GMAC 'to receive extra $3.5bn in government aid'

30 December 2009

GMAC Financial Services is set to receive a further $3.5 billion in state aid, according to company insiders.

The firm has already received $12.5 billion from the US government since December 2008 but it has struggled to fully absorb its losses from its mortgage lending operations.

An announcement of the new Troubled Asset Relief Programme (TARP) funding is expected this week and will coincide with GMAC setting out the results of its strategic review of its business operations, reports the Wall Street Journal.

It is hoped that the company will be able to return to profit in the first quarter of 2010 following a difficult year for the lender.

The company is deemed vital to the US economy by the Treasury as it provides capital to thousands of Chrysler and General Motors dealerships across the country, meaning the supply chain for many local distributors would grind to a halt should GMAC collapse.

It is reportedly likely that the new injection of capital into the company will allow GMAC to avoid putting its mortgage unit, Residential Capital (ResCap), into bankruptcy.

ResCap lost almost $10 billion across 2007 and 2008, and has posted $2.7 billion worth of losses in the first nine months of this year.

Under the terms of the new TARP deal, it is believed the government will increase its stake in GMAC, which currently stands at 35.4 per cent.

Although the US Treasury originally put aside $700 billion for TARP bailouts following the collapse of Lehman Brothers last year, it now seems likely that not all of the money will have to be used.

Earlier this month, a government insider told Reuters that the program may cost around $200 billion less than first anticipated.

"That improvement is driven by the fact that Treasury's investments to stabilize the system are delivering higher returns than anticipated and that the Treasury does not anticipate having to draw upon the full $700 billion in TARP authority," he said.

By Tony Aynsley

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