Last week, citing “unusual and exigent circumstances affecting the financial markets,” the Federal Reserve issued an expedited approval of GMAC’s application to become a bank holding company by means of the conversion of GMAC Bank, a Utah industrial loan company, into a Utah chartered Federal Reserve member bank. Confirming the approval, GMAC stated, “As a bank holding company, GMAC will have expanded opportunities for funding and access to capital, which will provide increased flexibility and stability.” Additionally, “GMAC will be competitively positioned for the long-term to provide financing to auto and mortgage consumers and businesses such as automotive dealers.” GMAC has total consolidated assets of approximately $211.3 billion, and GMAC Bank has total consolidated assets of approximately $33 billion and controls deposits of approximately $17 billion. GMAC applied for bank holding company status last month in order to qualify for funds under the Treasury’s Capital Purchase Program before the November 14, 2008 deadline for public company applicants.
GM has held a significant ownership position in GMAC since its founding. In addition, Cerberus Capital Management, L.P. (Cerberus), currently owns a majority of the shares of GMAC. Neither GMAC nor Cerberus comply with the Bank Holding Company Act limits on nonbank activities and, therefore, may not retain a controlling interest in GMAC. In order to comply with the Federal Reserve’s requirements with respect to noncontrolling interests in banks and bank holding companies, GM has committed to “reduce its ownership interest in GMAC to less than 10 percent of the voting and total equity interest of GMAC.” GM’s remaining equity interest in GMAC will be transferred to a trust, independent of GM, whose trustee will have sole discretion to vote and dispose of the GMAC equity interest within three years. Until the trust fully divests the shares, GM and GMAC Bank will be subject to sections 23A and 23B of the Federal Reserve Act as if they were affiliates.
Cerberus has committed that “each Cerberus fund that holds an interest in GMAC will distribute its equity interests in [GMAC] to its respective investors” until shares in GMAC held by Cerberus and its related parties does not exceed 14.9 percent of the voting shares or 33 percent of the total equity of GMAC. In addition, upon completion of the distribution, no single investor will control 5 percent or more of the voting shares or 7.5 percent of the total equity of GMAC.