From AFX News Limited
SAN FRANCISCO — General Motors Corp.’s financing arm, which has bolstered the automaker during rough economic times, said Thursday it’s considering folding its residential mortgage businesses into a holding company that would have its own credit rating.
The proposed entity, Residential Capital Corp., would include GMAC Mortgage Corp. and Residential Funding Corp. The restructuring will occur this year pending executive approval, the Detroit-based company said.
In the third quarter of 2004, General Motors Acceptance Corp. saved the parent’s bottom line, posting a profit of $656 million compared to a loss of $130 million from GM’s global automotive business. The mortgage arm has benefited from historically low interest rates, turning in a profit of $302 million in the third quarter, up from $253 million in the comparable 2003 period. General Motors is slated to unveil its fourth-quarter results next week, with analysts polled by Thomson First Call expecting, on average, income to slip from a year ago to 91 cents a share on sales of $39.7 billion.
Following Thursday’s announcement, Moody’s Investors Service said that “the new company would increase GMAC’s financial flexibility.” The credit-rating agency affirmed its “Baa1” long-term rating on the GM subsidiary’s debt, which is three rungs above “junk” status. “After establishing the new stand-alone entity, GMAC would be in a better position to monetize the value of its mortgage operations,” Moody’s said. “This should enhance the company’s ability to generate additional capital, if needed, to support its core auto-finance operations.” Moody’s added that the restructuring should result in “improved transparency of GMAC’s operating results and capital position for its major businesses.” Shares of General Motors, a Dow Jones Industrial Average component, finished down $1.07, or 2.8 percent, at $37.32.
This story was supplied by CBSMarketWatch.
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