@@@@@@@@@@@@@@@@@@@@

>> for the last 80 years, the auto industry has largely relied on dedicated financing providers which have unique resources and long-term experience underwriting automotive credit. gmac has been the primary source of financing for gm's dealers and consumers for over 90 years. at the time of treasury's initial investment in gmac in december '08, gmac provided wholesale financing for 85% of gm's dealer inventories and consumer financing for 25% of gm's retail sales. as a result of the financial crisis, credit availability to auto dealers and consumers became severely impaired. uncertainty about the future of gm and chrysler impaired their ability to access the capital markets. some estimates suggest that the contraction in the auto finance market by $2.5 million of the year.

gm's primary source of funding the security market was in severe distress forcing gmac to dramatically restrict its lending activities to auto consumers in order to preserve necessary capital tore dealers. gmac was not able to access alternative sources of funding. without government assistance, gmac would have been forced to suspend financing lines to credit-worthy dealerships, leaving them unable to purchase inventory for their lots. without orders for cars, gm would have been forced to slow or shut its factories indefinitely to match the drop in demand. given its significant overhead a slowdown or stoppage in production would have toppled gm. when the prior administration decided to provide assistance to gmac in december '08, gmac at the time was providing $23.3 billion of financing for gm dealers. had treasury allowed gmac to fail no single competitor or group of competitors could have stepped in to absorb gmac's entire loan portfolio.

at that time 75% of gm dealers received their financing from gmac while the next five lenders made up only 8% of such lending. the remaining dealers were serviced by 200 banks most of which provided financing for only a single dealer. many large national banks faced significant threats to their own financial health and lacked the capacity to aggressively grow their auto lending portfolios. moreover, gm estimates that it would have taken a new provider up to six months to create the infrastructure systems and human capital necessary to replace gmac. like gmac chrysler financial also faced a suffered is liquidity crisis last year. in 2009 it, became clear that a chrysler bankruptcy could be required to effectuate a structuring of a country. chrysler financial the approximately $20 billion of conduit financing that was slated to expire by july, 2009. some of it immediately upon the occurrence of a chrysler bankruptcy.

without these conduits, chrysler financial would have been forced to discontinue financing any new inventory for chrysler dealers. the dealers would have been unlikely to find alternative financing and the purchase of new vehicles from chrysler dealers through chrysler financial would have ceased entirely. since chrysler financial financed 60% of dealer purchases from chrysler, this would have resulted in a near total collapse of chrysler rvb -- revenues. chrysler looked and found no refinancing alternatives. without a viable financing source for its customers and dealers a successful of chrysler would likewise would not have been mobile now let me turn to my colleague jim millstein to the particular strategies we employ to deal with this situation. >> mr. millstein. >> thank you, chairman warren, and members. i appreciate the opportunity to be here this morning. my name is jim millstein.

i'm the chief restructuring officer of the department. i joined treasury in late may of 2009 after 28 years of working in the private sector on financial restructurings. i'm going to focus on the actual investment that is we made and the staging of those investments. over the three different tranch that is we did. as mr. bloom indicated, gmac applied for and received approval from the federal reserve to become a bank holding company in december of 2008. shortly thereafter, the prior administration invested $5 billion in gmac and gmac was able to raise an additional $2 billion from its existing shareholders. after the obama administration took office secretary geithner announced the financial stability plan a key component of which was the stress test. the treasury worked with federal banking supervisors to develop the supervisory capital assessment program to determine whether the nation's largest bank-holding companies had a

capital buffer sufficient to with stand losses and sustain lending in a significantly more adverse economic environment. domestic bank-holding companies with year end 2008 assets exceeding $100 billion were required to participate in the scap. gmac with $173 billion in assets at the end of 2008 was one of these 19 institutions. on may 7th the federal reserve initialed the initial results of the stress test which required in gmac's case that it raised $13.1 billion of new capital. in consultation with the banking shoulders, treasury helped gmac meet that requirement by investing additional capital in two tranches. the first was on may 21st to address its immediate capital needs. treasury ultimately invested an additional $3.8 billion on december 30th, about a billion 8 less than was originally anticipated largely due to less

disruption to gmac's business from the gm and chrysler bankruptcies. concurrent with the may transaction, gmac also received regulatory approvals that enabled it to enhance its liquidity. the fdic approved gmac's application to issue debt under the temporary liquidity guarantee program. and the company issued $7.4 billion of unsecured debt under the fdic under that program. it also increased the amount of brokered deposits that gmac's bank subsidiary could raise. today those are at about $31 billion. in addition the federal reserve board granted a waiver under section 23a of the federal reserve act expanding its bank subsidiary's ability to fund consumer and dealer finance loans for gm and chrysler with deposits. turning to chrysler financial given the lack of funding options for chrysler financial and the ramifications, its failure it would have had on

chrysler as mr. bloom has testified, it was determined the most effective means of providing means was to capitalize gmac's existing auto origination platform to a level adequate for it to assume these financing responsibilities. therefore, in may as part of the stress test results, the federal reserve determined that gmac required $4 billion in additional capital to fund chrysler's dealer and customer originations and that $4 billion was part of the $7.5 billion that was put in may. so in conclusion, the administration's investment in gmac has been and continues to be a critical component to stabilize the auto industry providing gm and chrysler with a viable source of financing, enabled treasury to facilitate the successful restructuring of each of these auto companies. gmac was uniquely positioned to provide the personnel and structure to originate and service auto loans. and is now the largest provider of retail and wholesale financing to gm and chrysler customers and dealers. it's now capitalized at levels

of historical averages and it is in fact procured new secured financing based on the capital efforts the treasury has made. as the owner of 56.3% of gmac's equity we have designated two members of gmac's board. we have two more we are in the process of identifying and soon to designate. and as we have said on a number of occasions, in other context as well, the united states government is a reluctant shareholder in these circumstances and we intend to dispose of our investments as soon as as practical and consistent with the taxpayers interest. thank you. >> thank you very much, mr. millstein. so i'll start with our questions here. many analysts and academics have pointed out that in their view, bankruptcy would have been a preferable way to deal with gmac. that ultimately it would have

put it in a better long-term financial position -- permitted it to recover on stronger footing. and cost less money for the taxpayer. so the first question i have is whether treasury ever considered bankruptcy as an option either for gmac or for a subset of gmac more specifically for rescap. mr. bloom? [inaudible] >> you're going to have to turn your mic on. that's all right. >> you know, i'm sick here but i'm here anyway. at the time we were looking at the situation evolving for gm and chrysler, obviously, the situation with gmac was

important to that. we were coming to the conclusion that bankruptcy for chrysler and gm would be very hard to avoid. we obviously didn't make the final decision until the last minute but as we were strategizing our way through this in april and in may, our conclusion was that a bankruptcy for chrysler and general motors would be very, very hard to avoid. and that, therefore, in order to successfully reorganize these companies that we would have to bring them -- we would have to support their going into bankruptcy. those were exceedingly complex and challenging transactions. both of them had enormous execution risks inside of them. the decision we had -- >> i'm sorry, execution risks? >> yeah >> there were people that were executed? what are you talking about? >> execution risk, meaning the ability to conduct the bankruptcy successfully and have the companies come out the other side. >> all right. >> as reorganized entities. >> so you were concerned that if you put them into bankruptcy they might actually actually no

matter how many taxpayer dollars? >> that's what we were thinking about with general motors and chrysler. >> okay. >> but we -- >> and i presume that there was a lot of -- there was concern that people wouldn't buy their cars? >> there were many concerns. people might not buy their cars. you're in a legal process as you well know. the bankruptcy judge is the entity responsible. no complex bankruptcy is without risk. >> okay. >> so but we concluded weighing the risks the benefits the rewards and the alternatives that that was the proper route to take with general motors and chrysler. to add a gmac bankruptcy into that equation in our judgment would have increased the risk of concluding all three transactions in a successful way. >> and why is that? >> because you added an independent phrase for execution plan for gm number one.

