Thursday, December 25, 2008

Feds Saving GM Again as GMAC Becomes a Bank

Recently, the Feds "loaned" GM the funding neccesary to survive the economic downturn, and yesterday approved GMAC's request to become a bank holding company.

Using thier emergency powers, the Feds took a bold step in salvaging GMAC in allowing them to change to a bank holding company. Cerberus Capital Management LP, a majority owner of GMAC and Chrysler, along with GM are "required to reduce their stakes in GMAC."

The Wall Street Journal reports that:

As a federally-regualated bank holding company, GMAC potentially gets access to Treasury rescue funds. It also gets access to the Fed's discount window - which lends to financial institutions agains collateral in emergency situations. And GMAC potentially will have the ability to issue debt guaranteed by the Federal Deposit Insurance Corp.

Also, Bloomberg reports:

The change may make it easier for GMAC to apply for a government capital injection through the Treasury's $700 billion financial bailout fund. The New York Times estimated GMAC may get as much as $6 billion, citing a formula used by the Treasury.

While this doesn't guarantee that the Treasury will grant any TARP funds toward GMAC, it would certainly make it easier to inject funds at the already failing auto industry giant General Motors. Noting that GM and Chrysler recieved cash infusions from not only the U.S. Treasury, Canada intervened with a cash investment alsok; North America seems willing to go to any steps to not let the auto industry to fail.

This is supported when Bloomberg states: "GMAC joins more that 190 regional banks, commercial lenders, insurers and credit-card issuers seeking funds from the Treasury's bailout plan for financial firms."

The WSJ reports that:

The next step for GMAC is a Friday deadline for bondholders to restructure $38 billion in debt. An earlier deadline for investors had already been extended several times, with GMAC even sweetening the terms of its debt exchange. The final deadline for the debt exchange is Friday.

Bloomberg reports that Julian Mann, a mortgage- and asset-backed bond manager at First Pacific Advisors LLC in Los Angeles, offers that "These guys should be in Chapter 11." And also, "We've now ogtten into the business of discouraging prudence and encouraging risky behavior and irresponsibility."

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1 comment:

Critical Thinker said...

Dan your on point with keeping up on the Big Three dilemma. Keep it up.