GMAC Is in Talks for Third Lifeline

GMAC Inc. is holding negotiations with the Treasury Department to receive a third lifeline, a person familiar with the matter said. GMAC Inc. is the lender that received two government bailouts totaling $13.5 billion.

Photo: GMAC Is in Talks for Third Lifeline

The U.S. government may inject an additional $2.8 billion to $5.6 billion into GMAC, the person said, declining to be identified because the transaction hasn’t been completed. The deal would involve the issuance of preferred stock, allowing the government to expand its 35.4 percent stake in the Detroit-based company if existing shares are converted into common equity, the person said.

The Federal Deposit Insurance Corp. also told the company that it would guarantee an additional $2.9 billion in debt, helping to fund operations, the Wall Street Journal reported yesterday, citing people familiar with the discussions. GMAC spokeswoman Gina Proia and FDIC spokesman Andrew Gray declined to comment.

GMAC is the only lender that went through stress tests by the U.S. government and requires another public rescue, said Andrew Williams, a Treasury spokesman. Other companies raised capital from investors and some have already paid back the taxpayer, he said. Williams declined to comment on the bailout, Bloomberg reports.

It was also reported, while GMAC would be the only U.S. company to get three capital injections from the government since the financial crisis erupted two years ago, thousands of banks and other financial firms remain weakened by exposure to fallen real-estate values and clobbered financial markets.

Among U.S. banks that got a total of $204.64 billion in aid through the Troubled Asset Relief Program, just one-third of the capital has been repaid so far. Government officials are skeptical that some banks now wanting to escape the government's grip are strong enough to do so, with Bank of America Corp.'s attempt to repay bailout funds snagged by a disagreement over how much additional capital the bank must raise to satisfy regulators, people familiar with the situation said.

At GMAC, the likelihood of a third infusion increased when the government's stress-test results were released in May. The tests were conducted to determine whether banks would need more capital to continue lending if the economy deteriorated in 2009 and 2010. The test concluded GMAC needed $11.5 billion in common equity to continue lending in a stressed economy, The Wall Street Journal reports.

ABC News quoted Treasury spokesman Andrew Williams as saying, "GMAC is the only one of the banks that went through the stress test to need additional government capital. All other institutions were able to raise any necessary capital from investors and several of these firms have already paid back the taxpayer."

Many smaller banks are under pressure, however, and policymakers are concerned that bank failures will continue increasing as commercial real estate loans, in particular, keep going sour.

The stress test results issued in May showed that GMAC needed to raise $11.5 billion of new capital and it was widely speculated at the time that because it had few obvious ways to raise money it on its own, GMAC might have to come back to the government, ABC News reports.