and number two the effect of a gmac bankruptcy failing would have been that both chrysler and gm bankruptcies would have failed, number one. number two -- >> but wait a minute, you decided to go forward with the auto industry bankruptcy ultimately because you believed it was the chance -- the only chance, i take it, to get that industry back on firm footing. and you wiped out all of its equity. you caused its debt to have to take a haircut. and that's what help put it back on firm footing, that and billions of dollars of taxpayer money. >> right. >> when it came to gmac, you didn't wipe out the equity. you left the equity intact. all of the debt continued to be repaid 100 cents on the dollar, far better deal to have been an investor in gmac than to have been an investor in gm. i'm not -- i'm still not understanding why is not in why the difference -- >> because these two -- because these two are connected. and you can't -- if you we had allowed gmac to go in as mwuwel we felt -- and i'll give you a

second answer in a minute but let me deal with the first point. if gmac had gone in as well, we felt like we would have been putting the success on the gm and chrysler bankruptcies at substantially higher risk. >> but what is the additional risk is added. you're telling -- >> no, what i'm saying is if the gmac bankruptcy had not been successful, which is an independent event that had its own independent risk factors associated with it, that would have been caused the failure of the gm and chrysler bankruptcies even if they would have otherwise been successful. so the risk is sitting on top of and, therefore, influencing our judgment because you got to make one judgment about the totality of the situation. that's the first point. the second point is the investment dollars that we had to consider if gmac had gone into bankruptcy were very, very substantial.út there was obviously a lot of money invested in the case we're

examining. the stress test called for $13 billion. it's wound up to being only 11.3. but obviously that's a lot of money. but the alternative was not free of very, very substantial investment as well. >> so let me stop threw. i'll be disciplinedwe9 about ti r'gs in the past. i'll stop from there and we'll return when i have my next question because i have questions why it end up being more expensive.  >> actually i'm going to continue in that vein. you should finish your thought because i guess when we look back at it, as the professor was saying, you know, the disparate treatment of the various shareholders -- it may be perhaps here the shareholders put in more skin in the game. ultimately. and maybe that's what you were getting to. but i wanted to hear you out as far as, you know, your justification on your treatment.

>> just on the specific point you'd make.omú i would point out gmac shareholders have been very, very substantially diluted by the transactions. >> but they have not been completely wiped out. >> they have not been completely wiped out, that is correct. i want to note for the record there has been very substantial dilution for the investors. they have been made in a series of instruments that mr. millstein can talk about. they were preferred shares and so they are senior to existing equity. and so there was not any particular effort to protect shareholders. there was simply a judgment made that to bring the company into bankruptcy as well, a, would have been highly potentially increase the success probabilities of gm and chrysler. and, b, that when we looked at the overall possible exposure that we would face in addition to the execution risk, even in a transaction that went exactly as

planned, the dollars that would have been required to execute a gmac bankruptcy would have been very, very substantial. in fact, in excess of the dollars that were invested in fact. >> may i just -- i obviously making decisions at the time. but i have been in and around the bankruptcy courts a little bit over the course of my crow. and i think -- one thing i would add in this regard there's very few instances in which a finance company has been successfully reorganized in chapter 11. finance companies are intermediaries between people who lend them and their own lending they make. and as the chairman knows, the ability for a finance company to draw on its prepetition lines of credit is terminated upon the filing of the bankruptcy. sow3vr gmac would have had no ability to continue funding originations for dealers and customers after filing for

chapter 11. it would have required a massive debt. and if you look today at, you know, the outstanding customerñ receivables that is the loans that gmac makes, you're looking at a 40, $50 billion balance of receivables. so to have in the spring in 2009 after one of the biggest seizures in history, the government of the united states had and wanted to put -- to facilitate the organizations of chrysler and gm by ensuring that there were continued availability of dealer floor plan financing as well as financing available to customers to purchase gm and chrysler cars would likely would have been the lender to the --

>> but in effect, the u.s. -- i mean, they stepped in -- the only reason gmac can even attract any sort of money from the marketplace is because the u.s. government is there. and if you look@its inventory and what's able to be financed, you know, is the quality there to stand independently from the u.s. government? i guess is the ultimate question. >> the point we're making is the dollars required to fenance gmac in a bankruptcy would have been literally on the order of $50 billion. because all of the financing as it ran off and assuming -- and our judgment was you needed to continue support dealer financing because if you do that the dealers can't buy cars and they can't buy cars and companies don't make cars. and in addition to the retail. so the total dollars that would have been required, there was no alternative financing market.

these markets were in very, very severe stress at that time. so to finance all this it would have been all government money. and eventually what would have happened to it is unknowable but we're literally talking 40 or $50 billion. >> okay. but ford has been able to make it through this whole time, right? and -- >> ford wasn't in bankruptcy. >> right. but if youç ÷ c companies -- i mean, my time is over. but what i want to do is explore later is have we created this huge moral hazard by supporting bad debts in the past. the u.s. government taking over those debts in effect and looking at something like ford that has not gone down that road, is independent. has not had to rely on the government. >> superintendent neiman. >> thank you. having already thanked you for being at the hearing today, i also want to know -- thank you for your government service. we all know there are millions of dedicated individuals who

spend their full life working for governmental service. but the fact that you have all decided to leave for this period of time government -- private practice to join the government, this is as critical a time as any. and i appreciate you for your government service. >> thank you. >> you know, i want to come back to my opening statement regarding interconnectedness between the two entities as well as forward-looking strategic issues going forward. you know, given the government's control of both gm and gmac and that your destinies are so interrelated, you know, are there issues that arise where you might need to distinguish between gmac's long-term survivoribility and its deference to the needs of gm. so obviously there are certain actions or practices that may benefit gm but may be at odds or actually conflict with the interests of gmac. and just one obvious example

would be pricing and underwriting terms of dealer loans. i'd be interested in your thoughts going forward as well as how do you actually manage these types of conflicts? >> i think it's an excellent question. and one that i think that, you know, we as a government, we as a people are -- we're kind of -- there's no game plan. there's no roadmap for what the government of the united states has done here. and so we're all guided by first principles. and among the first principles that we in the treasury department certainly are employing in this regard is that we don't bring any special expertise to the management of private commercial enterprises. we don't have any monopoly of wisdom on the right strategy for gm as a car manufacturer or for gmac as a finance company. we have said and i can tell you

with someone overseeing some of our biggest investments that we are avoiding any effort to try to micromanage these companies. the approach we've taken is that, unfortunately, our capital was required. in one of the worst financial crises of our generation. to help sustain financial stability. but that we have populated the companies we have invested in. largely changed the boards over in many cases with people we think are qualified to make these kind of strategic decisions and to help guide the management in evaluating the strategic alternatives available to them. and we have tried to stay away from even pretending that we bring some special knowledge to this. >> well, let me give another example of where these conflicts could arise. certainly in approving a strategic plan going forward.

