- Second quarter net loss of $2.5 billion - North American auto finance results affected by a lease residual impairment
NEW YORK, July 31 /PRNewswire/ -- GMAC Financial Services reported a 2008
second quarter net loss of $2.5 billion, compared to net income of $293
million in the second quarter of 2007. Affecting results in the quarter were
a $716 million impairment of vehicle operating lease assets in the automotive
finance business as a result of declining vehicle sales and lower used vehicle
prices for certain segments, as well as significant losses at Residential
Capital, LLC (ResCap) related to asset sales, valuation adjustments, and loan
loss provisions. These items were partially offset by profitable results in
the insurance and international auto finance businesses.
"A soft economic environment and continued volatility in the mortgage and
credit markets have significantly affected results for the second quarter,"
said GMAC Chief Executive Officer Alvaro G. de Molina. "While conditions such
as higher fuel prices and weaker consumer credit prove to be headwinds, we
continue to aggressively manage through this economic disruption to position
GMAC for longer-term success.
"Despite the current obstacles, we are encouraged by some key wins such as
successfully completing our global refinancing and bond exchange, preserving
long-term ownership of GMAC Bank, and de-risking the balance sheet at ResCap,"
said de Molina. "There is still more to do and the management team is
committed to taking the steps needed to ensure a solid foundation for the
company, including continued realignment and streamlining of the mortgage
business and better optimization of the risk and reward model in auto
financing."
Second Quarter Net Income/(Loss)
($ in millions)
Q208 Q207 Change
Global Automotive Finance ($717)$395 ($1,112)
Insurance 135 1314
ResCap (1,860)(254) (1,606)
Other(1)(40) 21 (61)
Net Income/(Loss) ($2,482)$293 ($2,775)
(1) Includes Commercial Finance operating segment, 21% ownership of
former commercial mortgage unit and other corporate activities.
Liquidity and Capital
GMAC's consolidated cash and cash equivalents were $14.3 billion as of
June 30, 2008, down slightly from the cash balance of $14.8 billion at March
31, 2008. Of these total balances, ResCap's cash and cash equivalents balance
was $6.6 billion at quarter-end, up from $4.2 billion at March 31, 2008. The
change in consolidated cash is related to repayment of GMAC and ResCap debt
maturities, offset by new secured funding, lower asset levels and growth in
deposits at GMAC Bank.
In June, GMAC and ResCap announced a comprehensive series of transactions,
which included extending key bank facilities, increasing the amount of
available funding and further enhancing liquidity positions. The transactions
included:
-- GMAC obtaining a new, globally syndicated $11.4 billion secured
revolving credit facility with a multi-year maturity which steps down
to $7.9 billion after two years, and renewing the one-year, syndicated
commercial paper back-up facility, New Center Asset Trust (NCAT), in
the amount of $10 billion.
-- ResCap extending for one year the maturity on substantially all of its
bilateral bank facilities totaling approximately $11.6 billion and
obtaining a new $2.5 billion syndicated whole loan repurchase facility.
-- ResCap executing private exchange and cash tender offers for U.S.
dollar equivalent of $14.0 billion in aggregate principal amount of its
outstanding debt, thereby reducing debt outstanding by $2.9 billion in
principal and extending maturities.
-- GMAC providing a $3.5 billion two-year senior secured credit facility
to ResCap, which includes $750 million of first loss protection from
General Motors Corp. and Cerberus ResCap Financing LLC, an affiliate of
FIM Holdings LLC.
-- Significantly reducing ResCap's tangible net worth covenants related to
its credit facilities from the previous level of $5.4 billion to $250
million (excluding GMAC Bank) with consolidated liquidity of $750
million.
During the second quarter, GMAC and certain affiliates of Cerberus
disclosed approximately $2.4 billion of intended actions to support ResCap's
near term liquidity. In addition, GMAC contributed to ResCap approximately
$250 million (principal amount) of ResCap debt, which was subsequently
retired. In exchange for the capital contribution, GMAC received additional
shares of ResCap preferred equity equal to the market value of the debt as of
March 31, 2008. As of June 30, 2008, ResCap's total equity base was $4.1
billion.
