GMAC loses $724 million in fourth quarter

Automotive News | February 5, 2008 - 3:30 pm EST

NEW YORK (Reuters) — Finance company GMAC posted a $724 million fourth-quarter loss and was downgraded by Moody’s Investors Service on Tuesday, after more customers fell behind on payments for their houses, cars and trucks.

The loss compared with a year-earlier $1.02 billion profit, but improved from a $1.6 billion loss in the third quarter.

Results included a $921 million loss at Residential Capital LLC, the mortgage unit’s fifth straight quarterly loss. GMAC said it may still sell all or part of ResCap, after reducing riskier lending and announcing 5,000 job cuts.

Earnings also fell 77 percent in auto finance to $137 million, and 91 percent in insurance to $68 million. GMAC is based in Detroit, and ResCap in Minneapolis.

“We’ve taken painful and appropriate impairments and reserves throughout the year to set things right,” Chief Financial Officer Robert Hull said on a conference call. “We know (2008) will be another challenging year for us, and may call for further aggressive tactics.”

Results will hurt General Motors, which owns 49 percent of GMAC and is scheduled to report on Feb 12.

They also will hurt private equity firm Cerberus Capital Management LP, which led a group that bought 51 percent of GMAC from GM in 2006.

Cerberus also controlled Aegis Mortgage Corp., which went bankrupt in August, and backed away from an April 2007 agreement to buy H&R Block Inc.’s Option One subprime mortgage unit. It is also losing money at automaker Chrysler LLC, which it bought in August, and where former Home Depot Inc. CEO Bob Nardelli is trying to engineer a turnaround.

For all of 2007, GMAC lost $2.33 billion, including a $4.35 billion loss at ResCap. A year earlier, GMAC posted a $2.13 billion overall profit. GMAC expects to be profitable in 2008.

Moody’s downgraded GMAC debt one notch to “B1,” its fourth-highest “junk” grade, from “Ba3,” and ResCap’s debt two notches to “B2” from “Ba3.” Its rating outlook is “negative.”

It said the downgrades resulted from lower liquidity at ResCap, a risk that ResCap’s net worth could fall below levels required by its own lenders absent more support from GMAC, and a belief that ResCap’s franchise was “impaired.”

GMAC said it ended the year with $22.7 billion of cash and liquidity, including $4.4 billion at ResCap. It said it bought $740 million of ResCap debt in the quarter to bolster the unit’s capital, and has no plans to inject more capital. ResCap ended 2007 with $6 billion of equity, GMAC said.

ResCap is the second-largest independent U.S. mortgage lender after Countrywide Financial Corp. and the nation’s eighth-largest mortgage lender overall, according to the newsletter Inside Mortgage Finance.

GMAC said its talks over ResCap’s future include a sale of all or part of the unit, acquisitions and joint ventures. Hull said a sale could include “multiple components” of ResCap.

Auto finance profit fell because of rising delinquencies and lower values on contracts sold. Lower insurance profit reflected higher losses and a large year-earlier capital gain.