GMAC Gets $3.79Bn from the US Treasury

Following several months of uncertainty and one change in management, GMAC Financial Services announced it has received 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, just-auto.com reported.

The support given by the Treasury will help GMAC improve its financial performance and tamper the downfall of the company's worst performing division, Residential Capital (ResCap). According to GMAC's new CEO, Michael A. Carpenter, ResCap is to blame for GMAC's problems.

“If it weren't for the mortgage business, I don't think GMAC would have needed federal support. ResCap dragged the company down.”

With the support of the Treasury, GMAC achieved the capital needed to meet the worse-than-expected economic scenario, required under the Federal Reserve's Supervisory Capital Assessment Program (SCAP).

"Additionally, the actions position GMAC to explore strategic alternatives for ResCap and the mortgage business and are expected to accelerate the timetable for repayment of the US government's investment," GMAC said in a release quoted by the source.

According to the financial company, following the investment, the common equity holdings following the conversion are 14.9 percent Cerberus, 12.2 percent third party investors, 9.9 percent a trust managed for the benefit of General Motors and 6.7 percent by a GM affiliate.