GMAC to receive 3rd round of bailout funds
NEW YORK (CNNMoney.com) — GMAC Financial Services will receive a third round of bailout funds from the U.S. Treasury Department and the government will have a controlling stake in the company, according to a government report Wednesday.
The troubled auto and mortgage lender will collect $3.8 billion of additional aid on top of the nearly $13.5 billion already received since December 2008, the Treasury said in a statement Wednesday.
The fresh lifeline is intended to return Detroit-based GMAC to profitability in the first quarter of 2010, according to the report, and will likely allow GMAC to avoid placing its home lending unit, Residential Capital, into bankruptcy.
This additional money will give the company the “capital buffer” it needs “to meet the worse-than-expected economic scenario,” GMAC said in a statement Wednesday.
The Treasury’s stake in GMAC will increase from 35% to 56%, and the government will have the right to appoint two additional directors to the company’s Board of Directors.
Last month, GMAC brought in former Citigroup executive Michael Carpenter to replace CEO Al De Molina, who had led the company since April 2008.
Carpenter had been a member of the lender’s board since May, when the Treasury made its second investment of $7.5 billion on top of the $6 billion received in December 2008.
Earlier this year, the government told GMAC to raise additional capital from private investors by Nov. 9 as part of the spring’s stress tests of the nation’s largest banks.
The Treasury said it will inject $3.8 billion of new capital into GMAC rather than the previously announced $5.6 billion, because GMAC’s needs are now less than originally expected, in part because the impact from the bankruptcies of General Motors (GM, Fortune 500) and Chrysler were not as harsh as regulators predicted.
Still, GMAC, which provides financing for General Motors and Chrysler and their customers, lost $5.3 billion in the first nine months of 2009, as demand for cars remained tepid and previous loans continued to go sour.
This marks the first big injection to a single company in several months, as firms such as Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), Wells Fargo (WFC, Fortune 500) and GM have announced plans to repay their loans.