sachs, and Morgan Stanley, offered to cut just 35%—to $4.5 billion rather than $1 billion—and asked for a 40% equity stake in return.

The Treasury said it had no intention of accepting that proposal. “Our hope and expectation is that these lenders take a more constructive position in the coming days that reflects the actual situation that they and the company face,” the department said in a statement. The lenders argued that they could get 65% in bankruptcy filings, and questioned the government’s strategy of marrying Chrysler with Italy’s Fiat. (More Chrysler stories.)