EX-99.1 2 k33958exv99w1.htm EX-99.1 EX-99.1
Exhibit 99.1
GMAC Financial Services Reports Preliminary Second Quarter 2008 Financial Results
  •   Second quarter net loss of $2.5 billion
 
  •   North American auto finance results affected by a lease residual impairment
 
  •   Insurance and international auto finance remained profitable
 
  •   Secured long-term ownership of GMAC Bank
 
  •   Completed $60 billion global refinancing of debt and bank lines
 
  •   Cash and cash equivalents balance remains stable at $14.3 billion
NEW YORK — GMAC Financial Services reported a 2008 second quarter net loss of $2.5 billion, compared to net income of $293 million in the second quarter of 2007. Affecting results in the quarter were a $716 million impairment of vehicle operating lease assets in the automotive finance business as a result of declining vehicle sales and lower used vehicle prices for certain segments, as well as significant losses at Residential Capital, LLC (ResCap) related to asset sales, valuation adjustments, and loan loss provisions. These items were partially offset by profitable results in the insurance and international auto finance businesses.
“A soft economic environment and continued volatility in the mortgage and credit markets have significantly affected results for the second quarter,” said GMAC Chief Executive Officer Alvaro G. de Molina. “While conditions such as higher fuel prices and weaker consumer credit prove to be headwinds, we continue to aggressively manage through this economic disruption to position GMAC for longer-term success.
“Despite the current obstacles, we are encouraged by some key wins such as successfully completing our global refinancing and bond exchange, preserving long-term ownership of GMAC Bank, and de-risking the balance sheet at ResCap,” said de Molina. “There is still more to do and the management team is committed to taking the steps needed to ensure a solid foundation for the company, including continued realignment and streamlining of the mortgage business and better optimization of the risk and reward model in auto financing.”

 

 

Second Quarter Net Income/(Loss)
($in millions)
                         
    Q208     Q207     Change  
Global Automotive Finance
   $ (717 )   $ 395     $ (1,112 )
Insurance
     135       131       4  
ResCap
     (1,860 )     (254 )     (1,606 )
Other1
     (40 )     21       (61 )
 
Net Income/(Loss)
   $ (2,482 )   $ 293     $ (2,775 )
 
 
1   Includes Commercial Finance operating segment, 21% ownership of former commercial mortgage unit and other corporate activities.
Liquidity and Capital
GMAC’s consolidated cash and cash equivalents were $14.3 billion as of June 30, 2008, down slightly from the cash balance of $14.8 billion at March 31, 2008. Of these total balances, ResCap’s cash and cash equivalents balance was $6.6 billion at quarter-end, up from $4.2 billion at March 31, 2008. The change in consolidated cash is related to repayment of GMAC and ResCap debt maturities, offset by new secured funding, lower asset levels and growth in deposits at GMAC Bank.
In June, GMAC and ResCap announced a comprehensive series of transactions, which included extending key bank facilities, increasing the amount of available funding and further enhancing liquidity positions. The transactions included:
  •   GMAC obtaining a new, globally syndicated $11.4 billion secured revolving credit facility with a multi-year maturity which steps down to $7.9 billion after two years, and renewing the one-year, syndicated commercial paper back-up facility, New Center Asset Trust (NCAT), in the amount of $10 billion.
 
  •   ResCap extending for one year the maturity on substantially all of its bilateral bank facilities totaling approximately $11.6 billion and obtaining a new $2.5 billion syndicated whole loan repurchase facility.
 
  •   ResCap executing private exchange and cash tender offers for U.S. dollar equivalent of $14.0 billion in aggregate principal amount of its outstanding debt, thereby reducing debt outstanding by $2.9 billion in principal and extending maturities.

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  •   GMAC providing a $3.5 billion two-year senior secured credit facility to ResCap, which includes $750 million of first loss protection from General Motors Corp. and Cerberus ResCap Financing LLC, an affiliate of FIM Holdings LLC.
 
