GMAC Receives $3.8 Billion More in Bailout Cash
The government is providing a fresh $3.8 billion cash infusion to stabilize GMAC Financial Services as it struggles with hefty losses in its home mortgage unit.
The Treasury Department says the new aid, which comes from a taxpayer-financed bailout fund, is less than the roughly $6 billion the government had earlier thought GMAC would need to stabilize the company.
The fresh infusion is on top of $12.5 billion in taxpayer money Detroit-based GMAC has already received from the government. The new agreement will boost the federal government's ownership in GMAC to 56 percent, from 35 percent.
GMAC , based in Detroit, is instrumental to the operations of automakers General Motors and Chrysler Group. The additional capital will support GMAC's mortgage assets, which many analysts see as the finance company's main obstacle to reaching profitability.
GMAC has about $57 billion of total mortgage assets, or about a third of the company's overall balance sheet. GMAC's auto finance operations were profitable in the third quarter, earning about $164 million after taxes, while the mortgage business lost nearly $600 million.
GMAC has been speaking to Treasury about its capital needs for months, after a government "stress test" found that the former financing unit of General Motors needed about $11.5 billion. The company has been unable to raise private capital.
In November, GMAC Chief Executive Al de Molina resigned and was replaced by Michael Carpenter, a board member and former Citigroup executive.
GMAC had spoken to the government about capital needs for months, although it said in November that it asked the Treasury to postpone decisions about putting more capital into GMAC until Carpenter and other managers had assessed the company's condition.
The cost to insure GMAC's debt against default in the credit derivatives market fell to around 4.4 percentage points, or $440,000 a year for five years, from 4.66 percentage points at Tuesday's close, according to market data company Markit.
The Obama administration considers increased consumer lending, such as auto financing, a key to the economic recovery.