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Treasury, GMAC in talks for 3rd round of US aid

October 29, 2009|Associated Press

GMAC, the former lending arm of General Motors Co., is in talks with the Treasury Department for a third injection of taxpayer aid, a further sign of the U.S. government's entrenchment in the auto industry.

The government mandated this year that GMAC Financial Services raise an additional $11.5 billion in capital by early November after undergoing a "stress test" with 18 other banks.

Although other banks deemed undercapitalized have been able to raise funds from private investors, GMAC has been forced to go back to the government.

In a separate move to help the company extend more loans, the company said Wednesday that the Federal Deposit Insurance Corp. would back a $2.9-billion debt offering.

GMAC is a crucial player in the U.S. auto industry, providing wholesale financing to many General Motors and Chrysler dealerships to pay for the vehicles on their lots. The company also operates a mortgage lending unit, Residential Capital, that has been pummeled by the housing market downturn. It also runs an insurance unit and an online banking unit called Ally Bank.

"Having a healthy GMAC is important to us," GM Chief Executive Fritz Henderson said in Washington on Wednesday. Henderson, who said he was not involved in the discussions for more aid to GMAC, called the lender "the source of financing" for GM and Chrysler.

A Treasury Department spokesman confirmed that the department was in talks with GMAC about a third helping of aid. The government already owns a 35% stake in GMAC after providing $12.5 billion to the lender. It also owns a majority stake in GM and a smaller stake in Chrysler.

The Treasury spokesman declined to comment on whether the government's ownership stake in GM and Chrysler make it more willing to again help prop up GMAC. But Kirk Ludtke, an analyst at CRT Capital Group in Stamford, Conn., said "a viable GMAC is critical to the success of GM and Chrysler."

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