In a move that many viewed as inevitable, Treasury Secretary Timothy Geithner announced that GMAC will receive further federal funding through TARP. Geithner said that GMAC will likely get an amount slightly lower than the $5.6 billion that was first considered by the Fed.
GMAC, the loan arm for both General Motors and Chrysler , has already received $13.4 billion in government capital, but is now asking the Federal Reserve to provide as much as $5.6 billion in additional aid in exchange for equity and stock.
The U.S. government currently owns a 35.4 percent share of GMAC as a result of previous exchanges of TARP funding for GMAC stock.
GMAC has requested additional time so it can properly assess its financial situation in order to request the least amount of aid possible, while still maintaining the necessary funds for GMAC to operate.
The Troubled Asset Relief Program, or TARP, was created last year to provide emergency funding for institutions believed to be “too big to fail,” and crucial for the national economy. In order for institutions to apply for TARP funding they needed to prove to the Fed that they could raise enough outside capital to be able to survive a possible second downturn in the economy.
Geithner said, “If you do not raise capital from the private markets, if you are unable to, we will put capital into you because it is important to the stability of the system.”
Unlike other TARP recipients, GMAC was unable to pass the “stress tests.”
Geithner said, “It was never going to be possible for GMAC. They are in a unique and difficult situation.”
GMAC has replaced its CEO since receiving the last federal infusion of capital as part of its plan to form a strong restructuring plan.
Geithner said, “The question ahead is really what plan for restructuring the new board and management (of GMAC) embark on,” when speaking to the Congressional Oversight Panel which is overseeing the $700 billion of TARP funds.
Former SEC commissioner and current panelist for the Congressional Oversight Panel, Paul Atkins, said, “TARP was an emergency fund that was set aside to rescue firms in distress last year. Clearly, if GMAC failed, it would not bring down the financial system. Instead, this is a way for taxpayers to subsidize people buying cars.”
The exact amount of additional aid GMAC will request from the Federal Reserve has not yet been disclosed.
