General Motors Acceptance Corp., the former finance arm of General Motors
GMAC said GM would transfer about $1 billion to the finance company in the form of common equity by the end of the first quarter to shore up its balance sheet under the terms of its sale to a group led by Cerberus Capital Management.
GMAC also cautioned that "continuing pressures in the U.S. mortgage sector" would weigh on its future results even as it posted a sharply higher fourth-quarter profit driven by a one-time tax gain linked to its spin-off from GM .
"Our most pressing priority ... is to continue implementing changes at our U.S. mortgage operations to address a rapidly changing market environment," GMAC Chief Executive Eric Feldstein said in a statement.
Feldstein said GMAC was tightening its underwriting standards for mortgages to borrowers with weaker credit and taking more aggressive steps to address delinquent loans.
Problems in the subprime mortgage sector, which involves loans to riskier borrowers, have emerged as a major risk factor for the U.S. financial markets in recent weeks.
Late payments on U.S. mortgages increased in the fourth quarter to their highest level in three and a half years and foreclosures rose, driven by subprime borrowers with weak credit.
GM sold a 51% stake in GMAC for $14 billion in November, and a provision of the sale required that the book value of GMAC be above $14.4 billion at the time of the closing of the transaction.
GMAC said it earned $1 billion in the fourth quarter of 2006, compared with $112 million a year earlier. The results included a $791 million tax benefit from its conversion to a limited liability company.
The one-time gain more than offset a huge loss in GMAC's ResCap unit, which provides mortgage financing. ResCap posted a fourth-quarter loss of $651 million, compared with a profit of $118 million a year earlier.