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GMAC Financial Services Reports Preliminary Fourth Quarter and Full-Year 2007 Financial Results- Fourth quarter net loss of $724 million
NEW YORK, Feb. 5 /PRNewswire/ -- GMAC Financial Services reported a 2007 fourth quarter net loss of $724 million, compared to net income of $1.0 billion in the fourth quarter of 2006. The effect on Residential Capital, LLC (ResCap) from the continued disruption in the mortgage, housing and capital markets was the primary driver of adverse performance. Affecting results in the quarter were higher credit provision as a percent of assets, market driven valuation adjustments and increased funding costs at the company. Several significant items are reflected in results for the fourth quarter of 2007, including:
-- $563 million consolidated gain on the repurchase and retirement of
ResCap debt, of which $521 million was recognized at ResCap and $42
million was recognized at GMAC
-- $438 million gain related to the sale of residual cash flows and the
deconsolidation of several on-balance sheet securitization structures,
which included $281 million of current period provision - the effect
of this was an in-period net benefit of $157 million
-- $131 million restructuring charge
Comparisons to the fourth quarter of 2006 are affected by a $791 million gain related to GMAC's conversion to a limited liability company (LLC) and a $570 million capital gain related to rebalancing the insurance investment portfolio in that period. For the full-year 2007, GMAC reported a net loss of $2.3 billion, compared to net income of $2.1 billion for the full-year 2006. Profitable results in the global automotive and insurance businesses were more than offset by a $4.3 billion loss at ResCap. Comparisons of full-year results are affected by the fourth quarter significant items previously noted as well as goodwill impairments of $455 million at ResCap in the third quarter of 2007 and $695 million at Commercial Finance in the third quarter of 2006. "Losses in the fourth quarter decreased compared to the prior quarter. However, GMAC's performance throughout 2007 was severely affected by the ongoing challenges in the mortgage, credit and capital markets," said GMAC Chief Executive Officer Eric Feldstein. "As a result, 2007 was a year of significant transformation for the organization -- driving aggressive actions designed to reduce risk, streamline operations and rationalize our cost structure. Steps taken included reducing the balance sheet by $40 billion, bolstering liquidity, tightening underwriting standards, significantly restructuring operations and refocusing our business on core fundamentals. "We believe the steps taken position the company for future success," Feldstein concluded.
Fourth Quarter and Full-Year Net Income/(Loss)
($ in millions)
Q407 Q406 Change 2007 2006 Change
Global Automotive
Finance $137 $593 ($456) $1,485 $1,243 $242
Insurance 68 735 (667) 459 1,127 (668)
ResCap (921) (128) (793) (4,346) 705 (5,051)
Other (1) (8) (184) 176 70 (950) 1,020
Net Income/ (Loss) ($724) $1,016 ($1,740) ($2,332) $2,125 ($4,457)
(1) Includes Commercial Finance operating segment, 21% ownership of former
commercial mortgage unit and other corporate activities
Liquidity and Capital GMAC's consolidated cash and certain marketable securities were $22.7 billion as of Dec. 31, 2007, up from $18.3 billion at Dec. 31, 2006. Of these total balances, ResCap's consolidated cash and cash equivalents were $4.4 billion at year-end, up from $2.0 billion on Dec. 31, 2006. During the fourth quarter, GMAC purchased in the open market $740 million (market value) of ResCap debt that was subsequently contributed to ResCap and retired as a measure to support the capital position at the mortgage unit. As of Dec. 31, 2007, ResCap's equity base was $6.0 billion, above the minimum tangible net worth requirements in its credit facilities, and above the amount expected to be needed to support its ongoing operations. In addition, GMAC and ResCap may from time to time continue to purchase outstanding GMAC or ResCap debt in open market transactions or otherwise, as part of its liquidity and cash management strategy. Global Automotive Finance GMAC's global automotive finance business reported net income of $137 million in the fourth quarter of 2007, compared to net income of $593 million in the year-ago period. The decline was attributable to lower gain on sale of automotive receivables in North America. In addition, the company took write- downs on certain residual interests and other assets. Auto finance results in international operations showed continued strength. In the fourth quarter of 2006, net income included a $383 million after-tax benefit related to the LLC conversion. New vehicle financing originations for the fourth quarter of 2007 amounted to $13.4 billion of retail and lease contracts versus $10.8 billion in the fourth quarter of 2006. Used vehicle originations for the quarter also increased to $1.9 billion from $1.4 billion in the year-ago period as GMAC continues to pursue diversified revenue sources. Overall, delinquencies increased in the fourth quarter to 2.68 percent of managed retail assets, versus 2.61 percent in the prior year period due to U.S. consumer weakness. Credit