GMAC fails stress test, must raise $11.5 billion

GMAC, the lender jointly owned by General Motors and Cerberus that recently converted itself into a bank holding company in order to qualify for TARP funds, did not do well on the stress tests administered by the Treasury Department and has been ordered to raise billions in capital. Automotive News reports:

GMAC LLC said it must raise $11.5 billion in new capital as part of the U.S. government’s efforts to shore up the nation’s financial system.

The lender, partly owned by General Motors, was among 10 financial institutions ordered to raise $74.6 billion to build a capital cushion that officials hope will restore faith in financial firms and set a course out of the deepest recession in decades.

“Ensuring the availability of credit to consumers and businesses is a key component in stabilizing the economy and a top priority at GMAC,” said CEO Alvaro de Molina in a statement.

So where will that money come from at a time when new investments, especially in a lender that deals primarily in new car financing and mortgages, are hard to find?

The Obama administration hopes the firms can fill the capital holes from private sources, although Fed Chairman Ben Bernanke said the government was prepared to help if needed.

GMAC said it must present a plan to meet the requirements by June 8.

“Methods to increase capital could include issuance of new common equity or issuance of mandatory convertible preferred shares or conversion of exiting equity into a form of Tier 1 common equity,” the statement said.

It seems highly unlikely that GMAC could raise that kind of capital on the open market. Expect an announcement of more government aid before too long.