Privately, many on Wall Street say the banks' financial exposure to Ford and GM means they cannot afford to let them fail. There is one problem though, said one bank source: 'We've been asking for a lot of favors lately.' Wall Street powerbrokers lobbied hard for this week's rescue of insurer American International Group Inc. by the Federal Reserve, as well as the bailout of investment bank Bear Stearns earlier this summer. The Big Three are seeking funding for a $25 billion direct loan package from Washington. The loans were approved by Congress and the White House as part of last year's energy bill, but the money has not been allocated. Banks that hold Ford and GM debt see the proposed federal loan program as a way of backstopping their massive investments in the automakers and, to a lesser extent, privately held Chrysler LLC. 'The banks want these companies alive,' said credit analyst Shelly Lombard of Gimme Credit LLC. 'They want to do everything they can to make these companies viable.' Banks plead Detroit's caseJPMorgan made a strong case for supporting the loan program in a recent report. 'Beyond the need to provide a safety net for workers, we believe the automotive industry is critical to national security. Not only does the automotive sector support the steel infrastructure that is critical to manufacturing defense weaponry, but the automotive sector also provides about 1 out of every 12 jobs in the U.S., is a key factor in getting the U.S. independent from foreign oil and is essential toward cleaning up the environment,' wrote credit analyst Eric Selle. 'While these borrowings could prime existing debt, we believe these actions would enable the domestic auto (industry) to fund the next round of fuel-efficient technologies.' Judging by the pummeling their share prices have taken, it is hard to see why either GM or Ford matters much to Wall Street. GM's market capitalization of $5.64 billion makes it worth substantially less than, say, Harley-Davidson Inc., valued at $9.35 billion. The market value of Ford's outstanding shares is $10.74 billion. But Ford ended last year with nearly $26.7 billion in debt. By itself, the Dearborn automaker accounts for 4.62 percent of the high-yield bond market, making Ford the biggest issuer of junk bonds in the country, which pay higher yields than investment grade bonds. GM ranks 10th, accounting for slightly less than 1 percent of the total market. But GMAC Financial Services, of which the automaker still owns a sizable chunk, is the third largest speculative-grade bond issuer in America, accounting for 2.48 percent of the market. GM ended 2007 with nearly $39.5 billion in debt. Chrysler's financial situation is less clear since it was acquired by Cerberus Capital Management LP last year. Together with the largest domestic parts suppliers, Ford and GM account for nearly 10 percent of the overall corporate high-yield debt market in the United States. Then there are the bank loans. In December of 2006, Ford took out what CEO Alan Mulally likes to refer to as 'the biggest home-improvement loan in history,' putting most of the company's assets up as collateral to secure a finance package that includes an $11.5 billion revolving loan fund, a $7 billion term loan and a secondary $3 billion term loan. The banks lending Ford this money include Citibank, Goldman Sachs and JPMorgan. GM's include a $7 billion revolving credit line and a $1.5 billion term loan. GM's principal lenders include JPMorgan Chase, Credit Suisse and Bank of America. Autos critical to economy'Certainly, it's a sizeable portion of the market,' said Gregg Lemos Stein, credit analyst with rating agency Standard & Poor's, adding that the U.S. auto industry also remains an important part of the larger economy. He estimated that the auto industry as a whole represents about 10 percent of the nation's gross domestic product. And it is an industry that is in deep financial trouble. All three Detroit automakers are rated as speculative-grade investments by Standard & Poor's, as are 42 of the 45 auto suppliers tracked by the firm. The only other automakers in the world with such weak credit ratings are Japan's troubled Mitsubishi Motors Corp., India's Tata Motors Ltd. and Mazda Motor Corp., which is controlled by Ford. Gimme Credit's Lombard said their weak credit ratings diminish Detroit's importance to the nation's financial markets. Moreover, she said, any automaker filing for bankruptcy protection would likely continue to function, unlike financial institutions, which essentially disappear. That means lenders who hold corporate debt in a bankrupt auto company would be able to get at least some of their money back. 'It's a huge, huge capital structure,' Lombard said. 'But it is already trading at a distressed level. The prices already reflect the specter of bankruptcy.' Lamos Stein agreed, but said that would still be a difficult blow to banks already weakened by the subprime mortgage crisis. You can reach Bryce Hoffman at (313) 222-2443 or [email protected].