GMAC Wins Bank Status, Which Also Helps GM

(MoneyWatch)  The Federal Reserve approved an application from GMAC Financial Services to become a bank holding company, in turn making GMAC eligible for funds from the U.S. Treasury Department bailout of the financial services industry.

If GMAC can get back in business, that would remove a big stumbling block for GM. GMAC has cut back drastically in recent months, from financing the bulk of loans and leases for GM customers, to less than 10 percent. The rest have had to pay cash, get financing from other lenders, like banks or credit unions, or go to a competing dealership.

That's because GMAC itself was unable to borrow money with which to make new loans. GMAC's biggest problem has been its ResCap mortgage subsidiary, which had major investments in subprime mortgages that went bad.

"GMAC is one of the nation's largest automotive finance companies," the Fed said in a written statement.

"The proposal would benefit the public by strengthening GMAC's ability to fund the purchases of vehicles manufactured by GM and other companies and by helping to normalize the credit markets for such purchases," the statement said.

As part of the approval, parent companies Cerberus Capital Management, with 51 percent, and GM, with 49 percent, agreed to reduce their stakes so that neither one would have a controlling share.

Cerberus and the investors it represents bought the majority of GMAC in 2006. The Cerberus bloc will have no more than 14.9 percent of the voting rights in the new bank holding company.

GM founded GMAC in 1919, and helped popularize consumer buying on credit. GM will reduce its ownership interest in GMAC to less than 10 percent. For now, control of the rest of GM's stake will be transferred to an independent trustee, who must sell that part of GM's stake within three years. GMAC also makes loans to about 80 percent of GM dealers, to finance their inventory.

GMAC CEO Alvaro G. de Molina said that as a bank holding company, GMAC will have better access to funds. "Today's announcement marks a key turning point in GMAC's history," he said in a written statement.