- 2007 second quarter net income of $293 million - Improvement of $598 million from prior quarter - GMAC cash and certain marketable securities climb to $17.5 billion - Increase from $12.8 billion at first quarter end - ResCap posts significantly lower loss and improved liquidity from prior quarter - Losses narrow to $254 million - Cash balance increases to $3.7 billion, up from $2.6 billion NEW YORK, July 30 /PRNewswire/ -- GMAC Financial Services todayreported second quarter 2007 net income of $293 million, compared to netincome of $787 million for the second quarter of 2006. Results for thesecond quarter of 2007 reflect continued strong performance in GMAC'sglobal automotive finance and insurance businesses, which more than offsetlosses in the real estate finance business. GMAC's second quarter net income generated by auto finance, insuranceand other operations -- excluding Residential Capital, LLC (ResCap) --amounted to $547 million, more than twice the earnings generated by thesesame operations in the second quarter of 2006. ResCap incurred a net lossof $254 million in the second quarter of this year, bringing GMAC'sconsolidated net income to $293 million. The year-over-year net incomecomparison was affected by a $259 million gain on the sale of an equityinterest in a regional homebuilder in the second quarter of 2006. Second Quarter Net Income (Loss) ($ in millions) 2007 2006 Change Memo: Q1 2007 Global Automotive Finance $382 $137 $245 $396 Insurance 131 80 51 143 Other 34 22 12 66 Net Income before ResCap results 547 239 308 605 ResCap (254) 548* (802) (910) Consolidated Net Income $293 $787 ($494) ($305) *ResCap's results for the second quarter 2006 include a $259 millionafter-tax gain on the sale of an equity investment in a regionalhomebuilder. GMAC consolidated net income of $293 million in the second quarterreflects a marked improvement from the $305 million consolidated net lossincurred in the first quarter this year. The large favorable swing inGMAC's earnings from the prior quarter stemmed from the considerableimprovement in ResCap's performance, with second quarter losses at amuch-reduced level. Although severe illiquidity in the nonprime mortgagemarket placed increasing pressure on asset valuations, aggressive measuresundertaken to reduce ResCap's nonprime exposure rendered the company lessvulnerable in the second quarter to continued weakness in the market. "The net losses incurred by ResCap continue to constrain GMAC's bottom-line profitability. But we are encouraged to see that the aggressive risk-mitigation initiatives implemented in the first half of this year havereduced ResCap's losses -- quickly and significantly -- despite increasingchallenges in the U.S. mortgage market," said GMAC Chief Executive OfficerEric Feldstein. "Meanwhile, we are pleased with the continued strong performance ofGMAC's global auto finance and insurance operations, where second quarterearnings more than offset ResCap losses," Feldstein said. "Operating trendsin the auto finance and insurance business units remained favorable with ayear-over- year increase in net margins, an improvement in auto leaseresidual performance, stable credit losses near historical lows and anincrease in insurance underwriting profitability." Liquidity GMAC and ResCap both maintained strong liquidity through the secondquarter. GMAC's consolidated cash and certain marketable securities totaled$17.5 billion as of June 30, 2007, up from $12.8 billion on March 31, 2007.Of GMAC's consolidated cash and certain marketable securities, ResCap held$3.7 billion at the end of the second quarter, up from $2.6 billion onMarch 31, 2007. GMAC and ResCap, in aggregate, completed more than $8.5 billion ofunsecured funding in the second quarter. Additionally, in June, both GMACand ResCap announced the renewal of five syndicated committed drawable bankfacilities totaling approximately $20 billion. Global Automotive Finance GMAC's global automotive finance unit earned net income of $382 millionin the second quarter of 2007, a substantial increase relative to the $137million of net income in the second quarter of 2006. Performance was drivenby improved margins in North America, strong lease residuals and stablecredit performance. The year-over-year variance also reflects favorablemark-to- market effects on risk management activities related to certaincallable debt. New vehicle financing originations increased year-over-year with $14billion in retail and lease contracts for the second quarter of 2007 versus$13 billion in the second quarter of 2006. Used vehicle originationsincreased approximately 50 percent in the second quarter of 2007 to $2.1billion versus $1.4 billion in the year-ago period. In addition tomaintaining a strong relationship with General Motors and its dealers, GMAChas made incremental progress in expanding its auto financing capabilitybeyond the GM network. Achievements year-to-date include enrolling 2,400diversified dealers to participate in retail programs through GMAC'sNational brand, originating more than $500 million in new wholesale assetsfrom diversified sources and growing revenues through expanded access andservices of SmartAuction, GMAC's web-based wholesale remarketing program. "GMAC's auto finance business provided another quarter of robustperformance, more than doubling earnings from the prior year," saidFeldstein. "We are pleased with results in the quarter and are excitedabout various opportunities to further grow the business throughdiversification of our revenue base and through expansion overseas. "In North America, we are making steady progress on diversificationefforts by meeting dealer demands to grow our used vehicle financingbusiness and by expanding our dealer network beyond GM franchises withwholesale and retail asset origination activities. While these effortsrepresent a relatively small part of our overall revenue, we are encouragedby our ability to successfully leverage our strong auto financecapabilities into this new arena," Feldstein said. "Moreover, with a broadfootprint overseas in key growth markets, GMAC continues to realize higherfinancing revenue on higher asset levels across our internationaloperations." Insurance GMAC's insurance business earned record second quarter net income of$131 million, an increase from $80 million in the prior year period. Thegain is due to favorable underwriting results primarily driven by lowerloss experience on vehicle service contracts and dealer inventoryinsurance. The combined ratio improved significantly to 90.2 percent in thesecond quarter of 2007 versus 96.2 percent in the year-ago