GMAC Financial Services Reports Preliminary Second Quarter 2008 Financial Results

NEW YORK, July 31 /PRNewswire/ -- GMAC Financial Services reported a 2008 second quarter net loss of $2.5 billion, compared to net income of $293 million in the second quarter of 2007. Affecting results in the quarter were a $716 million impairment of vehicle operating lease assets in the automotive finance business as a result of declining vehicle sales and lower used vehicle prices for certain segments, as well as significant losses at Residential Capital, LLC (ResCap) related to asset sales, valuation adjustments, and loan loss provisions. These items were partially offset by profitable results in the insurance and international auto finance businesses.

"A soft economic environment and continued volatility in the mortgage and credit markets have significantly affected results for the second quarter," said GMAC Chief Executive Officer Alvaro G. de Molina. "While conditions such as higher fuel prices and weaker consumer credit prove to be headwinds, we continue to aggressively manage through this economic disruption to position GMAC for longer-term success.

"Despite the current obstacles, we are encouraged by some key wins such as successfully completing our global refinancing and bond exchange, preserving long-term ownership of GMAC Bank, and de-risking the balance sheet at ResCap," said de Molina. "There is still more to do and the management team is committed to taking the steps needed to ensure a solid foundation for the company, including continued realignment and streamlining of the mortgage business and better optimization of the risk and reward model in auto financing."

    Second Quarter Net Income/(Loss)
     ($ in millions)
                                   Q208     Q207       Change
    Global Automotive Finance     ($717)    $395      ($1,112)
    Insurance                       135      131            4
    ResCap                       (1,860)    (254)      (1,606)
    Other(1)                        (40)      21          (61)
    Net Income/(Loss)           ($2,482)    $293      ($2,775)


     (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 cash equivalents were $14.3 billion as of June 30, 2008, down slightly from the cash balance of $14.8 billion at March 31, 2008. Of these total balances, ResCap's cash and cash equivalents balance was $6.6 billion at quarter-end, up from $4.2 billion at March 31, 2008. The change in consolidated cash is related to repayment of GMAC and ResCap debt maturities, offset by new secured funding, lower asset levels and growth in deposits at GMAC Bank.

In June, GMAC and ResCap announced a comprehensive series of transactions, which included extending key bank facilities, increasing the amount of available funding and further enhancing liquidity positions. The transactions included:

    -- GMAC obtaining a new, globally syndicated $11.4 billion secured
       revolving credit facility with a multi-year maturity which steps down
       to $7.9 billion after two years, and renewing the one-year, syndicated
       commercial paper back-up facility, New Center Asset Trust (NCAT), in
       the amount of $10 billion.

    -- ResCap extending for one year the maturity on substantially all of its
       bilateral bank facilities totaling approximately $11.6 billion and
       obtaining a new $2.5 billion syndicated whole loan repurchase facility.

    -- ResCap executing private exchange and cash tender offers for U.S.
       dollar equivalent of $14.0 billion in aggregate principal amount of its
       outstanding debt, thereby reducing debt outstanding by $2.9 billion in
       principal and extending maturities.

    -- GMAC providing a $3.5 billion two-year senior secured credit facility
       to ResCap, which includes $750 million of first loss protection from
       General Motors Corp. and Cerberus ResCap Financing LLC, an affiliate of
       FIM Holdings LLC.

    -- Significantly reducing ResCap's tangible net worth covenants related to
       its credit facilities from the previous level of $5.4 billion to $250
       million (excluding GMAC Bank) with consolidated liquidity of $750
       million.

During the second quarter, GMAC and certain affiliates of Cerberus disclosed approximately $2.4 billion of intended actions to support ResCap's near term liquidity. In addition, GMAC contributed to ResCap approximately $250 million (principal amount) of ResCap debt, which was subsequently retired. In exchange for the capital contribution, GMAC received additional shares of ResCap preferred equity equal to the market value of the debt as of March 31, 2008. As of June 30, 2008, ResCap's total equity base was $4.1 billion.

The Federal Deposit Insurance Corporation (FDIC) granted a 10-year extension of GMAC Bank's current ownership on July 21, 2008. This action enables GMAC to strengthen the bank over the long-term, which is an important source of funding for mortgage and automotive financing activities.

Global Automotive Finance

GMAC's global automotive finance business reported a net loss of $717 million in the second quarter of 2008, compared to net income of $395 million in the year-ago period. Weaker performance was primarily driven by a $716 million pre-tax impairment on operating leases in the North American operation, which more than offset profits in the international business. In measuring the accounting impairment, the company was able to consider expected cash flows from various arrangements with General Motors Corp., including approximately $750 million related to the risk-sharing arrangement; approximately $800 million related to the residual support program; and approximately $350 of residual-related settlement payments. Additional factors affecting results were an increase in the provision for credit losses due to loss severity and lower gains on sales.

