EX-99.1 2 k46887exv99w1.htm EX-99.1 EX-99.1
Exhibit 99.1
GMAC Financial Services Reports Preliminary Third Quarter
2008 Financial Results
  •   Third quarter net loss of $2.5 billion
 
  •   ResCap results continue to be affected by adverse market conditions
 
  •   Insurance operation posted a profit
 
  •   Auto finance actions align originations with funding
 
  •   Cash and cash equivalents balance at $13.5 billion
NEW YORK — GMAC Financial Services reported a 2008 third quarter net loss of $2.5 billion, compared to a net loss of $1.6 billion in the third quarter of 2007. Results were primarily attributable to a significant loss at Residential Capital, LLC (ResCap) as adverse market conditions domestically and internationally continued to affect the mortgage business. GMAC’s automotive finance operation also experienced pressure from lower used vehicle prices and weaker consumer and dealer credit performance. Other items affecting results were realized losses and valuation adjustments on assets held for sale and certain other investment securities as a result of illiquidity in the credit and capital markets. These items were partially offset by profitable results in the insurance businesses.
“The economic and market conditions created an unrelenting environment for our business and the financial services sector overall,” said GMAC Chief Executive Officer Alvaro G. de Molina. “Clearly this weighed heavily on financial results in the third quarter.
“In this climate, our primary objective is to make prudent use of our resources and take the steps needed to address the reduced access to liquidity. In this regard, we’ve limited originations to match funding sources and are streamlining operations and evaluating opportunities to shed operations that are not essential to the core business,” said de Molina. “In addition, we are pursuing strategies to increase flexibility and access to funding such as participating in the Federal Reserve’s commercial paper purchase program via our asset-backed credit facility and engaging in discussions with regulatory authorities regarding bank holding company status.”

 

 

GMAC CONFIDENTIAL
Third Quarter Net Income/(Loss)
($ in millions)
                         
    Q308     Q307     Change  
Global Automotive Finance
     ($294 )   $ 554       ($848 )
Insurance
     97       117       (20 )
ResCap
     (1,912 )     (2,261 )     349  
Other1
     (414 )     (6 )     (408 )
 
Net Income/(Loss)
     ($2,523 )     ($1,596 )     ($927 )
 
 
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 $13.5 billion at Sept. 30, 2008, down modestly from the cash and cash equivalents balance of $14.3 billion at June 30, 2008. Of these total balances, ResCap’s cash and cash equivalents balance was $6.9 billion at quarter-end, up from $6.6 billion at June 30, 2008. The change in consolidated cash is related to debt maturities at GMAC in the quarter, which were partially offset by reduced origination levels.
GMAC Bank assets and deposits continue to grow at a measured rate with total assets of $32.9 billion at quarter-end, which includes $8.5 billion of assets at the auto division and $24.4 billion of assets at the mortgage division. This compares to $31.9 billion at June 30, 2008. Deposits also increased in the third quarter to $17.7 billion at Sept. 30, 2008, compared to $16.9 billion at the end of the second quarter.
GMAC previously disclosed it is in discussions with federal regulatory authorities regarding, among other things, seeking bank holding company status under the Bank Holding Company Act of 1956, as amended. In conjunction with this initiative, GMAC intends to commence a private offer to exchange a significant amount of outstanding indebtedness for a reduced principal amount of new indebtedness. Timing and details should be disclosed in the near term.
Global Automotive Finance
GMAC’s global automotive finance business reported a net loss of $294 million in the third quarter of 2008, compared to net income of $554 million in the year-ago period. The decline in performance was primarily driven by an increase in credit reserves as a result of the continued deterioration in used vehicle prices, which affected certain retail balloon contracts. Also affecting results was an impairment on operating leases related

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GMAC CONFIDENTIAL
to the truck vehicle portfolio in Canada, weaker consumer and dealer credit performance, and valuation adjustments on securitization retained interests.
New vehicle financing originations for the third quarter of 2008 decreased to $11.3 billion of retail and lease contracts from $14.5 billion in the third quarter of 2007, due to tighter underwriting standards and lower industry sales.
Due to the current volatility in the global capital and credit markets, GMAC has recently taken steps to more closely align auto financing activities with available funding. Most recently in October, the company implemented pricing and underwriting adjustments in the U.S. and select international markets. In addition, in Asia-Pacific, GMAC announced it would cease retail and wholesale originations in Australia and New Zealand by the end of the year. The company also ceased retail originations in seven European markets as of Nov. 1, 2008.
Credit losses have increased in the third quarter of 2008 to 1.55 percent of managed retail assets, versus 1.01 percent in the third quarter of 2007. The sharp increase is related to higher loss severity in North America and increased losses in Latin America due to weaker economic conditions. Delinquencies remained almost flat with the year-ago period at 2.62 percent. Increased loan servicing efforts and tighter underwriting aided in keeping delinquencies from increasing during this weaker economic environment.
Insurance
GMAC’s insurance business recorded net income of $97 million, down from net income of $117 million in the third quarter of 2007. Performance reflects slightly lower written premium and a decline in investment income due to realized losses and an impairment on Lehman Brothers securities as a result of recent market volatility.
The insurance investment portfolio was $6.6 billion at Sept. 30, 2008, compared to $7.5 billion at Sept. 30, 2007. The decrease in the portfolio is related to a dividend payment to GMAC and changes in the market conditions that have caused the portfolio to have aggregate unrealized losses.