losses remain within historical levels for the quarter representing 1.05 percent of managed assets in 2007, down from 1.22 percent in the fourth quarter of 2006. While credit performance in the U.S. experienced a marginal deterioration, it was offset by improved credit performance in the international auto finance operation. GMAC continues to vigilantly monitor the portfolio and take steps needed to restrain losses. Recent actions include selective tightening of underwriting standards and expanding collection resources by approximately 40 percent, or 400 collectors, over the past four months. Insurance GMAC's insurance business had net income of $68 million, compared to net income of $735 million in the fourth quarter of 2006. The decline is due predominantly to a lower level of realized capital gains versus the year-ago period when an after-tax gain of $570 million was realized in connection with rebalancing the investment portfolio to hold a higher proportion of fixed income securities. Results also include higher losses in 2007. The total value of the insurance investment portfolio was $7.2 billion at Dec. 31, 2007, compared to $7.6 billion at Dec. 31, 2006, with more than 90 percent of the investment portfolio in fixed income securities and the balance in equity securities. Real Estate Finance ResCap reported a net loss of $921 million for the fourth quarter of 2007, compared to a net loss of $128 million in the year-ago period. The decline in performance is attributable to a number of factors, including write-downs on credit residuals and mortgage-backed securities, higher funding costs, market- driven impairments on real estate assets and equity investments, and restructuring charges. The decline was partially offset by a $521 million gain recognized on debt retirements of $1.5 billion (face value) and a gain on the sale of residual cash flows and the deconsolidation of several on-balance sheet securitization structures. Additionally, results in the fourth quarter of 2006 included a $523 million benefit related to the LLC conversion. ResCap's U.S. residential finance business continued to experience significant challenges related to falling home prices, higher delinquencies and limited market liquidity. During the fourth quarter, ResCap sold residual cash flows related to several on-balance sheet securitizations. The sale of these residual cash flows, as well as other actions taken by the company, resulted in the deconsolidation from the balance sheet of approximately $22 billion of securitized assets and the related collateralized debt. The sale of residual cash flows and related deconsolidation of these structures resulted in a benefit of $438 million as the amount of securitized assets net of allowance for loan losses was less than the collateralized debt. As mentioned, the gain included $281 million of current period provision yielding a net in-period benefit of $157 million. Following these actions, the provision for loan losses is expected to decline in future quarters. ResCap's international business posted a loss for the fourth quarter stemming primarily from continued illiquidity in the global capital markets. ResCap's business capital unit also experienced a loss in the quarter as significant downward pressure on homebuilders continued, leading to impairments on real estate assets and equity investments and higher provisions for credit losses. ResCap's loan production has rationalized, reflecting the company's plan to sharply curtail origination of products with limited market liquidity. ResCap has aggressively restructured operations in line with the current business model, while still preserving the flexibility to modify its product offerings based on changing market conditions. A strong origination and servicing business remains at ResCap, and improvement is expected as legacy assets roll-off the balance sheet. The restructuring, announced in October, resulted in a charge of $125 million related to facility closures and reducing the workforce by 3,000 employees. In total, ResCap's 2007 restructuring actions, will reduce the workforce by approximately 5,000 employees, or 35 percent. Strategic Initiatives GMAC and ResCap continue to investigate strategic alternatives related to all aspects of ResCap's business. These strategic alternatives include potential acquisitions as well as dispositions, alliances, and joint ventures with a variety of third parties with respect to some of ResCap's businesses. GMAC and ResCap are in various stages of discussions with respect to certain of these alternatives, including, in some cases, execution of confidentiality agreements, indications of interest, non-binding letters of intent and other exploratory activities such as preliminary and confirmatory due diligence and conceptual discussions. GMAC and ResCap also have engaged advisers to explore the sale of certain parts of ResCap's operations. There are currently no substantive binding contracts, agreements or understandings with respect to any particular transaction. Further, there can be no assurances that any of these strategic alternatives will occur, or if they do, that they will achieve their anticipated benefits. Outlook While market conditions remain uncertain, GMAC has taken aggressive actions