GMAC Bond Swap Generates a Big Gain, on Paper

GMAC Financial Services today posted net income of about $7.5 billion for the fourth quarter of 2008, versus a net loss of $724 million a year ago.

That's misleading, since the big fourth-quarter profit includes a one-time gain of $11.4 billion, from a deal where GMAC swapped its existing bonds for new bonds of lesser value or cash, in a bid to avoid a potential bankruptcy filing.

In turn, the bond swap was part of a restructuring where GMAC redefined itself as a bank holding company and won a $6 billion bailout from the U.S. Treasury Department, in December 2008. Without the bond swap, GMAC had a net loss of about $4 billion for the quarter.

For all of 2008, the company had net income of about $1.9 billion, including the effect of the bond swap, versus a net loss of $2.3 billion in 2007.

GMAC's global auto finance segment lost $1.3 billion in the fourth quarter, versus net income of $137 million in the year-ago quarter. For the year, GMAC auto finance lost about $2.1 billion, down from a net profit of $1.5 billion in 2007.

The fourth-quarter loss included writing off $425 million on the value of used cars and trucks coming back from leases. That was on top of a $716 write-off in the second quarter of 2008. Values for off-lease pickups and SUVs fell, as gas prices rose.