US government to inject $3.8 billion into GMAC, hike stake to 56 per cent

31 Dec 2009

1

The US treasury will inject $3.8 billion fresh capital into GMAC, the largest lender to General Motors and Chrysler dealerships and to their auto-buying customers, the federal government said yesterday.

The treasury said it would increase its investment in GMAC to $16.3 billion, or 56 per cent, from $12.5 billion, or 35 per cent, earlier.

The government plans to appoint four of the company's nine directors.

Although the move underscores the administration's efforts to revive the auto industry, analysts were surprised at the government's decision to deepen its involvement in bailing out troubled financial institutions instead of releasing its grip.

The government now owns majority ownership stakes in Fannie Mae, Freddie Mac, General Motors, and American International Group. It also holds large stakes in Citigroup and Chrysler.

After the stress test, GMAC, which was required to add $9.1 billion to its capital reserves against unexpected losses, was the only bank unable to satisfy regulators by finding private investors.

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