so issues around shedding the mortgage business. you know, on one hand, you would think that increasing interdependence and concentration of risk with respect to gm after shedding this would present an increased risk to the -- to the taxpayer. on the other hand, it may also decrease risk if you're avoiding a diversification of the -- of the business. so how do you -- how do you manage these risks? and how have you assessed the risks around shedding a volatile business like the mortgage business? is it in the interest of the taxpayer or not in the interest of the taxpayer? >> again, the board of directors of gmac -- am i on? can you hear me. i'm not quite sure how this all works.

the board of directors of gmac has done an evaluation of the strategic alternatives around rescap. they shared the analysis with us. we think the conclusions they've reached particularly around the recapitalization that we participated in december, we think the conclusions they reached are reasonable. again, we have not, you know, independently directed, guided or tried to manage that process. >> so the role with respect to the treasury and gmac is no different than others. we have been -- we have heard from staff during our staff discussions that that treasury did play a stronger advisor role with respect to gmac than other -- than to gm. is that an accurate characterization? >> i can't speak to gm or gmac.

i can't speak to general motors and chrysler the car companies. we have a lot invested in gmac. we have a lot invested in the car companies. we are taking our oversight responsibilities seriously. we have frequent contact with the management. to evaluate the strategies they're employing and the results of their operations. but again, i don't think, you know, we're in a position to dictate policy for them. >> and it's hard to compare. jim works more on gmac. i'm more responsible for oversight of gm and chrysler. but i can tell you again we're quite engaged in terms of knowing what's going on at gm and chrysler. but we likewise with gm we are not saying to them, you know, we think this is the right strategy. and most assuredly not giving them advice on how to manage their relationship with gmac. we take that just like they manage their relationship with another supplier as something that the board and the management are responsible for. >> thank you. i want to go back to this number you mentioned, mr. bloom.

40 to $50 billion -- i'm sorry, mark. i apologize. >> you know, when you're fourth in line -- >> i do apologize. >> all the good questions are taken. [laughter] >> i can think of a couple. we could help you. >> ignore the little guy over here. >> analyst mcwaters, i do apologize. >> mr. bloom, on a fair market value basis, is gmac solvent today? >> but -- >> meaning assets greater than liabilities including contingent -- >> remember this is now an entity that is subject to federal supervision of two different banking regulators. it went through the stress test, which was a recently rigorous

testing under adverse scenarios and the stress test concluded it needed -- the original conclusion it needed $13 billion of capital. after we saw the results of the gm and chrysler bankruptcies it proved to be a billion eight less but the point being the federal banking supervisors are on top of this company. as any other banking institution. and it has had the benefit of significant capital injections from the united states treasury. >> did you anticipate any more capital injections? >> well, no. i certainly hope not. i think this is worth talking about 'cause it answers another question that was posed earlier which is we sit today holding 56% of the common stock. but we also hold significant convertible preferred stock, which if there is further deterioration in the quality -- this is how banking regulators

talk about capital and the quality of its capital, common stock is a higher quality capital more loss absorbing than preferred stock, we actually sit on a lot of preferred stock that is convertible into common. it would be further dilutive of the other shareholders interests were we to do it but it would help sustain gmac's capital position if needed. i think -- we sort of recognizes if it needs us to convert we may very well to have. but from the point of view of our exit strategy we think the most likely way the taxpayers would be paid back here is through an initial public offering. remember, this is now a private company. and that we think some time in the near future there will be an opportunity to do an initial public offering for this company. and in connection with that most

likely we will convert some of our proposed into common so as to give ourselves access to the public markets to reduce our investment and repay the taxpayer. >> okay. so your view is that gmac is solvent today. and most likely will not require any more taxpayer source funds? >> i certainly hope so. >> okay. if the cbo is correct and the taxpayers lose more than $10 billion on this investment, how can the prebailout shareholders, equity holders of gmac still be in existence? i mean, is there a possibility the taxpayers will take a $10 billion hit but a shareholder that let's say owned gmac in 2008 will some day receive a greater return? >> i think the answer is that first thing the final valuation of what we receive is yet to be determined. the cbo report -- i think you

referred to, refers to the overall -- >> it does. >> in the auto space. that is subject, obviously, to the particular investments and it is certainly not impossible that we will not receive full -- all the money back. that is not impossible. i think the answer to your question, however, unfortunately, raises the practical question, which is the only way to completely wipe out shareholders who have legal rights in the other extent to go through a bankruptcy proceeding. and as we've been dialoging about before and i tried to explain and jim as well, you may not accept the explanation but the judgment was that a bankruptcy filing for gmac was not a prudent course of action in all the circumstances. so there's been very, very substantial dilution. the investments were made in previous stock. -- preferred stock. the prices were set by arm's length valuations so we believe

we've received as fair value as was available. and the alternative, which is to completely, entirely eliminate all other share holding interest was one that was deemed not to be practical. >> my time is up and let me recap. it sounds like the taxpayers could lose a lot of money on this transaction. the existing shareholders as of 2008 prebailout -- >> i don't think the shareholders could lose a lot of money. there are scenarios where it is shareholders will not receive all their money back. the precise consequences of the investment and what the government get back is yet to be determined. >> let me just weigh in on that. i think it's highly unlikely that the independent third-party of gmac is going to get a return if the taxpayers of the united states are not paid in full. >> okay. fair enough. >> so i want to go back then to the question of the dollars. mr. bloom, you were just

testifying that you thought the cost of a bankruptcy in effect what we would have to put in for dip financing would be somewhere in the range of 40 to $50 billion; is that right? we've been having conversations as you know for the last couple months. and the numbers that have been quoted to us by treasury up to now has been about 6 billion per month. for a total of somewhere between $10 and $18 billion for what would have been required in financing if gmac had been in bankruptcy. so i'm puzzled about how the number grows this morning to potentially $50 billion. >> the number had a very wide range associated with it. the issue is that at that time if gmac had gone into bankruptcy as jim and you dialoged before about, all of their securitizations, their conduits would have gone into runoff so all new origination of dealer

financing and retail financing would have been to be done by somebody. and at the time the only reliable somebody was the united states government. so the question is, how long would the company would have been in bankruptcy before, which is quite hard to know. i think unknowable at the time. and for the pendency of that -- for the pendency of that event, all new dealer which roll off on a regular basis and all new and all new consumer originations would have been had to have been provided by the government because that was the only entity available. >> well, but if we're talking about time, i mean, i presume the possibility of a quick 363 sale has happened in the auto industry. could have made this a relatively speedy procedure. but it still doesn't help me understand why it is that in our conversations with treasury to this pointed we have heard $6 billion a month and a total of

