The U.S. Treasury just pumped another $3.79 billion into GMAC Financial, the struggling finance company that is now majority owned by you and me. GMAC got itself into a financial pickle by getting too heavily involved in the mortgage business and in particular, the subprime mortgage business.
As part of the cash infusion today, the company also reclassified some mortgage assets it hopes to sell. And to pretty those assets up for sale, GMAC took additional write offs on some of those assets. But a rough, back-of-the-envelope calculation makes one wonder if these assets have been written down enough.
GMAC took a bunch of international mortgages (unpaid balance of $2.4 billion) that had been carried on its books at about 83 cents on the dollar as of the end of September. The $1.3 billion charge it will take against those mortgages as announced today appears to mark down the mortgages to about 29 cents on the dollar.
The pool of domestic mortgages (unpaid balance of $3.3 billion) was being carried for about 70 cents on the dollar. The additional $700 million pre-tax charge announced today will lower that to about 54 cents on the dollar.
Those are pretty significant writedowns, to be sure. But given that no one is buying mortgage securities, you wonder if these don’t need to be marked down further for any hope to actually sell them.
December 30, 2009
The pangs of economic recession are still gripping the banking industry.