GMAC tells oversight panel it will be able to repay TARP money

In a Congressional Oversight Panel hearing Thursday, GMAC Inc. executives said they doubt they will need a fourth round of bailout money from the federal government and expect to start paying back the $17.2 billion the compant has already received by 2012.

Critics have questioned the government's bailout of the auto and home lender, which is experiencing particular difficulty with its mortgage unit, Residential Capital. That business lost $10.3 billion in 2009, largely because of big writedowns on its loan portfolio.  

The federal government now owns 56.3 percent of GMAC and has appointed two members to its board. The government has provided GMAC with three cash infusions through the Troubled Asset Relief Program, a move that panel chair Elizabeth Warren called "without precedent" and deserving of "special scrutiny." 

"Three times GMAC asked Treasury to cast it a life line," Warren said. "And three times Treasury said yes." 

The hearing comes on the heels of a January panel report that is highly critical of the way Treasury handled the GMAC bailout. The report questioned the merits of the investment and said Treasury has never shown that a GMAC failure would have resulted in larger problems for the national economy. 

The financer also received special treatment regarding its capital requirements when government agencies conducted "stress tests'' to determine how certain banks and financial services companeis that got large amounts of TARP money would fare in an extended downturn.

 "In the face of criticism about the merits of saving GMAC, Treasury owes the public a more detailed and convincing explanation not only of its rationale for providing substantial assistance to GMAC, but also of its rationale for treating GMAC differently than other stress-tested institutions," the report read. 

Panel members grilled Treasury officials over the decision to offer GMAC several bailouts rather than allow it to go bankrupt.  

Treasury officials defended the decision to save GMAC while allowing both Chrysler and GM to enter Chapter 11 last year by arguing that adding GMAC to the bankruptcy mix would have further jeopardized the auto makers and put Treasury's own investments at risk. 

They also said it was necessary to prop up GMAC due to its integral role in providing auto financing for both consumers and dealerships. "The restructuring of GM and Chrysler wouldn't have been possible without saving GMAC," said Ron Bloom, senior advisor to the Secretary of the Treasury.

Jim Millstein, chief restructuring officer at Treasury, said it is rare for financing companies to successfully restructure in Chapter 11.  He added that a fourth loan to GMAC is unlikely. 

Yet analysts questioned by the panel said it would have been better for both GMAC and General Motors Co. had GMAC been allowed to join GM - from which it divested in 2006 - and let its other components go bankrupt. 

Warren also expressed skepticism at GMAC's move to become a bank holding company, which entitled it to receive additional bailout funds. "Why, in this case, do you function in this integrated way that makes you look like a financing arm of GM ... yet you get all the benefits of being an independent bank?" Warren asked. 

Michael Carpenter, GMAC's chief executive, described it online consumer bank, Ally, as "one of the best capitalized banks around" and "a bright spot" in GMAC. But others were skeptical.

Bank analyst Christopher Whalen said GMAC is essentially using deposits as a replacement for commercial paper and said it is extremely difficult for an Internet-based bank to be successful. His company Institutional Risk Analytics gave GMAC's Ally an "F" rating, based on its return on equity, charge-offs, capital, lending exposure and efficiency

Carpenter said the company plans for a public stock offering within the next year or two, and it will sell additional shares after that, to begin the process of exiting TARP.

"The business plan we have developed ... would lead me to the conclusion that we have a high likelihood of repaying the U.S. Treasury and taxpayer in full," Carpenter said.  

But Whalen added that an IPO would be unlikely as long as GMAC continues to have problems with Residential Capital, which Whalen dubbed a "functional equivalent of Chernobyl" and Carpenter himself called a "millstone around the company's neck."