The U.S. Federal Reserve on Dec. 24 approved a request by GMAC, the troubled financial arm of General Motors, to become a bank holding company, allowing it to tap government bailout funds and emergency loans.
The move boosts the prospects of General Motors after the government last week approved a $13.4 billion rescue loan package for GM and Chrysler to stave off collapse amid tight credit and dismal sales. GMAC faced possible bankruptcy, jeopardizing financing for GM car dealers and customers.
"In light of the unusual and exigent circumstances affecting the financial markets, and all other facts and circumstances, the Board has determined that emergency conditions exist that justify expeditious action on this proposal" for changing GMAC's legal status, the Fed said in its decision, which the board approved four votes to one.
Under the move, GM and Cerberus Capital Management must reduce their ownership stakes in GMAC, the Fed said.
GM, which owns 49% of GMAC, has to cut its ownership share to less than 10% in voting shares and equity. Cerberus, the private equity owner of Chrysler, must reduce its 51% stake to no more than 14.9% in voting shares and 33% in total equity, according to the decision.
The move will "benefit the public by strengthening GMAC's ability to fund the purchases of vehicles manufactured by GM and other companies and by helping to normalize the credit markets for such purchases," the Fed said.
GMAC chief executive Alvaro de Molina hailed the decision as "a key turning point" for the company. "It is critically important to our company and the broader economy to resume responsible lending to consumers and businesses," he added.
GMAC, by becoming a federally regulated bank holding company, becomes the latest firm to gain access to a share of the $700 billion government bailout package initially introduced to shore up financial firms.
Copyright Agence France-Presse, 2008