GMAC (or GMAC Financial Services ), formerly known as General Motors Acceptance Corporation , is a United States bank that was previously the wholly owned financial services arm of General Motors. GMAC Financial Services provide a suite of financial programs including insurance and mortgage operations in approximately 40 countries around the world. In 2008, the firm provided financing to 75 percent of the 6,450 GM dealers. On 24 December 2008, the Federal Reserve accepted GMAC's application to become a bank holding company in order to gain access to billions of dollars in government aid, a crucial attempt to ensure the survival of the company.
On December 29, 2008, the United States Department of the Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).
As of May 15, 2009, GMAC's banking unit officially changed its name to Ally Bank in order to "help shed the baggage that many Americans now associate with banks".
On May 21, 2009, the the U.S. Treasury announced it would invest an additional $7.5 billion in GMAC LLC which gave the U.S. government the majority stake.
Ownership
As of June 2009, approximately 40.1% of GMAC was owned by Cerberus Capital Management and related investors, 35.4% by the US Treasury, 9.9% by General Motors, and the remaining in a blind trust.
Structure
GMAC Home Services is the parent for GMAC Real Estate, formed by the purchase of Better Homes and Gardens Real Estate in 1998, and GHS Mortgage. ResCap Holding is the parent for GMAC Mortgage, GMAC-RFC, Ally Bank, Ditech.com, and Homecomings Financial.
GMAC also operated Nuvell Financial Services and continues to operate Semperian within its automotive financing division. Semperian provides customer relationship management, servicing, and collection through several inbound call centers across the US, primarily for customers residing in the GMAC portfolio. Its other businesses include ResCap Holding, an umbrella company for GMAC's residential mortgage business, and GMAC Home Services, a real estate services subsidiary. As well, it is an associate sponsor of all Hendrick Motorsports racing teams.
Divestiture from General Motors
To raise money for reorganization, General Motors divested various assets including GMAC. This divestiture was accelerated at the prompting of investor Kirk Kerkorian and his former representative on GM's board, Jerome York.
On March 23 , 2006 , GM announced that it completed the sale of a 78% interest in GMAC Commercial Holding, its commercial real estate subsidiary, for $1.5 billion in cash to a private investment group including Kohlberg Kravis Roberts & Co., Five Mile Capital Partners and Goldman Sachs Capital Partners. The deal includes the payoff of all intracompany debt owed to GMAC, bringing the total value of the deal to $9 billion. The new entity, in which GMAC owns a 21% interest, is known as Capmark Financial Group, Inc.
Cerberus Capital Management
Cerberus Capital Management acquired 51 percent of GMAC from General Motors in November, 2006 for $7.4 billion. Investors also include Citigroup's private equity arm and Aozora Bank of Japan. Aozora lost $ 137 million to Bernard L. Madoff Investment Securities LLC.
GM retained approximately $20 billion in automobile financing worth an estimated $4 billion over three years.
In 2006, Cerberus appointed partner, J. Ezra Merkin as nonexecutive Chairman.
On October 10, 2008, it was revealed that GM would possibly exchange its remaining 49% stake in GMAC to Cerberus for Chrysler LLC, potentially merging two of Detroit's "Big Three" automakers.
As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some of which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it couldn’t pay back all of its debt.
In a statement, on December 10, 2008, GMAC said, "GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive. A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to reduce the company's outstanding debt and raise capital hasn’t attracted enough participation." This was due in part because Cerberus had raised the credit requirements for car loans so high, virtually eliminating leasing, that they have been responsible for a sizable chunk of lost sales at GM due to customers inability to secure financing, in order to pressure GM into selling or trading their remaining stake in GMAC. GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. GMAC's exposure to the gap in residual values is around $3.5 billion.
In December 2008, Cerberus subsequently informed GMAC’s bondholders that the financial services company may have to file for bankruptcy if a bond-exchange plan is not approved. The company had previously said it may fail in its quest to become a bank holding company because it lacks adequate capital.
In January, 2009, Merkin who was deeply involved with the Bernard Madoff Investment Scandal resigned from his chairmanship as a condition of the U.S. government.
Five days earlier, the Federal Reserve granted GMAC bank holding company status, so it could get access to the bailout money.
On December 29, 2008, the U.S. Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).
In 2007, Cerberus purchased an 80% stake in Chrysler, promising to bolster the auto maker’s performance by operating as an independent company. In 2008, the plan collapsed due to an unprecedented slowdown in the U.S. auto industry and a lack of capital. In response to questioning at a hearing before the House committee on December 5, 2008 by Rep. Ginny Brown-Waite, Chrysler President and CEO Robert Nardelli said that Cerberus' fiduciary obligations to its other investors and investments prohibited it from injecting capital.
On March 30, 2009, it was announced that Cerberus would lose its controlling stake in Chrysler. Cerberus will maintain a controlling stake in Chrysler’s financing arm, Chrysler Financial. Cerberus will utilize the first $2 billion in proceeds from its Chrysler Financial holding to backstop a $4 billion December 2008 Treasury Department loan given to Chrysler. In exchange for obtaining that loan, it promised many concessions including surrendering equity, foregoing profits, and giving up board seats:
“In order to achieve that goal Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to affect the restructuring.”
Chrysler Financial refused to take $750 million in TARP government bailout aid because executives didn't want to abide by executive-pay limits, and because the firm doesn't necessarily need the money, but reports suggested Chrysler Financial was surviving through government aid that was about to dry up.
On April 30, 2009, Cerberus ceded ownership of Chrysler, and the car company declared bankruptcy protection and announced that GMAC will become the financing source for new wholesale and retail Chrysler cars. At the end of 2008, GMAC Financial Services had $189-billion in assets and 15 million customers around the world.
At the end of May, 2009, Cerberus will scale back their ownership as a condition of the lender becoming a bank-holding company, when the bulk of GM's existing ownership stake in GMAC will be placed into a trust, overseen by a trustee appointed by the Treasury, to be gradually dispersed. Cerberus will distribute the majority of its stake in GMAC to its investors.
GMAC becomes a bank
In December 2008, after GMAC had been hit with huge losses in both its mortgage and auto loan businesses, the Federal Reserve Board approved with a 4 to 1 vote GMAC’s application to transform itself into a bank holding company “in light of the unusual and exigent circumstances” affecting the financial markets. The dissenting vote was cast by Elizabeth A. Duke.
The move allowed GMAC to tap as much as $6 billion in government bailout money. As of December 17, bondholders had agreed to convert less than 60 percent of their debt into preferred shares. Some big bondholders, like the investment firm PIMCO, have said they do not intend to exchange bonds unless Cerberus Capital Management puts more money into the company. Cerberus will be forced to cut its stake in the new bank holding company and become a passive investor, a move which will leave Cerberus with less than 14.9 percent of the voting shares in GMAC and 33 percent of the total equity in the firm. As a condition of the Federal Reserve’s approval, General Motors will have to reduce its ownership stake in GMAC to less than 10 percent, from 49 percent. The change would very likely also scuttle Cerberus’s plans to merge Chrysler Financial, another auto-lending business it controls, into GMAC.
The New York Times found the Fed’s decision to approve GMAC particularly controversial. GMAC has to make several changes to its structure to alleviate concerns. Critics had raised questions about GMAC’s financial strength, its ownership by a private equity firm and whether it was involved in too many commercial activities to become a bank.
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