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Cash Infusion Makes U.S. Majority Owner of GMAC

December 31, 2009
2 min to read


WASHINGTON - The U.S. Treasury Department has acquired a majority stake in another Detroit company, as taxpayers invested an additional $3.8 billion in GMAC, reported The Detroit News.

In all, the government has given GMAC $17.2 billion in bailout money, which included $900 million it gave to GM to invest in GMAC.

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The Treasury now owns 56.3 percent of the company, up from the 35.4 percent it claimed before Wednesday's infusion. Much of the additional money will be used to help GMAC restructure its money-losing mortgage unit, ResCap.

This latest move further increases the government's influence over the future of the domestic auto industry and brings its total investment to nearly $85 billion.

The Treasury already holds a 61 percent majority stake in General Motors Co. and 10 percent stake in Chrysler Group LLC.

The Obama administration has insisted it has no plans to run any of the companies it owns. But with the additional equity stake, the Treasury will have the right to appoint two more directors to the GMAC board. Four of nine directors will be appointed by Treasury before its annual meeting in April.

ResCap Gets Boost

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GMAC said much of the new capital was being used to restructure its money-losing ResCap unit and mortgage business. The government swapped $3 billion of its investment for the increase in its equity in GMAC.

GMAC will recognize a pretax charge of approximately $3.8 billion, with $3.3 billion related to the mortgage write-downs at ResCap and its Ally Bank unit. GMAC moved to sell off some of its ResCap assets, and wrote down the value of its assets. It also used $1.3 billion in cash to boost the capital of Ally Bank.

ResCap will receive approximately $2.7 billion in additional capital. Ally Bank will recognize a $1.3 billion pretax charge and be recapitalized with a $1.3 billion cash infusion from GMAC.

"Following these transactions, GMAC does not expect to incur additional substantial losses from ResCap and will be better positioned to explore strategic alternatives with respect to mortgage operations," GMAC said.

The government said it was "restructuring 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."

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GM sold a 51 percent stake in GMAC in 2006 in a $14 billion deal to Cerberus Capital Management. It became a bank holding company in 2008 -- a requirement for it to win a government bailout.

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