Fed makes GMAC a bank holding company

December 24, 2008 1:43:42 PM PST
The Federal Reserve has granted a request by the financing arm of General Motors to tap the government's $700 billion rescue fund, bolstering GM's ability to survive. The Fed announced Wednesday that it had approved GMAC Financial Services' request to become a bank holding company. That designation makes GMAC eligible to receive a portion of the bailout fund and get emergency loans directly from the Fed.

Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM's own chances for survival. The Fed cited "emergency conditions" in justifying its decision.

GMAC provides financing for both GM dealers and customers as well as home mortgage loans through its Residential Capital LLC division. The company is 51 percent owned by Cerberus Capital Management LP, the investment fund that also owns Chrysler. GM owns the remaining 49 percent of the company.

Under the Fed's order, Cerberus and GM, whose businesses are mainly outside banking, would both have to significantly reduce their ownership stakes in GMAC. GM has committed to reducing its ownership in GMAC to less than 10 percent.

The decision was announced after the close of a shortened trading day on Wall Street. GM shares closed up more than 8 percent earlier Wednesday.


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