GM's Lending Arm Files Paperwork to Become a Bank
Thursday, November 20, 2008; 10:34 AM
General Motor's financial arm, GMAC Financial Services, applied to become a bank holding company today, a move that could allow it to grab a piece of the Treasury Department's $700 billion rescue package and give it access to the Federal Reserve's discount window to receive emergency loans.
As a bank holding company, the cash-strapped lender would have "increased flexibility and stability to fulfill its core mission of providing automotive and mortgage financing to consumers and businesses," according to a statement the company issued today.
In addition to the access to the $700 billion rescue plan, becoming a bank holding company could more immediately help GMAC by giving the company access to the Fed's discount window for low-interest, short-term emergency loans.
Under its application, now under review by the Federal Reserve Board of Governors, GMAC Bank would become a Utah charted Federal Reserve member bank.
Last month, GMAC began discussing its possible change in status with the Federal Reserve. And GMAC has been working on refashioning itself to become more bank-like since its chief executive Alvaro de Molina came on board last year, following a 17-year career at Bank of America.
To improve its financial stability, GMAC also said it would seek to buy back $38 billion in debt by issuing new securities with the same interest rates and maturity dates.
GMAC, which is jointly owned by GM and Ceberus Capital Management, has been battered by the credit crisis. The lender's borrowing costs have risen, so dealers have found it more difficult to finance their showrooms.
Consumers have struggled to make purchase vehicles. Last month the company said it would only make loans to buyers who had credit scores of at least 700.
In the third quarter GMAC posted a $2.52 billion loss -- its fifth quarterly loss in a row.
Meanwhile, GM and its cross-town rivals have been pursuing federal aid to help the manufacturing sides of the business ride out this economic downturn. Top executives from Detroit's Big Three testified on Capitol Hill yesterday and Tuesday, making their cases for a $25 billion emergency loan.
But Senate Democrats yesterday abandoned their original plans to take $25 billion from the $700 billion financial rescue program enacted last month, acknowledging that they did not have enough votes. Today, they will focus on modifying a $25 billion loan package created to boost production of more fuel-efficient vehicles to finance their day-to-day operational costs.