The U.S. Department of the Treasury has strengthened the weak balance sheet of GMAC Financial Services by adding $7.5 billion in capital to the ailing finance company and bank.
The troubled lender had a first-quarter loss of $675 million, up from $599 million a year ago.
GMAC sold $7.5 billion of mandatorily convertible preferred (MCP) membership interests and warrants to the U.S. Treasury. The U.S. Treasury immediately exercised the warrants and GMAC issued an additional $375 million of MCP. The investment included $4 billion of MCP related to GMAC’s agreement with Chrysler LLC to provide automotive financing to Chrysler, and $3.5 billion of MCP toward the Supervisory Capital Assessment Program (S-CAP) requirement.
This reduces the new capital required to $5.6 billion after GMAC failed a Treasury audit earlier this month. After analyzing GMAC’s books, Treasury determined that it would need an additional $11.5 billion in capital in order to ensure survival as the Great Recession continues on. By failing the so-called stress test GMAC was put under the Supervisory Capital Assessment Program (S-CAP).
The latest loans are only part of the actions the U.S. government is taking to prop up GMAC, which is vital to its auto bailout plans. The company has been designated as the wholesale and retail lender for GM and Chrysler when it emerges from protection of the U.S. Bankruptcy court in New York. GM will almost certainly file for similar protection by June.
The Federal Deposit Insurance Corporation is now involved in assisting GMAC, by guaranteeing as much as $7.4 billion in new debt to be issued by GMAC as part of S-CAP. (more…)