Thursday - December 31, 2009

Nasty Deal for GMAC

This doesn’t seem to be much of a news item, but the federal government just injected another pile of cash into GMAC, and then took it over. So the feds own yet another bank/lending institution now.

GMAC to Get Another $3.5B in Aid From Treasury

A GMAC spokeswoman declined to comment on any potential government action but said, “GMAC has been conducting a strategic review of its business and evaluating options to address the challenges in its mortgage operation.” The spokeswoman said GMAC wants to prepare itself to repay the U.S. government.

The willingness by the U.S. Treasury to deepen taxpayer exposure to GMAC reflects the troubled company’s importance to the revival of the auto industry. The company was told to raise additional capital as part of government-led stress tests of large banks conducted earlier this year. The tests were to determine whether firms would need more capital to continue lending if the economy deteriorated in 2009 and 2010.

GMAC has only filled a portion of its capital hole and, unlike other banks that participated in the stress tests, has been unable to attract much capital from private investors. The Treasury said earlier this year that it would make as much money available to GMAC as needed to fill its capital hole and projected the firm would need another government infusion of as much as $5.6 billion.

GMAC’s capital needs have turned out to be somewhat less than originally envisioned, in part because impact from the bankruptcies of General Motors Corp. and Chrysler Corp. was not as severe as federal regulators originally projected.

Ok, here’s the part that I don’t get, the part that rather looks like arm twisting thuggery to me. But what do I know, right? Before this latest cash infusion, Uncle Sugar had fattened up GMAC’s coffers to the tune of 12.5 billion. For this gift of our money, the feds took 35% ownership. Basic math: $12.5B / 35% = $357,142,857.14 for every percent ownership. Now the feds are going to drop in another lump sum, a relatively “piddling” little $5.6 billion, and then they’ll own 56%? Less than half as much infusion but way more than half as much new ownership?  Only $266,666,666.67 per percent? Huh? That doesn’t seem right. It’s not like the feds bought up most of the outstanding stock shares that had fallen in value, is it? This doesn’t seem right to me. But then, the federal government owning both the means of production and the banking industry doesn’t seem right either. I’m just one of those simple minded Conservatives.

Auto finance company GMAC got a new majority owner late Wednesday when the federal government announced it was assuming a 56 percent stake in the company with $3.8 billion in aid.

It was the third bailout for GMAC, which had previously received $12.5 billion in direct federal aid and other support. The government already had a 35 percent stake in the company. GMAC had requested an additional $5.6 billion in federal aid in November.

The Treasury Department announced that it also would hold about $14 billion in loans the bank may eventually have to replay. The government will appoint four of GMAC’s nine directors.

GMAC is the primary lender for dealers of General Motors and Chrysler vehicles. It converted to a bank holding company last year to qualify for federal bailout funds.

Posted by Drew458     on 12/31/2009 at 03:14 PM   
Filed Under: • Finance and Investing • Government •  
• Comments (2) • Trackbacks(0)  Permalink •  

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