Nov10
Fed to give another $10 billion to GMAC?
WASHINGTON (Reuters) -- GMAC Financial Services, which has received $12.5 billion in federal aid, is negotiating for a fresh infusion of taxpayer funds because it has not raised enough capital to survive a deepening recession, the Federal Reserve said.
The auto lender is the only one of 10 large banks ordered in May to raise capital that had not met its goal, the Fed said Monday.
"The one exception, GMAC, is expected to meet its remaining buffer need by accessing the TARP Automotive Industry Financing Program and is in discussions with the U.S. Treasury on the structure of its investment," the Fed said in a statement.
The U.S. Treasury and Fed ordered the banks to take stress tests last spring in a bid to reassure jittery investors that they would be able to withstand a deepening recession.
GMAC was ordered to raise $11.5 billion in the six months following the stress test results in early May, with a deadline of Monday. The firm quickly received a $7.5 billion federal capital injection and has sold U.S.-backed debt. The investment came on top of emergency government aid GMAC received in December to keep it out of bankruptcy.
GMAC has indicated it will need less funds than were expected at the time of the tests in May, the U.S. Treasury said Monday. Department officials have said they knew it was likely the government would need to contribute more capital to GMAC because as a privately held firm, it had little ability to sell shares.
GMAC's owners include General Motors Co. and private-equity firm Cerberus Capital Management. Among other lending, it provides financing to buyers of vehicles made by GM and Chrysler Group -- two automakers partially owned by the government after their federally sponsored bankruptcies earlier this year.
Worse than ‘adverse’?
Regulators had told the banks to increase capital based on projected losses under various economic scenarios, including one labeled "adverse" that envisioned a 10.3 percent unemployment rate next year.
But joblessness may already be exceeding that level. On Friday, Labor Department data revealed a 10.2 percent unemployment rate for October, and the White House said it would likely rise further before the jobs picture improves.
Nonetheless, the Fed said the stress tests were designed to ensure that the banks would stay sufficiently capitalized through 2010 and continue lending to creditworthy borrowers. The tests calmed investors enough to draw new investment into banks and sparked a stock market rally over the summer months.
The Fed's announcement that GMAC was still negotiating for government capital comes four days after Treasury assistant secretary Herbert Allison said the Treasury Department needed more deliberation over the structure of the investment and it might be delayed past the Monday deadline.
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