GMAC's bid to become bank in jeopardy

updated 2:58 p.m. ET Dec. 10, 2008

NEW YORK - GMAC Financial Services, the financing arm of General Motors, said Wednesday that its bid to become a bank holding company and qualify for aid under the government’s $700 billion bank rescue plan may be in danger because it hasn’t raised the capital needed to meet federal requirements.

One analyst said that if GMAC doesn’t get the help it needs, it may need to shutter its home mortgage division in order to prevent the entire company from filing for bankruptcy protection.

It wasn’t clear what impact that would have on its owners, the automaker General Motors Corp. and the private equity firm Cerberus Capital Management LP.

But GM, which owns a 49 percent stake in GMAC, did not include any possible federal aid to GMAC in the restructuring plan that the automaker submitted to Congress in an effort to get its own government loans, said GM spokeswoman Renee Rashid-Merem.

“Our plan is based on GM’s operations,” she said.

GMAC, which provides both mortgage and car loans, is trying to reduce its debt and raise $30 billion in capital that regulators are requiring before it can become a bank holding company and possibly get access to government assistance.

It warned that a failure to convert to a bank holding company would have a “material adverse effect” on its business.

The finance company is raising capital by offering to exchange debt for cash, notes or preferred stock. But it said Wednesday it has only raised about $8.3 billion through the offers so far.

In a last ditch effort, GMAC extended the early delivery time under its offers by three days, to Friday.

It was the third time that the New York-based company has extended the deadline. Cerberus Capital owns 51 percent of GMAC while General Motors owns the rest.

Peter Duda, a spokesman for Cerberus, declined comment citing the pending exchange offer.

GMAC is trying to exchange $38 billion of debt held by its divisions and mortgage business, Residential Capital LLC, for cash, new notes or preferred stock.

If GMAC were to become a bank holding company, it could potentially be eligible for part of the government’s $700 billion rescue package for the financial sector.

GMAC has said that the aid would give it the cash needed to make loans to consumers who want to buy a car or truck but have been unable to get affordable financing. Looser credit markets and cheaper financing also would drive consumers back to dealer lots and in theory boost automaker sales.

GM and fellow U.S.-based automakers Ford Motor Co. and Chrysler LLC are asking Congress for their own financial bailout.

Detroit-based GM has said that it could run out of cash by the end of the year if it doesn’t receive financial help.

In order to approve GMAC’s application to become a bank holding company, the Federal Reserve has said the company needs at least $30 billion in regulatory capital. In order to meet that requirement, GMAC said it would have to have about 75 percent participation on its offers.

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