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Potential GMAC Bank Problem Reported in Today's WSJ

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This Wall Street Journal article reported today of a potential problem that GMAC Bank may have in November when the FDIC waiver that allowed it to remain under GMAC and Cerberus comes to an end.

In 2006 the private-equity firm Cerberus Capital Management purchased 51% stake in GMAC Financial Service (the parent of GMAC Bank). Due to the special circumstances of this acquisition and of GMAC Bank's status as a Industrial Loan Company (ILC), the FDIC's approval was necessary, and as part of this approval, there was an agreement that within two years one of the following would be done:
divest control of the bank; terminate the bank's insured status; become a registered bank or thrift holding company; or apply to be subject to the same applicable law and regulation as other similarly situated companies at that time.

The end of those two years is this November, and with the current mortgage and credit crisis, these options are not looking good. The WSJ article described some of the problems with these options.

Selling GMAC Bank would be difficult in today's economic conditions. The article also cited stats showing GMAC Bank's weakness. In addition, selling GMAC Bank isn't a good option for GMAC's mortgage subsidiary, ResCap, which needs GMAC Bank as a source of funding. Terminating the bank's insured status is clearly not an option for GMAC Bank. Another option is registering as a bank holding company which would require Cerberus to open up its books, something that it doesn't want to do. The only two remaining options mentioned by the article are another FDIC waiver or Congressional legislation. Politics could put an end to these options.

I hope GMAC Bank can continue without changes. One thing the WSJ article didn't describe is the quality of GMAC Bank's online operation. Its online money market account is one of the best with an ACH transfer service that allows easy linking to external bank accounts and provides for fast ACH transfers with minimal restrictions. Its interest rate has been a little disappointing lately, but it does have a history of high rates (see my GMAC money market account review and rate history). As I reported last month, GMAC Bank offers competitive rate CDs that can be easily opened and managed online.

The WSJ article presented a worrisome picture of GMAC Bank's financial health:
GMAC Bank, which accounted for about 30% of ResCap's funding last year, isn't a specimen of financial vigor. According to the FDIC, the bank lent $17 billion to the residential real-estate sector and retained just $3.3 billion in capital. About $3 billion of those loans were backed by junior liens, while $2 billion went to home-equity loans -- types of debt that have sunk in value during the housing crisis.

The latest bank ratings by both Bankrate and BauerFinancial paint a different picture: 4 out of 5 star rating (sound) at Bankrate.com based on 12/31/07 data and a 4 out of 5 star rating (excellent) at BauerFinancial based on 12/31/07 data. More financial details on GMAC Bank can be viewed at this FDIC page.

Thanks to the reader tuphat for mentioning this news in the finding-the-best-deals post.


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Comments
15 Comments.
Comment #1 by Anonymous posted on
Anonymous
Almost opened GMAC account awhile back when it was highest rate.

Glad I didn't. Keeping funds at the same bank makes more sense over an extended period of time rather than rate chasing.

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Comment #2 by Anonymous posted on
Anonymous
I have a 5 years CD with them. If the bank's insured status is terminated, can I withdraw my money without penalty? anyone knows?

1
Comment #3 by ShraZZy (anonymous) posted on
ShraZZy
So it can lose FDIC in Nov?

1
Comment #4 by Banking Guy (anonymous) posted on
Banking Guy
Technically, dropping the insured status is an option, but as the WSJ article mentioned, this is very unlikely. I'm not aware of any bank in the US that accepts consumer deposits without FDIC. I don't think a bank could compete without it.

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Comment #5 by Anonymous posted on
Anonymous
'Banking Guy' has a very good point. Thanks!

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Comment #6 by spider (anonymous) posted on
spider
I opened an account with them moving my funds from Indymac in order to be with a safer bank to make sure. This is difficult to digest now that GMAC bank which was rated one of the best is not only having finacial problems but may lose FDIC.

Granted it's unlikey, but still it's up in the air....do I have any recourse if they lose FDIC? What's does FDIC coverage law say in terms of - are the deposits made before FDIC removal covered??

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Comment #7 by Banking Guy (anonymous) posted on
Banking Guy
I would guess that if they have to go through any signficant change, they would notify you by mail and would provide several weeks of advance notice before the change.

The more likely case would be if they get bought by another bank. This can be important if you have deposits at the bank that made the purchase since it could put you over the FDIC limits.

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Comment #8 by Bill (anonymous) posted on
Bill
I asked FDIC about GMAC's status in the event that they do not receive their waiver and are unable sell the bank. The FDIC reply stated:

According to our legal staff, Cerberus is requesting a waiver from the FDIC that would allow them to not be subject to a moratorium restricting non-financial companies from owning a bank. They have been granted a temporary waiver that expires shortly.

Apparently the temporary waiver was provided to give them time to sell the bank; or registering as a bank holding company or voluntarily terminate their insurance coverage. Since the bank can not operate without FDIC insurance coverage, if they request a termination of insurance, they would be paying off the depositors and going out of business. Under that scenario the FDIC would continue covering the depositors for a period of six month[s] to 2 years as determined by o[u]r Board of Directors. GMAC would have to notify the customers of the pending termination and make arrangements to pay or sell any deposits. If they can not pay or arrange a sale of deposits to another insured institution, the FDIC would pay depositors in the same manner it does for any failed bank.

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Comment #9 by Anonymous posted on
Anonymous
Novermber is approaching and I haven't any official statement on the status. I have funds locked in CD, do I have reasons to worry GMAC Bank losing FDIC? Any updates?

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Comment #10 by Banking Guy (anonymous) posted on
Banking Guy
Yes, GMAC received a 10-year waiver. Please refer to this post for details.

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Comment #11 by Anonymous posted on
Anonymous
i opened a gmac money market account early sept had it funded electronically, received my check card, then i pulled 35k within the gmac system from an external account.
To my utter shock, i got locked out my account and can't log in online.
i called and was told to fax in my driver's license to verify my address which i did since oct 4th and when i informed them, i was told that the "OPERATIONS DEPT" will contact me within 2 to 3 business days but since then i haven't heard from no one, received no call. i called again last thursday being oct 9th and was told the same thing that i will be contacted within 48 hrs but i haven't heard from no one.
please help .

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Comment #12 by Banking Guy (anonymous) posted on
Banking Guy
Note, it might be two business days which would exclude today and the weekend. But if GMAC continues to delay, you can submit a complaint to the FDIC at this FDIC page. I believe the FDIC is GMAC Bank's primary regulator.

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Comment #14 by dorothy (anonymous) posted on
dorothy
I have been reading the status of this bank but it is not updated; We are now in 2009 everything on here is 2008. I am looking to refinance my home at a lower rate, can anyone update the banks status?

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Comment #15 by Banking Guy (anonymous) posted on
Banking Guy
Refer to this post and this post for more up-to-date info on GMAC's status.

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