GMAC Financial Services Reports Preliminary Third Quarter 2007 Financial Results |
-- GMAC consolidated net loss of $1.6 billion * Results include $455
million goodwill impairment at ResCap -- Loss driven by disruptions in
mortgage finance and global capital markets -- Auto finance and insurance
businesses remain strong -- Cash and marketable securities increased to
$28.8 billion, up from $17.5 billion
NEW YORK, Nov. 1 /PRNewswire/ -- GMAC Financial Services today reported
a third quarter 2007 net loss of $1.6 billion, compared to a net loss of
$173 million for the third quarter of 2006. Results for the third quarter
of 2007 were dominated by the effects of the global dislocation in the
mortgage and credit markets on GMAC's real estate finance business, which
more than offset the continued strong performance in the company's
automotive finance and insurance businesses. The third quarter reported
loss includes several significant non-cash items, such as credit provisions
and market-driven valuations. The loss also includes a $455 million
non-cash goodwill impairment charge at Residential Capital, LLC (ResCap),
versus the third quarter 2006 results, which included an after-tax goodwill
impairment charge of $695 million related to GMAC Commercial Finance.
Excluding the goodwill impairment charges, GMAC posted a third quarter
operating loss(1) of $1.1 billion, compared to operating income of $522
million in the third quarter of 2006. GMAC's third quarter operating income
generated by automotive finance, insurance and other operations - excluding
ResCap - amounted to $665 million, marking a 51 percent increase over the
prior-year period. At ResCap, an operating loss of $1.8 billion was
incurred in the third quarter of this year amid unprecedented disruptions
in the mortgage financing markets and adverse trends in home price
appreciation. This compares with ResCap operating income of $83 million in
the third quarter of 2006.
(1) Operating income/loss represents net income/loss excluding impairment
charges related to goodwill and intangibles, net of applicable taxes
Third Quarter Net Income (Loss)
($ in millions, net of tax)
2007 2006 Change
Global Automotive Finance $519 $320 $199
Insurance 117 183 (66)
Other(1) 29 (64) 93
Operating Income(2) Excluding ResCap 665 439 226
ResCap (1,806) 83 (1,889)
Consolidated Operating Income (Loss) (1,141) 522 (1,663)
Goodwill and Intangibles Impairment(3) (455) (695) 240
Consolidated Net Income (Loss) ($1,596) ($173) ($1,423)
(1) Includes Commercial Finance operating segment, 21% ownership of former
commercial mortgage unit and certain corporate activities
(2) Operating income/loss represents net income/loss excluding impairment
charges related to goodwill and intangibles, net of applicable taxes
(3) Impairment of goodwill and other intangibles, net of applicable taxes,
in third quarter 2007 related to ResCap and in 2006 related to
Commercial Finance
"The third quarter financial performance of ResCap is a major
disappointment," said GMAC Chief Executive Officer Eric Feldstein. "We are
moving aggressively to restructure our real estate finance business as
weakness in the housing market and mortgage industry continues to prevail."
As announced on Oct. 17, ResCap is implementing a major restructuring
of its business in order to streamline operations and revise its cost
structure to enhance its flexibility. The company is reducing its workforce
by about 25 percent, or approximately 3,000 employees, and rationalizing
numerous facilities. This reduction in workforce is in addition to the
measures undertaken in the first half of 2007, in which 2,000 positions
were eliminated.
"Successful execution of these plans will be essential to restoring the
mortgage business to profitability," Feldstein continued. "This is a top
priority for GMAC."
Liquidity and Capital
GMAC significantly strengthened its liquidity position in the third
quarter. GMAC's consolidated cash and certain marketable securities
increased to $28.8 billion as of Sept. 30, 2007, up from $17.5 billion at
June 30, 2007. Of these total balances, ResCap cash and certain marketable
securities increased from $3.7 billion at the end of the second quarter to
$6.5 billion on Sept. 30, 2007 -- including $2.2 billion held at GMAC Bank.
GMAC and ResCap took several important measures in the third quarter to
strengthen liquidity during the capital markets turmoil. In September, GMAC
established a committed secured funding facility with Citi to finance
automotive, mortgage and commercial finance assets of up to $21.4 billion,
replacing an existing $10 billion funding facility with the bank. ResCap
and GMAC also established other committed secured funding facilities
totaling $4.6 billion. Separately, GMAC executed $11 billion of whole loan
sales and retail securitizations in the quarter.
In the interest of strengthening GMAC's capital position, the company's
owners intend to convert a total of approximately $1.1 billion in preferred
equity to common equity, effective Nov. 1, 2007. The conversion will not
alter the FIM Holdings/General Motors 51 percent/49 percent voting
structure that has been in place since Nov. 30, 2006.
