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Treasury Adds Capital to GMAC Financial Services

GMAC financing is key to Federal auto bailout plans.

by on May.22, 2009

While Chrysler and Cerberus are separated, the hedge fund still owns part of its new finance company.

While Chrysler and Cerberus are now separated, the hedge fund still owns part of its new finance company, which is being propped up by the government.

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…)

GMAC moves on

GMAC Financial Services is staking a claim to its independence.

by on May.15, 2009

"Given the recent financial market turmoil, people are looking for a safe, honest and efficient place to save."

"Given the recent financial market turmoil, people are looking for a safe, honest and efficient place to save."

General Motors CEO Fritz Henderson said this week that GM no longer has any representation on the board of GMAC. GM sold a majority interest in GMAC to Cerberus Capital Management back in 2006. Last December, GMAC was reorganized in an exchange for $5 billion in federal funds. When it accepted money from the Trouble Asset Relief Program (TARP), GMAC was required to loosen its ties to Cerberus and GM, which is why Henderson said he doesn’t always have up to the minute information about what’s going on at the big finance company.

GMAC, which is now being overrun by refugees from Wall Street meltdown, has now announced that it is changing the name of the consumer bank that is one of the keys to its future plans. 

“The world doesn’t need another bank, it needs a better bank.” This philosophy is at the heart of the launch of Ally, a new brand for a U.S. online bank designed to disrupt the status quo and challenge win-lose practices in the banking industry, GMAC said. Ally Bank offers a variety of savings products, including no-penalty certificates of deposit (CDs), online savings accounts and money market accounts.

“We are launching a new brand with a new approach of treating customers with total transparency,” said GMAC Chief Executive Officer Al de Molina. “Unlike other banks which depend on fees as a business model, we want to make money with customers, not off customers.”    (more…)