GMAC Financial Services Gets $7.5 Billion From U.S. Treasury
May 21, 2009
DETROIT — GMAC Financial Services that it will receive $7.5 billion from the U.S. Department of the Treasury, as well as other key actions that will significantly improve the company's capital position and access to liquidity.
These actions include approval by the Federal Deposit Insurance Corporation (FDIC) to
participate in the Temporary Liquidity Guarantee Program (TLGP), and an
expanded exemption granted by the Federal Reserve to originate GM-related
assets at GMAC's bank, recently renamed Ally Bank.
GMAC also reconstituted its board of
directors and named two appointees from the U.S. Treasury, with three
independent directors to be promptly named by the board.
"These actions
represent another major step in stabilizing and strengthening GMAC," said
GMAC Chief Executive Officer Alvaro G. de Molina.
"Much like last year, 2009 is proving to
be a time of landmark actions for GMAC -- executing the Chrysler agreement,
launching a new brand for our bank, and now taking a meaningful step forward in
permanently improving our access to cost-effective funding."
Capital Investment
In connection with
the government's capital investment, GMAC has sold $7.5 billion of mandatorily
convertible preferred (MCP) membership interests and warrants to the U.S.
Treasury.
The investment included $4
billion of MCP related to GMAC's agreement with Chrysler LLC to provide
automotive financing to Chrysler dealers and customers and $3.5 billion of MCP
toward the Supervisory Capital Assessment Program (S-CAP) requirement.
The U.S. Treasury immediately exercised the
warrants and GMAC issued an additional $375 million of
MCP.
GMAC previously
announced an agreement with Chrysler to provide automotive finance products and
services to Chrysler dealers and customers.
The agreement was approved by the U.S. Bankruptcy Court on May 12,
2009.
GMAC will begin offering wholesale
and retail credit to Chrysler dealers and customers immediately.
In order to ensure an orderly transition of
wholesale financing activities, GMAC has signed a cooperation agreement with
Chrysler Financial Services Americas LLC.
GMAC has also
entered into a transition support agreement with Chrysler LLC and the U.S.
Treasury to aid in managing the risks related to expeditiously extending credit
to Chrysler dealers and customers. The agreement provides GMAC with credit
support for certain losses that may be incurred during the transition period,
which allows time for GMAC to evaluate the creditworthiness of each Chrysler
dealer.
As previously
disclosed under the S-CAP program, GMAC is required to raise $11.5 billion of
Tier 1 common or contingent common capital, $9.1 billion of which must be new
Tier 1 capital. The $3.5 billion investment by the U.S. Treasury is new capital
for the company toward this program and reduces the level of new capital
required to $5.6 billion.
Consistent
with the S-CAP program requirements, GMAC intends to submit a Capital Plan to
the Federal Reserve Bank of Chicago
by June 8, 2009 with respect to the remaining capital required. While the U.S.
Treasury has indicated that it may be willing to provide additional new
capital, GMAC will evaluate other alternatives to meet its capital
requirements.
The MCP issued to
the U.S. Treasury has an annual distribution rate of nine percent payable
quarterly. These interests mandatorily convert to common membership interests
after seven years and may be converted in advance of that time by GMAC with the
approval of the Federal Reserve if such conversion would not result in the U.S.
Treasury owning in excess of 49 percent of GMAC's common membership interests.
GMAC may only convert additional mandatorily convertible membership interests
to common membership interests if certain other conditions are met. The MCP is
also convertible by the U.S. Treasury upon the occurrence of certain
events.
Temporary Liquidity
Guarantee Program
GMAC has received
approval to participate in the FDIC's TLGP for up to $7.4 billion, which would
permit the company to issue new FDIC-guaranteed debt. In connection with receiving
FDIC approval, GMAC is developing a funding plan which it has committed to
provide to the FDIC and the Federal Reserve.
The plan will reflect GMAC's management of Ally Bank's funding and
deposit costs with a focus on diversifying funding sources and reducing the
Bank's overall cost of deposit funding.
GMAC and the Bank have also committed to maintain Bank capital at a
level well above the regulatory minimums.
Ally Bank Exemption
GMAC received an
expanded exemption from the Federal Reserve to allow Ally Bank, formerly GMAC
Bank, to originate a limited amount of GM-related retail and wholesale assets,
subject to certain conditions. Previously, GMAC was more limited in the
GM-related assets that could be originated in the Bank due to section 23A of
the Federal Reserve Act.
Providing
relief on these restrictions will enable GMAC to have more funding available
for a majority of its automotive finance assets, which provides a sustainable
long-term funding channel for the business. The extension of credit to Chrysler
dealers and customers is not subject to the section 23A restriction.
GMAC recently
launched Ally Bank, a new brand for its U.S. bank that represents an improved
banking experience. The new brand is part of an effort to broaden and expand
the company's customer base at the Bank.
Governance
In connection with
GMAC's approval to become a bank holding company, GMAC was required to
reconstitute its board of directors. The new board will now consist of nine
directors, four of whom have been named, two by the U.S. Treasury and two
current directors. Three additional independent directors have been selected
and will be promptly appointed by the new board. The two appointees of the U.S.
Treasury are Robert T. Blakely and Kim S. Fennebresque. GMAC CEO Alvaro G. de
Molina will remain on the board along with Stephen Feinberg as the Cerberus
appointee. Two additional independent directors will be named at a later date.
In connection with
the previously announced GMAC governance changes, the following independent and
GMAC management directors on the board resigned, effective immediately, T.K.
Duggan, Douglas A. Hirsch, Robert Hull, Samuel Ramsey and Robert W. Scully.