GMAC Expects $5 Billion Q4 Loss

Financial institution GMAC is bracing itself for a huge $5 billion loss for the fourth quarter of 2009 alone, despite the recent $3.79 billion received from the US Treasury. The news was confirmed by the company's CEO, Michael Carpenter, who also added GMAC will try its best to recover and repay the money received from the government.

"We are moving forward with our principal mission: strengthening the auto finance business and transforming it into a market-driven, low-cost competitor," Carpenter was quoted as saying by Autonews.

GMAC received two days ago, following several months of uncertainty and one change in management, an infusion of $3.7 billion from the US Treasury, in the form of capital actions. The Treasury will purchase $2.54 billion of trust preferred securities, with a coupon of 8 percent, and $1.25bn of mandatory convertible preferred securities (MCP), with a coupon of 9 percent.

According to the financial institution, the money helped it achieve the capital needed to meet the worse-than-expected economic scenario, required under the Federal Reserve's Supervisory Capital Assessment Program (SCAP).

Carpenter, who replaced Alvaro de Molina in November 2009, blames the difficult situation in which GMAC finds itself in on the real estate division, Residential Capital (ResCap). As a result, GMAC will try to focus more on its core business, the auto sector.

If it weren't for the mortgage business, I don't think GMAC would have needed federal support. ResCap dragged the company down. The first priority is to support the auto industry within the bounds of reasonable credit decisions.
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About the author: Daniel Patrascu
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Daniel loves writing (or so he claims), and he uses this skill to offer readers a "behind the scenes" look at the automotive industry. He also enjoys talking about space exploration and robots, because in his view the only way forward for humanity is away from this planet, in metal bodies.
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