GMAC Files for Bank Status

NEW YORK (Reuters) – The money-losing finance company GMAC said on Thursday it has filed to become a bank, and its bonds surged as it joined the growing list of lenders making such a move in a bid to secure U.S. Treasury funds.

Detroit-based GMAC said its application for funds from the government’s $700 billion Troubled Asset Relief Program is conditional on it changing its status to a bank holding company.

The company, which had previously said it was contemplating becoming a bank, did not disclose how much it might seek from the government.

GMAC’s bonds rose to 50 cents on the dollar, up 11 cents on the day, on the announcement.

Private equity firm Cerberus Capital Management LP owns 51 percent of Detroit-based GMAC and automaker General Motors Corp (GM.N) owns 49 percent.

GMAC follows other financial, nonbank companies such as credit card company American Express Co (AXP.N) and commercial lender CIT Group (CIT.N) in applying for bank status and Treasury funds.

GMAC hopes to have increased funding flexibility as a bank. The credit crunch has made it hard for the company to raise capital, and slumps in the mortgage and housing markets have battered its earnings.

The troubled finance company also said in the statement on Thursday that it is exchanging and offering cash for about $38 billion of outstanding debt at GMAC and its mortgage subsidiary Residential Capital to increase capital.

The aim of the debt exchange is to increase the company’s capital levels while reducing its outstanding debt — a plan GMAC hopes will support its application to become a bank.

The company, which has been the primary lender to GM customers but has curbed loans to borrowers who do not have good credit, lost $2.52 billion in the third quarter, its fifth straight quarterly loss.

By Elinor Comlay
(Additional reporting by Dena Aubin; editing by John Wallace and Maureen Bavdek)