The Federal Deposit Insurance Corporation (FDIC) granted a 10-year
extension of GMAC Bank's current ownership on July 21, 2008. This action
enables GMAC to strengthen the bank over the long-term, which is an important
source of funding for mortgage and automotive financing activities.
Global Automotive Finance
GMAC's global automotive finance business reported a net loss of $717
million in the second quarter of 2008, compared to net income of $395 million
in the year-ago period. Weaker performance was primarily driven by a $716
million pre-tax impairment on operating leases in the North American
operation, which more than offset profits in the international business. In
measuring the accounting impairment, the company was able to consider expected
cash flows from various arrangements with General Motors Corp., including
approximately $750 million related to the risk-sharing arrangement;
approximately $800 million related to the residual support program; and
approximately $350 of residual-related settlement payments. Additional
factors affecting results were an increase in the provision for credit losses
due to loss severity and lower gains on sales.
The North American lease portfolio included approximately $30 billion in
assets as of June 30, 2008 with approximately $12 billion in sport-utility
vehicle leases, $6 billion in truck leases and $12 billion in car leases. The
impairment of operating leases resulted from the sharp decline in demand and
used vehicle sale prices for sport-utility vehicles and trucks in the U.S. and
Canada, which has affected GMAC's remarketing proceeds for these vehicles. As
a result of these market trends, GMAC is taking steps to reduce the volume of
new lease originations in the U.S. The company will also discontinue the
SmartBuy balloon contract program, suspend all incentivized lease programs in
Canada and increase pricing and returns on other lending activities. GMAC's
lease portfolio outside of North America has not experienced the same decrease
in market value.
New vehicle financing originations for the second quarter of 2008
decreased to $12.4 billion of retail and lease contracts from $14.0 billion in
the second quarter of 2007, due to lower industry sales levels in North
America.
Credit losses have increased in the second quarter of 2008 to 1.40 percent
of managed retail assets, versus 0.92 percent in the second quarter of 2007.
The sharp increase is related to the current trends in used vehicle prices,
which drove higher loss severity. While losses trended up, delinquencies
decreased in the second quarter of 2008 to 2.30 percent of managed retail
assets, versus 2.46 percent in the prior year period. The decrease reflects
the recent measures taken to tighten underwriting criteria and increased
customer servicing activities as the U.S. economy remains weak.
Insurance
GMAC's insurance business recorded net income of $135 million, up slightly
from net income of $131 million in the second quarter of 2007. Results
primarily reflect a non-recurring tax benefit, which offset higher weather-
related losses.
The insurance investment portfolio was $7.1 billion at June 30, 2008,
compared to $7.4 billion at June 30, 2007. The decrease in the portfolio is
due primarily to the repayment of intercompany loans related to the funding of
the Provident Insurance acquisition. The majority of the investment portfolio
is in fixed income securities with less than 10 percent invested in equity
securities.
In July, GMAC's plan to dividend 100 percent of the voting interest in the
insurance business to GMAC's shareholders was completed. GMAC continues to
hold 100 percent of the economic interest in GMAC Insurance. This action was
taken in the interest of maintaining the current financial strength rating
and, therefore, preserving the value of the operation.
Real Estate Finance
ResCap reported a net loss of $1.9 billion for the second quarter of 2008,
compared to a net loss of $254 million in the year-ago period. Results are
primarily attributable to significant losses from asset sales as ResCap
reduced the size and risk of its balance sheet and higher loan loss provisions
due to continued deterioration in certain European markets. Partially
offsetting losses was a $647 million gain recognized from ResCap's tender
offer and the retirement of debt.
ResCap continues to implement an aggressive realignment of its business
amid a vastly changing mortgage market, despite the negative impact to short-
term earnings. Recent actions include significantly reducing the size and
risk of its balance sheet, originating only mortgages with market liquidity,
winding down the business lending portfolio, leveraging the world-class
servicing platform, and continuing to rationalize the cost base.
ResCap's U.S. residential finance business is beginning to stabilize as
the company reduces balance sheet risk and continues to realign operations.
While prime conforming loan production decreased modestly year-over-year with
$12.2 billion in the second quarter of 2008 versus $12.7 billion in the year-
ago period, production of higher-margin government loans increased to $3.8
billion this quarter compared to $800 million in the second quarter of 2007.
In addition, operating expense targets were achieved.
