It is Being Reported - GMAC May File For Bankruptcy

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Comments: 1

September 9, 2008


Back in November of 2007, I outlined (GMAC/Residential Capital - What this May Mean To GM) some of the problems GMAC has encountered as a reuslt of the sub-prime mortgage collapse.  GMAC was the financial service company General Motor spun off to the private equity firm Cerberus  Capital Management back in late 2006.  In that time the crisis in the housing market along with the ongoing liquidity problems has taken a further toll on GMAC.

For the first half of 2008 (10Q SEC Filing), GMAC has lost $2.7 billion, which was up from $1.2 billion for the same period in 2007.

As recently as September 3, GMAC announced it would cut 5,000 jobs or 60% of its staff at its mortgage lending arm, Residential Capital, and shut all 200 of its GMAC Mortgage retail offices.

However, the situation at GMAC may in fact be worse than I originally have suspected.

Today, the website The Mortgage Lender Implode-O-Meter that has been tracking the US housing crisis is reporting that GMAC may file for bankruptcy protection as early as tomorrow.

The Mortgage Lender Implode-O-Meter has received credible information that GMAC may file for bankruptcy as early as Wednesday, September 10, 2008. We do know they are scrambling to move/sell assets prior to this tentative filing date, and we are attempting to confirm the information received.

GMAC's Gina Proia in Media Relations got back to us and suggests, "There is no basis for this type of speculation.”

At this point in time, I am not sure what to make of it however; the impact could be significant for the automotive industry as Cerberus is still struggling with its investment in Chrysler LLC and I have well documented the problems at GM.  GM also has not resolved it liabilities with the bankrupt parts supplier Delphi the company spun off almost a decade ago.

Even if this rumor does not pan out, I do believe GMAC will not be the cash cow it has been in the past for GM/Cerberus any time soon.  GMAC could be paying for its mortgage portfolio for some time.  If there is any truth to this, I do believe GMAC could be laying the ground work to exit the mortgage business through bankruptcy. 

Over the past year and a half, GMAC has had many problems directly related to it mortgage business, questionable accounting dating before the spin off and recently significant write downs from their automotive lease portfolio.  Given Bear Sterns, Freddie and Fannie, Lehman Brother, IndyMac and probably more banking problems to come, this GMAC rumor is very plausible.

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