GMAC has $1.6 bln loss on mortgages
NEW YORK (Reuters) - Finance company GMAC posted a $1.6 billion third-quarter loss on Thursday as housing and capital market disruptions led to hemorrhaging losses from home lending, triggering credit rating downgrades.
Losses at the company once controlled by General Motors Corp GM.N grew ninefold from $173 million a year earlier. GMAC recorded a $2.26 billion loss in its Residential Capital LLC mortgage unit, including an operating loss of $1.81 billion and a goodwill write-down of $455 million. ResCap has lost money for four straight quarters.
ResCap is the second-largest independent U.S. mortgage lender, after Countrywide Financial Corp CFC.N. Like rivals, it has wrestled with tighter capital markets as more homeowners struggle to keep up with mortgage payments.
These conditions also led to quarterly losses of $1.2 billion and $2.24 billion at Countrywide and Merrill Lynch & Co MER.N, respectively.
"The third-quarter financial performance of ResCap is a major disappointment," GMAC Chief Executive Eric Feldstein said in a statement. "Weakness in the housing market and mortgage industry continues to prevail."
On an operating basis, GMAC lost a total of $1.14 billion in the quarter. Excluding ResCap, operating profit rose 51 percent to $665 million, as auto finance soared 62 percent, offsetting a 36 percent drop from insurance.
Moody's Investors Service downgraded GMAC and ResCap, and said ResCap may need more capital to operate normally. It cut ResCap's debt two notches to "Ba3," its third-highest "junk" grade, from "Ba1," and GMAC one notch to "Ba2" from "Ba1."
Standard & Poor's, meanwhile, cut ResCap to junk status, lowering its rating one notch to "BB-plus" from "BBB-minus." It affirmed GMAC's "BB-plus" rating.
Both agencies' rating outlooks were negative, and could lead to further cuts within two years.
ResCap is eliminating 3,000 jobs, or 25 percent of its work force, on top of 2,000 cuts earlier in the year. It is also eliminated 50 sales and servicing offices.
Third-quarter mortgage volume fell 43 percent to $29.3 billion. In the United States, volume declined 57 percent to $20.2 billion, and riskier subprime loan volume tumbled to $200 million from $8.5 billion.
ResCap's equity fell to $6.2 billion on September 30 from $7.5 billion on June 30, despite a $1 billion injection from GMAC.
FALLING HOME PRICES
GMAC Chief Financial Officer Sanjiv Khattri said on a conference call that despite "pockets" of improvement, markets will remain volatile through early 2008. He said housing prices may fall 2 percent per quarter for the next few quarters.
"We believe we have adequate liquidity (to) contend with these challenges," he said.
Moody's analyst Craig Emrick wrote that ResCap's net worth could fall further due to more write-downs and increases in bad loans and could required another infusion from GMAC.
"The business model that will return ResCap to adequate profitability is unclear," he wrote.
Asked about Emrick's downgrade, Khattri said: "We are quite comfortable with the level of capital that we have."
Last November, GM sold 51 percent of GMAC to a group led by private equity firm Cerberus Capital Management LP CBS.UL. GMAC said its owners are converting $1.1 billion of preferred stock to common equity, but the move will not affect the ownership stakes.
GMAC is based in Detroit and ResCap in Minneapolis.
Shares of GM fell $1.54 to $37.65 in afternoon trading on the New York Stock Exchange.
GMAC's 8 percent bonds maturing in 2031 fell 2.13 cents on the dollar to 91.62 cents, yielding 8.85 percent, according to Trace, the bond pricing service of the Financial Industry Regulatory Authority. Long-maturity U.S. Treasury bonds yielded about 4.64 percent.
ResCap's 7.5 percent notes maturing in 2013 rose 0.25 cents to 73.25 cents, yielding 15.43 percent, Trace said.
(Additional reporting by Dena Aubin)