10 to $18 billion as treasury's own estimate until this morning of what d.i.p. financing -- >> let me deal with the 363 and jim can talk about the numbers. a 363 sale of gmac would have been a 363 sale of the platform. it would still have to originate car financing. whether it would have been a dip or a capitalization of the nuco all the originations -- the first thing you would have been successful of the 363. second thing if you were successful with the 363 you would have to capitalize the nuco -- >> i understand that. i do understand that. and i understand how this works. >> okay. the difference is that you're trying to capitalize what is now a much stronger company because you have wiped out its old equity and you have wiped out some portion of its old debt. >> no question about it. >> so the notion that we somehow save money by propping up a weaker more impaired company than we do by cleaning it up and

putting it back on the block just doesn't add up for me. >> i think what i said weighing all the risks, we believe this was the most prudent course of action. but what we had to take account of in the real world was the cumulative execution risk that would have occurred if we had all three of these companies in bankruptcy at the same time. and given that it was now putting at risk -- it was our judgment it would put at risk the gm and the chrysler bankruptcies. the consequences of that failure were from our perspective outweighing the risks that might have occurred -- >> well, here's what i never understand about gmac when we talk about this, we try to read everything here. it's at some moments gmac is so deeply integrated with the auto industry -- i notice the bailout did not come in its capacity as a bank in effect. it came as a auto portion and as a result gmac did not have to do

the ordinary things that a bank would have done in terms of under the -- under the capital infusion program. they didn't have to give the same kind of projections about their business plan and so on. we did this as part of the auto bailout. but then it shifts over. and you say, no, no, it's really not like the auto industries. it's really an independent bank. it's got a very different financing structure. we've got to go ahead and bail it out although we didn't bail it as a bank program. it looks to me this thing is moving back and forth. >> i have two comments on that. one is obviously gmac is a finance company so no question. >> of course. the prior administration chose to make the original infusion of gmac under the -- >> and why is that >> i don't know why the prior administration chose to make the decision. but they did. >> so they treated as part of an integrated approach to deal with the problem in the auto industry. >> i'm not commenting on what

the prior administration did. i'm just observing it. i think we chose not to move it. but it had already been established there. i also think -- and jim will testify -- can give you more color on this. but i don't think there's a substantive difference in terms of which program they were financed on. >> yeah, no. i think the -- all of these programs are under t.a.r.p. and whether it's the -- >> it's always the taxpayers money. >> exactly. and the t.a.r.p. -- and the t.a.r.p. restrictions are pretty uniformed across each of the different programs in terms of restrictions on executive pay, luxury expense policies. one incremental burden or requirement that would have -- that would have been placed upon gmac had it been funded under the cap program or the cpp program or the auto program. they would have been required to produce regular reports on their lending activities. >> yes. and are they doing that.

>> but, in fact, they are doing that. >> so you are having them follow the same procedures they would have as if they had been -- >> it's part of our ongoing monitoring of this entity that they provide us with that information. >> thank you. i'm past my time. >> thank you. in wanted to go back quickly to the existing shareholders. not to beat that one too much. i mean, there are other ways to, you know, really actually get rid of them besides reorganization or bankruptcy. it happens all the time in the vc situation where former management has, you know, perhaps not done what the market wants. and so new capital comes in and basically the old guys are diluted out so much that there's really nothing left and they basically hit the road unless they're insiders or they have some special expertise to bring. you know, is that the case here? >> most of our investment is in

preferred stock which by its nature is superior to the common shareholders. so, in fact, if there's not a return, common shareholders as jim pointed out don't receive recovery when preferred shareholders aren't fully compensated. so i don't think as a practical matters -- the old shareholders, excuse me, are getting anything out of this thing if the government doesn't get its money back. >> and in terms of just the structure of investment 'cause this is actually something that we were very concerned with and we looked exactly at that model in terms of how to think about the next step here, we hold $2.5 billion and we hold north of $10 billion of a convertible preferred. so if as and when the opportunity comes to access the public equity markets in an ipo, we will convert that convertible preferred. into common in whole or in part in order to access and find ourselves an exit this that will

be further substantial dilution to the other shareholders. >> okay. >> well, then let's look quickly, too, 'cause time's short here. with respect to the stress test, you know, the one thing that this panel has pointed out on the stress test they basically looked through this year and not beyond. so gmac recently had a 144a offering where they raised $2 billion but at a pretty high price. even more than allied bank pays its advertised rate. 8.5% for a 5-year notes. and so there are $24 billion of debt coming this year and $13 billion the year after. those rates, you know, with car sales still rocky and this debt coming due, you know, what is the outlook? i mean, it's solvent now but, you know, what's the outlook for capital infusion. >> let me see if i can address that.

it's hard to know what the future -- to predict the future if you look back in the markets there's been a little volatility in the markets and if we look forward there will be similar volatility good and bad. clearly these finance companies -- you know, gmac is occupying a part of the financing markets that are -- it's not unique in the problems it faces in terms of how it's going to fund itself forward. i think the funding program remains a work in process. clearly the unsecured credit markets -- what they call the wholesale funding markets which is where this company funded itself and other finance companies funded itself primarily in the period prior to the crisis are in shaky shape. that there is an -- there is unsecured financing available again. the long-term debt markets. but it is more expensive. the spreads are higher. and the fact they accessed the

market is a good start. but the -- they've got as you mentioned work to do. but even -- i'm sorry. so i was going to say i think we're now -- it's a work in process. in part they've got access to deposits now through allied that they hadn't had before. which lowers their cost of capital. but the wholesale markets have to come back the abs markets is back. t.a.l.f. was an enormous catalyst to getting those markets to function again. the spreads have come down enormously there. so it's -- you know, we're by no means out of the woods in this crisis. and this company as a finance company and a bank is, you know, by no means out of the woods but it's gotten off to a good start. >> but if you compare these rights and this track record with ford, you know, just to

bring this up and gmac has, you know, huge government banking obviously as the majority shareholders, the majority stakeholder there, the market loves auto paper. and so why is there this -- >> in fact, it's more general phenomenon rather than gmac-specific. those rates are right on top of where ford motor credit is borrowing money without government support. so it's really a function of kind of the remaining dislocation in the unsecured long-term bond market. >> okay. we'll follow up. >> superintendent neiman? >> following on on this interdependence and interconnectedness. have you been in any way considering a strategy of recombining gmac and gm in recognition of that interdepend eng and presumably also the viewpoint of the capital markets. and what are the considerations of -- on both sides of that? >> i think gmac's -- there is no

consideration of that going on. gmac's long-term strategy is an evolving thing which we are obviously very mindful of. but there's no active consideration of that idea at the moment. we've all learned as jim pointed out about the last year and a half to never say never. but no, that's not something on the table at the moment. >> how about a strategy of encouraging alternative sources of dealer financing to encourage competitors to gmac to foster a sound -- >> well, we do need to start by taking the world where we find it. roughly 80% of dealer financing is provided by the captives of one sort or another. so if you kind of walk across the companies, they all have between 70 and 80% of their dealers provided by their captives. the exception is obviously chrysler which is sort of now part of gmac but ford does 77% and the numbers are similar.

