Despite ResCap's $981 Million Loss, GMAC Posts Gain
GMAC Financial Services -- the captive financing arm of General Motors Corp. (GM) -- on Tuesday reported a $7.5 billion quarterly net income for all of its businesses. The earnings statement comes weeks after the close of a volatile December, when outlook about the company ranged from doubt in its sustainability outside of bankruptcy, to a glimmer of hope as GMAC received approval to become a bank holding company, to a bit more certainty as the Treasury Department stepped in and agreed to invest $5 billion in the financing giant, "as part of a broader program to assist the domestic automotive industry." GMAC reported a $1.9 billion full-year net income, affected by "significant losses at Residential Capital, LLC (ResCap) as adverse mortgage and housing market conditions domestically and internationally continued to persist." The company reported $22 billion in assets at the mortgage division, where these adverse market conditions contributed to a quarterly net loss of $981 at ResCap, compared with the $921 million loss in the year-ago period. "ResCap's U.S. residential finance business was negatively affected by lower mortgage production due to tight underwriting and the closing of certain retail and wholesale lending channels, and lower net servicing fees," the company said in its earnings statement. In the fourth quarter, GMAC contributed $1.67 billion of equity to ResCap, which included $690 million of debt forgiveness on the mortgage servicing rights credit line and $976 million of ResCap bonds that were contributed and subsequently retired. The company reported that, due to these interventions, ResCap remained in compliance with its tangible net worth covenant at Dec. 31, 2008. "In the past 45 days, GMAC received approval from the U.S. Federal Reserve to become a bank holding company, successfully completed the largest debt exchange in U.S. corporate history, received a TARP investment, and completed a rights offering," CEO Alvaro de Molina said in the statement. "Today, GMAC has a stronger capital base and is positioned to be more competitive over the long-term. Our work is just beginning, however, to enhance management practices, while also operating through this difficult economic cycle and transitioning and diversifying the company." Read the statement. Write to Diana Golobay at email@example.com. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.