The international mortgage business experienced a decline in net income in
the second quarter related to illiquidity in the global capital markets and
the continued weakening of consumer credit in key markets. This drove
significant realized and unrealized losses on loans held for sale. As a
result of the market environment, ResCap has currently suspended all
production outside of the U.S. with the exception of Canadian insured loans.
The business lending operations also experienced continued pressure in the
second quarter related to the decline in home sales and residential real
estate values.
Outlook
GMAC continues to manage through a softer economic environment and a
global market disruption with significant actions geared toward achieving
longer-term financial health. Recent actions include:
-- Stabilizing liquidity by refinancing bank lines, extending debt
maturities, and preserving long-term ownership of GMAC Bank;
-- Significantly reducing ResCap's balance sheet;
-- Taking steps to increase pricing and improve returns for all automotive
leasing and lending activities;
-- Reducing the volume of new lease originations in the U.S. and
suspending all incentivized lease programs in Canada;
-- Executing a plan to preserve the value of the insurance business; and
-- Leveraging the proven servicing platforms in mortgage and auto finance
to mitigate frequency and severity of losses.
Looking ahead, the company is focused on executing strategies that restore
profitability and longer-term financial health including improving funding
costs, evaluating opportunities to shed non-core operations, and taking steps
that move GMAC toward an independent, bank-funded lender and servicer.
About GMAC Financial Services
GMAC Financial Services is a global, diversified financial services
company that operates in approximately 40 countries in automotive finance,
real estate finance, insurance and commercial finance businesses. GMAC was
established in 1919 and employs approximately 26,700 people worldwide. For
more information, go to www.gmacfs.com.
Forward-Looking Statements
In this earnings release and related comments by GMAC LLC ("GMAC")
management, the use of the words "expect," "anticipate," "estimate,"
"forecast," "initiative," "objective," "plan," "goal," "project," "outlook,"
"priorities," "target," "intend," "evaluate," "pursue," "seek," "may,"
"would," "could," "should," "believe," "potential," "continue," or the
negative of any of those words or similar expressions is intended to identify
forward-looking statements. All statements herein and in related charts and
management comments, other than statements of historical fact, including
without limitation, statements about future events and financial performance,
are forward-looking statements that involve certain risks and uncertainties.
While these statements represent our current judgment on what the future
may hold, and we believe these judgments are reasonable, these statements are
not guarantees of any events or financial results, and GMAC's and Residential
Capital LLC's ("ResCap") actual results may differ materially due to numerous
important factors that are described in the most recent reports on SEC Forms
10-K and 10-Q for GMAC and ResCap, each of which may be revised or
supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors
include, among others, the following: securing low cost funding for GMAC and
ResCap and maintaining the mutually beneficial relationship between GMAC and
General Motors Corporation ("GM"); our ability to maintain an appropriate
level of debt; the profitability and financial condition of GM; restrictions
on ResCap's ability to pay dividends to us; recent developments in the
residential mortgage market, especially in the nonprime sector; continued
deterioration in the residual value of off-lease vehicles; the impact on
ResCap of the continuing decline in the U.S. housing market; changes in U.S.
government-sponsored mortgage programs or disruptions in the markets in which
our mortgage subsidiaries operate; disruptions in the markets in which we fund
GMAC's and ResCap's operations, with resulting negative impact on our
liquidity; changes in our contractual servicing rights; costs and risks
associated with litigation; changes in our accounting assumptions that may
require or that result from changes in the accounting rules or their
application, which could result in an impact on earnings; changes in the
credit ratings of ResCap, GMAC or GM; changes in economic conditions, currency
exchange rates or political stability in the markets in which we operate; and
changes in the existing or the adoption of new laws, regulations, policies or
other activities of governments, agencies and similar organizations.
Investors are cautioned not to place undue reliance on forward-looking
statements. GMAC undertakes no obligation to update publicly or otherwise
revise any forward-looking statements, whether as a result of new information,
future events or other such factors that affect the subject of these
statements, except where expressly required by law.