the largest single provider of dealer financing in the third-party market, the unaffiliated market is less than 2% of total dealer financing. those banks are obviously free and welcomed to come and finance auto dealers. that would be wonderful. you know, this is a competitive environment. it's free to happen. but again as jim points out, the capital markets, while enormously more stable than they were, are not fully healed. and banks are not rushing in today into that market. so we have to -- we have to take what we have. and the reality is for 80 years the almost exclusive model for dealer financing has been captives or, if you will, companies that specialize in it. and whether there's a new model that would need to evolve over time is something certainly worth thinking about. but we walk into this situation

finding it as we found it. >> now, recognizing that there is no assurance of the viability of gmac going forward, are there any contingency plans for the dealer financing role in the event that gmac was unable to provide dealer financing going forward? >> i mean, general motors and chrysler, as part of their long-term planning, i am sure are looking at many, many things. i would have to direct that question to them, though, given the role we play. i think we believe, as jim has said, that gmac at this point is stable. over the long term, is general motors going to be considering a variety of alternatives, again, i would direct that question to them. >> i mean, i'd have to -- if mr. bloom is unwilling or unable to -- unable to share with you

what gm's strategic plans are with regard, i certainly have no insight to it. >> recognizing that we have the executives from gmac on the next panel, are there any recommendations that you would make to us now to make sure we explore or maybe areas of frustration that you have seen in your role as treasury that we should be sure that we explore in our next panel? >> listen, i have to say i think that we've got a very professional management team, a very good posterior. -- board. they've been very cooperative with us in answering our questions and information requests. and i think they'll be very forthcoming with you as well. >> that raises another point. in the aig situation which you know extremely well, the treasury utilized a trust to hold treasury shares. is that something that was considered or do you see benefits for those shares being held intrust.

-- in trust and what was the considerations. >> i'll give a little aig correct but just to correct the record. the federal reserve when it made its original investment in september of 2008 took 79% of the shares of aig and established -- it established a trust. the treasury preferred is actually held by the office of financial stability inside the treasury department. >> so was there any consideration of utilizing a trust in this situation recognizing the difference? >> i think we have both with gm and with chrysler and with gmac from time to time we have looked at various structural options. and our conclusion is that it does not enhance our position to do that. >> thank you. thank you. my time has expired. >> mr. mcwaters? >> thank you. would you please provide a little more detail and color { how it will work and the timing that you expect today?

>> i think as mr. atkins pointed out. i think there's a significant wall of maturities on the debt side that gmac faces. and that they're doing a good job of chipping away at this first offering of $2 billion of unsecured debt as part of it. we think until the -- that wall of maturity is confronted and dealt with and successfully hurdled, it's unlikely that we can sell stock in this company. you have to have a stable platform going forward for stock equity investors or longer term investors. and so the first -- the first pathjlzfyc t=[gxo[uw27yx6bjñezn requires the refinancing of the balance sheet. and creating a longer runway of liquidity. knows that and they are working

hard on that.oo]p1zveolzp][btd assuming tha5o3$g( ccomplishedó ìc% thin7[+ñç g#b#2b thatu>% given will be. whether it will be favorable but my guess is that we're

but i think we believe as jim says we're trying to be very cautious about this andu*q h÷ñy+÷$d eátáh(rp&lenges y,jxbd >> but my question is the creation of the in

history, the dealers -- there were dealers who chose to not finance but it was a very small group. and they were able to do it but the fact as jim pointed out there's quite a bit of expertise in organizing this platform. it is less true on the retail side but on the dealer side this is a very specialized kind of lending and banks historically were free to go into it if they wished to but most have taken very, very small positions in the aggregate. >> thank you. i'll stop there. >> thank you very much. mr. bloom, mr. millstein, i appreciate you coming today. we ask that you stay, if you can, during the next two panels. we may have some questions we want to ask at the end. i know you have very difficult schedules. but we would be grateful if you could stay and hear the rest of the witnesses. with that you're excused for now. the record will be held open for

additional questions that we may send. but we appreciate your appearance here today. and i ask mr. carpenter and mr. hull to come sit while they are coming our way. i will introduce them. michael carpenter is chief executive officer of gmac financial services. and robert hull is chief financial officer of gmac financial services. thank you both for being here with us today. we appreciate it. as soon as you're settled, mr. carpenter, mr. hull, i'll ask each of you if you'd like to make opening remarks. we ask that you hold them to no more than five minutes. we will put any written remarks in the record that you wish to have. so mr. carpenter? >> thank you, good morning, chairman warren, panel members.

on behalf of gmac and its approximately 19,000 employees we're extremely grateful for the investment from the u.s. government and their company at the time of unprecedented international financial turmoil. and we view repayment of that investment as a highest priority as long as with operating the bank the utmost attention to safety and soundness. i sound gmac as ceo in november of 2009. and have the perspective on serving on its board of directors since may of 2009. the capital investment by treasury has been critical in allowing gmac to support the domestic auto industry's revitalization. gmac has a unique position in the auto industry as one of the largest providers of credit to dealers and consumers. and we're able to hold that position in large part because of our infrastructure, history in the business and the experience of our employees.

now, the end of 2009 cross-examined paranoid the financing and chrysler dealer floor planning financial in the u.s. this type of financing is vital to these small businesses that have inventory on their lots and is not generally available from banks. given the lack of liquidity of other sources during the financial crisis it's fair to say without the government support of gmac, thousands of gm and chrysler dealers would not have survived and tens of thousands of their employees would have been thrown out of work and many thousands of consumers would not have been able to buy gm or chrysler vehicles. after i took over as ceo at the end of 2009, gmac took substantial writedowns on reserves primarily in our legacy

mortgage business in order to position gmac for the future. importantly these restructuring actions have allowed gmac to demonstrate to the capital markets that we have ring fenced the risk of our mortgage business. these actions allow us to access the capital markets in february for the first time since 2007 raising $2 billion of unsecured debt funding. as we look ahead, gmac is focused on six strategic objectives. first and foremost, our mission is to be the premier auto finance franchise across multiple brands. automobile financing is our core business. and we have the infrastructure, talent and experience to expand this area of our business. our second objective is to reduce our cost structure and ensure that gmac is a low cost high service competitor.

our third objective is continue to improve our access to the capital markets in order to ultimately repay u.s. treasury's investment. and our reentry into the unsecured capital markets this month was a critical first step. the fourth objective in our plan is to fully transition to a bank holding company model. and ensure that we operate at a high standard of safety and soundness. our fifth objective is to improve our ongoing liquidity position by building a stable base of deposit funding allied banks. previously gmac was a wholesale funded finance company as demonstrated by the capital markets disruption funding diversity is critical to any financial firm. and six we're focused on continuing to address the challenge related to our legacy mortgage business in order to minimize any future impact on gmac.

the actions taken at the end of 2009 were significant. and we are now exploring strategic alternatives for the mortgage business which minimize risk to gmac but continue the important role of rescap as the fifth largest mortgage servicer to 3 million homeowners with $376 billion of outstanding mortgages. as i've described, the support received from the u.s. government has been critical in allowing gmac to plan the important role in rebuilding in the u.s. auto industry and positions the company for future success. ...