In the third quarter, GMAC injected $1 billion of equity into ResCap to
bolster the company's capital base. As of Sept. 30, 2007, ResCap's equity
base stood at $6.2 billion.
Global Automotive Finance
GMAC's global automotive finance unit earned net income of $519 million
in the third quarter of 2007, up from net income of $320 million in the
year-ago period. Improvement was attributable to an increase in gains from
the sale of automotive receivables and lower credit provisions, primarily
as a result of increased whole loan sales. In addition, tax expense
decreased as a result of the conversion to a limited liability company in
the fourth quarter of 2006.
New vehicle financing originations for the third quarter amounted to
$14.5 billion of retail and lease contracts in 2007 versus $18.8 billion in
2006. The decline reflected exceptionally high origination levels in the
third quarter of 2006 related to a General Motors special marketing
program. Used vehicle originations continued to increase for the third
consecutive quarter, with $2.3 billion in originations in the third quarter
versus $1.4 billion in the prior year period.
Delinquencies increased marginally in the third quarter to 2.53 percent
of serviced retail assets, versus 2.47 percent in the prior year period;
however, losses remain contained. Credit losses were within historical
levels for the quarter and declined year-over-year to 1.02 percent of
managed retail assets in 2007, down from 1.12 percent in 2006. Despite the
slight increase in delinquencies for the quarter, credit trends in GMAC's
auto finance business remain consistent with expectations. The company
continues to employ sound underwriting practices and closely monitor the
portfolio.
GMAC's international auto finance operation continued to expand its
footprint, particularly in China where the company's joint venture is now
operating in 135 cities and has established business relationships with
approximately 450 dealers. GMAC also entered the Russian market in the
third quarter and increased its equity stake in GMAC India as part of its
strategy to take full ownership of that operation.
Insurance
GMAC's Insurance business earned net income of $117 million, compared
to net income of $183 million in the third quarter of 2006. The decline is
due predominantly to a lower level of realized capital gains versus the
year-ago period. Written revenue increased modestly in the third quarter
versus the same period last year due to growth in international and the
U.S. reinsurance businesses. Underwriting income declined year-over-year as
a result of higher weather-related losses versus the third quarter of 2006.
The total value of the insurance investment portfolio increased from
$7.4 billion at June 30, 2007 to approximately $7.5 billion at Sept. 30,
2007, with more than 90 percent of the investment portfolio in fixed income
securities and the balance in equity securities.
Real Estate Finance
ResCap incurred a net loss of $2.3 billion for the quarter, compared to
net income of $83 million in the third quarter of 2006. ResCap's U.S.
residential mortgage earnings deteriorated sharply as a result of: i)
higher provision for credit losses; ii) mark-to-market adjustments on
trading securities and mortgage loans held for sale; iii) tighter margins
on the sale of mortgage loans; iv) a decrease in net financing revenue
driven by higher borrowing costs; and v) lower production levels.
Additionally, the reported net income for the quarter includes a $455
million goodwill impairment charge.
ResCap's business lending operation posted a loss for the third quarter
as severely weak conditions in the housing market contributed to an
increase in the number of unsold homes and higher cancellation rates for
homebuilders. ResCap's international business also experienced a loss in
the third quarter as mortgage finance markets in the U.K. and Continental
Europe tightened abruptly, leading to higher cost of funds and depressed
valuations on the company's portfolio of European assets held for sale.
ResCap's total revenue was depressed in the third quarter, reflecting
the company's concerted efforts to sharply curtail originations of all non-
conforming product for which there was virtually no outlet in the capital
markets. However, as part of ResCap's overall restructuring plan, the
company will maintain the flexibility to quickly modify its product
offerings based on changing market conditions.
"We have significantly reduced our exposure to nonprime and
non-conforming loans this year, but the company will selectively originate
higher-margin non- conforming product as secondary market distribution
becomes available," said Feldstein. "Meanwhile, ResCap continues to avail
itself of its relationship with GMAC Bank to help support its current
mortgage loan production. Accordingly, ResCap remains committed to offering
a broad and competitive menu of high quality products to its customers."
Looking ahead, GMAC expects that the challenges in the housing and
mortgage markets will continue to prevail beyond the end of 2007.
Nonetheless, the company's strengthened liquidity position and sound
capital base will provide flexibility to execute its restructuring plan and
right-size the ResCap businesses in line with the industry environment.
About GMAC Financial Services
GMAC Financial Services is a global, diversified financial services
company that operates in approximately 40 countries in automotive finance,
real estate finance, insurance and commercial finance businesses. GMAC was
established in 1919 and employs about 31,000 people worldwide. At Dec. 31,
2006, GMAC held more than $287 billion in assets and earned net income for
2006 of $2.1 billion on net revenue of $18.2 billion. For more information,
go to http://www.gmacfs.com.
