GMAC Cuts Disclosures at Its Home-Loan Albatross

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Already a flash point of controversy over its online bank's high deposit rates and negative advertising, GMAC Inc. is now ruffling feathers by cutting back on disclosures about its troubled mortgage arm.

On a conference call Wednesday to discuss third-quarter results, the finance company, 35% owned by the government, said it would no longer provide separate quarterly or annual reports for Residential Capital LLC. The Securities and Exchange Commission does not require it to do so, since only 300 investors hold ResCap's $4 billion of debt. GMAC's chief financial officer, Robert Hull, said the change will save it a "tremendous" amount of money, though he did not specify how much.

Analysts are livid.

"It just doesn't send a very good signal to people on our side of the market," Sarah Thompson, a bond analyst at Barclays Capital, told Hull on the call.

The row comes as the $178 billion-asset GMAC has been trying to become less reliant on the capital markets — and direct government support — by expanding its Ally Bank.

Total deposits at the company jumped 58% from a year earlier, to $28.8 billion in the third quarter. That includes some deposits at a Canadian bank GMAC owns, but 55% came from retail Ally deposits, and 33% were from brokered deposits at the Midvale, Utah, institution.

Ally helped lower GMAC's borrowing costs to 5.9% in the third quarter from 6.3% in the second quarter, Hull said. And in GMAC's flagship auto lending business, "our ability to fund new originations at Ally allowed us to be price-competitive in the market." An uptick in used-car sales helped GMAC's auto finance unit swing to a profit of $395 million in the third quarter, from a loss of $379 million a year earlier.

Ally spooked regulators, and miffed bankers, this year by offering some of the highest rates on deposits. Bankers were also irritated by Ally's ads that excoriated their industry, particularly after GMAC had received several helpings of government support.

In May, as a condition of allowing GMAC to issue government-guaranteed debt under the Temporary Liquidity Guarantee Program, the Federal Deposit Insurance Corp. told GMAC to focus "on reducing the bank's overall deposit costs," as an agency spokesman put it soon after.

When asked on Wednesday's call how big the bank could become in terms of deposit growth, Hull said: "Ally is monitored and measured and governed by the FDIC, so that will be one factor as we grow it." At the FDIC's urging, GMAC also transferred $5.2 billion in equity to Ally Bank in the quarter. Regulators asked GMAC "to keep a lot of cushion at the bank," Hull said.

Craig Emrick, a vice president and senior credit officer at Moody's Investors Service Inc., said that there is a cost associated with reporting separate financials for ResCap. But he lamented that there would be a "significant decline in the level of information provided publicly."

"People weren't happy about it," Emrick said. "It certainly doesn't have a positive appearance."

GMAC's mortgage operations segment, which includes ResCap, posted a pretax loss of $747 million for the third quarter, compared with a $1.9 billion loss a year earlier. GMAC set aside a $515 million reserve in the period for forced repurchases of faulty mortgages.

Mark Wasden, a vice president at Moody's, said ResCap remains "a meaningful constraint" on GMAC.

"ResCap will incur additional meaningful losses, and it imposes on GMAC an additional capital support requirement," he said.

Hull demurred when asked by analysts on the call whether ResCap could place further demands for capital on the parent company. "In the early days before the tougher markets came, ResCap was a diversification play, but it has not turned out to be the blessing on diversification that we thought," he said. "Yes, it uses capital and liquidity, and the diversification question is one I can't answer."

All told, GMAC posted a third-quarter net loss of $767 million, compared with a loss of $2.5 billion a year earlier.

GMAC is still negotiating with the Treasury Department over a proposed $5.6 billion capital infusion. Hull said he expects the final terms to be announced next week.

GMAC has received $11.5 billion in two rounds of government capital since December.

Jeff Brown, GMAC's treasurer, said on the conference call that GMAC hoped to raise funds on its own without participating in the TLGP, which the company has exhausted. "Ideally, we would try to target an action over the next two quarters with a nonguaranteed transaction," Brown said.

But Wasden at Moody's said any issuance will carry a high price tag and is not in line with the company's strategy of building up deposits through Ally. "I don't think unsecured debt is going to represent the kind of funding source that it has for GMAC historically, which gets back to their whole strategy of becoming more banklike," he said.

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