NEW YORK (Reuters) - Finance company GMAC posted a $724 million fourth-quarter loss and was downgraded by Moody’s Investors Service on Tuesday, after more customers fell behind on payments for their houses, cars and trucks.
The loss compared with a year-earlier $1.02 billion profit, but improved from a $1.6 billion loss in the third quarter.
Results included a $921 million loss at Residential Capital LLC, the mortgage unit’s fifth straight quarterly loss. GMAC said it may still sell all or part of ResCap, after reducing riskier lending and announcing 5,000 job cuts.
Earnings also fell 77 percent in auto finance to $137 million, and 91 percent in insurance to $68 million.
“We’ve taken painful and appropriate impairments and reserves throughout the year to set things right,” Chief Financial Officer Robert Hull said on a conference call. “We know (2008) will be another challenging year for us, and may call for further aggressive tactics.”
Results will hurt the bottom line at General Motors Corp GM.N, which owns 49 percent of GMAC and will report results Feb 12.
They will also hurt private equity firm Cerberus Capital Management LP CBS.UL, which led a group that bought 51 percent of GMAC in 2006.
Cerberus is also losing money at automaker Chrysler LLC, which it bought in August and where former Home Depot Inc HD.N chief Bob Nardelli is trying to engineer a turnaround.
For all of 2007, Detroit-based GMAC lost $2.33 billion, including a $4.35 billion loss at Minneapolis-based ResCap. A year earlier, GMAC posted a $2.13 billion overall profit. GMAC still expects to be profitable in 2008.
Moody’s downgraded GMAC debt one notch to “B1,” its fourth-highest “junk” grade, from “Ba3,” and ResCap’s debt two notches to “B2” from “Ba3.” Its rating outlook is “negative.”
It said the downgrades resulted from lower liquidity at ResCap, and a risk ResCap’s net worth could fall below levels required by its own lenders absent more support from GMAC.
GMAC said it ended the year with $22.7 billion of cash and liquidity, including $4.4 billion at ResCap. The latter fell from $6.5 billion three months earlier. GMAC said it has no plans to inject capital into ResCap.
Shares of GM fell 22 cents to $27.35 in morning trading on the New York Stock Exchange.
MORTGAGE LOSSES MOUNT
ResCap is the second-largest independent U.S. mortgage lender after Countrywide Financial Corp CFC.N, and the nation's eighth-largest mortgage lender overall, according to the newsletter Inside Mortgage Finance.
Countrywide agreed last month to be acquired by Bank of America Corp BAC.N.
Fourth-quarter mortgage volume at ResCap fell 58 percent to $20.8 billion, including declines of 83 percent in high-quality U.S. home-equity loans and 99 percent in U.S. subprime loans.
Hull said, though, that “we are seeing some (refinancing) boom” after the U.S. Federal Reserve cut a benchmark interest rate twice last month. He said ResCap may cut more jobs in 2008, but that the “largest part” of the cuts were over.
GMAC said its talks over ResCap’s future include a sale of all or part of the unit, acquisitions and joint ventures. Hull said a sale could include “multiple components” of ResCap.
Auto finance profit fell because of rising delinquencies and lower values on contracts sold. Lower insurance profit reflected higher losses and a large year-earlier capital gain.
ResCap’s 7.875 percent notes maturing in 2015 fell 0.3 cents on the dollar to 63.2 cents, yielding 17.41 percent, according to Trace, the Financial Industry Regulatory Authority bond pricing service. The level is considered “distressed.”
GMAC’s 8 percent bonds maturing in 2031 rose 0.6 cents to 84 cents, yielding 9.74 percent, Trace said.
Additional reporting by Jui Chakravorty; Editing by Maureen Bavdek and Dave Zimmerman
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