Forward-Looking Statements
In this earnings release and 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 ResCap's actual results may differ materially due to numerous
important factors that are described in the most recent reports on SEC Form
10-K for GMAC and Residential Capital, LLC ("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 to sustain growth 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; the profitability and
financial condition of GM; restrictions on ResCap's ability to pay
dividends to us; recent developments in the residential mortgage market,
especially in the nonprime sector; changes 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;
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.
GMAC Financial Services Preliminary Third Quarter 2007 Financial
Highlights
Summary Statement of Income Memo:
Sept 30, Sept 30, June 30,
Quarter-ended, ($ in millions) 2007 2006 2007
Net financing revenue before
provision for credit losses 1,666 2,033 1,581
Provision for credit losses 964 503 430
Net finance revenue 702 1,530 1,151
Insurance premiums and service
revenue earned 1,143 1,045 1,051
Investment income 13 525 227
Other revenue and income 707 1,445 1,589
Total net revenue 2,565 4,545 4,018
Depreciation expense on operating
lease assets 1,276 1,400 1,173
Compensation and benefits expense 628 613 647
Other operating expenses 1,870 1,682 1,746
Goodwill and intangibles impairment 455 840 -
Total non-interest expense 4,229 4,535 3,566
Income (loss) before income tax
expense (1,664) 10 452
Income tax expense (68) 183 159
Net income (loss) ($1,596) ($173) $293
Memo:
Net Income (loss) before goodwill
impairment ($1,141) $522 $293
Select Balance Sheet Data
($ in millions) Sept 30, December 31, Sept 30,
2007 2006 2006
Cash balances ($ billions) (1) $28.8 $18.3 $14.1
Finance receivables and loans, net
and loans held for sale (2) 171,092 202,164 210,242
Investments in operating leases,
net(3) 31,300 24,184 35,755
Total debt (4) 221,100 236,985 249,847
Operating Statistics Third Quarter Nine Months
Quarter-ended September 30, 2007 2006 2007 2006
GMAC's Worldwide Cost of Borrowing (5) 6.51% 6.17% 6.30% 5.84%
GMAC Debt Spreads Over U.S. Treasuries
(bps) at end of period
2-Year 278 200
5-Year 421 250
10-Year 478 290
(1) Includes cash invested in a portfolio of highly liquid marketable
securities of $4.8 billion, $2.8 billion, and $5.0 billion at
September 30, 2007, December 31, 2006, and September 30, 2006,
respectively
(2) Net of unearned income
(3) Net of accumulated depreciation
(4) Represents both secured and unsecured on-balance sheet debt such as
commercial paper, medium-term notes and long-term debt
(5) Calculated by dividing total interest expense (excluding mark to
market adjustments and inter-company interest) by total borrowings
GMAC Automotive Finance Operations Third Quarter Nine Months
2007 2006 2007 2006
Net Income ($ millions)
North American Operations (NAO) $403 $237 $1,010 $355
International Operations (IO) 116 83 289 289
Net Income 519 320 1,299 644
Consumer Portfolio Statistics
NAO Number of contracts originated
(# thousands) 510 651 1,448 1,540
Dollar amount of contracts
originated ($ billions) $13.9 $17.7 $38.6 $40.8
Dollar amount of contracts
outstanding at end of period ($
billions)(6) $65.2 $83.9
Share of new GM retail sales 45% 62% 45% 51%
Mix of retail & lease contract
originations:
New (% based on # of units) 79% 91% 80% 88%
Used (% based on # of units) 21% 9% 20% 12%
GM subvented (% based on # of units) 84% 94% 85% 91%
Average original term in months
(US retail only) 59 62 57 59
Off-lease remarketing (US only)
Sales proceeds on scheduled
lease terminations (36-month)
per vehicle - Serviced (7) (8) $14,588 $13,747 $14,781 $14,517
Off-lease vehicles terminated -
Serviced (# units) (8) 77,104 67,910 228,981 206,466
Sales proceeds on scheduled
lease terminations (36-month)
per vehicle - On-balance sheet
(7) $15,111 $14,272 $15,121 $14,848
Off-lease vehicles terminated -
On-balance sheet (# units) (9) 26,805 67,910 78,540 206,466
IO Number of contracts originated
(# thousands) 179 165 537 504
Dollar amount of contracts
originated ($ billions) $3.0 $2.6 $8.7 $7.6
Dollar amount of contracts
outstanding ($ billions) (10) $29.5 $25.2 $85.9 $75.5
Mix of retail & lease contract