  •   Significantly reducing ResCap’s tangible net worth covenants related to its credit facilities from the previous level of $5.4 billion to $250 million (excluding GMAC Bank) with consolidated liquidity of $750 million.
During the second quarter, GMAC and certain affiliates of Cerberus disclosed approximately $2.4 billion of intended actions to support ResCap’s near term liquidity. In addition, GMAC contributed to ResCap approximately $250 million (principal amount) of ResCap debt, which was subsequently retired. In exchange for the capital contribution, GMAC received additional shares of ResCap preferred equity equal to the market value of the debt as of March 31, 2008. As of June 30, 2008, ResCap’s total equity base was $4.1 billion.
The Federal Deposit Insurance Corporation (FDIC) granted a 10-year extension of GMAC Bank’s current ownership on July 21, 2008. This action enables GMAC to strengthen the bank over the long-term, which is an important source of funding for mortgage and automotive financing activities.
Global Automotive Finance
GMAC’s global automotive finance business reported a net loss of $717 million in the second quarter of 2008, compared to net income of $395 million in the year-ago period. Weaker performance was primarily driven by a $716 million pre-tax impairment on operating leases in the North American operation, which more than offset profits in the international business. In measuring the accounting impairment, the company was able to consider expected cash flows from various arrangements with General Motors Corp., including approximately $750 million related to the risk-sharing arrangement; approximately $800 million related to the residual support program; and approximately $350 of residual-related settlement payments. Additional factors affecting results were an increase in the provision for credit losses due to loss severity and lower gains on sales.
The North American lease portfolio included approximately $30 billion in assets as of June 30, 2008 with approximately $12 billion in sport-utility vehicle leases, $6 billion in

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truck leases and $12 billion in car leases. The impairment of operating leases resulted from the sharp decline in demand and used vehicle sale prices for sport-utility vehicles and trucks in the U.S. and Canada, which has affected GMAC’s remarketing proceeds for these vehicles. As a result of these market trends, GMAC is taking steps to reduce the volume of new lease originations in the U.S. The company will also discontinue the SmartBuy balloon contract program, suspend all incentivized lease programs in Canada and increase pricing and returns on other lending activities. GMAC’s lease portfolio outside of North America has not experienced the same decrease in market value.
New vehicle financing originations for the second quarter of 2008 decreased to $12.4 billion of retail and lease contracts from $14.0 billion in the second quarter of 2007, due to lower industry sales levels in North America.
Credit losses have increased in the second quarter of 2008 to 1.40 percent of managed retail assets, versus 0.92 percent in the second quarter of 2007. The sharp increase is related to the current trends in used vehicle prices, which drove higher loss severity. While losses trended up, delinquencies decreased in the second quarter of 2008 to 2.30 percent of managed retail assets, versus 2.46 percent in the prior year period. The decrease reflects the recent measures taken to tighten underwriting criteria and increased customer servicing activities as the U.S. economy remains weak.
Insurance
GMAC’s insurance business recorded net income of $135 million, up slightly from net income of $131 million in the second quarter of 2007. Results primarily reflect a non-recurring tax benefit, which offset higher weather-related losses.
The insurance investment portfolio was $7.1 billion at June 30, 2008, compared to $7.4 billion at June 30, 2007. The decrease in the portfolio is due primarily to the repayment of intercompany loans related to the funding of the Provident Insurance acquisition. The majority of the investment portfolio is in fixed income securities with less than 10 percent invested in equity securities.

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In July, GMAC’s plan to dividend 100 percent of the voting interest in the insurance business to GMAC’s shareholders was completed. GMAC continues to hold 100 percent of the economic interest in GMAC Insurance. This action was taken in the interest of maintaining the current financial strength rating and, therefore, preserving the value of the operation.
Real Estate Finance
ResCap reported a net loss of $1.9 billion for the second quarter of 2008, compared to a net loss of $254 million in the year-ago period. Results are primarily attributable to significant losses from asset sales as ResCap reduced the size and risk of its balance sheet and higher loan loss provisions due to continued deterioration in certain European markets. Partially offsetting losses was a $647 million gain recognized from ResCap’s tender offer and the retirement of debt.
ResCap continues to implement an aggressive realignment of its business amid a vastly changing mortgage market, despite the negative impact to short-term earnings. Recent actions include significantly reducing the size and risk of its balance sheet, originating only mortgages with market liquidity, winding down the business lending portfolio, leveraging the world-class servicing platform, and continuing to rationalize the cost base.
ResCap’s U.S. residential finance business is beginning to stabilize as the company reduces balance sheet risk and continues to realign operations. While prime conforming loan production decreased modestly year-over-year with $12.2 billion in the second quarter of 2008 versus $12.7 billion in the year-ago period, production of higher-margin government loans increased to $3.8 billion this quarter compared to $800 million in the second quarter of 2007. In addition, operating expense targets were achieved.
The international mortgage business experienced a decline in net income in the second quarter related to illiquidity in the global capital markets and the continued weakening of consumer credit in key markets. This drove significant realized and unrealized losses on loans held for sale. As a result of the market environment, ResCap has currently suspended all production outside of the U.S. with the exception of Canadian insured

