Lehman says GM could face $900 mln rebate to GMAC

Thu Feb 15, 2007 2:11pm EST

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DETROIT Feb 15 (Reuters) - General Motors Corp (GM.N) may have to pay up to $950 million to shore up former financial arm GMAC because of a declining market for subprime housing loans, brokerage Lehman Brothers said in a report issued this week.

Lehman Brothers analyst Brian Johnson said in a report issued on Tuesday recent profit warnings from financial companies active in subprime mortgages suggested GM would need to contribute more cash to GMAC for loss provisions.

"We believe that GM may need to 'true up' the GMAC close by contributing an additional $900 million to $950 million to GMAC in (the first half)," Johnson said.

GM, the world's largest automaker, sold a 51 percent stake in GMAC for $14 billion in November to an investment group led by Cerberus Capital Management, a New York private equity and hedge fund manager.

GM, which retains a 49 percent stake in GMAC, said in late January it was delaying the filing of fourth-quarter financial results, in part because of questions about the end-November balance sheet of GMAC's ResCap unit, which provides mortgage financing.

A provision of the GMAC sale filed with securities regulators required that the book value of GMAC be above $14.4 billion at the time of the closing of the transaction on Nov. 30.

Lehman's Johnson said that suggested GM would have to shore up GMAC with a cash transfer, citing recent profit warnings by HSBC and New Century Financial related to increased defaults and delinquencies in the subprime market.

Johnson originally estimated GM might need to contribute between $300 million to $400 million to GMAC to "rebate part of the closing proceeds."

"In light of recent profit warnings from other players active in the subprime market, we reexamined our assumptions," he said.

A spokeswoman for GM could not immediately be reached for comment.

GM said in late January it found an accounting error dating back to the end of 2001 and would restate four years of past results and delay its fourth-quarter results.

At the time, GM Chief Financial Officer Fritz Henderson said part of the delay in reporting was related to ResCap's balance sheet as of the end of November.

"There is a fair amount of pressure in the (mortgage) sector," Henderson said at the time. "As a result, we have to take good care that, if there are restatements, that they are done with the most current information."

GM, which lost about $3 billion in the first three quarters of 2006, expected to be profitable in the fourth quarter on a consolidated basis.

((Reporting by Kevin Krolicki, editing by Andre Grenon; Reuters Messaging: kevin.krolicki@reuters.com@reuters.net; +1-313-967-1902)) Keywords: GM GMAC/

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