GMAC shouldn’t have a government ally
Al de Molinaâ€™s tenure as CEO of GMAC was short and rocky, punctuated by bailouts and controversy over the morally hazardous tactics of subsidiary Ally Bank.
His strategy hasnâ€™t worked and Allyâ€™s anti-competitive behavior is hurting other banks. The new chief executive, Michael Carpenter, needs to restructure GMAC so that it is no longer dependent on a government lifeline.
Ally has also received another $7 billion in federally subsidized loans in the form of advances from the Federal Home Loan Bank of Pittsburgh. As a government-sponsored enterprise, the FHLB has access to cheap capital. It passes the savings on to member banks like Ally.
At the same time, Ally is marketing deposit accounts with interest rates among the highest in the nation. Insulated from risk, depositors couldnâ€™t care less about Allyâ€™s health. Theyâ€™ve poured money into the bank over the past year, raising GMACâ€™s total deposits 57 percent, to $28.8 billion.
This doesnâ€™t sit well with other banks that donâ€™t benefit from so much government largess and canâ€™t afford to pay the same rates. Last May, the American Bankers Association complained to the FDIC, which put the screws to Ally. The bank reduced its rates, but only a little. According to the Wall Street Journal, Ally now pays 2.1 times the national average for a one-year CD, down from 2.3 in May.
Allyâ€™s financial condition, meanwhile, continues to deteriorate. Chris Whalen of Institutional Risk Analytics gives Ally an â€śFâ€ť grade, pointing to charge-offs that doubled in the third quarter.
Whalen also notes the growth of Allyâ€™s securities portfolio. It is becoming less of a conventional lender and more of a bond hedge fund, he says. So why is the government is supporting it?
Allyâ€™s funding is also life-support for ResCap, the subprime mortgage unit that helped sink GMAC in the first place. The more cash GMAC/Ally pours down the drain at ResCap, the less taxpayers are likely to get back.
Carpenter should cut his losses by cutting off ResCap. That would be a good start to restructuring GMAC.
But if GMAC canâ€™t fund itself without the magical elixir of bailouts, deposit insurance and nation-leading CD rates, then for the sake of taxpayers, depositors and banks struggling on their own, it should be put out of its misery.