GMAC, Banks Feud Over Interest Rates Paid By Ally Bank
01 Juni 2009 - 9:09PM
Dow Jones News
GMAC LLC and a bank lobby group are butting heads over the high
interest rates GMAC's bank unit is paying for deposits, with
bankers saying GMAC is unfairly subsidized by federal funds.
In the latest salvo, GMAC, the lender long affiliated with
General Motors Corp. (GM) and now Chrysler LLC, said on Monday that
a complaint made last week by the American Bankers Association was
"highly inappropriate," and accused the lobby group of restraining
competition among banks.
GMAC converted to a bank holding company last year as it
accepted federal bailout funds and recently announced a new name
for its online bank, Ally Bank.
Ally Bank is offering annual percentage yields of 2.8% on
one-year federally insured certificates of deposit, according to
its Web site. This is the highest rate on one-year CDs currently
tracked by Bankrate.com and compares with an average annual
percentage yield of 1.875%. ING Direct, a rival online bank, is
offering yields on one-year CDs of 1.5%.
"Ally Bank is offering interest rates well above the market in
order to attract" deposits, said the ABA in a May 27 letter to the
Federal Deposit Insurance Corp. "This aggressive deposit strategy
is particularly egregious when it is used by a troubled bank in
which the government holds a controlling interest. Such a bank is
significantly shielded from investor and market influences that
might otherwise act as a brake on risky financial strategies."
Last month, the federal government, in a series of extraordinary
steps, shored up GMAC's finances by as much as $15 billion, while
leaving the door open for additional support. This amount equals
roughly 70% of GMAC's $22 billion of total equity as of March
31.
These moves underscore how vital GMAC is to the Obama
administration's efforts to revive the ailing U.S. auto industry.
GMAC provides loans to auto dealers who use the funds to stockpile
their inventory of new vehicles. GMAC also lends to consumers
buying these vehicles.
GMAC suffered a net loss of $675 million in the first quarter,
wider than a $589 million loss a year earlier.
The Treasury Department confirmed in May that it will inject
$7.5 billion in GMAC, which needs to figure out by June 8 how it
will fill an $11.5 billion equity hole. The Treasury investment
includes $4 billion earmarked for loans to Chrysler LLC dealers and
consumers. The remaining $3.5 billion will go to strengthen GMAC's
capital position.
The Treasury also said it would swap $884 million of its
existing preferred-stock investment for common stock, giving the
government a 35.4% equity stake in the lender. This stake could
increase to more than half if GMAC, amid potential mounting losses
and meager capital levels, were to convert the government's
investments into common equity.
"Ally Bank is committed to offering our customers value through
competitive rates," says Gina Proia, a GMAC spokeswoman. "We can do
this because we have an asset generation network that enables us to
originate quality assets profitably at these deposit rates."
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729;
aparajita.saha-bubna@dowjones.com