Government to Solve GMAC's Financial Problems

Wednesday the federal government said that it will take majority control of troubled auto lender GMAC and provide an additional $3.8 billion in aid to the company as it is unable to raise money from private investors.

The Treasury Department has said for months that GMAC would need more federal money, but the decision to increase the government's ownership stake came as a surprise, cutting against the grain of the Obama administration's recent efforts to wind down its bailout of large banks.

What initially appeared to be a closing act now looks more like year-end portfolio rebalancing, with companies including Citigroup and Bank of America allowed to repay aid even as the government deepens its involvement in mortgage financiers Fannie Mae and Freddie Mac -- and now, GMAC, The Washington Post reports.

The company is the former finance arm of General Motors, but a third of its balance sheet is mortgage finance.

That sector is still losing money - and the loss is on course to be another $3.3bn in the fourth quarter.

The US Treasury Department's statement said GMAC had needed less help than it had planned for, because the restructurings of General Motors and Chrysler were accomplished with less disruption to GMAC than banking supervisors initially projected.

GMAC has received billions of dollars of government aid to combat mortgage losses and to provide funds for Americans to buy cars, BBC News reports.

In the meantime, GMAC had difficulty raising money because of its financial woes, making an extra government infusion necessary.

Even after the latest shot of capital, the government will likely take steps to help GMAC as it tries to ensure the recovery of GM and Chrysler, said Kirk Ludtke, senior vice president at CRT Capital Group L.L.C. That includes helping GMAC refinance its debt as it comes due, he said.

"The government has come this far, it is not going to destabilize GMAC at this point," Ludtke said.

GMAC remains on shaky financial ground. Last month, it reported a quarterly loss of $767 million, though the results were an improvement over a giant loss a year earlier.

The company also has been hurt by the rapid decline of the U.S. auto industry after sales crumbled. Sales of cars and trucks were down 24 percent through November compared with the same period a year earlier. The industry is expected to sell about 10 million cars this year, one of the worst performances for auto sales in decades, Philadelphia Inquirer reports.

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