Rolfe Winkler

Al de Molina’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 hasn’t worked and Ally’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.

GMAC has already received $12.5 billion of TARP money and recently asked for as much as $5.6 billion more. In addition, the FDIC has guaranteed $7.4 billion of debt.

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 couldn’t care less about Ally’s health. They’ve poured money into the bank over the past year, raising GMAC’s total deposits 57 percent, to $28.8 billion.

This doesn’t sit well with other banks that don’t benefit from so much government largess and can’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.

Ally’s financial condition, meanwhile, continues to deteriorate. Chris Whalen of Institutional Risk Analytics gives Ally an “F” grade, pointing to charge-offs that doubled in the third quarter.

Whalen also notes the growth of Ally’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?

Ally’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 can’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.

GMAC sold more FDIC-backed debt today… (Reuters)

General Motors Acceptance Corp on Wednesday sold $2.9 billion in three-year government-guaranteed notes, according to a market source familiar with the sale. The 1.75 percent notes were priced at 99.991 to yield 1.753 percent, or 31.6 basis points over comparable U.S. Treasuries.

The notes are guaranteed under the Federal Deposit Insurance Corp’s temporary liquidity guarantee program.

GMAC has permission to sell up to $7.4 billion of FDIC-backed debt, in addition to the $12.5 billion of TARP money already received and the $2.8-$5.6 billion of additional TARP cash they’re negotiating for.

In exchange for upping GMAC’s TLGP allowance, Sheila Bair supposedly extracted concessions on the interest rates GMAC will be able to advertise for deposits.

On BankRate, they’re still listed as #3 for 1-yr CDs.

While we’re on the subject of auto bailouts, John Stoll and Sharon Terlep of WSJ are reporting that GM dipped into its bailout fund from Treasury to help rescue supplier Delphi:

General Motors Co. by the end of the week will outline plans to draw down more U.S. government money it will use to aid Delphi Automotive LLP and also give an update on a closely watched escrow account of its bailout funds, according to several people familiar with the matter.

GM’s additional borrowing will mostly be limited to Delphi’s funding needs and is expected to be north of $2.5 billion, based on prior announcements.

According to the article, the U.S. has committed $50 billion to the GM bailout, $30.1 billion of which was committed when the company filed for bankruptcy. Much of that amount went into an escrow account GM can tap as needed.

The government has already poured $12.5 billion into GMAC since last December, and now the company is negotiating for $2.8-$5.6 billion more. Oh, and FDIC will allow the company to max out its borrowing capacity under TLGP, bringing the total there to $7.4 billion.

Yet another argument against those who say we “made money” on TARP because Goldman, AmEx and a few others bought back their warrants at a small premium. All the profits from those warrants wouldn’t add up to the amount we’ve already poured into GMAC, never mind this latest infusion. There’s also the small matter of $100 billion+ we’re never getting back from AIG….

Readers may recall that FDIC was rather peeved at GMAC for previously offering high rates on deposits. This is the ultimate moral hazard of deposit insurance. Depositors aren’t willing to impose discipline on the bank — taking their money out — because they know it’s guaranteed. GMAC knew this and, through its subsidiary GMAC Ally Bank, offered the highest deposit rates in the nation for a time.

In order to sell more government backed debt under TLGP program, FDIC struck a deal by which GMAC will “keep its [deposit] rates at certain amounts,” according to WSJ.

One would think a change of management might be in order. Well, it’s not gonna happen. CEO Alvaro de Molina — formerly CFO at Bank of America — will stay on.

The real reason behind this bailout is GM. In an age when cars are still purchased on credit, someone has to front the money if automakers are going to move inventory. For GM, that means GMAC, which in turn means taxpayers.

Taxpayers are lending themselves money to buy cars (via GMAC). To buy houses (via Fannie, Freddie and very soon FHA). To buy anything and everything that has to be financed.

My question: When are we actually going to pay for any of it? Also: When we realize we can’t, what’s going to happen to the economy?