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GMAC CONFIDENTIAL
On Nov. 3, 2008, GMAC agreed to divest its reinsurance business, GMAC RE, to Maiden Holdings, Ltd. This transaction is part of GMAC’s strategy to pursue opportunities to shed non-core operations in an effort to preserve capital.
Real Estate Finance
ResCap reported a net loss of $1.9 billion for the third quarter of 2008, compared to a net loss of $2.3 billion in the year-ago period. Results are primarily attributable to continued adverse market conditions, which drove high credit-related provisions and weak revenue.
During the third quarter, ResCap announced additional actions to significantly streamline operations, reduce cost and adjust its lending footprint. These actions included closing all GMAC Mortgage retail offices, ceasing originations through the Homecomings wholesale broker channel and further curtailing business lending and international business activities. In addition, ResCap entered into an agreement to sell the GMAC Home Services business to Brookfield Residential Property Services.
ResCap’s U.S. residential finance business was negatively affected by lower mortgage production and a decrease in net servicing fees. While prime conforming loan production decreased year-over-year with $6.8 billion in the third quarter of 2008 versus $12.2 billion in the year-ago period, production of higher-margin government loans increased to $4.1 billion this quarter compared to $1.4 billion in the third quarter of 2007.
The international mortgage business experienced a net loss in the third quarter related to weakening consumer credit in key markets and increased cost of funds. ResCap has currently suspended all production outside of the U.S. with the exception of Canadian insured loans. ResCap’s international business is now focused on management of assets in the U.K. and continental Europe. Results were also negatively affected by unfavorable foreign currency movements. The business lending operation experienced continued losses in the third quarter due to high levels of loss provisions and other impairments related to the current real estate market conditions.
In the third quarter, GMAC forgave $101.5 million of debt outstanding under the mortgage servicing rights credit facility with ResCap as a capital contribution to the

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GMAC CONFIDENTIAL
mortgage subsidiary. In addition, GMAC also forgave $95.3 million of outstanding principal and accrued unpaid interest on ResCap notes held by GMAC. In October, GMAC forgave additional debt to ensure that ResCap remained compliant with the tangible net worth covenant.
Adverse market conditions have made it difficult for ResCap to maintain adequate capital and liquidity levels. As a result, absent economic support from GMAC, substantial doubt exists regarding ResCap’s ability to continue as a going concern.
Outlook
The global capital and credit markets remain disrupted and general economic conditions have deteriorated. GMAC’s business continues to be affected by these conditions and has led the company to take several actions to manage resources during this volatile environment. These steps include:
  •   Aligning auto originations with available committed funding sources in the U.S. and abroad
 
  •   Streamlining operations to suit the current business plans
 
  •   Growing GMAC Bank within the regulatory guidelines
 
  •   Reducing risk in the balance sheet
 
  •   Divesting select non-core operations such as GMAC Global Home Services and GMAC Reinsurance
GMAC is focused on pursuing strategies to increase flexibility and access to liquidity with the primary focus of continuing to support automotive dealers and customers.
About GMAC Financial Services
GMAC Financial Services is a global finance company operating in and servicing North America, South America, Europe and Asia-Pacific. GMAC specializes in automotive finance, real estate finance, insurance, commercial finance and online banking. As of Dec. 31, 2007, the organization had $249 billion in assets and serviced 15 million customers. Visit the GMAC media site at www.media.gmacfs.com for more information.

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GMAC CONFIDENTIAL
Contact:
Gina Proia
917-369-2364
gina.proia@gmacfs.com
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 and liquidity; the profitability and financial condition of GM; restrictions on ResCap’s ability to pay dividends to us; recent developments in the residential mortgage and capital markets; 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; uncertainty concerning our ability to access federal liquidity programs; 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.