The North American lease portfolio included approximately $30 billion in assets as of June 30, 2008 with approximately $12 billion in sport-utility vehicle leases, $6 billion in truck leases and $12 billion in car leases. The impairment of operating leases resulted from the sharp decline in demand and used vehicle sale prices for sport-utility vehicles and trucks in the U.S. and Canada, which has affected GMAC's remarketing proceeds for these vehicles. As a result of these market trends, GMAC is taking steps to reduce the volume of new lease originations in the U.S. The company will also discontinue the SmartBuy balloon contract program, suspend all incentivized lease programs in Canada and increase pricing and returns on other lending activities. GMAC's lease portfolio outside of North America has not experienced the same decrease in market value.

New vehicle financing originations for the second quarter of 2008 decreased to $12.4 billion of retail and lease contracts from $14.0 billion in the second quarter of 2007, due to lower industry sales levels in North America.

Credit losses have increased in the second quarter of 2008 to 1.40 percent of managed retail assets, versus 0.92 percent in the second quarter of 2007. The sharp increase is related to the current trends in used vehicle prices, which drove higher loss severity. While losses trended up, delinquencies decreased in the second quarter of 2008 to 2.30 percent of managed retail assets, versus 2.46 percent in the prior year period. The decrease reflects the recent measures taken to tighten underwriting criteria and increased customer servicing activities as the U.S. economy remains weak.

Insurance

GMAC's insurance business recorded net income of $135 million, up slightly from net income of $131 million in the second quarter of 2007. Results primarily reflect a non-recurring tax benefit, which offset higher weather- related losses.

The insurance investment portfolio was $7.1 billion at June 30, 2008, compared to $7.4 billion at June 30, 2007. The decrease in the portfolio is due primarily to the repayment of intercompany loans related to the funding of the Provident Insurance acquisition. The majority of the investment portfolio is in fixed income securities with less than 10 percent invested in equity securities.

In July, GMAC's plan to dividend 100 percent of the voting interest in the insurance business to GMAC's shareholders was completed. GMAC continues to hold 100 percent of the economic interest in GMAC Insurance. This action was taken in the interest of maintaining the current financial strength rating and, therefore, preserving the value of the operation.

Real Estate Finance

ResCap reported a net loss of $1.9 billion for the second quarter of 2008, compared to a net loss of $254 million in the year-ago period. Results are primarily attributable to significant losses from asset sales as ResCap reduced the size and risk of its balance sheet and higher loan loss provisions due to continued deterioration in certain European markets. Partially offsetting losses was a $647 million gain recognized from ResCap's tender offer and the retirement of debt.

ResCap continues to implement an aggressive realignment of its business amid a vastly changing mortgage market, despite the negative impact to short- term earnings. Recent actions include significantly reducing the size and risk of its balance sheet, originating only mortgages with market liquidity, winding down the business lending portfolio, leveraging the world-class servicing platform, and continuing to rationalize the cost base.

ResCap's U.S. residential finance business is beginning to stabilize as the company reduces balance sheet risk and continues to realign operations. While prime conforming loan production decreased modestly year-over-year with $12.2 billion in the second quarter of 2008 versus $12.7 billion in the year- ago period, production of higher-margin government loans increased to $3.8 billion this quarter compared to $800 million in the second quarter of 2007. In addition, operating expense targets were achieved.

The international mortgage business experienced a decline in net income in the second quarter related to illiquidity in the global capital markets and the continued weakening of consumer credit in key markets. This drove significant realized and unrealized losses on loans held for sale. As a result of the market environment, ResCap has currently suspended all production outside of the U.S. with the exception of Canadian insured loans. The business lending operations also experienced continued pressure in the second quarter related to the decline in home sales and residential real estate values.

Outlook

GMAC continues to manage through a softer economic environment and a global market disruption with significant actions geared toward achieving longer-term financial health. Recent actions include:

    -- Stabilizing liquidity by refinancing bank lines, extending debt
       maturities, and preserving long-term ownership of GMAC Bank;

    -- Significantly reducing ResCap's balance sheet;

    -- Taking steps to increase pricing and improve returns for all automotive
       leasing and lending activities;

    -- Reducing the volume of new lease originations in the U.S. and
       suspending all incentivized lease programs in Canada;

    -- Executing a plan to preserve the value of the insurance business; and

    -- Leveraging the proven servicing platforms in mortgage and auto finance
       to mitigate frequency and severity of losses.

Looking ahead, the company is focused on executing strategies that restore profitability and longer-term financial health including improving funding costs, evaluating opportunities to shed non-core operations, and taking steps that move GMAC toward an independent, bank-funded lender and servicer.

