Michael A. Carpenter, GMAC's newly installed chief executive, says his top priority is to stop its troubled mortgage unit from dragging down the rest of the $178 billion-asset company.
Carpenter, a former senior executive at Citigroup, said he is looking at "every conceivable alternative," including bankruptcy, for Residential Capital (ResCap). The unit, which has lost $9.2 billion over the last eight quarters, is the main reason GMAC has taken $12.5 billion of federal capital and was seeking as much as $5.6 billion more before the management shake-up this week.
"If you look at the history of ResCap, it's been full of surprises and it's been the gift that keeps on giving," Carpenter, 62, said in an interview Tuesday. "Obviously there is a price associated with that, and that in turn has an impact on the capital we need."
"What we want to do, to the best that we're able to, is draw a box around it and say that it is contained."
Carpenter, who joined GMAC's board in May, was named CEO on Monday after Alvaro de Molina resigned from the post under pressure. The surprise announcement came just a week after GMAC had been expected to receive a third infusion from the government, which owns 35.4% of the struggling finance company.
In the government's April stress tests of the 19 largest banking companies, GMAC was one of the 10 that were told to raise capital to withstand a worst-case scenario. It was the only one of those 10 that had not done so by last week.
As the Nov. 9 date for receiving the third round of capital approached, Carpenter said, "it was clear there was going to be a management change," so board members asked the Treasury Department for an extension "so new management could get their arms around this and give their view of what was needed."
"My guess is, we'll end up not needing all that capital," Carpenter said.
The new CEO insisted that the Treasury played no role in de Molina's departure and said regulatory supervision of the company has been "very helpful and very fair."
But he also made it clear that he shares the agenda of his federal overseers.
"If you're a regulator, the status of ResCap is on your list," Carpenter said. "Whether or not it should be part of the company is secondary. They look at ResCap and they say, 'This has been a huge drain of capital. What are you going to do about it?' "
Under de Molina, GMAC appeared to be leaning toward keeping ResCap, or pieces of it.
In an interview last week, de Molina said he had "nothing to report" on whether GMAC had adopted a specific strategy for dealing with ResCap.
But Carpenter said the government's support so far for GMAC stemmed primarily from its efforts to restructure General Motors Corp. and Chrysler Corp., which were both ushered into bankruptcy earlier this year.
"When the company received substantial [Troubled Assets Relief Program] funds, it received them as part of the government's support to restructure the auto industry and that's what our principal investor wants us to get right," he said. "To the extent that ResCap is a drag on us, we need to find a way so it doesn't stand in the way of us getting quickly to a triple-A rating."
GMAC did not include bankruptcy on a list of possible options on how to resolve ResCap in a Nov. 10 filing. Because ResCap is the fifth largest mortgage servicer and originator, and the Obama administration has devoted more than $75 billion to helping homeowners avoid foreclosure, a bankruptcy filing appears to be an unpalatable option that would also distract GMAC's management, analysts said.
Instead, the company may attempt a restructuring of ResCap outside of bankruptcy court, or some form of "coercive exchange" whereby bondholders would be asked to provide additional capital to avert bankruptcy.
Kirk Ludtke, a senior vice president at CRT Capital Group, a Stamford, Conn., investment bank, said GMAC may be trying to send a message to ResCap bondholders.
"It could be that the creditors of ResCap will be asked to help facilitate a restructuring or face bankruptcy," he said. "We may be entering a new phase of government assistance, where wholly owned, but insolvent, subsidiaries are allowed to fail."
One thing that Carpenter said he would not change is the rapid gathering of online deposits at GMAC's Ally Bank using high rates and ads that mock traditional banks.
"It annoys some people," he said. But "if I look at the ads, they're among the few I remember."
Even here, though, Carpenter acknowledged the concerns that the Federal Deposit Insurance Corp. has expressed about Ally's torrid growth. ([Ally Bank's] deposits rose 58% in the third quarter from a year earlier, to $28.8 billion.)
"We're new to the business and we have to do it the right way and the regulators have understandable issues, like how sticky are the deposits. And, from a safety and soundness point of view, they don't want people pushing the envelope in terms of what they're offering on rates," he said.
Carpenter said another big priority is expanding GMAC's flagship auto lending unit so it will finance cars other than those made by GM and Chrysler.
He said he plans "a deep dive" into the auto business by meeting with GM and Chrysler executives in Detroit this week.
Eventually, he said, he wants GMAC to pay back the company's taxpayer funds.
Carpenter had been the chairman and CEO of Citi's alternative investment unit from 2002 to 2006, and headed the company's global investment bank (the former Salomon Smith Barney) for four years. Most recently, he founded Southgate Alternative Investments.
He said he has been in a flurry of meetings with GMAC's board and management over the past two days, including a dinner Monday night with executives at Ally Bank and a conference call Tuesday with 500 GMAC employees.
Since May, when the Treasury Department overhauled GMAC's board, directors have held 36 meetings, Carpenter said.
"When I joined the board, we were all nervous because when the government funded the company they threw out the entire previous board," he said. "We were all brand new, and we've been drinking from a fire hose the past six months."
