Troubled U.S.-owned lender GMAC continues to shrink its investment holdings, preparing to sell another $6.5 billion in mortgage assets. Anytime I read news about GMAC, I have to rub my eyes to make sure they aren't playing tricks on me. A Dow Jones article on this topic today is no exception. Let's examine GMAC's incredible shrinking portfolio and balance sheet.
I already mentioned the $6.5 billion transfer of assets from its investments portfolio to its "for sale" inventory. But that doesn't even properly describe how much its assets held for investment have shrunk. The firm also wrote off 60% -- 60 cents on a dollar: that's not a typo -- of those assets' value before transfer. That brought its held-for-investment portfolio from $25 billion to $12 billion in the 4th quarter.
And that's not even the most shocking statistic in the article:
During the past year, GMAC has made a concerted effort to trim its mortgage lending arm, Residential Capital LLC's holdings. ResCap's balance sheet stands at $19 billion at the end of 2009, compared with $140 billion in 2006.
For those who like percentages, that means that ResCap's balance sheet has shrunk by more than 86% since 2006. While that was due in large part to big losses, it has also sold off some assets. Although ResCap is only a part of GMAC's overall mortgage operation, this still shows that GMAC's mortgage assets are a fraction of what they once were.
You might take this to mean that GMAC is winding down. I wish that were true. But the article also says:
In the fourth quarter, origination of new mortgage loans jumped to $18.1 billion. Hull said a third of the business was through purchases, while the rest consisted of refinanced mortgages.
The lender wouldn't be originating new mortgages if it was really finished doing business. Even though most were refinancing, the approximately $6 billion of new purchases shows that the company hasn't given up just yet.
I'm not sure if this is good or bad news for taxpayers. If its efforts lead to paying back its bailout, then I guess that's good. But I can't help but think taxpayers would have been much better off if GMAC was liquidated early on, rather having been awarded multiple bailouts.
Earlier this month, I wrote about the lender's bailout total thus far. That's up to around $17.3 billion. While no where near the size of say, AIG or Fannie Mae, that's still a pretty big number if it turns out to be a taxpayer loss. And as long as GMAC continues to need even more cash to cover losses, it's hard to see when the company might manage to pay back any of that.
Some would argue that some bailout banks may not have made deep enough mistakes to deserve to fail, despite coming very close. I don't see how it's possible to make that argument for GMAC. Any firm still needing billions to cover new losses now that the broader financial industry has recovered never should have been saved in the first place.
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