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Treasury plans to give GMAC up to $5.6B

October 28, 2009

Treasury plans to give GMAC up to $5.6B

Detroit News Washington Bureau

Washington — The Treasury Department plans to inject up to $5.6 billion in new capital in GMAC — the latest effort to help the auto finance giant, a government official confirmed late Tuesday.

The capital infusion, in exchange for preferred shares of stock, will help the Detroit company that provides auto loans to General Motors Co. and Chrysler Group LLC customers and auto dealers meet new capital requirements.

The new government cash infusion would be on top of $12.5 billion in government support extended since December. In May, the Treasury Department injected $7.5 billion in GMAC, took a 35.4 percent stake in the company and appointed two directors.

GMAC said in May that "while the U.S. Treasury has indicated that it may be willing to provide additional new capital, GMAC will evaluate other alternatives."

GMAC achieved bank holding status in late December from the Federal Reserve — winning it access to emergency loans under the $700 billion Wall Street Troubled Asset Relief Program.

But the finance company has not raised enough private capital.

GMAC is likely to receive about $4 billion in additional Treasury money in a deal that should be finalized by next week, but the exact amount has not been determined and could be higher, sources said. GMAC spokeswoman Gina Proia declined to comment.

The new capital will help GMAC meet its liquidity needs that were outlined by the Treasury when it performed its "stress tests" of the nation’s 19 major banks. The government said GMAC needed to raise $11.5 billion in additional capital under the stress tests. The tests were designed to ensure the banks had enough cash on hand to survive a prolonged recession.

Under the requirements, $9.1 billion had to be in new capital.

GMAC raised $3.5 billion of that as part of its May capital injection, while $4 billion of the $7.5 billion went to help GMAC assume loans made by Chrysler Financial to Chrysler dealers and customers. That meant GMAC needed to raise $5.6 billion to meet the stress tests by Nov. 9.

Treasury spokeswoman Meg Reilly noted that GMAC is the only bank that went through the government’s stress tests earlier this year that still needs to raise additional loans to meet funding requirements.

"GMAC is the only one of the banks that went through the stress test to need additional government capital; all other institutions were able to raise any necessary capital from investors, and several paid back the taxpayers," Reilly said.

The 90-year-old auto and mortgage finance company was sold by GM to Cerberus Capital Management LP in 2006.

Under the terms of the new investment, the government is expected to receive additional preferred stock in GMAC, which took over primary lending for Chrysler dealers and customers as part of Chrysler’s bankruptcy. The Treasury said last week Chrysler Financial will liquidate by the end of 2011.

In June, GMAC also won approval from the Federal Deposit Insurance Corp. to issue $7.4 billion in government-backed debt under the Temporary Liquidity Guarantee Program, and had issued $4.5 billion so far. GMAC is expected to issue the remaining $2.9 billion in FDIC debt this year, which makes it cheaper to raise funds.

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