In our latest comment in The Institutional Risk Analyst, we opine on the Fed’s approval of GMAC’s application to become a bank holding company:
“Following that line of thinking, the Fed’s 4-1 approval of the GMAC application to become a bank holding company (“BHC”) is, to us, the latest evidence that our central bank badly needs a change in leadership. Providing the enablement for this ersatz BHC to access $6 billion in TARP funds will not change the firm’s problematic financial picture, a picture colored heavily by exposure to the mortgage, consumer and auto sectors of a shrinking US economy.”
We note that the GMAC’s financial situation is perilous and that the Fed has basically thrown out the rule book governing bank regulation when it comes to this very political situation:
“Let’s start with a review of the latest SEC filings for GMAC LLC using the IRA SEC Catalog. At the end of Q3 2008, the $211 billion asset business was imploding, to put it generously. Revenue and assets were down from a year ago, and GMAC LLC showed an operating loss of $2.6 billion in Q3 and $5.5 billion for the nine months ended September 30, 2008. Add $6 billion in fresh TARP funds and you buy a couple of quarters more operating losses – maybe.”
We then look at the GMAC Bank:
“GMAC’s FDIC insured bank, GMAC BANK, rates a “C” on the IRA Bank Monitor’s safety & soundness benchmark at the end of Q3 2008. Registered users of the IRA Bank Cart can purchase the profile of GMAC Bank. With an overall stress index of 3 vs. 1.5 for the industry average stress level, to us GMAC Bank is headed in the wrong direction in terms of financial trends. The $32 billion asset bank has decent efficiency in the 60% range and above peer capital, but the defaults at 97bp (annualized) and low ROE drag the bank’s score up to 2x the industry average.”
Bottom line: We expect to see both General Motors (NYSE:GM) and GMAC in a restructuring in 2009. The fall in revenue in the auto sector and in aggregate GDP across the board spells doom for at least one automaker in North America.
What remains of Chrysler is clearly going to be taken to the curb and sold, and Ford is basically restructured now and controlled by the banks c/o the previous kitchen sink financing, so GM is really the last detail in North America.
Shame nobody told the Fed all of this. As and when GMAC defaults, the Fed will face yet another regulated BHC in bankruptcy court. But that is, after all, where GMAC belongs in the first place.