Tuesday, September 11, 2007

GMAC Gets $21 Billion in Citigroup Funding for Auto, Home Loans

This sounds to me like "throwing good money after bad money". Ceberus and GMAC must be in big big trouble. Too bad that they didn´t disclose the loan terms. But when a "smart" investor like Ceberus bought several subprime lender during the past 2 years and therefore has shown their brilliant expertise i assume the terms of the loan should be far from brutal (sarcasm off...). The clearest sign if the terms are "risk priced" will come to light when Citigroup fails to unload/syndicate them. No wonder Ceberus & Co are launching multi billion vulture funds...... Maybe they can ask Citigroup to invest when they buy some of the loans with a discount.. ;-). And after viewing this Rescap presentation / pdf from August the vultures are probably already rotating......

Das ganze klingt ein wenig nach der wenig erfolfversprechenden Formel "gutem Geld schlechtes hinterherwerfen". Ceberus und GMAC stecken wohl in existensziellen Schwierigkeiten. Was würde ich geben um die Kreditbestimmungen einsehen zu können. Nachdem Ceberus seine überragende Expertise dank der diversen Käufe im Subprimesektor binnen der letzten 24 Monate eindrucksvoll nachgewiesen hat sollten die Bedingungen aber milde ausfallen (Sarkasmus). Wir werden wohl erst erahnen können ob die Bestimmungen dem Risiko angemessen sind wenn Citiroup es schaffen sollte den Kredit zu syndizieren. Bei solchen Meldungen wundert es nicht das Ceberus & Co. gleichzeitig momentan Mrd für sogenannte "GeierFonds" einsammeln die in Schwierigkeit geratenen Kredite für einen Bruchteil des Nennwertes einsammeln. Evtl. kann Ceberus Citigroup ja in einem Jahr um ein Investment fragen ..... ;-). Und nachdem man sich diese Rescap Presentation / pdf vom August angesehen hat sind sicher schon einige Geier am kreisen....

Sept. 12 (Bloomberg) -- GMAC LLC, the lender that reported more than $1 billion of mortgage losses after General Motors Corp. sold a controlling stake last year, is getting as much as $21.4 billion in additional credit from Citigroup Inc. for auto and home loans.

Citigroup, the biggest U.S. bank, will make $14.4 billion available immediately and as much as $7 billion more if GMAC meets certain conditions, GMAC said in a regulatory filing yesterday. The agreement replaces a $10 billion asset-backed funding facility that Citigroup provided GMAC in August 2006. Detroit-based GMAC didn't disclose the terms of the financing.....

GMAC last month moved to inject $775 million into its Residential Capital LLC mortgage unit, known as ResCap, after rival lenders lost access to short-term financing amid the worst U.S. housing slump in 16 years.

The analysts said five-year GMAC credit-default swaps narrowed by 50 basis points to 520 to 545, signaling that investors now consider the company at less risk of defaulting on its debt.

Citigroup Ties
New York-based Citigroup is more than a lender to GMAC. It was part of the group led by Cerberus Capital Management LP that bought a 50.1 percent stake in GMAC last year from GM. Michael Klein, co-head of Citigroup's investment banking and trading group, is a member of GMAC's board.

Minneapolis-based ResCap ranked as the ninth-largest U.S. mortgage lender in the first half of this year, with $41 billion in new loans, according to industry newsletter Inside MBS & ABS. The unit reported losses of $1.15 billion in the past two quarters as defaults on subprime loans made to borrowers with low credit scores accelerated.

``We view today's disclosure as added evidence that GMAC is making an effort to provide funding support to its troubled mortgage operation,'' Kathleen Shanley, a fixed-income analyst at Gimme Credit LLC, wrote in a report to clients yesterday.

`Prudent' Funding
``With the current global credit market, the company decided this funding was prudent,'' said Gina Proia, a spokeswoman for GMAC. ``This gives us additional liquidity. It bolsters our financial flexibility.''

Countrywide, the biggest U.S. mortgage company, was forced to tap $11.5 billion of emergency financing last month to avert a cash shortage. Bank of America Corp. then stepped in with a $2 billion investment on Aug. 22, easing concern that Countrywide might end up in bankruptcy.....

The new credit, which Citigroup may syndicate out to other lenders, has a one-year term, compared with a three-year term for the previous facility, Proia said. A majority of the funds are earmarked for car loans and related securities, Proia said.

