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GMAC Fails U.S. Treasury Stress Test and Could Fail if the Recession Continues

The source of credit for GM and Chrysler needs its own bailout?

by on May.08, 2009

GMAC logo

Color that logo red, as GMAC losses mount -- and it is named one of the weakest banks by the Feds.

Add another worry to the long list already attached to struggling automakers. GMAC, the storied company that supplies dealer and consumer financing for vehicles at General Motors since 1919, is in need of an additional $11.5 billion in capital, according to the U.S. Treasury Department. This amount doesn’t include the additional capital GMAC will need to take over Chrysler’s wholesale and retail financing needs when it emerges from bankruptcy.

Treasury, the agency that has been printing increasing amounts of money by issuing staggering amounts of debt in a desperate attempt to halt the Great Recession, released a list of financial institutions that failed its stress test yesterday afternoon.

GMAC was among the troubled institutions. In fact, GMAC had the biggest problem with liquidity of any bank for its size. That finding came just as the lender revealed that its first-quarter losses had jumped to $675 million, up from $599 million a year ago. The numbers actually would have been worse but for $631 million in after-tax gains from retiring some of its debt.

This means that GMAC now has until November 9, 2009, to increase common shareholder equity by $11.5 billion, of which $9.1 billion must be new capital. Ways to do this could include issuance of new common equity in a depressed market for such, or issuance of mandatory convertible preferred shares, or the conversion of existing equity into a form of “Tier 1″ common equity.    (more…)