ResCap Still a Burden for GMAC
A big loss at subsidiary Residential Capital, which has been pummeled by the subprime mortgage crisis, pushed GMAC Financial Services into the red for the fourth quarter of 2007. GMAC attributed its $724 million fourth-quarter loss largely to a $921 million net loss at the ResCap unit. Writedowns of credit residuals and MBS, higher funding costs, market-driven impairment on real estate assets and equity investments, and restructuring charges all contributed to the ResCap loss, the company said. Layoffs continued in the fourth quarter, as ResCap trimmed its workforce by another 3,000 positions.
In all of 2007, ResCap reduced its workforce by 5,000 employees, or about 35%. Falling home prices, higher delinquencies and limited market liquidity continued to hurt ResCap's performance. During the fourth quarter, ResCap said it sold residual cash flows related to several on-balance-sheet securitizations. All told, the company unloaded $22 billion of securitized assets and collateralized debt obligations from its balance sheet during the fourth quarter. Following that action, the company said its provision for loan losses should decline in future quarters.
The company's problems were no longer limited to the U.S. market. ResCap's international business also reported a fourth-quarter loss, stemming primarily from "continued illiquidity in the global capital markets," the company said. "GMAC and ResCap continue to investigate strategic alternatives related to all aspects of ResCap's business," the company said.
GMAC Financial's CEO, Eric Feldstein, noted that GMAC Financial's fourth-quarter loss was smaller than its third-quarter loss. "2007 was a year of significant transformation for the organization - driving aggressive actions designed to reduce risk, streamline operations and rationalize cost structure."
Snapshot: GMAC's Loss Widens
Time Period 4th Q '07 Full Yr. '07 4th Q '06 Full Yr. '06
GMAC (Net Loss)/Profit ($724 MM) ($2.3 Billion) $1 Billion $2.1 Billion
ResCap Contribuion ($921 MM) ($4.3 Billion) ($184 MM) 705 MM
Source: GMAC Financial services (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/