in 2007 across all its businesses in an effort to mitigate future risk, rationalize the cost structure and position the company for growth. The actions include restructuring ResCap, tightening lending standards in the mortgage and auto finance businesses, reducing the size of the balance sheet, maintaining prudent liquidity and refocusing on core fundamentals of the business. As a result, GMAC currently expects to be profitable in 2008. About GMAC Financial Services GMAC Financial Services is a global, diversified financial services company that operates in approximately 40 countries in automotive finance, real estate finance, insurance and commercial finance businesses. GMAC was established in 1919 and employs approximately 26,700 people worldwide. For more information, go to www.gmacfs.com. Forward-Looking Statements In this earnings release and comments by GMAC LLC ("GMAC") management, the use of the words "expect," "anticipate," "estimate," "forecast," "initiative," "objective," "plan," "goal," "project," "outlook," "priorities," "target," "intend," "evaluate," "pursue," "seek," "may," "would," "could," "should," "believe," "potential," "continue," or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements herein and in related charts and management comments, other than statements of historical fact, including without limitation, statements about future events and financial performance, are forward-looking statements that involve certain risks and uncertainties. While these statements represent our current judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results, and GMAC's and ResCap's actual results may differ materially due to numerous important factors that are described in the most recent reports on SEC Forms 10-K and 10-Q for GMAC and Residential Capital, LLC ("ResCap"), each of which may be revised or supplemented in subsequent reports on SEC Forms 10-Q and 8-K. Such factors include, among others, the following: securing low cost funding to sustain growth for GMAC and ResCap and maintaining the mutually beneficial relationship between GMAC and General Motors Corporation ("GM"); our ability to maintain an appropriate level of debt; the profitability and financial condition of GM; restrictions on ResCap's ability to pay dividends to us; recent developments in the residential mortgage market, especially in the nonprime sector; changes in the residual value of off-lease vehicles; the impact on ResCap of the continuing decline in the U.S. housing market; changes in U.S. government-sponsored mortgage programs or disruptions in the markets in which our mortgage subsidiaries operate; disruptions in the markets in which we fund GMAC's and ResCap's operations, with resulting negative impact on our liquidity; changes in our contractual servicing rights; costs and risks associated with litigation; changes in our accounting assumptions that may require or that result from changes in the accounting rules or their application, which could result in an impact on earnings; changes in the credit ratings of ResCap, GMAC or GM; changes in economic conditions, currency exchange rates or political stability in the markets in which we operate; and changes in the existing or the adoption of new laws, regulations, policies or other activities of governments, agencies and similar organizations. Investors are cautioned not to place undue reliance on forward-looking statements. GMAC undertakes no obligation to update publicly or otherwise revise any forward-looking statements, whether as a result of new information, future events or other such factors that affect the subject of these statements, except where expressly required by law.
GMAC Financial Services Preliminary Unaudited Fourth Quarter 2007
Financial Highlights
Summary Statement of Income
Year ended, ($ in millions) 2007 2006
Revenue
Total financing revenue $21,187 $23,103
Interest expense 14,776 15,560
Depreciation expense on operating lease assets 4,915 5,341
Net financing revenue 1,496 2,202
Other revenue
Servicing fees 2,193 1,893
Amortization and impairment of servicing rights - (23)
Servicing asset valuation and hedge activities, net (544) (1,100)
Insurance premiums and service
revenue earned 4,378 4,183
Gain on sale of loans, net 508 1,470
Investment income 473 2,143
Other income 3,295 4,054
Total other revenue 10,303 12,620
Total net revenue 11,799 14,822
Provision for credit losses 3,096 2,000
Non-interest expense
Compensation and benefits expense 2,453 2,558
Insurance losses and loss adjustment expenses 2,451 2,420
Other operating expenses 5,286 4,776
Impairment of goodwill and other intangible assets 455 840
Total non-interest expense 10,645 10,594
Income (loss) before income tax expense (1,942) 2,228
Income tax expense 390 103
Net income (loss) ($2,332) $2,125
Select Balance Sheet Data Dec 31, Dec 31, Sept 30,
($ in millions) 2007 2006 2007
Cash balances ($ billions) (1) $22.7 $18.3 $28.8
Finance receivables and loans, and
loans held for sale (2) 148,073 202,164 171,092
Investments in operating leases, net (3) 32,348 24,184 31,300
Total debt (4) 193,148 236,985 221,100
Operating Statistics Fourth Quarter Full year
Quarter-ended December 31 2007 2006 2007 2006
GMAC's Worldwide Cost of
Borrowing (5) 6.52% 6.01% 6.35% 5.88%
GMAC Debt Spreads Over U.S.
