GMAC, ResCap challenged to maintain cash balances

By Jennifer Lanning Drey

Portland, Ore., Nov. 5 - GMAC LLC's chief financial officer, Robert Hull, said maintaining the company's cash balances, as well as the cash balances of Residential Capital LLC and GMAC Bank, has become a significant challenge due to the recent volatility in the credit markets.

GMAC's consolidated cash balance fell to $13.5 billion at the end of the third quarter, down $800 million from $14.3 billion at June 30, Hull reported during the company's third-quarter conference call held Wednesday.

Hull also said GMAC's funding levels have dropped due to short-term debt being under pressure, and the company has increased usage of its $11.4 billion secured revolver due to the closing of the public and private ABS markets.

Seeking bank company charter

Given its liquidity difficulties, GMAC has applied for a bank holding company charter, which it believes would improve its chances at being able to participate in various government liquidity programs.

However, a bank charter would also bring an increased level of regulation and would require significant changes to GMAC's corporate structure and product array, Hull cautioned.

"While we believe that a bank holding company with a deposit funding structure is a great solution to becoming a successful lender and servicer, there is absolutely no guarantee that our application will be successful or when we might get a decision on our application," he said.

Accordingly, the company remains focused on its "self-help" plan, which also looks to shed non-core assets, limit originations and access federal liquidity programs where possible.

Hull said GMAC also may launch a private bond transaction in the future.

GMAC reported a $2.5 billion third-quarter net loss, compared to a net loss of $1.6 billion in the third quarter of 2007. The company said the results were primarily attributable to a significant loss at ResCap as adverse market conditions continued to affect the mortgage business.

ResCap posts loss

ResCap reported a $1.9 billion net loss for the third quarter, compared with a net loss of $2.3 billion in the year-ago period, due to weakened credit performance, negative foreign-currency impacts, restructuring charges and lower production levels, Hull said.

"The execution of strategic initiatives is reducing the balance sheet and lowering operating costs; however, credit-related costs and lower production continued to negatively impact ResCap results," he said.

ResCap's difficulty retaining liquidity has made the segment dependent on GMAC for support, Hull said.

During the third quarter, GMAC contributed $93 million of ResCap bonds and forgave $101.5 million of other debt.

ResCap still has asset sales and business wind-downs to complete and is looking for additional opportunities to reduce risk and leverage, Hull said.

"We continue to execute our strategies to reduce [ResCap's] balance sheet and lower operating expense; however, market conditions have overwhelmed these efforts somewhat," Hull said.

ResCap is a New York-based real estate finance company primarily focused on residential real estate markets in the United States, Canada, Europe, Latin America and Australia.

Detroit-based GMAC is a financial services company.

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