Yesterday, GMAC LLC (GMAC) announced "a $7.5 billion capital investment from the U.S. Department of the Treasury, approval by the Federal Deposit Insurance Corporation (FDIC) to participate in the Temporary Liquidity Guarantee Program (TLGP), and an expanded exemption granted by the Federal Reserve to originate GM-related assets at GMAC's bank, recently renamed Ally Bank. GMAC also reconstituted its board of directors and named two appointees from the U.S. Treasury, with three independent directors to be promptly named by the board."
The U.S. Treasury confirmed its commitment to invest $7.5 billion in GMAC pursuant to the Automotive Industry Financing Program. Treasury stated that the investment is intended to “support GMAC’s ability to originate new loans to Chrysler dealers and consumers and help address GMAC’s capital needs as identified through the Supervisory Capital Assessment Program (SCAP)." GMAC indicated that it sold an aggregate of $7.5 billion of 9% mandatorily convertible preferred (MCP) membership interests and warrants to Treasury, of which $4 billion related to GMAC's agreement with Chrysler LLC to provide automotive financing to Chrysler dealers and customers and $3.5 billion toward the SCAP capital buffer requirement. For GMAC, which became a bank holding company following Federal Reserve approval last December, the recommended SCAP capital buffer was "$11.5 billion of Tier 1 Common/contingent Common of which $9.1 billion must be new Tier 1 capital." GMAC stated that it "intends to submit a Capital Plan to the Federal Reserve Bank of Chicago by June 8, 2009 with respect to the remaining capital required."
The MCP issued to Treasury mandatorily convert to common membership interests after seven years and may be converted in advance of that time by GMAC with the approval of the Federal Reserve if such conversion would not result in the U.S. Treasury owning in excess of 49 percent of GMAC's common membership interests. In addition, Treasury still retains the right “to exchange the $884 million loan it made to GM for common equity interests in GMAC” under the terms of a previous transaction. Treasury anticipates exercising this exchange right “in the very near future, after which it would hold a 35.4 percent common equity interest in GMAC.”
Treasury Secretary Geithner remarked that “[o]ver the past several months, the contraction of credit in the auto finance markets has helped drive our auto industry into a historic crisis. This new arrangement with GMAC will help provide a reliable source of financing to both auto dealers and customers seeking to buy cars.” He also noted that “[a]longside our efforts through the TALF program, a recapitalized GMAC will offer strong credit opportunities, help stabilize our auto financing market, and contribute to the overall economic recovery.”
Separately, the FDIC announced its approval of GMAC's participation in the Temporary Liquidity Guarantee Program (TLGP), which will permit GMAC “to issue up to $7.4 billion in new FDIC-guaranteed debt.” The FDIC stated that GMAC has committed to developing a funding plan which “will reflect GMAC's management of the bank's funding and deposit costs with a focus on diversifying funding sources and reducing the bank's overall cost of deposit funding.” GMAC and the bank have also jointly committed “to maintain[ing] bank capital at a level well above the regulatory minimums.”
GMAC also announced that it had "received an expanded exemption from the Federal Reserve to allow Ally Bank, formerly GMAC Bank, to originate a limited amount of GM-related retail and wholesale assets, subject to certain conditions. … The extension of credit to Chrysler dealers and customers is not subject to the section 23A restriction."
Finally, GMAC reported that its "board will now consist of nine directors, four of whom have been named, two by the U.S. Treasury and two current directors. Three additional independent directors have been selected and will be promptly appointed by the new board. The two appointees of the U.S. Treasury are Robert T. Blakely and Kim S. Fennebresque. GMAC CEO Alvaro G. de Molina will remain on the board along with Stephen Feinberg as the Cerberus appointee. Two additional independent directors will be named at a later date."