period. Written revenue came under pressure in the second quarter due toconstrained pricing in the competitive U.S. insurance market. This waspartially offset by continued growth in international markets, bothorganically and through new business initiatives. In June, GMAC acquiredthe United Kingdom-based automotive insurance business, ProvidentInsurance. This business will provide GMAC another outlet in the U.K.automotive insurance market with potential to expand throughout Europe. The insurance investment portfolio totaled approximately $7.4 billionat June 30, 2007, with more than 90 percent of the investment portfolio infixed income securities and approximately 10 percent in equity securities. Real Estate Finance ResCap recorded a net loss of $254 million for the quarter, compared tonet income of $548 million in the year-ago period. The decline in financialperformance is due predominantly to continued pressure in the nonprimesector of the U.S. residential finance business. The significant itemswhich adversely affected quarterly performance include: i) mark-to-marketadjustments on delinquent and other held for sale (HFS) assets; ii)increases in delinquencies in the held for investment (HFI) portfolioresulting in higher provision for credit losses; and iii) a decrease in netfinancing revenue due to higher cost of funds. Partially offsetting theseitems were favorable servicing fees and a lower structural cost base, whichcontinues to be reduced in line with lower industry volume. Notably, theyear-over-year income comparisons are affected by the $259 millionafter-tax gain realized in the second quarter of 2006 on the sale ofResCap's equity investment in a regional homebuilder. ResCap's second quarter loss of $254 million marked a vast improvementfrom the $910 million loss incurred in the first quarter. Although marketconditions continued to deteriorate in recent months, ResCap was successfulin sharply reducing its exposure to the U.S. nonprime mortgage marketthrough: i) asset sales in its HFS portfolio; ii) steady asset run-off inits HFI portfolio; and iii) successful loan restructuring and sales in itswarehouse lending receivables. Specifically, ResCap's U.S. nonprime HFS portfolio was reduced to $1.9billion at the end of the second quarter, down from $3.1 billion at Marchmonth-end and from $5.4 billion at year-end 2006. The nonprime component ofResCap's U.S. HFI portfolio declined by $3.1 billion in the second quarter,with the majority of the run-off representing loans originated in 2005 and2006, vintages of a lower credit quality in this market segment. Nonprimeexposure in warehouse lending was reduced to $331 million, down fromapproximately $1 billion at March month-end. ResCap also significantly curtailed its nonprime loan originationactivities with second quarter production of approximately $700 million,down from $3.3 billion in the prior quarter. At the same time, U.S. primeloan production in the second quarter amounted to $26.5 billion, just shyof the prior quarter's volume, while its U.S. servicing portfolio increasedmarginally during the period to $425 billion. ResCap Loan Production ($ in billions) 2007 Q2 Q1 U.S. Nonprime Loan Production $0.7 $3.3 U.S. Prime Loan Production 26.5 27.7 U.S. Servicing Portfolio $425 $419 ResCap's business lending activities and international businessactivities both posted modest profits in the second quarter. The healthcapital and resort finance business generated strong operating results,partially offset by higher loss provisions on loans to specifichomebuilders in view of the softening U.S. housing market. In theinternational arena, total loan production increased to $7.7 billion in thesecond quarter -- up from $6.5 billion last quarter and up from $6.7billion in the year-ago period. In the U.K., ResCap reduced its secondquarter loan production in light of narrowing margins in the marketplace.However, the international business overall continued to expand profitably,while pursuing attractive growth opportunities in Continental Europe, LatinAmerica, Canada and Australia. In April, GMAC injected $500 million of equity into ResCap to bolsterthe company's capital position, bringing the total equity contributed to $1billion year-to-date. As of June 30, 2007, ResCap's equity stood at $7.5billion, an increase from $7.2 billion in the first quarter. "The actions undertaken by ResCap to overcome various challenges inthis market have translated to a significantly improved second quarteroperating performance," Feldstein said. "Nonetheless, we expect widespreadweakness in the U.S. housing market and mortgage industry to persist in thesecond half of 2007. Therefore, in order to further improve ResCap'sresults over the coming months, we intend to restrict origination ofmortgage products with limited market liquidity; we will step up ourremediation and loss-mitigation efforts; we will further reduce ournonprime mortgage exposure; and we will continue to right-size ResCap'sstructural cost base in line with lower industry volume. "We remain optimistic about the long-term prospects of ResCap'sfundamental business strengths -- its large-scale mortgage production andservicing platforms, its broad international presence, and its diverseproduct mix. And we believe ResCap's strong liquidity position, soundcapital base and the capabilities of its team will enable the company totake advantage of these competitive strengths as industry consolidationcontinues," said Feldstein. Outlook GMAC's prospects for the long-term remain favorable. Global automotivefinance is poised to maintain its leadership position in the marketplaceand leverage its core capabilities to further grow the business. Outlookfor the insurance business remains strong with a highly competitivecombined ratio and with strategic initiatives underway to expand thebusiness globally. At ResCap, despite challenging conditions in the U.S.mortgage market, the company expects continued improvement in earningsperformance in the second half of the year. About GMAC Financial Services: GMAC Financial Services is a global, diversified financial servicescompany that operates in approximately 40 countries in automotive finance,real estate finance, insurance and other commercial businesses. GMAC wasestablished in 1919 and currently employs about 31,000 people worldwide. AtDec. 31, 2006, GMAC held more than $287 billion in assets and earned netincome for 2006 of $2.1 billion on net revenue of $18.2 billion. For moreinformation, go to
GMAC Financial Services Reports Preliminary Second Quarter 2007 Financial Results
August 08, 2007, 1:06 a.m. EDT 19 Min Read
