Notice in the article "As part of the agreement, GMAC agreed to keep interest rates on deposit accounts offered through its banking unit at certain levels, according to people familiar with the situation." I am setting up accounts at other banks in preparation for Ally going under or lowering their rate...

In a stark reminder of how some battered financial firms remain dependent on government lifelines, GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money, people familiar with the matter said.

The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. The latest infusion would come in the form of preferred stock. The government's 34% stake in the company could increase if existing shares eventually are converted into common equity.

The willingness by Treasury officials to deepen taxpayer exposure to GMAC reflects the troubled company's importance to the revival of the auto industry. Founded in 1919, GMAC has $181 billion in assets and is a major financing provider on car purchases from General Motors Co. and Chrysler LLC. The new capital would help firm up GMAC's balance sheet and solidify its auto-loan business.
[Helping Hand]

Federal officials also are moving to shore up GMAC's ability to fund its daily operations, with the Federal Deposit Insurance Corp. telling the company Tuesday the agency will guarantee an additional $2.9 billion in debt, according to people familiar with the discussions. The FDIC guarantee will make it easier for the company to sell debt to investors. The FDIC backed $4.5 billion in GMAC-issued debt earlier this year.

The FDIC approval came just four days before the expiration of the regulator's program that guarantees debt issued by certain banks. It ended months of tense negotiations between GMAC and regulators. Without a deal, the company would have been forced to further reduce its lending volume. New-car loans by the company tumbled 55% to $5.6 billion in the second quarter from a year earlier.

As part of the agreement, GMAC agreed to keep interest rates on deposit accounts offered through its banking unit at certain levels, according to people familiar with the situation.

While GMAC is the only U.S. company to get three capital injections from the government since the financial crisis erupted two years ago, thousands of banks and other financial firms remain weakened by their exposure to fallen real-estate values and clobbered financial markets.

Among U.S. banks that got a total of $204.64 billion in aid through the Troubled Asset Relief Program, just one-third of the capital has been repaid so far. Government officials are skeptical that some banks now wanting to escape the government's grip are strong enough to do so, with Bank of America Corp.'s attempt to repay federal bailout funds snagged by a disagreement over how much additional capital the bank must raise to satisfy regulators, people familiar with the situation said.

At GMAC, the likelihood of a third infusion increased when the government's stress-test results were released in May. The test concluded GMAC needed $11.5 billion in common equity to continue lending in a stressed economy.

GMAC raised some of the money directly from the government, but a significant hole remains. The company hasn't been able to attract much capital from private investors because it isn't listed as a public company, forcing GMAC to begin negotiating with the government to find the remaining funds. GMAC and Treasury officials are now negotiating about exactly how much capital the company needs.

People close to GMAC said the future outlook for the company is better than it was in May, and that unlike other banks that went through the stress-test process, GMAC won't be forced to fill the entire capital hole even with a third infusion. Bank of America has raised about $40 billion in new equity, higher than the $34 billion required, and regulators are asking it to raise even more if it wants to return $45 billion in U.S. aid.

The U.S. government's current 35.4% stake in GMAC is the result of a 2009 restructuring of GM.

People close to GMAC said they don't expect the government to call for changes in management as a result of the likely infusion. The company posted a second-quarter loss of $3.9 billion amid rising loan delinquencies and the continued U.S. auto slump. It expects to release third-quarter earnings next week.
[GMAC] Bloomberg News

GMAC CEO Alvaro de Molina.

For decades, GMAC served as GM's finance arm. In 2006, GM sold a majority stake to private-equity firm Cerberus Capital Management, which eventually installed former Bank of America Chief Financial Officer Al de Molina as CEO. The collapse of the U.S. housing market and declining U.S. auto sales nearly crushed GMAC, forcing Mr. de Molina to curtail lending and seek help to finance its operations.

Mr. de Molina's search for capital to absorb losses and emergency financing brought him to the government's door. The Fed awarded GMAC status as a bank-holding company and Treasury injected $5 billion in December 2008. It came back with an additional $7.5 billion on May 21. The Fed also waived rules to allow the bank to pass assets down into its bank division, and the FDIC reluctantly agreed to issue "up to" $7.4 billion in government-backed debt. The FDIC approval issued Tuesday brings GMAC to the full amount authorized in May.

In another defining moment for GMAC, the company entered into an agreement with Chrysler in April 2009 to provide auto financing and services to Chrysler dealers and customers. This allowed GMAC to leverage its core strength of auto financing and become part of a solution with the U.S. government to restructure the auto industry.

