GMAC seeks extra $5.6-billion bailout

Written by Bloomberg | Updated: Oct 29 2009, 05:39am hrs
GMAC Inc, the lender that received two government bailouts totaling $13.5 billion, is in talks with the treasury department to receive a third lifeline, a person familiar with the matter said.

The US government may inject an additional $2.8 billion to $5.6 billion into GMAC, the person said, declining to be identified because the transaction hasnt been completed. The deal would involve the issuance of preferred stock, allowing the government to expand its 35.4 percent stake in the Detroit-based company if existing shares are converted into common equity, the person said.

The Federal Deposit Insurance Corp also told the company that it would guarantee an additional $2.9 billion in debt, helping to fund operations, the Wall Street Journal reported yesterday, citing people familiar with the discussions. GMAC spokesperson Gina Proia and FDIC spokesperson Andrew Gray declined to comment. GMAC is the only lender that went through stress tests by the US government and requires another public rescue, said Andrew Williams, a Treasury spokesperson. Other companies raised capital from investors and some have already paid back the taxpayer, he said. Williams declined to comment on the bailout.

GMAC is preparing to report third-quarter results on Nov 4 after posting losses in seven of the last eight periods. The US rescued GMAC last December after deciding the firm was crucial to the survival of the auto industry. General Motors Co, its former parent, and Chrysler Group LLC rely on GMAC to provide financing to customers. The government likely wont seek to oust top executives in exchange for the third bailout, the Journal reported, citing people close to GMAC. GMAC posted a $3.9 billion second-quarter loss tied to rising loan defaults, including a $727 million deficit in the auto-finance unit. The firm also offers home loans through its Residential Capital unit, which once ranked among the biggest subprime mortgage lenders.

The company operates Ally Bank, which solicits deposits online by offering rates that had ranked among the nations highest, according to Bankrate.com. The unit, whose accounts are insured by the FDIC, held $25.4 billion in deposits at midyear.