Treasuries (bps) at end of period
2-Year 913 106
5-Year 951 154
10-Year 967 194
(1) Includes cash invested in a portfolio of highly liquid marketable
securities of $5.0 billion, $2.8 billion, and $4.8 billion at
December 31, 2007, December 31, 2006, and September 30, 2007,
respectively
(2) Finance receivables and loans are net of unearned income
(3) Net of accumulated depreciation
(4) Represents both secured and unsecured on-balance sheet debt such as
commercial paper, medium-term notes and long-term debt
(5) Calculated by dividing total interest expense (excluding mark to
market adjustments and inter-company interest) by total borrowings
GMAC Financial Services Preliminary Unaudited Fourth Quarter 2007
Financial Highlights - Continued
GMAC Automotive Finance Operations Fourth Quarter Full year
2007 2006 2007 2006
Net Income ($ millions)
North American Operations (NAO) $40 $572 $1,099 $935
International Operations (IO) 97 21 386 308
Net Income 137 593 1,485 1,243
Consumer Portfolio Statistics
NAO Number of contracts originated
(# thousands) 425 347 1,873 1,887
Dollar amount of contracts
originated ($ billions) $12.1 $9.3 $50.8 $50.2
Dollar amount of contracts
outstanding at end of period
($ billions)(6) $64.8 $66.6
Share of new GM retail sales 43% 36% 45% 48%
Mix of retail & lease contract
originations:
New (% based on # of units) 80% 84% 80% 87%
Used (% based on # of units) 20% 16% 20% 13%
GM subvented (% based on #
of units) 84% 85% 85% 90%
Average original term in months
(US retail only) 62 58 58 59
Off-lease remarketing (US only)
Sales proceeds on scheduled
lease terminations (36-month)
per vehicle -
Serviced (7) (8) $14,755 $14,858 $14,774 $14,715
Off-lease vehicles terminated -
Serviced (# units) (8) 73,410 65,628 302,391 272,094
Sales proceeds on scheduled
lease terminations (36-month)
per vehicle - On-balance
sheet (7) $14,886 $14,962 $15,058 $14,940
Off-lease vehicles terminated -
On-balance sheet
(# units) (9) 28,674 37,271 107,214 243,737
IO Number of contracts originated
(# thousands) 186 179 723 683
Dollar amount of contracts
originated ($ billions) $3.2 $2.9 $11.9 $10.5
Dollar amount of contracts
outstanding at end of period
($ billions) (10) $21.6 $18.7
Mix of retail & lease contract
originations:
New (% based on # of units) 86% 82% 83% 81%
Used (% based on # of units) 14% 18% 17% 19%
GM subvented (% based on #
of units) 43% 41% 42% 52%
Asset Quality Statistics
NAO Annualized net retail charge-
offs as a % of managed
assets (11) 1.30% 1.36% 1.20% 1.20%
Managed retail contracts over
30 days delinquent (11) (12) 2.77% 2.62% 2.58% 2.49%
Serviced retail contracts over
30 days delinquent (12) (13) 2.67% 2.35% 2.41% 2.24%
IO Annualized net charge-offs as a
% of managed assets (11) 0.37% 0.76% 0.52% 0.73%
Managed retail contracts over 30
days delinquent (11) (12) 2.52% 2.61% 2.55% 2.63%
Operating Statistics
Quarter-ended December 31
NAO Allowance as a % of related on-
balance sheet consumer
receivables at end of period 3.87% 2.75%
Severity of loss per unit
serviced - Retail (13)
New $9,730 $9,264 $9,070 $8,722
Used $7,750 $7,181 $7,220 $6,779
Repossessions as a % of average
number of managed retail
contracts outstanding (11) 2.71% 2.44% 2.36% 2.39%
IO Allowance as a % of related on-
balance sheet consumer
receivables at end of period 1.42% 1.38%
Repossessions as a % of average
number of contracts outstanding 0.51% 0.43% 0.50% 0.42%
(6) Represents on-balance sheet assets, which includes $8.5 billion of
loans held for sale in 2007
(7) Prior period amounts based on current vehicle mix, in order to be
comparable
(8) Serviced assets represent operating leases where GMAC continues to
service the underlying asset
(9) GMAC-owned portfolio reflects lease assets on GMAC's books after
distribution to GM of automotive leases in connection with the sale
transaction which occurred in November 2006
(10) Represents on-balance sheet assets including leases
(11) Managed assets represent on and off-balance sheet finance
receivables and loans where GMAC continues to be exposed to credit
and/or interest rate risk
(12) Represents percentage of average number of contracts outstanding.