GMAC Financial Services Preliminary Unaudited Second Quarter 2008
Financial Highlights
($ in millions)
Memo:
2Q 2Q1Q
Summary Statement of Income Note 2008 2007 2008
Revenue
Total financing revenue$4,822 $5,316$4,932
Interest expense2,8693,735 3,179
Depreciation expense on
operating lease assets 1,4011,173 1,397
Impairment of investment in
operating leases 716- -
Net financing revenue (164) 408 356
Other revenue
Servicing fees465 556 470
Servicing asset valuation and
hedge activities, net (185)(152) 410
Insurance premiums and service
revenue earned 1,1231,051 1,109
(Loss) gain on mortgage and
automotive loans, net (934) 399 (600)
Investment income 20 227 (232)
Other income 990 786 897
Total other revenue 1,4792,867 2,054
Total net revenue 1,3153,275 2,410
Provision for credit losses 771 430 474
Noninterest expense
Compensation and benefits
expense 591 647 614
Insurance losses and loss
adjustment expenses 714 563 630
Other operating expenses1,5481,183 1,263
Total noninterest expense 2,8532,393 2,507
(Loss) income before income
tax expense (2,309) 452 (571)
Income tax expense173 15918
Net (loss) income ($2,482) $293($589)
Jun 30, Dec 31, Jun 30,
Select Balance Sheet Data 2008 2007 2007
Cash and cash equivalents $14,325 $17,677 $12,223
Loans held for sale12,942 20,55920,268
Finance receivables and loans,
net1
Consumer 76,707 87,769 121,638
Commercial 43,183 39,74544,018
Investments in operating
leases, net2 32,810 32,34828,893
Total debt 3 173,489 193,148 224,454
Second Quarter Six Months
Operating Statistics 2008 2007 2008 2007
GMAC's Worldwide Cost of
Borrowing 4 5.92%6.23%6.18% 6.19%
(1) Finance receivables and loans are net of unearned income
(2) Net of accumulated depreciation
(3) Represents both secured and unsecured on-balance sheet debt such as
commercial paper, medium-term notes and long-term debt
(4) Calculated by dividing total interest expense (excluding
marked-to-market adjustments and intercompany interest) by total
borrowings
GMAC Financial Services Preliminary Unaudited Second
Quarter 2008 Financial Highlights (Continued)
($ in millions)
Note Second Quarter Six Months
GMAC Automotive Finance
Operations2008 2007 2008 2007
Net Income
North American Operations
(NAO) ($854) $315 ($700) $620
International Operations
(IO)13780 241 173
Net Income ($717) $395 ($459) $793
Consumer Portfolio
Statistics
NAO Number of contracts
originated (# thousands) 443 496 877 938
Dollar amount of contracts
originated $11,590 $13,204 $23,441 $24,777
Dollar amount of contracts
outstanding at end of
period 5 $60,940 $69,045
Share of new GM retail
sales43% 45% 46% 45%
Mix of retail & lease
(% contract originations
based on # of units):
New 73% 80% 75% 80%
Used27% 20% 25% 20%
GM subvented (% based on #
of units)75% 85% 79% 85%
Average original term in
months (US retail only) 62556156
Off-lease remarketing (US only)
Sales proceeds on
scheduled lease
terminations (36-month)
per vehicle - Serviced 6,7 $13,242 $15,812 $13,712 $15,674
Off-lease vehicles
terminated - Serviced
(# units)7 120,37878,519 220,375 157,363
Sales proceeds on
scheduled lease
terminations (36-month)
per vehicle - On-balance
sheet6 $13,373 $16,113 $13,730 $15,813
Off-lease vehicles
terminated - On-balance
sheet (# units) 859,61928,431 102,75857,221
IO Number of contracts
originated (# thousands) 186 177 379 358
Dollar amount of contracts
originated$3,367$2,955$6,522$5,718
Dollar amount of contracts
outstanding at end of
period 9 $19,890 $17,021
Mix of retail & lease
contract originations (%
based on # of units):
New86% 84% 83% 82%
Used 14% 16% 17% 18%
GM subvented (% based on #
of units)41% 44% 41% 42%
Asset Quality Statistics
NAO Annualized net retail
charge-offs as a % of
managed assets 10 1.68% 1.03% 1.63% 1.16%
Managed retail
contracts over 30
days delinquent 10,112.18% 2.37% 2.32% 2.44%
Serviced retail
contracts over 30
days delinquent 11,122.18% 2.18% 2.32% 2.23%
IO Annualized net
charge-offs as a %
