Fed grants GMAC bank status, access to TARP bailout
The U.S. Federal Reserve late Wednesday approved a requested by auto and mortgage finance firm GMAC to become a bank holding company, thus making it eligible for government aid. GMAC was spun off from General Motors in 2006 in an effort by the automaker to raise cash. It was since hammered by the credit crisis, prompting it to seek government assistance. Following the Fed's decision, the struggling company will now have access to a share of the $700 billion Troubled Asset Relief Program (TARP).
American Express, Goldman Sachs, Morgan Stanley, and CIT Group (not to be confused with Citi) all recently restructured to become "banks" and therefore access TARP in the wake of the economic collapse. It's not yet known how much assistance GMAC will receive, but it could be eligible for up to $6 billion in low-interest loans.
General Motors, which owns 49 percent of GMAC, will be forced to reduce its ownership stake to less than 10 percent, as per Fed and Treasury directives. Chrysler's parent company Cerberus, will have to divest itself of its controlling stake in the company. The private equity firm will be forced to cut its stake to 14.9 percent in voting shares and 33 percent in total equity. Cerberus will reduce its ownership by distributing interest in GMAC to its investors. No individual investor will be allowed to hold more than a 7.5 percent stake.
"Today's announcement marks a key turning point in GMAC's history," GMAC CEO Alvaro G. de Molina said in a statement to the press. "As a bank holding company, 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 been a leader in these sectors and it is critically important to our company and the broader economy to resume responsible lending to consumers and businesses."