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GMAC Financial Services 3Q loss narrows
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| Copyright: | The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. | | Source: | Associated Press | | Wordcount: | |
NEW YORK_GMAC Financial Services, the main lender for General Motors Co. and Chrysler Group LLC, said Wednesday its loss narrowed to $767 million in the third quarter, as its auto lending unit made money while its home mortgage unit reported another loss.
The company's earnings report comes a week after the Treasury Department said it was in talks with the New York-based lender over a third round of taxpayer aid. A Treasury spokeswoman declined to offer any updates on the talks Wednesday. A GMAC spokeswoman said the company continues to work with the federal government regarding its capital requirements, but declined further comment.
The government, which owns a 35 percent stake in the company, required earlier this year that GMAC raise an additional $11.5 billion in capital by early November after undergoing a "stress test" along with 18 other banks. While other banks deemed undercapitalized have been able to raise funds from private investors, GMAC has been forced to go back to the government.
GMAC is a crucial player in the auto industry, providing loans for a large number of GM and Chrysler dealers to pay for the vehicles on their lots. It also provides retail financing to many of their customers.
The company has struggled amid the collapse of the housing and auto markets earlier this year. Its mortgage unit, ResCap, suffered from serious financial problems due to its heavy involvement in subprime lending to risky borrowers.
Thomas Ferguson, who follows GMAC for KDP Investment Advisors, said GMAC's results indicate the company is on the right track, calling the results "reasonably favorable."
"The company is making progress toward shrinking its balance sheet and focusing on its core businesses," Ferguson said in a research report.
GMAC, which is also owned by GM and private equity Cerberus Capital Management LP, said its net loss was $767 million versus a loss of $2.52 billion in the same quarter last year.
The company said the results were hurt by several one-time items and by a handful of business lines that the company is discontinuing, including its consumer property and casualty insurance business and three international auto financing operations. Excluding these items, the company said it lost $77 million.
GMAC said its ResCap mortgage-lending unit continued to struggle, losing $747 million during the quarter. A large portion of the unit's loss was due to a $515 million expense to increase repurchase reserves, the company said.
The unit posted a larger loss of $1.95 billion in the same quarter last year. It racked up billions more during the year amid the collapse of the housing market, with some analysts speculating at the time that GMAC could shut down ResCap altogether in an effort to stave off bankruptcy.
One bright spot in the latest report was the company's auto-financing unit, which earned $395 million compared with a year-ago loss of $379 million. GMAC said its lending to Chrysler customers more than tripled in the third quarter to $720 million. Earlier this year, the company became the preferred lender for Chrysler. The Treasury Department recently informed Chrysler's former lender, Chrysler Financial, that it would have to shut down by the end of 2011.
GMAC also runs an online banking unit called Ally Bank, which offers comparatively high interest rates and has attracted a large number of new depositors recently. Deposits rose by $2.3 billion during the quarter, GMAC said.
Its insurance segment _ whose results exclude the discontinued property and casualty insurance businesses _ earned $81 million during the quarter, up from $73 million last year.
GMAC has already obtained $12.5 billion in loans from the U.S. government. Late last year, GMAC became a bank holding company, which enabled it to receive loans from the government's Troubled Asset Relief Program.
So far this year, the Federal Deposit Insurance Corp. has backed $7.4 billion in GMAC-issued debt _ a rare move by the FDIC for a junk-rated company _ one with a credit rating below investment grade.
The government has a strong interest in seeing GMAC succeed given its critical importance to GM and Chrysler. The government has poured more than $60 billion into both automakers. It now owns a majority stake in GM and a smaller stake in Chrysler after steering the companies through bankruptcy protection earlier this year.
This is a news service of Thomson Business Intelligence Service ©2006. This content is for your personal use only, subject to Terms and Conditions. No redistribution allowed.
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