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The Fate of GMAC Bank

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GMAC Insurance Orange HummerDec 26. GMAC Bank was approved as a bank holding company but may have failed to clear a final hurdle to receive TARP funds.

GMAC, which stands for General Motors Acceptance Corporation, is the financial institution that offers loans to customers and dealers of General Motors, one of the Big Three seeking financial assistance this past week. In 2006, GM sold 51% of GMAC to some private equity firms, including Cerberus Capital Management LP (they also own all of Chrysler). GMAC Bank is a subsidiary of GMAC and GMAC is in a bit of trouble. ACtually, it’s in a lot of trouble. This week, GMAC ” sweetened terms on a debt swap designed to save the firm from bankruptcy and extended the deadline for a fourth time to lure more investors.” (Bloomberg) GMAC is trying to convert to a bank holding company so that it can get access to the TARP bailout funds, but is coming up short.

GMAC Bank, the subsidiary, is fine but it leads many to wonder what would happen to the bank should its parent, GMAC, fail. If history is any indication, everything should be fine. Lehman Brothers had a subsidiary bank, Lehman Brothers Bank, FSB, and according to Ken at BankDeals, the bank wasn’t included in the bankruptcy and is operating as normal. Lehman Brothers filed for bankruptcy in September of this year.

If you’re an account holder, your funds under the FDIC limits are perfectly safe. If you have over the limit, I would play it safe and get under the limit. There are no signs the bank itself is in danger but there’s also no reason to have above the FDIC limits ($250,000 through December 2009, otherwise it’s $100,000).

If you aren’t a customer and you are tempted by their certificate of deposit (CD) rates, I’d wait. I’m not a fan of opening accounts at struggling banks because if there is a problem, they often drop their rates immediately afterwards. CD rates don’t have to be honored when another bank assumes them following a failure. You can afford to wait a few weeks to see how things shake out.

I would expect that GMAC Bank will be fine, even if GMAC fails. If they aren’t, FDIC will protect your assets.

(Photo: femaletrumpet02)

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8 Responses to “The Fate of GMAC Bank”

  1. Bradford says:

    An excellent drawing of distinctions between these different entities with too-similar names. GMAC LLC is trying to qualify as a “bank-holding company” in Utah, which is confusing when you read on the GMAC Bank that they ARE a bank, based in Utah. Thank you. I wish it were safer—their rates look even more wonderful now, here in the Zero Zone.

  2. tyler says:

    what if i have a mortgage with gmac?

  3. Bradford says:

    Dear Jim:
    Here we are, three months on from this article. I’ve been monitoring the news about GMAC Bank—which is hard to sort out from news about the Other GMAC which received TARP and became a bank holding company—but I haven’t found much negative about the invest-your-money-here GMAC Bank. Any new thoughts on their status at this critical moment?

    • Jim says:

      There hasn’t been much about them in the news with all the banking news, though GM just lost Wagoner and has a 90 day time limit before they’re forced into a bankruptcy. I think that putting your money in an FDIC insured account is still 100% OK because your principal is protected.

  4. Bradford says:

    I’m glad to hear it, Terry, and hope your job there is secure. But depositors have fresh reasons for concern, inasmuch as in the government’s recent “stress tests,” GMAC (the bank holding company, apparently, as opposed to the Bank—the name confusion is still a problem) is being asked to stump up $11.5 billion in new capital, right after Wells Fargo and Bank of America:

    http://bankdeals.blogspot.com/2009/05/bank-stress-test-results-impacts-to.html

    As the Banking Guy asks, will this scare business away from GMAC Bank, however relatively attractive their interest rates are?

  5. Bradford says:

    Apparently GMAC Bank realized the name confusion was proving a stumbling block for attracting new business. On or around May 15th they formally altered their name to Ally Bank, with a redesigned Website and a PR approaches that stresses straight-shooting:

    http://www.ally.com/index.html

    Rates haven’t changed yet—”always among the top”—but we’ll see if this facelift alters their fortunes. Or those of its depositors.


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