GMAC still short of capital, may get extra aid

WASHINGTON (AFP) – GMAC, the former finance arm of General Motors, needs more capital to meet buffer requirements under the "stress tests" of banking groups conducted this year, the Federal Reserve said Monday.

GMAC was the only one of 10 banking holding companies deemed to have fallen short in efforts to raise enough capital to weather adverse economic circumstances, the Fed said in an update on the stress tests conducted earlier this year.

The other nine banks "now have increased their capital sufficiently to meet or exceed their required capital buffers," the Fed statement said.

The Fed said GMAC is expected to meet its remaining buffer need by accessing the US bailout funds to stabilize the financial system "and is in discussions with the US Treasury on the structure of its investment."

A separate Treasury statement said GMAC "is expected to access the Troubled Asset Relief Program (TARP) Automotive Industry Financing Program to meet its capital need" but offered no details.

The Fed determined in May that 10 banking groups needed to raise a total of 74.6 billion dollars for "capital buffers" in the event of a deeper economic slump.

The stress tests examined the 19 largest bank holding companies in an effort to boost confidence in the troubled financial system.

The central bank said that since May, the banks cited in the report have raised capital by issuing 39 billion dollars worth of shares, and had converted preferred stock to common equity in the amount of 23 billion dollars.

The banks had sold assets worth another nine billion dollars, boosting their capital position.

Treasury Secretary Timothy Geithner said that the stress test effort has helped confidence in the finance system.

"In January of this year, there was very little confidence in the financial system. Financial institutions could not borrow without guarantees provided by the government, and we faced the real prospect of having to use taxpayer resources to recapitalize the banks," Geithner said.

"Today, banks are repaying the taxpayers with interest and credit is coming back, but we need to reinforce that improvement and ensure that small and medium sized businesses can borrow to create jobs on Main Street."

The Fed said in May that GMAC needed 11.5 billion dollars, to be raised through private investments, or through public aid under the Troubled Asset Relief Program approved last year by Congress.

GMAC was the longtime financial arm of the largest US automaker until 2006, when GM sold a majority stake.

Last December, GMAC won permission to become a bank holding company to have improved access to Federal Reserve lending.

On May 21, the US Treasury said it had injected an additional 7.5 billion dollars into GMAC to enable it continue providing loans to auto dealers and consumers.

The Treasury also said it could hold a 35.4 percent stake in the company under the plan.

The new investment came on top of an earlier five billion dollar injection as part of an effort to rescue the auto industry and the financial sector.

As of June 30, the company had approximately 181 billion dollars in assets, with 15 million customers worldwide.