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.