ResCap was borrowing $12.3 billion as of June 30 through an affiliate that issues asset-backed commercial paper, according to a presentation on its Web site ( see Rescap presentation link above)

`Good for GMAC'
``It's really good for GMAC,'' said Thomas Flaherty, who owns GMAC's 8 percent bonds due in 2031 as part of the $25 billion he manages at Aberdeen Asset Management in Philadelphia. ``This is a very difficult environment, a very tough market.''

"He´s in fine as long as i take my medication"

Cerberus, the New York-based buyout firm and hedge fund manager, led the $14.4 billion purchase last year of a 51 percent stake in GMAC. GM later injected $1 billion of capital into GMAC to make up for writedowns on mortgage assets at ResCap.

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Blogger jmf said...

Y2K Finance Hedge Fund Halts Redemptions and Sales

Y2K Finance Inc., the flagship hedge fund of Wharton Asset Management, will halt redemptions until at least December because of credit market turmoil.

Y2K Finance will stop calculating net asset value ``due to current market turbulence'' ....

1:31 AM  
Blogger Yogi said...

There's an (unintentionally) hilarious article by Michael Lewis on Bloomberg.com trying to justify the outrageous fees and bonuses that hedge fund grifters and private equity money-maggots have been awarding themselves.


I can't wait to hear what Edgar thinks about this.

2:30 AM  
Blogger jmf said...

Update Y2K Hedge Fund

Hedge funds investing in structured finance took another hit on Tuesday when it emerged that the flagship fund of London’s Wharton Asset Management had lost a quarter of its money in one month and a small Swiss-run fund had collapsed

2:33 AM  
Blogger jmf said...

Moin Yogi,

thanks for the laugh. I almost spit out my coffee :-)

I think this was not unintentional.

To me this is sarcasm at its best.

At least that is what i hope..

2:45 AM  
Blogger jmf said...

BOE's King Loath to Aid Market, Cites Moral Hazard

``The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior,'' King said in written testimony to the U.K. Parliament's Treasury Committee. ``That encourages excessive risk- taking, and sows the seeds of a future financial crisis.''


2:58 AM  
Anonymous Anonymous said...

Best line....the insurance seekers' riposte to King

"It's all about the survival of the fittest. Well, the fittest have been identified, and it's important, for the greater good, to help them to survive."

3:48 AM  
Blogger jmf said...

Good catch!

S&P puts 27 Europe CDOs on CreditWatch for downgrade

Standard & Poor's said it's taken CreditWatch actions on 36 European synthetic collateralized debt obligation tranches -- with 27 placed with negative implications, seven with positive implications and two removed -- following August synthetic rated overcollateralization figures. The SROC levels for the ratings placed on CreditWatch negative fell below 100% during the August month-end run

5:06 AM  
Blogger jmf said...

Looks like Citigroup has a good run....

Citigroup's Old Lane Hedge-Fund Unit Declined 5.9% in August

5:49 AM  
Anonymous Anonymous said...

Citigroup has no fear of going "all in" because they are too big to fail and have Arab money, so they know they can get a bailout. A loose canon to be sure.

7:28 AM  
Blogger Yogi said...

I hope you're right jmf, sarcasm can be hard to recognize on the interweb for some reason :), especially if you haven't had your morning coffee yet (I had't, so at least I avoided spraying my keyboard).

My alternate hypothesis is that Lewis is suffering from a bad case of what might be called "Marie Antionette Syndrome".

There's some evidence in the Social Psychology literature that high social status leads to reduced empathy for one's "inferiors".

I recall reading about one experiment where one person in a group was randomly assigned to be the leader for an arbitrary task, and then asked to divide a plate of cookies between group members as a reward.

The catch was the number of cookies was equal to the group size plus one. The leader almost always kept the extra cookie for himself.

I think Marie Anionette Syndrome must be very common in the Private Equity and Hedge Fund "industries", and I doubt even hiding in gated communities will save them when the mob storms the Bastille.

7:52 AM  
Anonymous Anonymous said...

I don't think banks even count the money anymore. Seriously, I doubt they keep track of it, they just lend more and more. There really is no limit. Foreigners simply do not understand how corrupt the US has become. They will steal until there is nothing left. A lesson the Arabs will learn the hard way.

8:05 AM  
Anonymous Anonymous said...

That's what banks do -- lend money. Homebuilders keep building homes for the same reason, I guess.

Business must be pretty bad if Citigroup cannot find anyone else to take a risk on. Or maybe Citigroup people actually believe this is a good investment:

Handelsblatt Nr. 175 vom 11.09.07 Seite 8, 11.09.2007
Es gibt keine Kreditverknappung:
Wir erleben eine kurze Korrektur, auf die schon bald eine Rally an den Aktienmärkten folgen wird


2:03 AM  

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