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GMAC Financial Services Preliminary Unaudited Third Quarter 2008 Financial Highlights
($ in millions)
                                         
                                    Memo:  
                    3Q     3Q     2Q  
Summary Statement of Income   Note             2008     2007     2008  
 
Revenue
                                        
Total financing revenue
                   $ 4,641     $ 5,381     $ 4,822  
Interest expense
                     2,906       3,715       2,869  
Depreciation expense on operating lease assets
                     1,412       1,276       1,401  
Impairment of investment in operating leases
                     93       —       716  
 
Net financing revenue (loss)
                     230       390       (164 )
Other revenue
                                        
Servicing fees
                     441       548       465  
Servicing asset valuation and hedge activities, net
                     (261 )     (123 )     (185 )
Insurance premiums and service revenue earned
                     1,123       1,143       1,123  
Gain (loss) on mortgage and automotive loans, net
                     25       (320 )     (1,099 )
Investment (loss) income
                     (216 )     13       185  
Other income
                     373       602       990  
 
Total other revenue
                     1,485       1,863       1,479  
Total net revenue
                     1,715       2,253       1,315  
Provision for credit losses
                     1,099       964       771  
Noninterest expense
                                        
Compensation and benefits expense
                     612       628       591  
Insurance losses and loss adjustment expenses
                     642       659       714  
Other operating expenses
                     1,967       1,211       1,548  
Impairment of goodwill and other intangible assets
                     16       455       —  
 
Total noninterest expense
                     3,237       2,953       2,853  
Loss before income tax (benefit) expense
                     (2,621 )     (1,664 )     (2,309 )
Income tax (benefit) expense
                     (98 )     (68 )     173  
 
Net loss
                     ($2,523 )     ($1,596 )     ($2,482 )
 
                                         
                    Sep 30,     Dec 31,     Sep 30,  
Select Balance Sheet Data                   2008     2007     2007  
  | | | | | Cash and cash equivalents $13,534 $17,677 $23,923
Loans held for sale
                     11,979       20,559       23,992  
Finance receivables and loans, net
     1                                  
Consumer
                     72,925       87,769       106,542  
Commercial
                     39,497       39,745       40,558  
Investments in operating leases, net
     2               30,628       32,348       31,300  
Total debt
     3               160,631       193,148       221,100  
 
                                         
            Third Quarter     Nine Months  
Operating Statistics           2008     2007     2008     2007  
 
GMAC’s Worldwide Cost of Borrowing
     4       6.15 %     6.51 %     6.17 %     6.30 %
 
 
(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

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GMAC Financial Services Preliminary Unaudited Third Quarter 2008 Financial Highlights (Continued)
($ in millions)
                                         
            Third Quarter     Nine Months  
GMAC Automotive Finance Operations Note   2008     2007     2008     2007  
Net Income                                    
North American Operations (NAO)
         ($250 )   $ 438       ($950 )   $ 1,058  
International Operations (IO)
         (44 )     116       197       289  
                 
Net Income
         ($294 )   $ 554       ($753 )   $ 1,347  
                 
Consumer Portfolio Statistics                                    
NAO  
Number of contracts originated (# thousands)
         393       510       1,270       1,448  
   
Dollar amount of contracts originated
       $ 10,601     $ 13,856     $ 34,268     $ 38,633  
   
Dollar amount of contracts outstanding at end of period
   5   $ 59,175     $ 65,237                  
   
Share of new GM retail sales
         42 %     45 %     45 %     45 %
   
Mix of retail & lease contract originations (% based on # of units):
                                    
   
New
         75 %     79 %     75 %     80 %
   
Used
         25 %     21 %     25 %     20 %
   
GM subvented (% based on # of units)
         82 %     84 %     80 %     85 %
   
Average original term in months (US retail only)
         65       59       63       57  
   
Off-lease remarketing (US only)
                                    
   
Sales proceeds on scheduled lease terminations (36-month) per vehicle — Serviced
   6,7   $ 12,765     $ 15,250     $ 13,413     $ 15,539  
   
Off-lease vehicles terminated — Serviced (# units)
   7     108,063       80,449       328,438       237,812  
   
Sales proceeds on scheduled lease terminations (36-month) per vehicle — On-balance sheet
   6   $ 12,987     $ 15,750     $ 13,481     $ 15,769  
   
Off-lease vehicles terminated — On-balance sheet (# units)
   8     58,418       30,150       161,176       87,371  
IO  
Number of contracts originated (# thousands)
         160       179       540       537  
   
Dollar amount of contracts originated
       $ 2,733     $ 2,968     $ 9,280     $ 8,686  
   
Dollar amount of contracts outstanding at end of period
   9   $ 17,694     $ 17,911                  
   
Mix of retail & lease contract originations (% based on # of units):
                                    
   
New
         85 %     84 %     85 %     83 %
   
Used
         15 %     16 %     15 %     17 %
   
GM subvented (% based on # of units)
         39 %     42 %     40 %     42 %
Asset Quality Statistics                                    
NAO  
Annualized net retail charge-offs as a % of managed assets
   10     1.90 %     1.19 %     1.71 %     1.17 %
   