>> finally, as requested, -- [inaudible] >> can i ask you to stop there, and please goes all of your written remarks? >> absolutely. >> thank you. mr. hull? >> good morning, chair warren, panel members. thank you for the opportunity to address a few topics which include the impact of the t.a.r.p. investment, in which that contribute our financial stability of our ability to

support the auto industry. i will also address the effects that gmac's capital restructuring and other strategic initiatives are expected to have on our future financial performance. a government assistance his provider gmac was critical to stabilize in the company and the u.s. auto industry. we're grateful for that assistance. as a direct result of investment in gmac we strengthen our capital ratios and can continue to provide roughly 30 billion of wholesale financing to auto dealers and to serve proximally 60 billion in consumer auto loans. auto finance companies like gmac are critical to the manufactures ago to sell vehicles. automotive sales are dependent on inventory and the financing available to retail customers. in the fourth quarter of 2008 the lack of stability coupled with gmac need to preserve capital required us to largely shut off consumer financing. after receipt of the initial t.a.r.p. investment in the summer of 2008 we are able to lift the restrictions and offer

retail financing for consumers. we have now returned to more normal levels of consumer financing volume and have helped stabilize the u.s. auto industry. this translate into roughly 6 billion of new retail auto financing per quarter from gmac. let's turn to the financing of auto dealers, some of the most important small businesses in the united states. by the second half, gmac's ability to finance the ability of gm dealers was severely constrained. auto dealers finance their vehicle inventory to a line of credit arranges with finance companies like us, and without the financing dealers can't buy cars. given gm and chrysler's financial instability over the past year as well as an overall contraction in linda, vehicle inventory has been scarce to nonexistent for them. gmac has served in a unique role that worked with both automakers to support their dealer networks. let me now turn to gmac's capital restructuring if i might. historically gmac founded its sell by accessing the secured

and unsecured capital markets in obtaining financing from other banks. with the mortgage crisis of the last two years are mortgage incurred losses that reduce or capital levels but weaker economic conditions and also had an effect that drove used car prices down. as result gmac financial performance was impaired further reducing our capital levels. this hurt our debt rating which in turn led banks and unsecured creditors to get gmac as a high-risk grant and to decrease the unsecured lending to us and therefore, gm and the dealerships. the broad discretion of the capital markets exacerbated the situation. from 2007 through 2009, the county was able to access the unsecured market without government assistance. throughout 2000 a gmac completed a number of high nesting nonetheless. we restructured 46 put of lending bank commitments. we compare two very large bond exchanges and we sold many nonstrategic businesses. even still gmac liquidity and capital position continue to

erode. in the fourth quarter of 2000 on our capital position improved. along with our capital structure are liquidity improved due to 11 billion of net deposit growth. the issuance of 7.4 billion of debt from the program. and read entering the seeker decision market in 2000 i'm with 1.8 billion of new funded aided by the talf program. the increase look what he and capital as was a steady performs of our portfolio and able our auto business to return to profitability in 2009. at the end of 2000 i we undertook several actions to strengthen the capital position and minimize the ongoing risk of the legacy mortgage business. details of the actions are listed in my test would. at the end of 2009, we're a healthy 15-point 5% which significantly exceeds a well-capitalized end of 10%. in summary, gmac has especially the financial difficulty, 2009 was a transformational year for us. we made great strides and

striking out 170 billion-dollar balanced she, improving our capital and liquidity positions and have returned in 20 into the capital markets, as you know, without further government support and are now focus on profitability and repaint the u.s. treasury as quickly as possible. thanks again for the opportunities that you and we welcome your questions. >> thank you very much, mr. hull that's what i'd like to start with is, i want to make sure i understand the business model here. doesn't gm ac crosses subsidized the sale of gm cars? is that how this works? is a cross subsidy should that takes your between gm and gmac? be the one, mr. hull, mr. carpenter, whatever is easiest for the two of you. >> sure. no, gmac does not cross subsidize the sale of cars. >> so you don't offer cheaper financing than anyone else does in order to support the sale of

gm cars? >> actually we do offer that, but gm provides that subsidy. it is especially a market, so if you see a 0% rate on a car in the dealership, gm has effectively paid for that right under what would be our standard rate. >> all right. so gm is offering you, is offering an effect to pay a portion of the consumers finance costs and offer it excludes we do or do offer to other financial institutions? would offer that to another bank, for example? >> they offer it to us but they had the ability to go elsewhere with a new -- >> day many the consumer? >> no, gm. gm offers that exclusive, that financing through gmac, but had the ability to go elsewhere over the course of the next over years. they can offer programs, other leasing and retailing programs through other players. we do have a first right at it but they have the right to go elsewhere. >> so right now this is your business models that you had the

exclusive right to sell in effect 0% financing on gm cars and get the difference from gm? >> it is a large part of our business. >> this is a large part of your business. is the same true of also dealership financing or something different about the arrangement? >> it's completely different. we would fund a dealership speed in the same way anyone else in the market would? >> for the most part, that's right that the only difference is they see us as an integral part of the relationship with a manufacture because we know them. we have known them for 90 years and they know we know that their systems work and were able to deliver to their needs and in the timeframe that they have. but there are absolutely commercial floor plan arrangements with underlined finance come respect use yourself as having to advantages and the marketplace. if i'm understanding correctly. that is, that you have a deal with gm to get money from gm and offer, this is how you build up a big volume, offer what appears to be to the customer below

market financing. and/or other parties simply that you know the dealership world? >> that's right. >> i would add to that, we are from a systems point of view, integrated with the dealers and manufacturers. so to help you visualize it, if you imagine the dealer placing an order for an automobile from gm for a particular the number, and we will finance that purchase when the sale is made by the dealer. we will get reimbursed that it is a closed loop system. and being part of, integral part of that system is both beneficial to the manufacture and the dealer, and also reduces the credit risk ended business substantially. >> so i understand why gm would want to finance its give and why would want to finance the sale of its goods. many businesses do this. what i don't understand then is

what the justification is for being an independeindependent bank that takes deposits that has a backup from the united states government. there are lots of businesses that financed the sale of their goods, but they are stuck with that as part of their internal moderate, internal pricing, internal profits. and they don't reach federally insured deposits, and they don't reach a backup from the united states government. so why, in this case, do you function in this very integrated way that makes you look like simply a financing arm of gm? and yet, you get all of the benefits of being an independent bank. >> let's break the question i think into two parts. there are many manufacturers, obviously, that provide financing for their products. whether it be top your machines or whatever it is. some of those manufacturers have

