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WASHINGTON: The US Treasury announced on Tuesday a
3.8 billion dollar fresh capital injection into ailing GMAC, the former finance
arm of General Motors that became a bank to access federal rescue aid.
The capital infusion will give the US government a controlling stake in
the company.
"Due to a variety of factors, including that the
restructurings of General Motors and Chrysler were accomplished with less
disruption to GMAC than banking supervisors initially projected, Treasury will
commit 3.8 billion dollars of new capital to GMAC rather than the 5.6 billion
dollars originally announced," the Treasury said in a statement.
It had
previously injected 12.5 billion dollars in capital into GMAC.
The
Treasury also said it was restructuring its investment in GMAC "to protect
taxpayers and put GMAC in a position to raise private capital and pay back
taxpayers as soon as practicable."
"These actions offer the best chance
for GMAC to complete its overall restructuring plan and return to the private
capital markets for its debt financing and capital needs in 2010," the
department said.
The 3.8 billion dollar capital injection will be in the
form of 2.54 billion dollars of trust preferred securities and 1.25 billion
dollars of mandatory convertible preferred (MCP) stock.
Treasury said it
would also receive warrants for both types of stocks, totalling 190 million
dollars, which it would exercise immediately at the close of the transaction.
The Treasury, headed by Secretary Timothy Geithner, said it would
convert 3.0 billion of its existing MCP, which was invested in May 2009, into
common equity "to boost the quality of the capital supporting GMAC."
That move will raise Treasury's equity stake in GMAC to 56 percent from
35 percent.
Given the increased ownership, the Treasury will have the
right to appoint two additional directors, in addition to the two it has, to the
nine-member GMAC board of directors.
The department said it plans to
nominate its new directors in time for GMAC's annual meeting at the end of
April.
GMAC plans to step up the pace of its repayments to the
government.
"By protecting the financial performance and strength of our
core automotive finance operations, we expect to increase the pace at which we
can fully repay the US taxpayer," Michael Carpenter, GMAC chief executive, said
in a separate statement.
The smaller taxpayer-funded injection into GMAC
will result in a 1.8 billion dollar reduction in Treasury's previously
forecasted spending under the 700-billion-dollar Troubled Asset Relief Programme
(TARP), the Treasury said.
GMAC was the only one of 10 banking holding
companies deemed to have fallen short in efforts to raise enough capital to
weather adverse economic circumstances, the Federal Reserve announced last
month.
The Fed said in May that GMAC needed 11.5 billion dollars, to be
raised through private investments, or through public aid under the TARP
approved last year by Congress.
GMAC was the long-time financial arm of
the largest US automaker until 2006, when GM sold a majority stake.
In
December 2008, GMAC won permission to become a bank holding company to have
improved access to Fed lending amid the global financial crisis.
On May
21, the US Treasury said it had injected an additional 7.5 billion dollars into
GMAC to enable it continue providing loans to auto dealers and consumers.
The new investment came on top of an earlier five billion dollar
injection as part of an effort to rescue the auto industry and the financial
sector. - AFP/de