GMAC, the former lending arm of General Motors Co., is in talks with the Treasury Department for a third injection of taxpayer aid, a further sign of the U.S. government's entrenchment in the U.S. auto industry.
The Treasury Department mandated earlier this year that GMAC Financial Services raise an additional $11.5 billion in capital after undergoing a "stress test" along with 18 other banks. While other banks deemed undercapitalized have been able to raise funds from private investors, GMAC has been forced to go back to the government.
GMAC is a crucial player in the U.S. auto industry, providing wholesale financing to many General Motors and Chrysler dealerships to pay for the vehicles on their lots. The company also operates a mortgage lending unit -- Residential Capital -- which has been pummeled by the housing market downturn. It also runs an insurance unit and an online banking unit called Ally Bank.
A Treasury Department spokesman confirmed that it was in talks with GMAC about a third helping of aid. The government already owns a 35 percent stake in GMAC after providing $12.5 billion to the lender. It also owns a majority-stake in GM and a smaller stake in Chrysler.
The Treasury spokesman declined to comment on whether the government's ownership stakes in GM and Chrysler make it more willing to again help prop up GMAC. But Kirk Ludtke, a senior vice president of CRT Capital Group LLC in Stamford, Conn., who follows GMAC, said the automakers can't succeed without GMAC.
"We continue to believe that a viable GMAC is critical to the success of GM and Chrysler," Ludtke said.
Citing people familiar with the matter, The Wall Street Journal first reported late Tuesday that the U.S. government could hand over another $2.8 billion to $5.6 billion to Detroit-based GMAC. The latest capital infusion would be in the form of preferred stock, the paper said. The government's stake could rise if the new preferred shares were ever converted into common stock.
A GMAC spokeswoman declined to comment.
Of the 19 banks that underwent the government's stress tests, 10 were determined to be undercapitalized. GMAC is the only one of those unable to raise all of its necessary capital from investors.
Treasury's move would make GMAC the only U.S. company to receive three rounds of bailout aid. Last December, the government gave GMAC $5 billion in exchange for 5 million shares and GMAC's agreement to extend financing services to bailed-out Chrysler LLC. Then in May, the Treasury Department announced a new $7.5 billion injection for GMAC -- short of the $11.5 billion the government's stress test showed the company would need to stay afloat if the economy worsens.
To help GMAC raise the remaining capital, the Federal Deposit Insurance Corp. took the rare step earlier this year of allowing the junk-rated company to gain access to the FDIC's debt guarantee program. The FDIC agreed to guarantee up to $7.4 billion in GMAC-issued debt in case the company defaulted on payment, and has already backed about $4.5 billion worth.
According to the paper, the FDIC told GMAC Tuesday that it would guarantee the remaining $2.9 billion in debt to prevent the company from being forced to reduce its lending volume.
GMAC in August posted a wider second-quarter loss of $3.9 billion. Midway through the quarter, GMAC became the preferred lender for Chrysler. Last week, the Treasury Department informed Chrysler's former lender, Chrysler Financial, that it would have to shut down by the end of 2011.
© 2009 Associated Press/AP Online under contract with YellowBrix. All rights reserved.
|
Rackspace: It makes a difference when you focus on support.
House Lawmakers Push Ban on Peer-to-Peer Software
GAO: Los Alamos Computer Security Has Weaknesses
Computer Security Firm Fortinet Plans IPO This Week
Flat Shipments Hurt Dell Despite Increased Earnings
New Pogoplug 'Personal Cloud' Does Social Networking
Apple Tablet Rumored Delayed as Publisher Gears Up
Review: $100 Palm Pixi Is Stylish But Sluggish
TV on the Go Leaves a Little To Be Desired
AT&T Fires Back at Verizon with 'X and V' Commercial
Smartphones: A Bigger Target for Security Threats
FBI Says Hackers Targeting Law Firms, PR Companies