originations:
New (% based on # of units) 84% 80% 83% 81%
Used (% based on # of units) 16% 20% 17% 19%
GM subvented (% based on # of
units) 42% 49% 42% 54%
Asset Quality Statistics
NAO Annualized net charge-offs as a
% of managed assets (11) 1.19% 1.19% 1.17% 1.15%
Managed retail contracts over 30
days delinquent (11) (12) 2.69% 2.68% 2.52% 2.46%
Serviced retail contracts over
30 days delinquent (8) (12) 2.54% 2.42% 2.33% 2.21%
IO Annualized net charge-offs as a
% of managed assets (11) 0.53% 0.86% 0.59% 0.72%
Managed retail contracts over 30
days delinquent (11) (12) 2.50% 2.63% 2.56% 2.64%
Operating Statistics
Quarter-ended September 30,
NAO Allowance as a % of related on-
balance sheet consumer
receivables at end of period 3.72% 2.47%
Severity of loss per unit
serviced - Retail (8)
New $9,077 $8,893 $8,829 $8,555
Used $7,295 $6,906 $7,044 $6,663
Repossessions as a % of average
number of managed contracts
outstanding (11) 2.43% 2.36% 2.25% 2.38%
IO Allowance as a % of related on-
balance sheet consumer
receivables at end of period 1.46% 1.35%
Repossessions as a % of average
number of contracts outstanding 0.56% 0.41% 0.56% 0.42%
(6) Represents on-balance sheet assets, which includes $9 billion of
loans held for sale
(7) Prior period amounts based on current vehicle mix, in order to be
comparable
(8) Serviced assets represent on and off-balance sheet finance
receivables, loans and operating leases where GMAC continues to
service the underlying asset
(9) GMAC-owned portfolio reflects lease assets on GMAC's books after
distribution to GM of automotive leases in connection with the sale
transaction which occurred in November 2006
(10) Represents on-balance sheet assets including leases
(11) Managed assets represent on and off-balance sheet finance
receivables, loans and operating leases where GMAC continues to be
exposed to credit and/or interest rate risk
(12) Represents percentage of average number of contracts outstanding.
Excludes accounts in bankruptcy.
ResCap Operations Third Quarter Nine Months
2007 2006 2007 2006
Net Income (loss) ($ millions) ($2,261) $83 ($3,425) $833
Gain (loss) on sale of
mortgage loans, net
Domestic ($107.1) $214.2 ($350.5) $749.8
International (462.5) 22.6 (280.2) 129.0
Total ($569.6) $236.8 ($630.7) $878.8
Portfolio Statistics ($ billions)
Loan production volume $29.3 $51.4 $101.7 $140.0
Mortgage production
Domestic $20.2 $43.9 $78.4 $120.3
International $9.1 $7.5 $23.3 $19.7
Mortgage servicing rights at
end of period $5.5 $4.8
Period end servicing portfolio $465.6 $433.9
Loan servicing at end of
period
Domestic $427.4 $402.4
International $38.2 $31.5
U.S. Production Mix
Prime conforming $12.2 $12.0 $34.4 $32.5
Prime non-conforming 4.6 16.4 26.8 42.8
Government 1.4 0.9 5.5 2.9
Nonprime 0.2 8.5 4.1 23.6
Prime second-lien 1.8 6.1 7.6 18.5
Total $20.2 $43.9 $78.4 $120.3
Asset Quality Statistics
($ millions) - ResCap Consolidated
Provision for credit losses by
product
Mortgage loans held for
investment $787.5 $231.7 $1,436.3 $470.5
Lending receivables 93.1 7.0 312.9 13.6
Total $880.6 $238.7 $1,749.2 $484.1
Allowance by product at
end of period
Mortgage loans held for
investment $1,734.2 $1,088.2
Lending receivables 325.3 196.1
Total $2,059.5 $1,284.3
Allowance as a % of related
receivables at end of period
Mortgage loans held for
investment 2.85% 1.47%
Lending receivables 4.12% 1.36%
Total 3.00% 1.45%
Nonaccrual loans at end of
period $8,993 $6,819
Nonaccrual loans as a % of
related receivables at end of
period 13.10% 7.70%
Total nonperforming assets
($ millions) $10,654 $7,753
GMAC Insurance Operations
Net Income ($ millions) $117 $183 $391 $392
Premiums and service revenue $1,063 $1,037 $3,097 $3,168
written ($ millions)
Premiums and service revenue $1,133 $1,037 $3,206 $3,082
earned ($ millions)
Combined ratio (13) 95.3% 89.4% 92.3% 92.3%
Investment portfolio fair value
at end of period ($ millions) $7,518 $8,006
Memo: After-tax at end of period
Gross unrealized gains $156 $654
Gross unrealized losses (42) (50)
Net unrealized capital gains $114 $604
(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
SOURCE GMAC Financial Services
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CONTACT:
Gina Proia of GMAC Financial Services,
+1-917-369-2364, gina.proia@gmacfs.com