In May, GMAC also launched a new brand for its online bank, called Ally Bank
. Its pursuit of deposits at high rates became a key leg of its strategy, since deposits provide a cheap form of funding, but the taxpayer-assisted approach rankled competitors and the FDIC.

The dispute nearly cost GMAC its chance at the final $2.9 billion in FDIC debt guarantees. The two sides were able to hammer out an agreement that asks GMAC to keep its rates at certain amounts in exchange for the support. Without the guarantees GMAC might have been able to issue debt on its own, but it would have been more expensive and likely would have led to a squeeze on lending or an increase in what GMAC charges its borrowers, said people close to the company.

When the Federal Reserve and others completed the stress tests in May, they gave banks until June 8 to submit approved capital plans to the government. Banks were required to meet the capital requirements by Nov. 9 or they'd have to accept more government money. Directors and senior management were required to give the capital plans "full and immediate attention and strong support."

What the hell happened the Ally CEO writing a rebuttal letter to the bankers association assuring its health and solvency?

Also, since when did 1.7% interest become excessive?... You can almost hear the sounds of the currency collapsing.

We FWFers, with years of savings and sacrifice, being rapidly devalued while earning a paltry sub 2% interest rate are hosed.

why are we proping up Ally/GMAC?

why can't this black hole of money be closed down?

Nightrush said:Having access to ally information that is not publicly available yet, i can tell you there was a "emergency" meeting tonight and this is part of the "Sweet heart deal" that Cerberus received for just giving up its entire share of Chrysler. If everyone forgets Cerberus (which Owns GMAC) purchased Chrysler and then all of a sudden they lost the company months later ( But according to the news then it had nothing to do with GMAC)

Please explain. Cerberus bought both Chrysler and its financial arm. How did writing down the auto investment and keeping the financial arm become a sweet heart deal?

shut them down and jail everyone involved with their marketing

Hoping they survive. Setting up a new ACH hub like I've got setup at Ally will take some time.

mtl325 said:Nightrush said:Having access to ally information that is not publicly available yet, i can tell you there was a "emergency" meeting tonight and this is part of the "Sweet heart deal" that Cerberus received for just giving up its entire share of Chrysler. If everyone forgets Cerberus (which Owns GMAC) purchased Chrysler and then all of a sudden they lost the company months later ( But according to the news then it had nothing to do with GMAC)

Please explain. Cerberus bought both Chrysler and its financial arm. How did writing down the auto investment and keeping the financial arm become a sweet heart deal?

Yes Cerberus bought both of them and gave up/lost their stake in Chrysler, but is still in control of all the financing for Chrysler/Fiat in the US.... If Cerberus wanted to, they could have forced Chrysler into Liquidation instead of this partnership deal, then losing one of the big 3 and making "Gm to big to fail". At which point the entire GM deal may have not went the way that it did. So Cerberus by giving up a large investment got the reassurance that its current investment GMAC, which will be totally re-branded under the ally name soon, will get their class as a bank holding company (remember the funds problem for that, that went away overnight? ) and have almost unlimited access to the Fed Window.

The conspirator in me thinks this is nothing more than a (backdoor) effort to AGAIN prop up the (heavily unionized) car makers.

Does anyone else get this impression?

Nobody wants the cars they finance - they are going to die, might as well be today. I am reminded of a sad commercial that we indirectly paid for where the fellow explains how "Saturn makes cars people want" there was a tone of a wine/deperation in his voice. Much like: come on we need you to buy our cars. Granted people would want them, just not at the price offered.

wilesmt said:The conspirator in me thinks this is nothing more than a (backdoor) effort to AGAIN prop up the (heavily unionized) car makers.

Does anyone else get this impression?

No. Why conjure up conspiracy and backdoor efforts when the obvious is marching right through the front door: billions upon billions of taxpayer money thrown at the financial industry. Any effects on carmakers, unions, and everyone else is purely peripheral.

I think one of the worst trends in the last few decades is the socialization of risk while continuing to privatize profit -- corporations and individuals want to keep all the upside (profit) and transfer any downside (loss and risk) to someone else, i.e., taxpayers. This is happening locally (developers wanting local governments to buy their failed projects, for example, or individuals with onerous cc debt) all the way to the largest national/international companies (the complete failure of underwriting standards led to huge bank losses, which are now covered by taxpayers).

mod edit: removed political content