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GMAC Financial Services Announces Capital and Strategic Actions

January 05, 2010

NEW YORKGMAC Financial Services announced a series of actions intended to strengthen the company's capital base, position it for improved financial performance, minimize further adverse effects on GMAC related to Residential Capital LLC (ResCap), and improve access to the capital markets over time. The following is a breakdown of the action taken:

• A capital infusion of $3.79 billion from the U.S. Department of the Treasury consisting of the purchase of $2.54 billion of trust preferred securities, with a coupon of 8 percent, and $1.25 billion of mandatorily convertible preferred securities (MCP), with a coupon of 9 percent.

• The exchange of all the GMAC non-convertible preferred stock held by the U.S. Treasury for $5.25 billion of newly-issued MCP.

• The conversion of $3.0 billion of existing MCP held by the U.S. Treasury into GMAC common equity. Following the conversion and new issuances of MCP, the U.S. Treasury will hold a total of approximately $11.4 billion of MCP.

With these actions, GMAC has achieved the capital buffer required under the Federal Reserve's Supervisory Capital Assessment Program (SCAP) needed to meet the worse-than-expected economic scenario. The $3.79 billion cash infusion was less than the $5.6 billion originally anticipated by the Federal Reserve in May 2009 due in large part to lower-than-expected losses related to the General Motors bankruptcy filing.

As previously announced in May 2009 as part of the SCAP, the Federal Reserve instructed GMAC to raise $9.1 billion of additional capital. At that time, the U.S. Treasury purchased $3.5 billion of GMAC MCP in partial satisfaction of the SCAP requirements, which left $5.6 billion remaining in new capital required. Since then, GMAC, the Federal Reserve and the U.S. Treasury have been in discussions to finalize the amount, structure and terms of the additional capital to be issued by GMAC to the U.S. Treasury.

The $3.79 billion investment represents the completion of a two-part capital investment by the U.S. Treasury anticipated in connection with the SCAP.

As a result of management's intent to sell certain mortgage-related assets and thereby reduce volatility in GMAC's financial results, the following actions were taken resulting in the write-down of approximately $2 billion of mortgage assets at ResCap.

• The reclassification of certain international mortgage assets and businesses from held for investment (HFI) to held for sale (HFS), resulting in an estimated pre-tax charge of approximately $1.3 billion. As of Sept. 30, 2009, the assets had an unpaid principal balance of $2.4 billion and a carrying value (net of allowance for credit losses) of $2.0 billion.

• The reclassification of domestic mortgage assets from HFI to HFS, resulting in an estimated pre-tax charge of approximately $700 million. As of Sept. 30, 2009, the assets had an unpaid principal balance of $3.3 billion and a carrying value (net of allowance for credit losses) of $2.3 billion.

Additionally, management recorded a repurchase reserve expense of approximately $500 million associated with the mortgage servicing business.

These actions, inclusive of estimated operating losses for the period, required a total capital contribution to ResCap of approximately $2.7 billion in the form of mortgage loans acquired by GMAC from Ally Bank, GMAC debt forgiveness and cash. With the capital contribution, ResCap's net worth will exceed the minimum level required to meet certain covenants.

Following these transactions, GMAC does not expect to incur additional substantial losses from ResCap and will be better positioned to explore strategic alternatives with respect to mortgage operations.

The GMAC Board of Directors reviewed various alternatives related to ResCap and, based on their analysis of the facts and circumstances, the board unanimously concluded that these actions are in the best interests of GMAC and its stakeholders.

Additionally, the following actions were taken to strengthen Ally Bank and to further establish its strategic role within GMAC:

• In order to strengthen the asset quality profile of Ally Bank, GMAC purchased certain higher risk mortgage assets from Ally Bank at fair value of approximately $1.4 billion, resulting in an estimated pre-tax charge of approximately $1.3 billion. In addition, GMAC contributed $1.3 billion of additional cash capital to Ally Bank, equal to the amount of the pre-tax charge, to maintain Ally Bank's capital position. At Sept. 30, 2009, the assets had an unpaid principal balance of $3.6 billion and a carrying value (net of allowances for credit losses) of $2.8 billion.

• Subsequently, these mortgage assets were contributed by GMAC to ResCap where they are classified as HFS.

Following these actions, Ally Bank remains in compliance with its regulatory agreements and has the necessary capital to support its auto financial services business, which is the company's highest strategic priority. The Federal Deposit Insurance Corporation, Ally Bank's regulator, was consulted regarding the actions.

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