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WASHINGTON: The US government threw troubled GMAC a third lifeline, of US$3.8 billion, and took a controlling stake in a bid to turn around the mortgage and auto lender.
The Treasury said the move would raise its equity stake in GMAC to 56 per cent from 35 per cent.
The ailing former finance arm of General Motors became a bank holding company a year ago to access federal aid amid the global financial meltdown.
"Due to a variety of factors, including that the restructurings of General Motors and Chrysler were accomplished with less disruption to GMAC than banking supervisors initially projected, Treasury will commit US$3.8 billion of new capital to GMAC rather than the US$5.6 billion originally announced," the Treasury said in a statement.
It had injected a total of US$12.5 billion in capital into GMAC in two installments. The bailout funds are part of the US$700-billion Troubled Asset Relief Program (TARP) which the Treasury can use to stabilise the US financial system through October 2010.
The Treasury, headed by Secretary Timothy Geithner, also announced a restructuring of its investment in GMAC "to protect taxpayers and put GMAC in a position to raise private capital and pay back taxpayers as soon as practicable."
"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," it said.
The US$3.8-billion taxpayer-funded capital injection will be in the form of US$2.54 billion of trust preferred securities and US$1.25 billion of mandatory convertible preferred (MCP) stock.
Treasury said it would also receive warrants for both types of stocks, totaling US$190 million, which it would exercise immediately at the close of the transaction.
The Treasury said it would convert US$3.0 billion of its existing MCP, which was invested in May 2009, into common equity "to boost the quality of the capital supporting GMAC."
Given the increased ownership, the Treasury will have the right to appoint two additional directors, in addition to the two it has, to the nine-member GMAC board of directors.
The department said it plans to nominate its new directors in time for GMAC's annual meeting at the end of April.
GMAC plans to step up the pace of its repayments to the government.
"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 US taxpayer," Michael Carpenter, GMAC chief executive, said in a separate statement.
The Treasury said the smaller taxpayer-funded injection into GMAC will result in a US$1.8-billion reduction in the department's previously forecast spending under the TARP.
GMAC said it now meets the "capital buffer" required by the Federal Reserve's Supervisory Capital Assessment Program, but it will also take a US$3.3 billion charge, mostly for writedowns at its automobile lender Ally Bank and troubled mortgage business ResCap.
GMAC was the only one of 10 bank holding companies deemed to have fallen short in efforts to raise enough capital to weather adverse economic circumstances, the Fed said last month.
In May, the Fed said that GMAC needed US$11.5 billion, to be raised through private investments, or through public aid under the TARP approved last year by Congress.
GMAC was the longtime financial arm of the largest US automaker until 2006, when GM sold a majority stake.
In December 2008, GMAC won permission to become a bank holding company to improve its access to Fed lending amid the global financial crisis.
On May 21, the US Treasury said it had injected an additional US$7.5 billion into GMAC to enable it to continue providing loans to auto dealers and consumers.
The new investment came on top of an earlier US$5-billion injection as part of an effort to rescue the auto industry and the financial sector.
- AFP/yb
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