of managed assets10 0.72% 0.59% 0.73% 0.61%
Managed retail
contracts over
30 days delinquent 10,112.51% 2.63% 2.44% 2.59%
Operating Statistics
NAO Allowance as a % of
related on-balance sheet
consumer receivables at
end of period 3.76% 2.67%
Repossessions as a % of
average number of managed
retail contracts
outstanding 10 2.34% 2.04% 2.54% 2.17%
Severity of loss per
unit serviced -
Retail 12
New $11,062$8,661 $10,532$8,715
Used $8,822$6,928$8,441$6,925
IO Allowance as a % of
related on-balance sheet
consumer receivables at
end of period1.56% 1.44%
Repossessions as a % of
average number of
contracts outstanding0.72% 0.81% 0.69% 0.77%
(5) Represents on-balance sheet assets, which includes $5.5 billion of
loans held for sale in 2008
(6) Prior period amounts based on current vehicle mix, in order to be
comparable
(7) Serviced assets represent operating leases where GMAC continues to
service the underlying asset
(8) GMAC-owned portfolio reflects lease assets on GMAC's books after
distribution to GM of automotive leases in connection with the sale
transaction which occurred in November 2006
(9) Represents on-balance sheet assets including retail leases
(10) Managed assets represent on and off-balance sheet finance
receivables and loans where GMAC continues to be exposed to credit
and/or interest rate risk
(11) Represents percentage of average number of contracts outstanding.
Excludes accounts in bankruptcy.
(12) Serviced assets represent on and off-balance sheet finance
receivables and loans where GMAC continues to service the underlying
asset
GMAC Financial Services Preliminary Unaudited Second Quarter 2008
Financial Highlights (Continued)
($ in millions)
NoteSecond Quarter Six Months
ResCap Operations 2008 2007 2008 2007
Net Income (loss) ($1,860)($254) ($2,719) ($1,165)
Gain (loss) on sale of
mortgage loans, net
Domestic ($180) $98 ($245)($243)
International (882) 76(1,564) 182
Total Gain (loss) on
sale of mortgage loans ($1,062) $174 ($1,810) ($61)
Portfolio Statistics
Mortgage loan production
Prime conforming $12,187 $12,682 $27,624 $22,251
Prime non-conforming 419 9,849 90922,166
Government 3,759 828 5,736 1,412
Nonprime0 685 3 3,944
Prime second-lien 664 3,107 1,465 8,420
Total Domestic 17,02927,15135,73758,193
International 1,049 7,718 3,24014,190
Total Mortgage production $18,078 $34,869 $38,977 $72,383
Mortgage loan servicing
rights at end of period $5,417$6,041
Loan servicing at end of
period
Domestic $397,842 $424,608
International39,02035,904
Total Loan servicing $436,862 $460,511
Asset Quality Statistics -
ResCap Consolidated
Provision for credit losses
by product
Mortgage loans held for
investment $344 $284 $624 $649
Lending receivables 12043 138 220
Total Provision for credit
losses$464 $327 $762 $869
Allowance by product at end
of period
Mortgage loans held for
investment$638$1,696
Lending receivables 483 274
Total Allowance by product $1,121$1,970
Allowance as a % of related
receivables at end of
period
Mortgage loans held for
investment 2.25% 2.71%
Lending receivables 7.94% 2.56%
Total Allowance as a % of
related receivables3.26% 2.68%
Nonaccrual loans at end of
period$6,300$9,119
Nonaccrual loans as a % of
related receivables at end
of period 14.13%12.48%
Total nonperforming assets $7,349 $10,744
GMAC Insurance Operations
Net Income $135 $131 $267 $274
Premiums and service revenue
written $1,067 $964$2,200$2,034
Premiums and service revenue
earned$1,111$1,042$2,208$2,074
Combined ratio 13 97.8% 90.2% 95.8% 90.6%
Investment portfolio fair
value at end of period$7,068$7,397
Memo: After-tax at end of
period
Unrealized gains $129 $143
Unrealized losses (92) (72)
Net unrealized capital gains$37 $71
(13) Combined ratio represents the sum of all incurred losses and
expenses (excluding interest and income tax expense) divided by the
total of premiums and service revenues earned and other income
Numbers may not foot due to rounding
SOURCE GMAC Financial Services