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 related 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 Residential Capital LLC's ("ResCap") 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 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 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; continued deterioration 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 Second Quarter 2008
    Financial Highlights

     ($ in millions)

                                                                     Memo:
                                                   2Q       2Q        1Q
     Summary Statement of Income     Note         2008     2007      2008
     Revenue
     Total financing revenue                    $4,822   $5,316    $4,932
     Interest expense                            2,869    3,735     3,179
     Depreciation expense on
      operating lease assets                     1,401    1,173     1,397
     Impairment of investment in
      operating leases                             716        -         -
       Net financing revenue                      (164)     408       356

     Other revenue
     Servicing fees                                465      556       470
     Servicing asset valuation and
      hedge activities, net                       (185)    (152)      410
     Insurance premiums and service
      revenue earned                             1,123    1,051     1,109
     (Loss) gain on mortgage and
      automotive loans, net                       (934)     399      (600)
     Investment income                              20      227      (232)
     Other income                                  990      786       897
       Total other revenue                       1,479    2,867     2,054
     Total net revenue                           1,315    3,275     2,410
     Provision for credit losses                   771      430       474
     Noninterest expense
     Compensation and benefits
      expense                                      591      647       614
     Insurance losses and loss
      adjustment expenses                          714      563       630
     Other operating expenses                    1,548    1,183     1,263
       Total noninterest expense                 2,853    2,393     2,507
     (Loss) income before income
      tax expense                               (2,309)      452     (571)
     Income tax expense                            173      159        18
     Net (loss) income                         ($2,482)     $293    ($589)



                                                Jun 30,  Dec 31,   Jun 30,
     Select Balance Sheet Data                   2008     2007      2007
     Cash and cash equivalents                 $14,325  $17,677   $12,223
     Loans held for sale                        12,942   20,559    20,268
     Finance receivables and loans,
      net                            1
       Consumer                                 76,707   87,769   121,638
       Commercial                               43,183   39,745    44,018
     Investments in operating
      leases, net                    2          32,810   32,348    28,893
     Total debt                      3         173,489  193,148   224,454



                                       Second Quarter           Six Months
     Operating Statistics               2008     2007     2008      2007
     GMAC's Worldwide Cost of
      Borrowing                      4  5.92%    6.23%    6.18%     6.19%


     (1) Finance receivables and loans are net of unearned income

     (2) Net of accumulated depreciation

     (3) Represents both secured and unsecured on-balance sheet debt such as
         commercial paper, medium-term notes and long-term debt

     (4) Calculated by dividing total interest expense (excluding
         marked-to-market adjustments and intercompany interest) by total
         borrowings




     GMAC Financial Services Preliminary Unaudited Second
     Quarter 2008 Financial Highlights                   (Continued)

     ($ in millions)

                                 Note      Second Quarter       Six Months
     GMAC Automotive Finance
     Operations                            2008      2007     2008      2007

     Net Income
       North American Operations
       (NAO)                             ($854)     $315     ($700)     $620
       International Operations
       (IO)                                137        80       241       173
         Net Income                      ($717)     $395     ($459)     $793

     Consumer Portfolio
      Statistics
     NAO Number of contracts
          originated (# thousands)         443       496       877       938
         Dollar amount of contracts
          originated                   $11,590   $13,204   $23,441   $24,777
         Dollar amount of contracts
          outstanding at end of
          period                   5   $60,940   $69,045
         Share of new GM retail
          sales                            43%       45%       46%       45%

         Mix of retail & lease
          (% contract originations
          based on # of units):
           New                             73%       80%       75%       80%
           Used                            27%       20%       25%       20%

         GM subvented (% based on #
          of units)                        75%       85%       79%       85%

       Average original term in
        months (US retail only)             62        55        61        56

       Off-lease remarketing (US only)
         Sales proceeds on
          scheduled lease
          terminations (36-month)
          per vehicle - Serviced 6,7   $13,242   $15,812   $13,712   $15,674
         Off-lease vehicles
          terminated - Serviced
          (# units)                7   120,378    78,519   220,375   157,363
         Sales proceeds on
          scheduled lease
          terminations (36-month)
          per vehicle - On-balance
          sheet                    6   $13,373   $16,113   $13,730   $15,813
         Off-lease vehicles
          terminated - On-balance
          sheet (# units)          8    59,619    28,431   102,758    57,221

     IO  Number of contracts
          originated (# thousands)         186       177       379       358
         Dollar amount of contracts
          originated                    $3,367    $2,955    $6,522    $5,718
         Dollar amount of contracts
          outstanding at end of
          period                   9   $19,890   $17,021

         Mix of retail & lease
          contract originations (%
          based on # of units):
            New                            86%       84%       83%       82%
            Used                           14%       16%       17%       18%

