GMAC May Post $10 Billion Annual Loss After U.S. Takes Control

By Matt Townsend

Jan. 6 (Bloomberg) -- GMAC Inc., the auto and home lender that became majority-owned by the U.S. government last week after a third bailout, may post a loss of more than $10 billion for 2009 as more borrowers defaulted on mortgages.

GMAC, based in Detroit, said yesterday that it expects to report a fourth-quarter loss of about $5 billion. Both the quarterly and annual losses would be records for the primary lender for General Motors Co. and Chrysler Group LLC dealers.

The company received a $3.79 billion infusion from the Treasury Department on Dec. 30. The U.S. earmarked about $13.5 billion for GMAC in two previous capital infusions and now controls a 56 percent stake. If the government converts preferred shares to common equity, it would own more than 70 percent of GMAC, the lender said during a conference call.

“I think for the taxpayer it’s going to be a loss,” said Christopher Whalen, managing director of Torrance, California- based Institutional Risk Analytics. “Who is going to buy this? What is the compelling business model that wants us to have this company continue to exist?”

The most recent bailout allowed the lender to contribute $2.7 billion of capital to its Residential Capital LLC unit, which had $2 billion in mortgage assets written down in preparation for a sale. GMAC said it considered several options for ResCap, including bankruptcy. It now expects to sell some of the mortgage assets of ResCap, which ranked among the nation’s biggest subprime home lenders in 2006.

Nothing ‘Crazy’

“We’re not going to do anything crazy and give value away, but it’s an asset we’d like to figure out how to capitalize on its value,” Chief Executive Officer Michael Carpenter said while taking questions after an investor presentation yesterday.

GMAC said the fourth-quarter loss stems in part from a previously disclosed $3.8 billion pretax charge tied to revaluing “higher-risk mortgage loans.” The company said it expects delinquencies to peak next year and home prices may hit bottom in the first quarter of 2011.

The latest capital infusion and restructuring weren’t enough to stabilize ResCap and assure a return to profitability, according to Moody’s Investors Service. While the changes were positive, ResCap’s “liquidity position is tenuous, capital insufficient and franchise impaired,” Moody’s said in a statement on Dec. 31.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net