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GMAC Shoring Up Capital Position Ahead of Regulatory Deadline

An insider confirmed on Wednesday reports that GMAC Financial Services Inc. is in discussions with the U.S. Treasury Department for a third-round of taxpayer-backed funding – one of two moves the auto finance company made this week to shore up its capital position ahead of an impending regulatory deadline.

by Staff
October 28, 2009
3 min to read


An insider confirmed on Wednesday reports that GMAC Financial Services Inc. is in discussions with the U.S. Treasury Department for a third-round of taxpayer-backed funding – one of two moves the auto finance company made this week to shore up its capital position ahead of an impending regulatory deadline.

Quoting unnamed sources, The Wall Street Journal reported yesterday that the U.S. Treasury is likely to inject $2.8 billion to $5.6 billion of capital into GMAC. To date, the former captive finance company for General Motors has received $13.5 billion in federal government funding since December.

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The auto finance company, which did not return calls seeking comment, announced later that day that it sold $2.9 billion in government-backed debt. The move comes approximately three months after GMAC, which gained government approval in May to participate in the Temporary Liquidity Guarantee Program (TLGP), made an offering for $4.5 billion in government-backed debt.

“The offering further strengthens GMAC’s liquidity position, which will support the company’s ability to extend credit to consumers and businesses,” GMAC said in a statement.

Converted to a bank-holding company in December, GMAC’s actions come ahead of the Nov. 9 regulatory deadline to raise $11.5 billion mandated by the government’s “stress tests” earlier this year. These tests were the government’s way to identify the capital needed for lending institutions to withstand further deterioration of the economy.

“GMAC is the only one of the banks that went through the stress test to need additional government capital,” said U.S. Treasury spokeswoman Meg Reilly, who would not confirm whether discussions were taking place regarding further funding for GMAC. “All other institutions were able to raise any necessary capital from investors and several of these firms have already paid back the taxpayer.”

According to The Wall Street Journal, the capital injection would come in the form of preferred stock, which means the U.S. government’s 35-percent stake in GMAC could rise if the shares are converted into common equity.

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GMAC signed a four-year agreement with Chrysler LLC to become its preferred lender, a deal approved by U.S. bankruptcy court on May 12. In that same month, GMAC received a $7.5 billion capital investment from the Treasury Department to allow it to further absorb losses, as well as provide $4 billion in financing for Chrysler LLC’s dealers and customers. The rest went toward increasing its capital position.

In May, GMAC received approval to participate in the Federal Deposit Insurance Corporation’s TLGP for up to $7.4 billion, which allowed the company to issue FDIC-guaranteed debt. In addition, GMAC received an expanded exemption from the Federal Reserve to allow its Ally Bank to originate a limited amount of GM-related retail and wholesale assets.

In June, GMAC announced a $4.5 billion debt-offering under the TLGP, a sale that included $3.5 billion of senior fixed rate notes and $1 billion of senior floating rate notes. Combined with its latest debt offering, GMAC will no longer be able to issue government-backed debt under the program, which is set to expire on Oct. 31.

GMAC is set to report its third-quarter earnings on Nov. 4. In August, the financial services company reported a second-quarter loss of $3.9 billion, driven by a $1.6 billion loss related to its ResCap Mortgage business.

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