GMAC Could Get Treasury Funds As Soon As May 16 - Source
09 May 2009 - 6:42AM
Dow Jones News
GMAC LLC could get federal funds as early as May 16, said one
person familiar with the matter.
The size of these funds isn't yet known.
The government said it would provide more financing to GMAC
after the company last week assumed the mantle of lender for
Chrysler LLC dealers and consumers as the auto maker restructures
in bankruptcy court.
GMAC's status as a government-sanctioned financier of General
Motors Corp. (GM) and Chrysler vehicles puts the lender in a unique
situation. It also underscores the extraordinary steps being taken
by the government to support the strapped company. GMAC is vital to
federal efforts to resuscitate ailing auto makers GM and
Chrysler.
This is because GMAC provides the bulk of the financing to GM
dealers, the life blood of auto sales. In 2008, GMAC provided 81%
of the financing to the auto maker's dealers. Dealerships use these
loans to maintain a stockpile of new GM cars on their lots.
Starting mid-May, GMAC is slated to finance Chrysler dealers,
pending the federal funds.
Earlier Friday, U.S. Treasury Secretary Timothy Geithner said
the government will provide "substantial support" to GMAC.
"It's likely, again, that GMAC will need to take additional
capital from the government and we'll be prepared to provide that,"
said Geithner in an interview with Reuters Television.
"We expect the additional capital raised will further strengthen
GMAC and help ensure continued availability of credit to our
customers," said Gina Proia, a GMAC spokeswoman.
In addition, GMAC, on the heels of its bank registration in
December, received $5 billion under the Treasury's Troubled Asset
Relief Program, or TARP. In exchange, the Treasury received GMAC
preferred stock.
The financial support it receives from the government would also
help offset the large $11.5 billion capital hole that GMAC has to
fill under the stress-test results released Thursday.
Regulators ordered 10 of the U.S.'s 19 largest financial
institutions to raise a combined $74.6 billion in capital to
cushion themselves against potential losses in the event of a
deeper economic slump.
Under the stress-test results for GMAC, the government's "more
adverse" scenario includes two-year cumulative losses of 6.6% on
total loans. This is lower than the 10% estimates for Bank of
America Corp. (BAC) or the 10.9% calculated for Citigroup Inc. (C).
Citigroup's capital shortfall, under the stress-test results,
totaled $5 billion, while Bank of America's would have to shore up
capital by $34 billion.
GMAC is jointly owned by GM and an investor group led by
private-equity firm Cerberus Capital Management LP. The auto maker
and the investor group will significantly scale back their
ownership in GMAC by the end of this month as a condition of the
lender becoming a bank-holding company.
The lender reported a wider first-quarter loss of $675 million,
from a $589 million loss in the year-earlier period. Its results
were aided by a $631 million after-tax gain from retiring debt.
In addition, GMAC also is in line to gain access to a federal
program that has allowed an array of financial institutions to get
financing when they were otherwise shut out from repaying or
refinancing debt as a result of the credit crisis. More than four
months after turning itself into a bank, GMAC still is waiting for
the green light from the Federal Deposit Insurance Corp. to issue
FDIC-insured debt under this program. According to the program's
guidelines, as time passes without such approval, the amount of
debt that GMAC can raise decreases.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com