GMAC's chief executive Michael A. Carpenter sought to reassure investors — as his predecessor Alvaro de Molina did before him — that the bleeding at its Residential Capital (ResCap) has stopped.

ResCap's net loss swelled to $4 billion in the fourth quarter, pushing its parent company back into the red. The mortgage unit had lost $9.2 billion over the previous eight quarters and was the main reason GMAC received $3.8 billion from the Treasury Department in December, on top of roughly $13.5 billion from two previous federal bailouts. (The government has a 56% stake in GMAC.)

On a conference call Thursday, Carpenter said GMAC expects to "fully resolve the challenges related to ResCap and the legacy mortgage business to minimize its impact on the company."
"You will see steady progress month by month, quarter by quarter," said Carpenter, who was named CEO in November after de Molina resigned.

Part of the reason for such optimism is that in December, GMAC marked down certain loans to 40 cents on the dollar, from 70 cents, and transferred the assets from the Ally Bank unit to ResCap, resulting in a $2.6 billion loss in the quarter.

"We expect the majority of the losses related to legacy assets are behind us," Robert Hull, GMAC's chief financial officer, said on the call.

Ceki Aluf Medina, a senior investment analyst at Scottwood Capital Management in Greenwich, Conn., said it remains unclear whether GMAC wants to keep its servicing rights or just sell off its legacy loans. "I think they're going to sell" ResCap, "at least parts of it, which is why most of the loans are now held-for-sale," he said. (Warren Buffett's Berkshire Hathaway Inc. is reportedly interested in buying ResCap.)

Liquidity is still an issue, analysts said. On the call, Doug Carson, an analyst at Bank of America Securities Inc., questioned how GMAC planned to pay off roughly $1.3 billion in bonds that are scheduled to mature in June. "Help us outline the game plan for those bonds," Carson asked on the call.

"We will continue to make contributions to ResCap to bolster their liquidity, as needed," Hull responded, adding that ResCap had roughly $900 million in cash at yearend and the legacy loans now are marked to fair value and could be sold. "There are many ways to raise liquidity."
Another looming concern is whether the $573 million repurchase reserve expense taken in the fourth quarter is enough given that mortgage lenders are being assaulted with buyback requests from secondary market investors.

"The mortgage industry has seen a material rise in claims for breaches of reps and warranties," Hull acknowledged.

Aluf Medina said ResCap may not have set aside enough for future liabilities.

In the game of hot potato between the investors holding soured loans and their originators, "ResCap is on the defending side, so you typically show expected liabilities on the low end."
On the bright side, deposit growth continued at GMAC's $52 billion-asset Ally Bank despite what Hull described as "some headwinds" from competitors, since the bank can no longer offer the highest rates. (Last year the Federal Deposit Insurance Corp. told Ally to rein in its pricing.) Ally's deposits jumped 56% from a year earlier, to $31.1 billion.

All told, GMAC swung to a loss of $5 billion from a profit of $7.5 billion a year earlier. Its flagship auto lending business generated a $309 million profit in the most recent quarter.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.