GMAC Financial Services will get a $3.8-billion boost in federal aid as the auto industry’s key lender to consumers and related businesses struggles to regain its financial footing.
The lifeline, the company’s third helping of taxpayer funds in the last year, is aimed at keeping the Detroit lender on track to its goal of improved finances next year and an eventual profit. The infusion will raise the government’s ownership stake to 56% from 35%.
“These actions offer the best chance for GMAC to complete its overall restructuring plan and return to the private capital markets for its debt financing and capital needs in 2010,” the Treasury Department said in a statement.
The company, one of several major banking firms bailed out by the government over the last year, already has received $12.5 billion from the government’s Troubled Asset Relief Program in two previous investments.
The latest round is roughly a third less than the $5.6-billion investment the company had anticipated it would need. The lesser amount stems from restructurings of General Motors and Chrysler that were less disruptive to GMAC than the government had expected, the Treasury Department said.
The department said its latest investment in GMAC would “protect taxpayers” and help the company “pay back taxpayers as soon as practicable.”
The $3.8-billion pot will be split into $2.54 billion of trust-preferred securities and $1.25 billion of mandatory convertible preferred stock, according to the department. Also, the department will turn $3 billion of existing convertible stock into common shares. Ultimately, the government’s stake will be worth $14.1 billion.
As majority owner, the Treasury would gain the power to appoint two more directors, giving it four of the board’s nine members. The department said it planned to make nominations in time for GMAC’s annual meeting in late April.
The company, which also provides wholesale financing to many General Motors and Chrysler dealerships, is considered a crucial component in reviving the auto industry. GMAC was the lending arm of General Motors but became a bank holding company last year to become eligible for bailout money.
But stagnating demand for cars and soured mortgages since then have taken their toll. GMAC reported a net loss of $767 million for the third quarter.
In a stress test conducted by the government in May, GMAC was the only bank that was unable to find private investors when it was required to raise $9.1 billion to gird its capital reserves against future downturns. And its home lending unit, Residential Capital, or ResCap, is teetering on the edge of bankruptcy after being pummeled for its subprime mortgages.
The fresh injection of government money coincided with GMAC’s disclosure that it would write down mortgages by $3.3 billion at ResCap and Ally Bank, its online retail bank. The lender said it also would transfer $1.3 billion to Ally and $2.7 billion to ResCap.
GMAC said it did not expect to incur “additional substantial losses” from ResCap and hoped that its future financial statements would be less volatile, giving it more flexibility in managing or possibly selling the unit.
The company, which has said that it had an ongoing and “active” dialogue with the Treasury Department about another financial boost, said that the latest federal funds and other balance-sheet retooling would shield GMAC and its other units from future mortgage-related losses.
Last month, after taking over as chief executive, Michael A. Carpenter, a former Citigroup Inc. executive, suggested that a decision on more bailout money be delayed until GMAC managers could evaluate the company’s condition.
“By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the U.S. taxpayer,” Carpenter said Wednesday.