GMAC to Receive $3.8 Billion More in Government Aid
Financing Arm of General Motors Poised to Get Third Infusion of Taxpayer Support
GMAC, the ailing financing arm of General Motors, is set to receive $3.8 billion in government aid, ABC News has learned. The funds will be the third infusion of federal support for the troubled lender.
The Treasury Department said that the latest injection of $3.8 billion was actually less than the $5.6 billion that it had expected to loan GMAC to keep the finance giant from collapsing.
The latest government aid will bring the total federal assistance for GMAC to $16 billion when combined with the $12.5 billion that the lender has already received dating back to December 2008. Due to its prior cash infusions, the government already owns 35 percent of GMAC.
"These actions offer the best chance for GMAC to complete its overall restructuring plan and return to the private capital markets for its debt financing and capital needs in 2010," Treasury said in its press release. "We are pleased that we could complete this restructuring of our investment with $1.8 billion less capital than was projected in May."
GMAC was the only one of 10 banks that was unable to fill the capital hole exposed by the government's stress tests last spring. The other nine banks all succeeded in raising necessary capital through the private sector.
In late October, with discussions about a third dose of aid underway between GMAC and Treasury, an administration official noted, "When we laid out the stress tests, we expressly said that some additional TARP capital may be needed given the severity of the downturn, so this capital need is not new information. But the transparency into the balance sheets of banks brought about by the stress tests allowed all others to raise the capital required by the stress tests."
But discussions were brought to a halt Nov. 16 when GMAC CEO Alvaro de Molina resigned, replaced by board member Michael Carpenter.
In announcing the change in leadership, GMAC said that their board had asked Treasury to "postpone its decision on the planned follow-on investment of Troubled Asset Relief Program funds in GMAC until Carpenter and the management of GMAC have assessed the current situation and can advise the board and Treasury regarding the appropriate amount and form of such funding."
GMAC's struggles stem in part from severe losses at the lender's residential mortgage business, ResCap, which has suffered from the housing crisis.
"As we have previously stated, GMAC has been conducting a strategic review of its business and evaluating options to address the challenges at ResCap and the mortgage operations," Proia said Wednesday. "Critical objectives in the process would be to take actions that position GMAC for improved financial performance and to repay the U.S. government."
The additional government aid for the lender, combined with recent repayments of federal funds by big banks such as Bank of America, Citigroup, and Wells Fargo, has led to GMAC rapidly rocketing up the list of institutions currently receiving the most taxpayer assistance.
Due to the federal aid, GMAC remains under the supervision of the Obama administration's pay czar Ken Feinberg, who in October slashed total 2009 direct compensation at the lender by $413 million.