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loans. The business lending operations also experienced continued pressure in the second quarter related to the decline in home sales and residential real estate values.
Outlook
GMAC continues to manage through a softer economic environment and a global market disruption with significant actions geared toward achieving longer-term financial health. Recent actions include:
  •   Stabilizing liquidity by refinancing bank lines, extending debt maturities, and preserving long-term ownership of GMAC Bank;
 
  •   Significantly reducing ResCap’s balance sheet;
 
  •   Taking steps to increase pricing and improve returns for all automotive leasing and lending activities;
 
  •   Reducing the volume of new lease originations in the U.S. and suspending all incentivized lease programs in Canada;
 
  •   Executing a plan to preserve the value of the insurance business; and
 
  •   Leveraging the proven servicing platforms in mortgage and auto finance to mitigate frequency and severity of losses.
Looking ahead, the company is focused on executing strategies that restore profitability and longer-term financial health including improving funding costs, evaluating opportunities to shed non-core operations, and taking steps that move GMAC toward an independent, bank-funded lender and servicer.
About GMAC Financial Services
GMAC Financial Services is a global, diversified financial services company that operates in approximately 40 countries in automotive finance, real estate finance, insurance and commercial finance businesses. GMAC was established in 1919 and employs approximately 26,700 people worldwide. For more information, go to www.gmacfs.com.
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Forward-Looking Statements
In this earnings release and related comments by GMAC LLC (“GMAC”) management, the use of the words “expect,” “anticipate,” “estimate,” “forecast,” “initiative,” “objective,” “plan,” “goal,” “project,” “outlook,” “priorities,” “target,” “intend,” “evaluate,” “pursue,” “seek,” “may,” “would,” “could,” “should,” “believe,” “potential,” “continue,” or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements herein and in related charts and management comments, other than statements of historical fact, including without limitation, statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties.
While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and GMAC’s and Residential Capital LLC’s (“ResCap”) actual results may differ materially due to numerous important factors that are described in the most recent reports on SEC Forms 10-K and 10-Q for GMAC and ResCap, each of which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors include, among others, the following: securing low cost funding for GMAC and ResCap and maintaining the mutually beneficial relationship between GMAC and General Motors Corporation (“GM”); our ability to maintain an appropriate level of debt; the profitability and financial condition of GM; restrictions on ResCap’s ability to pay dividends to us; recent developments in the residential mortgage market, especially in the nonprime sector; continued deterioration in the residual value of off-lease vehicles; the impact on ResCap of the continuing decline in the U.S. housing market; changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate; disruptions in the markets in which we fund GMAC’s and ResCap’s operations, with resulting negative impact on our liquidity; changes in our contractual servicing rights; costs and risks associated with litigation; changes in our accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; changes in the credit ratings of ResCap, GMAC or GM; changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and changes in the existing or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations.
Investors are cautioned not to place undue reliance on forward-looking statements. GMAC undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other such factors that affect the subject of these statements, except where expressly required by law
Contact:
Gina Proia
917-369-2364
Gina.Proia@gmacfs.com

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GMAC Financial Services Preliminary Unaudited Second Quarter 2008 Financial Highlights
($ in millions)
                                 
                            Memo:  
            2Q     2Q     1Q  
Summary Statement of Income   Note     2008     2007     2008  
 
Revenue
                                
Total financing revenue
           $ 4,822     $ 5,316     $ 4,932  
Interest expense
             2,869       3,735       3,179  
Depreciation expense on operating lease assets
             1,401       1,173       1,397  
Impairment of investment in operating leases
             716       —       —  
 
Net financing revenue
             (164 )     408       356  
 
                                
Other revenue
                                
Servicing fees
             465       556       470  
Servicing asset valuation and hedge activities, net
             (185 )     (152 )     410  
Insurance premiums and service revenue earned
             1,123       1,051       1,109  
(Loss) gain on mortgage and automotive loans, net
             (934 )     399       (600 )
Investment income
             20       227       (232 )
Other income
             990       786       897  
 
Total other revenue
             1,479       2,867       2,054  
Total net revenue
             1,315       3,275       2,410  
Provision for credit losses
             771       430       474  
Noninterest expense
                                
Compensation and benefits expense
             591       647       614  
Insurance losses and loss adjustment expenses
             714       563       630  
Other operating expenses
             1,548       1,183       1,263  
 
Total noninterest expense
             2,853       2,393       2,507  
(Loss) income before income tax expense
             (2,309 )     452       (571 )
Income tax expense
             173       159       18  
 
Net (loss) income
           $ (2,482 )   $ 293     $ (589 )
 
                                 
            Jun 30,     Dec 31,     Jun 30,  
Select Balance Sheet Data           2008     2007     2007  
 
