GMAC, the lender that received two government bailouts totaling $13.5 billion, is in talks with the Treasury Department to receive a third lifeline, a person familiar with the matter said.
The US government may inject an additional $2.8 billion to $5.6 billion into GMAC, the person said, declining to be identified because the transaction hasn’t been completed. The deal would involve the issuance of preferred stock, allowing the government to expand its 35.4 per cent stake in the Detroit-based company if existing shares are converted into common equity, the person said.
“It’s outrageous that the taxpayers are being asked yet again to support a troubled enterprise,” said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania. “When will it end?”
GMAC is also raising funds by selling $2.9 billion of three-year notes guaranteed by the Federal Deposit Insurance Corp., according to a person familiar with the offering, speaking anonymously because terms aren’t set. GMAC spokeswoman Gina Proia and FDIC spokesman Andrew Gray declined to comment.
Stress-tested
GMAC is the only lender to have gone through stress tests by the US government and still require another public rescue, said Andrew Williams, a Treasury spokesman.
Other companies raised capital from investors and some have already paid back the taxpayer, he said. Williams declined to comment on the bailout.
GMAC is preparing to report third-quarter results on November 4 after posting losses in seven of the last eight periods.
The US rescued GMAC last December after deciding the firm was crucial to the survival of the auto industry. General Motors Corp., its former parent, and Chrysler Group LLC rely on GMAC to provide financing to customers.
The government likely won’t seek to oust top executives in exchange for the third bailout, according to the Wall Street Journal, citing people close to GMAC. The Journal reported the new bailout yesterday.
GMAC posted a $3.9 billion second-quarter loss tied to rising loan defaults, including a $727 million deficit in the auto-finance unit.
The firm also offers home loans through its Residential Capital unit, which once ranked among the biggest subprime mortgage lenders.
The company operates Ally Bank, which solicits deposits online by offering rates that had ranked among the nation’s highest, according to Bankrate.com. The unit, whose accounts are insured by the FDIC, held $25.4 billion in deposits at mid-year.