their own captive finance companies, that are not banks. other companies contract with third party vendor finance providers that you have like a ge capital. you have both models in existence. so that's the answer to the first part of the question. you know, with regard to the second part of the question, this is, in my judgment, a very attractive business for a bank with insured deposits. and the reasons that i would say that is that if you look at all the asset classes that a bank could lead to, if you look at the history of many, many years, the risk characteristics of this asset class are the most favorable of any asset class. for example, the loss ratio in june with automobile dealers with a system that we have of integration is somewhere around 10 to 20 basis points. >> i think would be attracted to

other -- >> so as a creditor, the credit worthiness of the banking activity is extremely high, and a degree of comfort of using federal deposit, federally insured deposits to finance those should be extremely high. >> we're over our time. so i'm going to let mr. atkins pickup. >> thank you very much. let me just pick up in that vein as well, because part of the justification the treasury was using to bail out gmac was that it would be so difficult for other types of banks or what not to step in, especially to, unit, the floor plan financing of dealers. but as we've seen the market really likes its paper and it's obviously very high quality and they like it better than mortgages will it i guess. and so i guess my question is, you know, you are basically

assume the old chrysler financial and integrated into your system, and it sounds like without much of a hitch. and as we all know, system integrations, you know, have lots of pictures. and so i just want to get back to the question of, you know, why is there so little competition, why cannot other financial institutions step into this quick you have high quality paper. is sounds like it's not that hard to integrate into existing things. you have vin number and other things to keep track of inventory. what's the deal here? >> is a great question. let me start by making the observation that there are numerous sectors in the financial services industry that banks do not participate and in the province of finance companies historically. i spent 10 years at ge capital. almost every business we ran was a business, a bank exodus.

and so if you look at factoring in specially leasing, and a lot of business, different businesses, they don't participate in because of either being a focus competitor is extremely high. having said that, your observations about the credit characteristics of this asset class, the receptivity of the marketplace for the papers, absolutely correct. and i think the very to entry, if you will, is not money and cost of money. it's infrastructure and the knowledge, it is the knowledge of the automobile business, how automobiles are dealt with in the wholesale channel, the retail channel, and the systems that are quiet and the relationships and necessary to manage the business over time, represents a very significant barometric. that is it a barrier to entry

that a major bank could overcome over many years? absolutely. it would cost a great deal of money, and historically, they have not shown at the tide to do it. so if you look at where which of these dealers actually a financing from banks, they fall into two categories. one is the local bank down the street, where the bank is taking a very different risk. we are a secured lender. they are taking a risk on the business, the character of the business in the community. and the other characteristics, some of the largest often public dealerships, which are of interest to the larger banks just like any other major commercial credit. >> okay. thank you. let me move on to the other aspects, because we don't have a lot done. with respect to cap, clearly i mean, i don't know the whole

history of getting into that line of business, because if it sounds like this is a great business and ford motor credit didn't get into that line, to use them as an example again. you know, what do you see as the valley of grass can now? as far as, i mean, both intrinsically and how does it add to the mix. right now it is the great sucking sound. >> i think that is a great question. the history is that general motors decided many years ago, and build up its mortgage banking business. for gmac, over the last over years and has been what i have described publicly as a milestone around companies next. it has been the single greatest barrier to the companies access to the capital markets. it has been the greatest barrier

on our profitability as an enterprise. so i look at rescap as a problem to be solved, not as an opportunity. and as such, the actions that we took at the end of last year, and by the way, the mortgage marketplace in general has been a minefield for many, many companies, as you know, only too well. and so the focus of our activities has been, my activities, has been to quantify the risk of rescap, to ring fence that risk and overtime, to minimize that risk. so that gmac is freed from that going forward. >> thank you. >> my time is a. >> i'd like to follow-up on that line of questioning, because this is really critical to the strategic plans going forward. and you talk about exploring

strategic alternatives for rescap and the mortgage business, and also ring fencing the mortgage exposure. indigo into that in a bit more detail and specifically, i'd like to understand what divest -- hasn't been a decision with respect to divesting the mortgage business? and understanding, i should stop there. is there been a decision to to divest rescap? >> mr. neiman, i would say this, our focus has been to be risk tranny as it relates to gmac and its principal mission in the auto finance segment. the first step in doing that was to mark the mortgage assets to fair value, to put additional reserves in the company, and to make sure that our msr, which mortgage servicing asset was fairly valued. and that was the agenda for the fourth quarter of last year, which puts rescap on a sounder

footing to work forward. when we talk about alternatives, what we're trying to do for the u.s. taxpayer is maximizing the value of that set of assets. that could mean anything from the sale of rescap in its entirety, to the sale of individual assets, some of which are ongoing. to joint ventures or any other transaction or approach that companies typically refer to when they talk about pursuing strategic alternatives. >> so developing your strategic plan, and you set out sixers of strategic objectives, where are you in the process of developing and disclosing a strategic plan and also be interested in the approval process for that plan. >> good question. we have engaged to major

securities firms to help us analyze the numerous alternatives for this asset, and there are many, and the solutions are going to be complex. so we have engaged to major wall street firms to help us through that process. they have just begun the process. my expectation is in the next several months, the two or three different alternatives will be, will be analyzed. we will then and the normal course, present those alternatives to our board of directors, with a recommendation for management as to how to proceed. in the meantime, we're actually already in the process of selling some of the mortgage assets where we think the timing for those asset sales is now. and the objective is to end up as we head towards the ipo with not having to have a conversation with this pan or

any other about a mortgage business going forward. >> so can you share with us your current thoughts and how you're addressing the pros and cons of being a diverse financial institution with a mix of assets, versus a monoline institution, which is even, given, a captive monoline and risk that, that? >> that is a great question, and i would say this. diversity is a good thing, but some of the things that we are diversified with don't exactly help. and so the context i would give is this. there are monoline or narrowly based banks. a number of the credit card organizations are, in fact, banks and they are in fact model is. i think you have to look at what are the risk return characteristics of the balance

sheet to judge whether or not one is comfortable with that lack of diversity. and i we simply make the argument, as i get a moment ago, that of all the assets last is, the auto finance asset class, both at the dealer level and at the individual consumer level, are among the absolute lowest risks, loans, that any kind of financial institution could make. and so i would make the argument that if you are to be very focus in an asset class, this would be asset class you would be most comfortable being focused on as a bank. >> mr. mcwatters? >> thank you, and thank you, joan, for appearing today. on the fair market value basis, is that gmac solvent?

