GMAC Financial Services last night said it would raise its capital by US$11.5bn by 9 November, after the Federal Reserve’s Supervisory Capital Assessment Program (S-CAP; otherwise known as the ‘stress test’). Of that, $9.1bn must be new capital, the auto financier added.
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GMAC said it could increase capital by issuing new common equity, mandatory convertible preferred shares or conversion of existing equity into a form of Tier 1 common equity. It must submit a plan to the Federal Reserve Bank of Chicago by 8 June.
“Ensuring the availability of credit to consumers and businesses is a key component in stabilising the economy and a top priority at GMAC,” said CEO Alvaro de Molina. “We support the government’s efforts to shore-up the banking system and expect that the additional capital raised will further strengthen GMAC and aid in achieving our strategic objectives.”
GMAC said the new capital requirements do not include additional capital required to finance Chrysler dealers and customers related to GMAC’s previously announced agreement with the automaker.
“In connection with this agreement, the US government has indicated that it intends to support GMAC by providing the capital required to support the financing of Chrysler dealers and customers.” the firm said.
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By GlobalDataReuters noted the lender, whose owners include General Motors and Chrysler majority shareholder Cerberus Captial Management, was among 10 financial institutions last night ordered to raise $74.6bn to boost capital in a move Obama administration officials hope will restore faith in financial institutions and help steer the country out of the deepest recession in decades.
The bank ‘stress tests’ – which involved more than 150 regulatory officials going through the accounts of the 19 largest firms – effectively drew a line between healthy and weak, and determined exactly how much those institutions struggling under the weight of risky loans must raise, the news agency said.
The reviews, led by the Federal Reserve, showed which banks needed additional capital to withstand heavier losses that would likely come if the recession worsened.
The administration reportedly hopes the firms can fill capital gaps from private sources although Federal Reserve chairman Ben Bernanke has said previously the government was prepared to help if needed.
In December, GMAC became a bank holding company and received a $6bn government bailout. As part of a debt restructuring that month, GM and Cerberus were forced to reduce their respective 49% and 51% stakes in GMAC.
Earlier this week, GMAC reported a first quarter loss up to $675m from $589m a year ago as it set aside 78% more for loan losses.