         GM subvented (% based on #
          of units)                        41%       44%       41%       42%

     Asset Quality Statistics

     NAO Annualized net retail
          charge-offs as a % of
          managed assets          10     1.68%     1.03%     1.63%     1.16%
         Managed retail
          contracts over 30
          days delinquent       10,11    2.18%     2.37%     2.32%     2.44%
         Serviced retail
          contracts over 30
          days delinquent       11,12    2.18%     2.18%     2.32%     2.23%

     IO Annualized net
         charge-offs as a %
         of managed assets        10     0.72%     0.59%     0.73%     0.61%
        Managed retail
         contracts over
         30 days delinquent     10,11    2.51%     2.63%     2.44%     2.59%

     Operating Statistics

     NAO Allowance as a % of
          related on-balance sheet
          consumer receivables at
          end of period                  3.76%     2.67%
         Repossessions as a % of
          average number of managed
          retail contracts
          outstanding             10     2.34%     2.04%     2.54%     2.17%
         Severity of loss per
          unit serviced -
          Retail                  12
           New                         $11,062    $8,661   $10,532    $8,715
           Used                         $8,822    $6,928    $8,441    $6,925

     IO Allowance as a % of
        related on-balance sheet
        consumer receivables at
        end of period                    1.56%     1.44%
       Repossessions as a % of
        average number of
        contracts outstanding            0.72%     0.81%     0.69%     0.77%


     (5) Represents on-balance sheet assets, which includes $5.5 billion of
         loans held for sale in 2008

     (6) Prior period amounts based on current vehicle mix, in order to be
         comparable

     (7) Serviced assets represent operating leases where GMAC continues to
         service the underlying asset

     (8) 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

     (9) Represents on-balance sheet assets including retail leases

     (10) 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

     (11) Represents percentage of average number of contracts outstanding.
          Excludes accounts in bankruptcy.

     (12) 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 Second Quarter 2008
      Financial Highlights                               (Continued)

     ($ in millions)

                                 Note    Second Quarter          Six Months
     ResCap Operations                   2008       2007      2008      2007

       Net Income (loss)               ($1,860)    ($254)  ($2,719)  ($1,165)

         Gain (loss) on sale of
          mortgage loans, net
           Domestic                      ($180)      $98     ($245)    ($243)
           International                  (882)       76    (1,564)      182
             Total Gain (loss) on
              sale of mortgage loans   ($1,062)     $174   ($1,810)     ($61)

     Portfolio Statistics
       Mortgage loan production
         Prime conforming              $12,187   $12,682   $27,624   $22,251
         Prime non-conforming              419     9,849       909    22,166
         Government                      3,759       828     5,736     1,412
         Nonprime                            0       685         3     3,944
         Prime second-lien                 664     3,107     1,465     8,420
           Total Domestic               17,029    27,151    35,737    58,193

           International                 1,049     7,718     3,240    14,190
           Total Mortgage production   $18,078   $34,869   $38,977   $72,383

     Mortgage loan servicing
      rights at end of period           $5,417    $6,041

     Loan servicing at end of
      period
       Domestic                       $397,842  $424,608
       International                    39,020    35,904
         Total Loan servicing         $436,862  $460,511

     Asset Quality Statistics -
      ResCap Consolidated
       Provision for credit losses
        by product
         Mortgage loans held for
          investment                      $344      $284      $624      $649
         Lending receivables               120        43       138       220
           Total Provision for credit
            losses                        $464      $327      $762      $869

     Allowance by product at end
      of period
       Mortgage loans held for
        investment                        $638    $1,696
       Lending receivables                 483       274
         Total Allowance by product     $1,121    $1,970

     Allowance as a % of related
      receivables at end of
      period
       Mortgage loans held for
        investment                       2.25%     2.71%
       Lending receivables               7.94%     2.56%
         Total Allowance as a % of
          related receivables            3.26%     2.68%

     Nonaccrual loans at end of
      period                            $6,300    $9,119
     Nonaccrual loans as a % of
      related receivables at end
      of period                         14.13%    12.48%

         Total nonperforming assets     $7,349   $10,744


     GMAC Insurance Operations

     Net Income                           $135      $131      $267      $274

     Premiums and service revenue
      written                           $1,067      $964    $2,200    $2,034
     Premiums and service revenue
      earned                            $1,111    $1,042    $2,208    $2,074
     Combined ratio               13     97.8%     90.2%     95.8%     90.6%

     Investment portfolio fair
      value at end of period            $7,068    $7,397
     Memo: After-tax at end of
      period
     Unrealized gains                     $129      $143
     Unrealized losses                     (92)      (72)
       Net unrealized capital gains        $37       $71


     (13) 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

     Numbers may not foot due to rounding