Managed retail contracts over 30 days delinquent
   10,11     2.69 %     2.69 %     2.44 %     2.52 %
   
Serviced retail contracts over 30 days delinquent
   11,12     2.66 %     2.54 %     2.43 %     2.33 %
IO  
Annualized net charge-offs as a % of managed assets
   10     0.70 %     0.49 %     0.72 %     0.56 %
   
Managed retail contracts over 30 days delinquent
   10,11     2.51 %     2.50 %     2.47 %     2.56 %
Operating Statistics                                    
NAO  
Allowance as a % of related on-balance sheet consumer receivables at end of period
         4.37 %     3.72 %                
   
Repossessions as a % of average number of managed retail contracts outstanding
   10     2.65 %     2.43 %     2.57 %     2.25 %
   
Severity of loss per unit serviced — Retail
   12                                
   
New
       $ 11,720     $ 9,077     $ 10,919     $ 8,829  
   
Used
       $ 9,269     $ 7,295     $ 8,710     $ 7,044  
IO  
Allowance as a % of related on-balance sheet consumer receivables at end of period
         1.61 %     1.46 %                
   
Repossessions as a % of average number of contracts outstanding
         0.69 %     0.73 %     0.69 %     0.76 %
 
(5)   Represents on-balance sheet assets, which includes $6.1 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

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GMAC Financial Services Preliminary Unaudited Third Quarter 2008 Financial Highlights (Continued)
($ in millions)
                                         
            Third Quarter     Nine Months  
ResCap Operations   Note   2008     2007     2008     2007  
             
Net Income (loss)
             ($1,912 )     ($2,261 )     ($4,631 )     ($3,425 )
Gain (loss) on sale of mortgage loans, net
                                        
Domestic
           $ 32       ($107 )     ($213 )     ($351 )
International
             (171 )     (463 )     (1,735 )     (280 )
 
                                
Total Gain (loss) on sale of mortgage loans
             ($138 )     ($570 )     ($1,948 )     ($631 )
Portfolio Statistics
                                        
Mortgage loan production
                                        
Prime conforming
           $ 6,766     $ 12,174     $ 34,390     $ 34,425  
Prime non-conforming
             250       4,993       1,838       27,798  
Government
             4,137       1,378       9,873       5,458  
Nonprime
             —       221       3       4,246  
Prime second-lien
             86       1,440       872       6,472  
 
                                
Total Domestic
             11,239       20,206       46,976       78,399  
International
             627       9,068       3,867       23,258  
 
                                
Total Mortgage production
           $ 11,866     $ 29,274     $ 50,843     $ 101,657  
Mortgage loan servicing rights at end of period
           $ 4,725     $ 5,547                  
Loan servicing at end of period
                                        
Domestic
           $ 391,945     $ 427,440                  
International
             34,079       38,200                  
 
                                    
Total Loan servicing
           $ 426,023     $ 465,640                  
Asset Quality Statistics — ResCap Consolidated
                                        
Provision for credit losses by product
                                        
Mortgage loans held for investment
           $ 533     $ 788     $ 1,158     $ 1,436  
Lending receivables
             118       93       256       313  
 
                                
Total Provision for credit losses
           $ 652     $ 881     $ 1,414     $ 1,749  
Allowance by product at end of period
                                        
Mortgage loans held for investment
           $ 975     $ 1,734                  
Lending receivables
             564       325                  
 
                                    
Total Allowance by product
           $ 1,539     $ 2,060                  
Allowance as a % of related receivables at end of period
                                        
Mortgage loans held for investment
             3.27 %     2.85 %                
Lending receivables
             12.95 %     4.12 %                
Total Allowance as a % of related receivables
             4.50 %     3.00 %                
Nonaccrual loans at end of period
           $ 7,477     $ 8,993                  
Nonaccrual loans as a % of related receivables at end of period
             21.88 %     13.10 %                
Total nonperforming assets
           $ 8,496     $ 10,655                  
GMAC Insurance Operations
                                        
Net Income
           $ 97     $ 117     $ 364     $ 391  
Premiums and service revenue written
           $ 1,042     $ 1,063     $ 3,241     $ 3,097  
Premiums and service revenue earned
           $ 1,114     $ 1,133     $ 3,322     $ 3,206  
Combined ratio
     13       90.9 %     95.3 %     94.2 %     92.3 %
Investment portfolio fair value at end of period
                           $ 6,639     $ 7,518  
Memo: After-tax at end of period
                                        
Unrealized gains
           $ 104     $ 156                  
Unrealized losses
             (172 )     (42 )                
 
                                    
Net unrealized capital gains
             ($68 )   $ 114                  
 
(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

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