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GMAC Falling Short in Bid to Convert to Bank Status

December 10, 2008

NEW YORK — Captive lender GMAC LLC has released a statement announcing that it will likely fall short in its attempt to raise enough capital to convert to a bank holding company, leaving the firm's future uncertain.

Last month, GMAC announced that it would apply to convert to bank status with the stated goal of tapping into the $700 billion in funds made available by the Troubled Asset Relief Program. The Federal Reserve told the lender that it must raise $30 billion in regulatory capital, among other conditions, or its application would be denied.

GMAC and its Residential Capital LLC (ResCap) mortgage unit offered investors holding $38 billion worth of its notes a trade for new notes and preferred stock, which would have counted toward the $30 billion goal. The deadline on the offer has been extended to 5 p.m. Friday, but the debt exchange has raised only about $8.3 billion so far.

"If the requisite participation in the offers has not been received, GMAC management intends to withdraw its application to become a bank holding company," the firm's announcement stated. "If GMAC is unable to successfully convert to a bank holding company and complete the GMAC and ResCap offers by December 31, 2008, it would have a near-term material adverse effect on GMAC's business, results of operations, and financial position."

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