Post by TonyV on Dec 31, 2009 13:32:42 GMT -5
U.S. to pump $3.8 billion more into GMAC
BY JUSTIN HYDE
FREE PRESS WASHINGTON STAFF
WASHINGTON -- The U.S. Treasury said it will inject another $3.8 billion into troubled lender GMAC, part of a deal that will boost the federal government's stake to 56% and attempt to stanch the company's losses from bad mortgages.
All the money will essentially go to shoring up GMAC's ResCap unit, the arm best known for Ditech.com and other subprime mortgage lending that generated $1 billion in profits in 2004 but has since suffered several billion dollars in losses as U.S. housing prices collapsed.
GMAC said Treasury's move, along with a $3.3-billion write-down in mortgages at ResCap and Ally Bank, should allow it to explore a sale or other action for ResCap and return to profit by the first quarter of next year. It had asked the government last month for more time to decide what to do with ResCap.
"By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the U.S. taxpayer," said GMAC CEO Michael Carpenter.
The money comes on top of $12.5 billion that the U.S. Treasury had invested in GMAC to keep it afloat as the lender of choice for car buyers and dealers at GM and Chrysler. The unit is taking over the lending done by Chrysler Financial.
The U.S. Treasury said in a statement that it would appoint four of GMAC's nine board members, up from two today. The directors would be chosen before GMAC's annual meeting in April.
The former finance arm of GM had long been a ready source of cash for the automaker. But with GM's auto business threatening GMAC's credit ratings, GM Chairman and CEO Rick Wagoner spun off 51% of GMAC in November 2006 to Cerberus Capital Management and other investors in a $10.1-billion deal.
As housing prices began to fall, ResCap mortgage business soon suffered from unsustainable losses, forcing GM and Cerberus to forgive the unit's debts and shore up the arm with billions of dollars in fresh capital. GMAC also won approval last year to operate as a bank, making it eligible for U.S. aid but forcing GM to cut its 49% stake to 9.9%.
Cerberus and its partners now hold 14.9% of GMAC.
In May, Treasury officials had estimated using their stress tests for banks that GMAC might need an additional $5.6 billion, but the final amount was reduced because of lower-than-expected losses in the auto finance business from the bankruptcies of GM and Chrysler.
Treasury said its 56% stake in GMAC was now worth $14.1 billion, with $11.4 billion in convertible stock shares.
The injection should put GMAC "in a position to raise private capital and pay back taxpayers as soon as practicable," Treasury said.
BY JUSTIN HYDE
FREE PRESS WASHINGTON STAFF
WASHINGTON -- The U.S. Treasury said it will inject another $3.8 billion into troubled lender GMAC, part of a deal that will boost the federal government's stake to 56% and attempt to stanch the company's losses from bad mortgages.
All the money will essentially go to shoring up GMAC's ResCap unit, the arm best known for Ditech.com and other subprime mortgage lending that generated $1 billion in profits in 2004 but has since suffered several billion dollars in losses as U.S. housing prices collapsed.
GMAC said Treasury's move, along with a $3.3-billion write-down in mortgages at ResCap and Ally Bank, should allow it to explore a sale or other action for ResCap and return to profit by the first quarter of next year. It had asked the government last month for more time to decide what to do with ResCap.
"By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the U.S. taxpayer," said GMAC CEO Michael Carpenter.
The money comes on top of $12.5 billion that the U.S. Treasury had invested in GMAC to keep it afloat as the lender of choice for car buyers and dealers at GM and Chrysler. The unit is taking over the lending done by Chrysler Financial.
The U.S. Treasury said in a statement that it would appoint four of GMAC's nine board members, up from two today. The directors would be chosen before GMAC's annual meeting in April.
The former finance arm of GM had long been a ready source of cash for the automaker. But with GM's auto business threatening GMAC's credit ratings, GM Chairman and CEO Rick Wagoner spun off 51% of GMAC in November 2006 to Cerberus Capital Management and other investors in a $10.1-billion deal.
As housing prices began to fall, ResCap mortgage business soon suffered from unsustainable losses, forcing GM and Cerberus to forgive the unit's debts and shore up the arm with billions of dollars in fresh capital. GMAC also won approval last year to operate as a bank, making it eligible for U.S. aid but forcing GM to cut its 49% stake to 9.9%.
Cerberus and its partners now hold 14.9% of GMAC.
In May, Treasury officials had estimated using their stress tests for banks that GMAC might need an additional $5.6 billion, but the final amount was reduced because of lower-than-expected losses in the auto finance business from the bankruptcies of GM and Chrysler.
Treasury said its 56% stake in GMAC was now worth $14.1 billion, with $11.4 billion in convertible stock shares.
The injection should put GMAC "in a position to raise private capital and pay back taxpayers as soon as practicable," Treasury said.