Cash and cash equivalents
           $ 14,325     $ 17,677     $ 12,223  
Loans held for sale
             12,942       20,559       20,268  
Finance receivables and loans, net
     1                          
Consumer
             76,707       87,769       121,638  
Commercial
             43,183       39,745       44,018  
Investments in operating leases, net
     2       32,810       32,348       28,893  
Total debt
     3       173,489       193,148       224,454  
 
                                         
            Second Quarter   Six Months
Operating Statistics           2008   2007   2008   2007
 
GMAC’s Worldwide Cost of Borrowing
     4       5.92 %     6.23 %     6.18 %     6.19 %
 
 
 
(1)   Finance receivables and loans are net of unearned income
 
(2)   Net of accumulated depreciation
 
(3)   Represents both secured and unsecured on-balance sheet debt such as commercial paper, medium-term notes and long-term debt
 
(4)   Calculated by dividing total interest expense (excluding marked-to-market adjustments and intercompany interest) by total borrowings

 

 

GMAC Financial Services Preliminary Unaudited Second Quarter 2008 Financial Highlights (Continued)
($ in millions)
                                         
    Note   Second Quarter   Six Months
GMAC Automotive Finance Operations           2008   2007   2008   2007
             
Net Income
                                        
North American Operations (NAO)
           $ (854 )   $ 315     $ (700 )   $ 620  
International Operations (IO)
             137       80       241       173  
                 
Net Income
           $ (717 )   $ 395     $ (459 )   $ 793  
                 
 
                                        
Consumer Portfolio Statistics
                                        
NAO    Number of contracts originated
         (# thousands)
             443       496       877       938  
Dollar amount of contracts originated
           $ 11,590     $ 13,204     $ 23,441     $ 24,777  
Dollar amount of contracts outstanding at end of period
     5     $ 60,940     $ 69,045                  
Share of new GM retail sales
             43 %     45 %     46 %     45 %
 
Mix of retail & lease contract originations (% based on # of units):
                                        
New
             73 %     80 %     75 %     80 %
Used
             27 %     20 %     25 %     20 %
 
GM subvented (% based on # of units)
             75 %     85 %     79 %     85 %
 
Average original term in months (US retail only)
             62       55       61       56  
 
Off-lease remarketing (US only)
                                        
Sales proceeds on scheduled lease terminations (36-month) per vehicle
— Serviced
     6,7     $ 13,242     $ 15,812     $ 13,712     $ 15,674  
Off-lease vehicles terminated — Serviced (# units)
     7       120,378       78,519       220,375       157,363  
Sales proceeds on scheduled lease terminations (36-month) per vehicle
— On-balance sheet
     6     $ 13,373     $ 16,113     $ 13,730     $ 15,813  
Off-lease vehicles terminated — On-balance sheet (# units)
     8       59,619       28,431       102,758       57,221  
 
                                        
IO        Number of contracts originated
         (# thousands)
             186       177       379       358  
Dollar amount of contracts originated
           $ 3,367     $ 2,955     $ 6,522     $ 5,718  
Dollar amount of contracts outstanding at end of period
     9     $ 19,890     $ 17,021                  
 
Mix of retail & lease contract originations (% based on # of units):
                                        
New
             86 %     84 %     83 %     82 %
Used
             14 %     16 %     17 %     18 %
 
GM subvented (% based on # of units)
             41 %     44 %     41 %     42 %
 
                                        
Asset Quality Statistics
                                        
NAO     Annualized net retail charge-offs as a %
          of managed assets
     10       1.68 %     1.03 %     1.63 %     1.16 %
Managed retail contracts over 30 days delinquent
     10,11       2.18 %     2.37 %     2.32 %     2.44 %
Serviced retail contracts over 30 days delinquent
     11,12       2.18 %     2.18 %     2.32 %     2.23 %
 
                                        
IO        Annualized net charge-offs as a % of
          managed assets
     10       0.72 %     0.59 %     0.73 %     0.61 %
Managed retail contracts over 30 days delinquent
     10,11       2.51 %     2.63 %     2.44 %     2.59 %
 
                                        
Operating Statistics
                                        
NAO     Allowance as a % of related on-balance
          sheet consumer receivables at end of period
             3.76 %     2.67 %                
Repossessions as a % of average number of managed retail contracts outstanding
     10       2.34 %     2.04 %     2.54 %     2.17 %
Severity of loss per unit serviced — Retail
     12                                  
New
           $ 11,062     $ 8,661     $ 10,532     $ 8,715  
Used
           $ 8,822     $ 6,928     $ 8,441     $ 6,925  
 
