CHICAGO, December 10 – GMAC, the troubled former financial arm of General Motors, said Wednesday it is unlikely to meet regulatory requirements to become a bank, meaning deeper woes for the debt-strapped firm.
GMAC said it has received an inadequate response from its bondholders for an offer to exchange the debt for capital in order to meet Federal Reserve requirements to become a bank holding company.
It made the application this year to become a federally regulated bank holding company in a move which would give it access to a share of a 700 billion dollar government bailout package.
"The Federal Reserve has informed GMAC that if GMAC is unable to meet these capital requirements, it will not approve GMAC\’s application to become a bank holding company," GMAC said.
As a result, GMAC said it would probably withdraw its application, leading to a more precarious situation.
"If GMAC is unable to successfully convert to a bank holding company … it would have a near-term material adverse effect on GMAC\’s business, results of operations, and financial position," the company said in a statement.
A 51 percent stake in the company is owned by Cerberus Capital Management, the private equity owner of Chrysler LLC, with the remaining 49 percent held by GM.
The news comes as the ailing automakers are awaiting word on an emergency 15-billion-dollar government loan to avert collapse.
GMAC, which diversified beyond auto loans into mortgages, commercial lending, insurance and online banking, has been badly hit by the subprime lending crisis and resulting credit crunch.
The financial firm, which is aiming to restructure its debt of 38 billion dollars, posted a net third-quarter loss of 2.5 billion a month ago, citing "adverse market conditions domestically and internationally" especially in its mortgage business, operated under a unit called ResCap.
GMAC said bondholders so far have agreed to exchange 6.3 billion dollars in its old debt and 2.0 billion of its ResCap debt for capital, far below the 30 billion dollars it needs.
The central bank would require GMAC to hold 30 billion dollars in regulatory capital to become a bank, according to company officials.
That would require an exchange of some 75 percent of its outstanding bond debt.
The move to become a regulated bank would enable GMAC to have its debt guaranteed by a federal banking insurance program, to get cheap, short-term loans from the Federal Reserve and to sell some of its bad loans to the government.