17% of GMAC assets are financed using Govt loans

By PETER EAVIS

As any parent knows, it rarely pays to play favorites.

The Treasury looks set to plow another $2.8 billion to $5.6 billion of capital into lender GMAC Financial Services to meet stress-test requirements. That raises a question: Why hasn't GMAC already had to raise this money from private investors?

After all, plenty of troubled banks have recently raised capital. Granted, GMAC isn't a public company, which makes selling equity harder. But it has selling points. New loans look profitable. In addition, the lender already has a hefty capital buffer, reducing the risk of future dilution. Its Tier 1 common ratio is 6.1%, substantially above the 4% required for large banks under a stressed scenario.

However, private investors may be unnerved by GMAC's shaky-looking funding. Subsidiary Ally Bank makes heavy use of high-rate CDs, which can be flighty. GMAC is issuing government-guaranteed debt. And 17% of its assets are financed using loans from the government-sponsored Federal Home Loan Bank system. Bank analysis firm Institutional Risk Analytics says regulators don't like that ratio going over 15%. The message here is that private creditors still seem reluctant to lend on an unprotected basis to GMAC.

The Treasury didn't step in to save CIT Group when credit markets became unfriendly. And CIT is arguably more important to the economy than GMAC, because it provides loans to an array of businesses, rather than one dysfunctional sector.

Prior commitments within the Treasury's bank-rescue plan may force it to provide more money to GMAC. But that creates a problem: Now GMAC knows it has favored status, it just has to wait for the next pile of cash to arrive.