GMAC Financial Services Becomes Bank Holding Company With Access to TARP Funds; Changes to GM and Cerebus Ownership

26 December 2008

On 24 December, the Board of Governors of the Federal Reserve System approved an emergency application from GMAC Financial Services to become a bank holding company under the Bank Holding Company Act of 1956. As a bank holding company, GMAC, a global finance company specializing in automotive, real-estate, and commercial finance and insurance, has access to the $700B TARP funds from the US Government and can get emergency loans directly from the Fed.

GMAC Bank, currently operating as an industrial loan company, has received approval from the Utah Department of Financial Institutions (UDFI) to convert to a commercial bank.

The Bank Holding Act specifies that such applications require a period of time (normally 30 days) for consideration, but the Act also authorized the Board of the Fed to reduce or eliminate this notice period under certain circumstance.

In light of the unusual and exigent circumstances affecting the financial markets, and all other facts and circumstances, the Board has determined that emergency conditions exist that justify expeditious action on this proposal in accordance with the provisions of the BHC Act and the Board’s regulations.

—Fed Bank Order

Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down.

Although GM owns a significant portion of GMAC, Cerberus Capital Management, L.P. currently owns a majority of the shares of GMAC. Neither GM nor Cerberus can comply with the non-banking activities restrictions in the Bank Holding Company (BHC) Act, and neither can retain a controlling interest in GMAC.

Consequently, GM is reducing its ownership interest in GMAC to less than 10% of the voting and total equity interest of GMAC. GM will transfer its remaining equity interest in GMAC to a trust that has a trustee acceptable to the Fed and the Department of the Treasury, who will be entirely independent of GM and have sole discretion to vote and dispose of the GMAC equity interests.

To ensure that Cerberus’ holdings in GMAC are consistent with precedent on noncontrolling investments in banks and bank holding companies, each Cerberus fund that holds interests in GMAC will distribute its equity interests in the company to its respective investors. As a result of this distribution, the aggregate direct and indirect investments controlled by Cerberus and its related parties would not exceed 14.9% of the voting shares or 33% of the total equity of GMAC LLC. No single investor would own, hold, or control 5% or more of the voting shares or 7.5% of the total equity of GMAC LLC.

Today’s announcement marks a key turning point in GMAC’s history. As a bank holding company, GMAC will be competitively positioned for the long-term to provide financing to auto and mortgage consumers and businesses such as automotive dealers.

—GMAC Chief Executive Officer Alvaro G. de Molina

Resources

• Federal Reserve Bank Order