Excludes accounts in bankruptcy.
(13) Serviced assets represent on and off-balance sheet finance
receivables and loans where GMAC continues to service the underlying
asset
GMAC Financial Services Preliminary Unaudited Fourth
Quarter 2007 Financial Highlights - Continued
ResCap Operations Fourth Quarter Full year
2007 2006 2007 2006
Net Income (loss) ($ millions) ($921) ($128) ($4,346) $705
Gain (loss) on sale of
mortgage loans, net
Domestic $358.0 ($99.7) $7.5 $650.1
International (59.0) 111.1 (339.2) 240.1
Total $299.0 $11.4 ($331.7) $890.2
Portfolio Statistics ($ billions)
Loan production volume $20.8 $49.2 $122.5 $189.4
Mortgage production
Domestic $15.5 $41.2 $93.9 $161.6
International $5.3 $8.0 $28.6 $27.8
Mortgage servicing rights at
end of period $4.7 $4.9
Period end servicing
portfolio $453.3 $448.6
Loan servicing at end of
period
Domestic $410.2 $412.4
International $43.1 $36.2
U.S. Production Mix
Prime conforming $13.0 $10.8 $47.3 $43.3
Prime non-conforming 0.3 17.5 27.2 60.3
Government 1.2 0.8 3.6 3.7
Nonprime 0.1 6.9 4.2 30.6
Prime second-lien 0.9 5.2 11.6 23.7
Total $15.5 $41.2 $93.9 $161.6
Asset Quality Statistics
($ millions) - ResCap Consolidated
Provision for credit losses
by product
Mortgage loans held for
investment $652.2 $645.9 $2,088.5 $1,116.4
Lending receivables 178.3 203.7 491.2 217.3
Total $830.5 $849.6 $2,579.7 $1,333.7
Allowance by product at end
of period
Mortgage loans held for
investment $832.3 $1,508.4
Lending receivables 483.9 396.6
Total $1,316.2 $1,905.0
Allowance as a % of related
receivables at end of period
Mortgage loans held for
investment 1.97% 2.17%
Lending receivables 6.82% 2.66%
Total 2.67% 2.26%
Nonaccrual loans at end of
period $5,977 $8,696
Nonaccrual loans as a % of
related receivables at end
of period 12.13% 10.31%
Total nonperforming assets
($ millions) $7,123 $9,843
GMAC Insurance Operations
Net Income, ($ millions) $68 $735 $459 $1,127
Premiums and service revenue
written ($ millions) $942 $936 $4,039 $4,001
Premiums and service revenue
earned ($ millions) $1,133 $1,067 $4,338 $4,149
Combined ratio (14) 96.9% 92.5% 93.5% 92.3%
Investment portfolio fair value
at end of period ($ millions) $7,193 $7,574
Memo: After-tax at end of period
Gross unrealized gains $176 $141
Gross unrealized losses (48) (42)
Net unrealized capital
gains $128 $99
(14) Combined ratio represents the sum of all incurred losses and
expenses (excluding interest and income tax expense) divided by the
total of premiums and service revenues earned and other income
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