GMAC's Loss Widens to $1.6 Billion As Mortgage Revenues Fall
05.11.2007
The drop was wider than Wall Street expected and is a continued drag on General Motor Corp's bottom line.
By Lingling Wei
From The Wall Street Journal Online
Auto and home-mortgage lender GMAC Financial Services, partly owned by General Motors Corp., said its third-quarter loss widened to $1.6 billion because of a steep loss at its mortgage business.
The loss was wider than Wall Street expected and makes GMAC a continued drag on the auto titan's bottom line.
The loss at the company, formerly GM's in-house financing arm, compared with a year-earlier loss of $173 million. Revenue fell 44% to $2.57 billion from $4.55 billion. GM sold a 51% stake in GMAC to a consortium of investors led by Cerberus Capital Management LP in November of last year.
Subprime Scorecard How housing slump, credit crunch are hitting profits. |
GMAC Chief Financial Officer Sanjiv Khattri blamed the company's loss entirely on the $1.8 billion loss incurred by its home-lending arm, Residential Capital LLC, or ResCap. "The tale of the two cities continues," he said, comparing ResCap's loss with earnings of about $665 million posted by GMAC's other businesses, such as auto finance and insurance.
ResCap's provisions for credit losses jumped to $787.5 million in the quarter from $231.7 billion a year earlier. Many lenders have in recent months pumped up their loan-loss reserves in the face of soaring mortgage delinquencies.
Bond-research firm GimmeCredit cut its outlook on the firm to "deteriorating" from "stable." Moody's and Fitch Ratings in August cut ResCap's credit rating to junk status, while GMAC's rating at Fitch was already at junk.
GimmeCredit analyst Kathleen Shanley questioned whether GMAC's $1 billion equity injection into ResCap in the quarter would be enough after ResCap ended the quarter with $10.7 billion of nonperforming assets.
Subprime mortgages, or loans to the least credit-worthy borrowers, totaled $200 million in the third quarter, compared with $8.5 billion a year earlier.
The third-quarter loss at ResCap exceeded a loss of $1.2 billion reported by the nation's largest home-mortgage lender, Countrywide Financial Corp., last week.
ResCap last month said it would reduce its work force by about 25%, or 3,000 employees, on top of 2,000 job cuts in the year's first half. Many lenders, including Countrywide, are paring operations as loan demand slows, and financing for mortgages tightens.
--Michael Aneiro and Andrew Edwards contributed to the report.
Add comment
