GMAC Financial Services confirmed it has applied to become a bank as it seeks money from the Treasury Department's $700 billion injection effort and other avenues of cheaper capital in an effort to stabilize its teetering state.
The cash-strapped financier, 49%-owned by General Motors Corp., also announced offers to exchange $38 billion in notes from GMAC and its Residential Capital home-lending business for new securities with the same maturity dates and interest rates. The move would cost GMAC up to $2.5 billion in cash, it said.
As a bank-holding company, GMAC said it would obtain "increased flexibility and stability to fulfill its core mission of providing automotive and mortgage financing to consumers and businesses." New avenues of potential funding include the Fed's discount window, where banks can get inexpensive, short-term emergency loans.
Two weeks ago, in a stark acknowledgment of the deteriorating health of mortgage business Residential Capital, GMAC said ResCap has had difficulty maintaining adequate capital and liquidity levels and raised doubts about ResCap's ability to remain viable.
A consortium led by private-equity firm Cerberus Capital Management LP, parent of Chrysler LLC, bought 51% of GMAC in 2006 for about $14 billion.
In the last several months, GMAC has breathed life into ResCap with capital injections, job cuts, an overhaul of the business and a massive debt restructuring - perhaps in the hope that ResCap could bring in profits once again after mortgage and real estate markets recovered. GMAC injected $2.8 billion of capital in 2007 and it has put in another $970 million through the first half of this year.
In the third quarter, GMAC forgave nearly $197 million owed to it by ResCap, after also forgiving ResCap debt last month. The nearly $4 billion in capital added to ResCap since 2007 comes on top of the $4.7 billion GMAC has loaned to ResCap. These loans include a $3.5 billion credit line that GMAC extended to the mortgage lender, which ResCap fully used by the end of the second quarter.