                                        
IO        Allowance as a % of related on-balance
          sheet consumer receivables at end of period
             1.56 %     1.44 %                
Repossessions as a % of average number of contracts outstanding
             0.72 %     0.81 %     0.69 %     0.77 %
 
(5)   Represents on-balance sheet assets, which includes $5.5 billion of loans held for sale in 2008
 
(6)   Prior period amounts based on current vehicle mix, in order to be comparable
 
(7)   Serviced assets represent operating leases where GMAC continues to service the underlying asset
 
(8)   GMAC-owned portfolio reflects lease assets on GMAC’s books after distribution to GM of automotive leases in connection with the sale transaction which occurred in November 2006
 
(9)   Represents on-balance sheet assets including retail leases
 
(10)   Managed assets represent on and off-balance sheet finance receivables and loans where GMAC continues to be exposed to credit and/or interest rate risk
 
(11)   Represents percentage of average number of contracts outstanding. Excludes accounts in bankruptcy.
 
(12)   Serviced assets represent on and off-balance sheet finance receivables and loans where GMAC continues to service the underlying asset

 

 

GMAC Financial Services Preliminary Unaudited Second Quarter 2008 Financial Highlights (Continued)
($ in millions)
                                         
    Note     Second Quarter     Six Months  
ResCap Operations           2008     2007     2008     2007  
             
Net Income (loss)
           $ (1,860 )   $ (254 )   $ (2,719 )   $ (1,165 )
Gain (loss) on sale of mortgage loans, net
                                        
Domestic
           $ (180 )   $ 98     $ (245 )   $ (243 )
International
             (882 )     76       (1,564 )     182  
 
                                
Total Gain (loss) on sale of mortgage loans
           $ (1,062 )   $ 174     $ (1,810 )   $ (61 )
 
Portfolio Statistics
                                        
Mortgage loan production
                                        
Prime conforming
           $ 12,187     $ 12,682     $ 27,624     $ 22,251  
Prime non-conforming
             419       9,849       909       22,166  
Government
             3,759       828       5,736       1,412  
Nonprime
             0       685       3       3,944  
Prime second-lien
             664       3,107       1,465       8,420  
Total Domestic
             17,029       27,151       35,737       58,193  
 
International
             1,049       7,718       3,240       14,190  
 
                                
Total Mortgage production
           $ 18,078     $ 34,869     $ 38,977     $ 72,383  
 
Mortgage loan servicing rights at end of period
           $ 5,417     $ 6,041                  
 
Loan servicing at end of period
                                        
Domestic
           $ 397,842     $ 424,608                  
International
             39,020       35,904                  
 
                                    
Total Loan servicing
           $ 436,862     $ 460,511                  
 
Asset Quality Statistics — ResCap Consolidated
                                        
Provision for credit losses by product
                                        
Mortgage loans held for investment
           $ 344     $ 284     $ 624     $ 649  
Lending receivables
             120       43       138       220  
 
                                
Total Provision for credit losses
           $ 464     $ 327     $ 762     $ 869  
 
Allowance by product at end of period
                                        
Mortgage loans held for investment
           $ 638     $ 1,696                  
Lending receivables
             483       274                  
 
                                    
Total Allowance by product
           $ 1,121     $ 1,970                  
 
Allowance as a % of related receivables at end of period
                                        
Mortgage loans held for investment
             2.25 %     2.71 %                
Lending receivables
             7.94 %     2.56 %                
Total Allowance as a % of related receivables
             3.26 %     2.68 %                
 
Nonaccrual loans at end of period
           $ 6,300     $ 9,119                  
Nonaccrual loans as a % of related receivables at end of period
             14.13 %     12.48 %                
 
Total nonperforming assets
           $ 7,349     $ 10,744                  
 
                                        
GMAC Insurance Operations
                                        
Net Income
           $ 135     $ 131     $ 267     $ 274  
Premiums and service revenue written
           $ 1,067     $ 964     $ 2,200     $ 2,034  
Premiums and service revenue earned
           $ 1,111     $ 1,042     $ 2,208     $ 2,074  
Combined ratio
     13       97.8 %     90.2 %     95.8 %     90.6 %
 
Investment portfolio fair value at end of period
           $ 7,068     $ 7,397                  
Memo: After-tax at end of period
                                        
Unrealized gains
           $ 129     $ 143                  
Unrealized losses
             (92 )     (72 )                
 
                                    
Net unrealized capital gains
           $ 37     $ 71                  
 
(13)   Combined ratio represents the sum of all incurred losses and expenses (excluding interest and income tax expense) divided by the total of premiums and service revenues earned and other income
Numbers may not foot due to rounding