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GMAC LLC (NYSE: GMA) is currently discussing a third taxpayer-funded bailout with the Treasury Department, according to a report in The Wall Street Journal. The news comes as a stark reminder amid talk of a recovery that many financial institutions are still overwhelmingly dependent on government support.
The Treasury will reportedly give General Motors Corp.’s (NYSE: GRM) financing arm between $2.8 billion and $5.6 billion in capital to shore up its balance sheet and provide wholesale financing to GM and Chrysler car dealerships.
The infusion will likely come in the form of preferred stock, The Journal reported. That means the government’s 35.4% stake in the company could increase if existing shares are converted into common stock.
Additionally, the Federal Deposit Insurance Corp. (FDIC) will guarantee $2.9 billion in GMAC debt. That will help GMAC fund its daily operations by making its debt more appealing to investors. Moody's Investors Service (NYSE: MCO) rates GMAC at Ca – two notches above default. But the FDIC backing means these bonds will be rated triple-A.
The FDIC backed $4.5 billion in GMAC debt earlier this year. However, this will be the third time the Treasury has intervened to prop up the company. The Treasury has injected GMAC with a total of $12.5 billion since December 2008. The most recent infusion came on May 21, after GMAC failed to pass the government’s stress test.
GMAC received $7.5 billion after the government concluded the financer needed $11.5 billion in common equity. Ten of America’s largest lenders were determined to need more capital after the government’s examination. Of those banks, GMAC is the only company that has failed to meet its new capital requirement.
“It’s outrageous that the taxpayers are being asked yet again to support a troubled enterprise,” Sean Egan, president of Egan-Jones Ratings Co. told Bloomberg News. “When will it end?”
Of the $204.64 billion in aid banks got from the Troubled Asset Relief Program (TARP), just one-third of the capital has been paid back.
GMAC has $181 billion in assets and is a major financier for 15 million borrowers and thousands of car dealerships across the country. The company reported a second-quarter loss of $3.9 billion, including a $727 million deficit in the auto-finance unit. GMAC is scheduled to report its third-quarter earnings on Nov. 4.
News and Related Story Links:
- Money Morning:
Bank Stress Tests: The Results Are in; Now What?
- The Wall Street Journal:
GMAC Asks for Fresh Lifeline
- Bloomberg News:
GMAC May Receive Third Bailout From U.S. Government