Troubled lender GMAC Financial Services (GJM), the former lending arm of automaker General Motors Corp., announced Tuesday that it anticipates a net loss of about $5 billion for the fourth quarter, attributable to higher loan-loss provisions, charges, tax-valuation allowances, amortization costs and discontinued operations. GMAC, which was bailed out a third time by the U.S. government last week, revealed this at a presentation to investors.
The projected fourth-quarter loss primarily stems from the recognition of a pre-tax charge of about $3.8 billion, including $3.3 billion related to the mortgage asset write-downs at Residential Capital LLC, or ResCap, GMAC's troubled mortgage unit, and Ally Bank, GMAC's online bank, as well as about $500 million related to the repurchase reserve expense associated with the mortgage servicing business.
Detroit, Michigan-based GMAC noted that it expects to maintain a total capital ratio in excess of 15%, despite the hefty loss projected for the fourth quarter, due to the third tranche of $3.79 billion in bailout funds received last week. The Treasury agreed to inject $5 billion into the company in December 2008, as part of a broader rescue of the auto sector, and another $7.5 billion in May 2009 after the stress tests for financial institutions were completed.
The new capital infusion $3.79 billion aims to fill a capital shortfall of $5.6 billion identified at GMAC following the government's stress tests conducted in May 2009. GMAC said that ResCap will receive about $2.7 billion and Ally Bank will receive $1.3 billion in additional capital from the bailout funds it received. The bailout funds would bolster car financing and its loss-plagued ResCap mortgage unit, which lost billions of dollars since the U.S. housing markets crashed.
GMAC received $3.79 billion of new capital in cash from the issuance of new securities to the U.S. Treasury, which included $2.54 billion in exchange for Trust Preferred Securities that pay 8% and which are senior to all other capital securities of the company, as well as $1.25 billion in exchange for Mandatory Convertible Preferred Stock that pay 9%. The Treasury will also receive warrants to purchase an additional $127 million of TRUPs and $63 million of MCP which it will exercise immediately at the closing of the transaction.
The three rounds of federal aid totaling $16.3 billion raises the government's ownership interest in the company to 56% from the previous 35.4%, thus assuming a majority stake in the company. The stake could go to nearly 80% if the government opts to convert more of its stake to common equity.
The willingness by the Treasury to provide additional aid to GMAC reflects the troubled company's importance to the revival of the auto industry. GMAC is the primary lender for thousands of General Motors and Chrysler Group LLC dealers as well as customers.
GMAC had set the end of the year as a deadline for deciding ResCap's fate after losses from loans made to borrowers with shaky credit dragged down GMAC's results in 2009. The mortgage unit lost $2.7 billion through the first three quarters of 2009 following $9.96 billion of losses in 2008 and 2007.
Further, the company said it has written down about $2 billion in mortgage-related assets at ResCap as a result of its decision to sell certain mortgage-related assets and thereby reduce volatility in the company's financial results.
In November, the company appointed ex-Citigroup Executive Michael Carpenter as chief executive officer to succeed Alvaro de Molina, who resigned from the company after serving at the position since April 2008. Carpenter will be responsible for accelerating the strategic and operational changes necessary to focus GMAC on its core auto finance and related businesses, while positioning the company for long-term growth.
As soon as Carpenter took over, he postponed the third capital infusion by the treasury department until he and the management have assessed the current financial position so as advise on the appropriate amount and form of such funding.
Carpenter had then noted that his mission would be to operate GMAC at the rigorous standards required of a bank holding company, and to repay in full the funds the U.S. government has invested in GMAC. Carpenter added that a renewed GMAC is crucial to bolster the ailing U.S. auto industry. Carpenter resigned from the board of CIT Group in order to devote his full attention to his new role at GMAC.
GJM closed Tuesday's regular trading session at $20.25, up $0.57 or 2.90% on a volume of 66 thousand shares. In the past 52-week period, the stock has been trading in a range of $5.16 to $20.31.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.