GMAC to focus on auto loans, sell off large portion of real estate business
Michael Carpenter, GMAC’s new chief executive officer, said during a conference call Tuesday that the company expects to announce a $5 billion loss for the fourth quarter when it releases its financial results for the fourth quarter.
Last week, the U.S. Treasury announced it was sinking nearly $3.8 billion federal dollars in GMAC to shore up its capital reserves, clearing the way for it to restructure its ailing mortgage business. The cash infusion also left the Treasury owning 56 percent of GMAC’s stock and notes, leaving it with a 70 percent stake in the company.
Carpenter, however, said GMAC goal is to focus on the opportunities in its core automotive services business. GMAC’s mortgage business, which had grown to include more than $136 billion in assets in 2006, will play a secondary role at best.
The new GMAC CEO declined to say whether the company will get rid of all of its mortgage assets. However, a large piece of GMAC’s remaining assets have been marked “hold for sale” on the company’s books.
“It’s a relatively blank sheet of paper. We most certainly will sell some of the mortgage assets,” said Carpenter, who was named GMAC’s CEO in November. “Who knows what the world is going to look like a year from now?” he asked.
Despite the new losses, GMAC expects to maintain a total capital ratio in excess of 15 percent and its automotive-oriented business.
GMAC received its first aid from the federal Troubled Asset Relief Program. So far, GMAC has received more than $16.3 billion in government assistance since it nearly collapsed in late 2008.
The latest $3.79 billion cash infusion was less than the $5.6 billion originally anticipated by the Federal Reserve in May 2009 due in large part to lower-than-expected losses related to the General Motors bankruptcy filing, GMAC officials said in a statement.
In exchange for all of GMAC’s non-convertible preferred stock, the Treasury will receive $5.25 billion of newly issued convertible securities.
Another $3 billion of existing convertible securities held by the U.S. Treasury will be converted into GMAC common equity. Following the conversion and new convertible securities, the U.S. Treasury will own approximately $11.4 billion of GMAC securities.
GMAC also announced it plans to sell some mortgage-related assets belonging to its troubled mortgage subsidiary — ResCap. Carpenter said the GMAC board had decided against pushing ResCap into bankruptcy.
Overall, GMAC will charge off approximately $3.8 billion, including $3.3 billion related to the mortgage write-downs at ResCap and Ally Bank and $500 million related to repurchase reserve expense. The charges ensure that GMAC will post a substantial loss for 2009.
However, GMAC does not expect to incur additional substantial losses from ResCap in the future and “will be better positioned to explore strategic alternatives with respect to mortgage operation,” GMAC officials said.
Traditionally, GMAC has been linked to the automobile business since it provides financing to both car dealers and consumers and is vital to both General Motors Corp. and Chrysler Group LLC. However, GMAC’s most pressing problems stem from the real estate portfolio that was assembled during the past decade at the height of the housing and mortgage boom while it was still controlled by GM.
GM sold the controlling stake in GMAC to Cerberus Capital Management in the fall of 2006 just before the housing markets began to unravel.
“A renewed GMAC is crucial to business and public sector efforts to bolster the U.S. auto industry, and we have a special obligation to the public to do everything we can to ensure GMAC succeeds,” Carpenter said when he took over as CEO.
Source: GMAC to focus on auto loans, sell off large portion of real estate business
Last week, the U.S. Treasury announced it was sinking nearly $3.8 billion federal dollars in GMAC to shore up its capital reserves, clearing the way for it to restructure its ailing mortgage business. The cash infusion also left the Treasury owning 56 percent of GMAC’s stock and notes, leaving it with a 70 percent stake in the company.
Carpenter, however, said GMAC goal is to focus on the opportunities in its core automotive services business. GMAC’s mortgage business, which had grown to include more than $136 billion in assets in 2006, will play a secondary role at best.
The new GMAC CEO declined to say whether the company will get rid of all of its mortgage assets. However, a large piece of GMAC’s remaining assets have been marked “hold for sale” on the company’s books.
“It’s a relatively blank sheet of paper. We most certainly will sell some of the mortgage assets,” said Carpenter, who was named GMAC’s CEO in November. “Who knows what the world is going to look like a year from now?” he asked.
Despite the new losses, GMAC expects to maintain a total capital ratio in excess of 15 percent and its automotive-oriented business.
GMAC received its first aid from the federal Troubled Asset Relief Program. So far, GMAC has received more than $16.3 billion in government assistance since it nearly collapsed in late 2008.
The latest $3.79 billion cash infusion was less than the $5.6 billion originally anticipated by the Federal Reserve in May 2009 due in large part to lower-than-expected losses related to the General Motors bankruptcy filing, GMAC officials said in a statement.
In exchange for all of GMAC’s non-convertible preferred stock, the Treasury will receive $5.25 billion of newly issued convertible securities.
Another $3 billion of existing convertible securities held by the U.S. Treasury will be converted into GMAC common equity. Following the conversion and new convertible securities, the U.S. Treasury will own approximately $11.4 billion of GMAC securities.
GMAC also announced it plans to sell some mortgage-related assets belonging to its troubled mortgage subsidiary — ResCap. Carpenter said the GMAC board had decided against pushing ResCap into bankruptcy.
Overall, GMAC will charge off approximately $3.8 billion, including $3.3 billion related to the mortgage write-downs at ResCap and Ally Bank and $500 million related to repurchase reserve expense. The charges ensure that GMAC will post a substantial loss for 2009.
However, GMAC does not expect to incur additional substantial losses from ResCap in the future and “will be better positioned to explore strategic alternatives with respect to mortgage operation,” GMAC officials said.
Traditionally, GMAC has been linked to the automobile business since it provides financing to both car dealers and consumers and is vital to both General Motors Corp. and Chrysler Group LLC. However, GMAC’s most pressing problems stem from the real estate portfolio that was assembled during the past decade at the height of the housing and mortgage boom while it was still controlled by GM.
GM sold the controlling stake in GMAC to Cerberus Capital Management in the fall of 2006 just before the housing markets began to unravel.
“A renewed GMAC is crucial to business and public sector efforts to bolster the U.S. auto industry, and we have a special obligation to the public to do everything we can to ensure GMAC succeeds,” Carpenter said when he took over as CEO.
Source: GMAC to focus on auto loans, sell off large portion of real estate business
