Treasury To Exit GMAC Via ‘Gradual Sale’ Of Shares

The Treasury Department will likely exit its investment in GMAC through a gradual sale of shares following a public offering, Treasury officials testified last week.

In prepared testimony before the Congressional Oversight Panel, the Treasury's chief restructuring officer, Jim Millstein, and Secretary Tim Geithner's senior adviser, Ron Bloom, stated that the department ‘intends to dispose of its investments as soon as practicable, with the dual goals of achieving financial stability and protecting the interests of the taxpayers.’

The government owns about 56% of GMAC's common equity following several rounds of capital infusions that totaled more than $17 billion.

"GMAC is now capitalized at levels well-above historical industry averages," Millstein and Bloom said in joint testimony. "At the end of 2009, GMAC had $22.4 billion in Tier 1 Capital (14.1 percent) and $7.7 billion in Tier 1 Common Equity (4.8 percent). GMAC is also now able to secure external funding for its ongoing operations – a critical step toward its independence."

Institutional Risk Analytics' senior vice president and managing director, Christopher Whalen, also testified last Thursday, saying he holds a negative outlook for GMAC as a whole, given the prospect for continuing operating losses.

"Some of the losses will come from on-balance sheet credit and restructuring exposures, while other areas of loss include claims made due to losses in�securitization vehicles," Whalen said. "Given the subprime nature of the ResCap securitizations and the high loss rates already visible, it is not unreasonable to expect that a significant fraction of securitized loans that default will be put back to ResCap by investors.

"Overall, I am not very sanguine about the prospects for GMAC and the likelihood of the Treasury recovering its investment," he added.

Michael Carpenter, GMAC's CEO, said the company remains focused on addressing challenges related to ResCap and GMAC's legacy mortgage business.

"[W]e are now exploring strategic alternatives for the mortgage business which minimize future risk to GMAC and support our role as the fifth-largest servicer, serving 3 million homeowners," Carpenter said.

SOURCE: Congressional Oversight Panel


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