(Adds detail on importance of bank holding status in new
By Emily Kaiser
WASHINGTON Dec 24 GMAC LLC won U.S. approval
on Wednesday to become a bank holding company, giving it
access to government lending programs and helping it stave off
The Federal Reserve's approval should allow GMAC to
continue financing loans for General Motors Corp (GM.N) cars.
GM Chief Executive Rick Wagoner said last week that GMAC's
difficulties were "hammering" the car maker's ability to sell
"In light of the unusual and exigent circumstances
affecting the financial markets ... the board has determined
that emergency conditions exist that justify expeditious
action on this proposal," the Fed said in a statement.
Analysts said earlier this month that without bank holding
status, GMAC could have trouble staying solvent.
But bank status comes at a cost for GMAC's majority owner
Cerberus and its minority owner GM: Both must cut their stakes
in the finance company to comply with U.S. bank regulations
that prevent many kinds of companies from owning too big a
share of a bank.
GMAC is getting the go-ahead to become a bank holding
company just days after GM and Chrysler, which is owned by
Cerberus, were promised public money from the Treasury-run
financial bailout fund to stave off potential bankruptcy.
GMAC has struggled as the credit crunch has lifted its
borrowing costs sharply, and the value of many of its assets
has plummeted. It has lost $7.9 billion over the last five
The lender's difficulties forced it to severely curtail
financing for dealerships and for consumer purchases of new GM
cars and trucks in recent months. Cutting back financing
compounded the sales slump at GM, the No. 1 U.S. automaker,
whose sales fell an eye-popping 41 percent in November.
Although GMAC completed a $60 billion debt restructuring
in June, it launched another debt exchange last month designed
to help it raise capital in part through giving debtholders
That debt exchange has not gone as well as GMAC was aiming
for. As of the middle of last week, investors had agreed to
exchange 58 percent of the company's debt, less than the 75
percent GMAC was aiming for.
But the Fed said on Wednesday that GMAC's efforts to raise
capital were "successful," implying that the lender had
managed to exchange enough bonds to meet regulators'
A TURNING POINT
A GMAC spokeswoman called the approval a "key turning
point in our 89-year history.
"GMAC believes becoming a bank holding company is the best
long-term solution to provide automotive and mortgage
financing to consumers and businesses, including auto
dealers," spokeswoman Gina Proia said.
Cerberus was not immediately available to comment.
A majority of GM dealers had depended on GMAC, the largest
auto finance company in North America, for financing of their
own inventory and consumer purchases even after GM sold a 51
percent stake in GMAC to Cerberus in 2006 for $7.4 billion. GM
retains the remaining 49 percent.
GM and Cerberus will have to trim back their stakes to no
more than 10 percent and 14.9 percent, respectively, to comply
with Fed rules that are meant to prevent companies from using
banks to fund their businesses.
Detroit-based GMAC already has a banking unit that offers
certificates of deposit and online savings accounts, but
becoming a bank holding company will make it eligible for
government support, including guarantees of new debt that it
issues and access to emergency borrowing.
The company could also apply for billions of dollars of
capital under the government's $700 billion financial rescue
program, and will be able to rely on the Fed as a lender of
(Additional reporting by Dan Wilchins in New York and Soyoung
Kim in Detroit; Editing by Jan Paschal and Neil Stempleman)