>> the answer to that is yes, but i will let rob give you the specifics of. >> i think mike is right. you know, we have tried -- [inaudible] >> i think so. we have verified a lot of our assets, mr. mcwatters, and serve on the rescap side, the broad base of our assets. so if you stood on the basis of our accounting statements we have $20 billion worth of equity on our books, and that would apply that our assets are greater than the liabilities. whether you can sell them at a market clearing price there, that has to be tested. >> sure. to join this debate that gmac will require a fourth round of taxpayer funded bail out? >> that is early not our expectation. the actions we took at the end of the fourth quarter were quite far-reaching your and we believed, we believe are

unlikely to require additional capital. speck of a. >> from treasury. >> do you believe that taxpayers will be repaid in full, or will it be a shortfall as the congressional budget office anticipates? >> the business plan that we have developed, which obviously is based on a series of assumptions about, among other things, the vitality of the card again capital markets. would lead me to the conclusion that we have a high likelihood of repaying the u.s. treasury, the u.s. taxpayer in full. >> why do you think they're such a material difference between your internal analysis and the cbo's analysis of? >> i have not read the cbo's analysis. maybe you have read speed mac know, i have not read that's like could not answer that question. >> would you anticipate the $17 billion within be repaid in full? >> i think the first that as we

mentioned a moment ago is to access the debt capital markets, because any bank or any finance company depends on its ability to access the debt capital markets. we have crossed that bridge in the last month or so. the second challenge is to return the organization to a respectable level of profitability, which i believe we are on track to do. that in turn will position us to be able to take the company public. now, we're not going to be able to a $17 billion ipo in all likelihood. and therefore, the initial public offering will be at a more modest size of the net. and that within require subsequent offerings to completely exit the u.s. treasury. our financial advisors are

telling us that as long as we execute the plan that we are embarked upon, that certainly we can undertake the ipo in the next year or two. and then repay the rest of the money shortly thereafter. >> is rescap fixed? >> that's a very absolute question, and i can give you an absolute answer. i would say within the realms of reasonable business judgment, we have contained the foreseeable rescap risk. there are obviously a variety of scenarios in which rescap could be more problematic. for example, if we see a substantial double dip in house prices, that would certainly put stress on rescap. >> hasn't rescap originated in the loans which have been securitized in they are now put back to rescap?

>> the answer is yes. >> do you know the dollar amount of that? >> i don't have it off the top of my head, but we could certainly get you those numbers. the way this works is if a fannie mae or freddie mac reaches the conclusion that they believe there was inadequate underwriting on loans, they have the right to put those votes back to us or claim a credit from us. we have established, in the last two quarters, a total of the 1.3 billion of reserves against exactly those claims on the rescap balance sheet, which we believe is an adequate reserve. >> i'm done. >> i'd like to ask just a little

bit about the current status of your lending. perhaps a let's start on the consumer side. can you just bring it up-to-date, mr. hull, a bit on gmac is lending to consumers right now? are the lending volume comparison and volume? what's going on there? >> sure. gmac has been on a steady uptick since receiving funding in the fourth quarter of a weight. we did about $6 billion of consumers auto receivables in the fourth quarter. and about $18 billion of volume on the mortgage side in the fourth quarter. and our commercial business worldwide -- >> i'm sorry, i just want to make sure i'm following. the 18 billion is placing his own? >> guess. speck these are all to be securitized. which is and enjoy them and securitized there. we're not investing in mortgages. speck that's what i want to know. so you're bringing them in, securitizing them and moving them on a. and the same is true with the

auto loans? you although? >> the auto loans, some are securitized, and as mr. millstein was the described early on, markets have become a little more from the overtime. and others are funded on balance sheet both in outside bank and and gmac. >> okay. and as a proportion of gm sales, stick with the auto loans for a minute, as a proportion of gm's sales, what proportion are you financing relative to three months ago, six month ago, a year ago, a couple of years ago of? >> a year ago when credit was unavailable to us, we were really down to zero by and large, close to it. we're now at roughly a third of on the retail auto side of gm's volume. >> i got a little lost. so when financing was very hard to get for autos, you went to zero? >> let me explain. what happened when the financial

crisis was at its worst, what happened was gmac had limited liquidity. what it chose to do as a matter of policy was protect its ability to finance dealer inventory. the result of that was we didn't have enough capacity to fund a retail sales. and so our share of retail sales dropped to i believe it was 6%, 6 percent of gm's retail sales,h the good news is we say they didn't. the badges is the weren't a lot of sales being financed. today, we represented been on the month, somewhere between 30 and 40 percent of gm sales at retail. speck let's just talk precrisis for a minute. 2007 what was your person is? >> would've been in the mid '40s. >> you're not quite backs because we're not quite back but

we're getting back. >> on rates are you competitive with other in total, of what you charge the? >> were highly competitive. we do our best to be as competitive as possible, given our cost of funding. of course you have raised what you and i talked about. >> but total you would say it's the same pretty much as you could get if you want to a bank or to a credit union or some other financing sources to? yes. >> within 25 basis points usually. >> if we could just talk about the good for them and i'm wanted a picture of what's going on. with the dealers, you're still financing about the same proportion of dealers that you didn't precrisis in 2007? >> similar. and now we've added chrysler to that equation and we're similar penetration similar puzzle minus. >> plus or minus you would say it's about the same. that's one your time he did not good at? >> correct. >> that's the one you held steady. how about the rates? the rates that you charge, the

interest rates on these loan? >> i think the rates that we charge to the dealers are, i want to say competitive, but the reality is i don't think many of these dealers have a lot of alternatives, and so i would say relative to what i recalled the general credit worthiness of the dealer community, they're actually pretty attractive. >> can you give me an idea of what the rates are generally that dealers are paying? >> it varies. do you go off and? >> it's -- >> i would say somewhere around 6%, somewhere around that. >> i'm just teachers can you make individual assessments of the credit worthiness of the credit dealership's? >> and also what are we financing. for example, if we financing mortgage on their, you know, facility, that would odyssey carry different terms of conditions than financing automobiles. >> very helpful.

thank you. mr. atkins? >> the professor wants an angle for her next purchase. >> i don't think we are allowed to do the. [laughter] >> just one quick question before we go on another topic. do you all have any, do you have any designs on financing for do or toyota or other dealers, or is there such a brand loyalty that people don't do that? >> i think that is a very good question. and you know, one of the answers to your diversity question is if we can in fact diversify the next brands that we do business with, that is actually helpful. and we would like to do that over time. were in the process of talking to some small organizations currently. i think that the bank model is

sufficiently attractive, relative to the capital finance model, that if we can demonstrate an equivalent level of service to a captive that we can come over time, demonstrate a very attractive proposition for other manufacturers. but that's not the issue. speck have you thought about changing her name? that might help. >> we're in the process of our changing our name this year. we're going to allied bank. allied as the brand name we use. i've easy if you're a chrysler dealer, and i can imagine if aire chrysler dealer i would be competing 40 years with gm, dealer dentistry i don't like doing all my business on gm paper. we're trying to be responsive to that. >> i want to turn now to politics because chairman of chief executive you have to deal

with the board you want to board behind you. and you have to now deal with big mature shareholder, who is choosing these board members that so i would like to understand that relationship between you and treasury and you talk to them daily, weekly, monthly. how to do with your board members? do you find them -- i would with that for now. >> i joined the board as i said in may of 2009, and in the period between may and taking over as ceo we had 36 aboard nice. so it's a very, very has been a very, very active board of directors. is a very capable and knowledgeable board of directors. and it has been an enormous amount of time learning the business, you know, and the issues. and so it has currently to treasury appointed board members. and as jim mentioned order on, there will be another two,

treasurer boardmember's and one other board member. so it is a very active aboard. it takes is a governance responsibilities very sirsi, takes its relationships with the fed and the fdic on safety and soundness, also extremely important. with regard to our relationshi relationships, with the federal government, we clearly have a number of important relationships. we have an important relationship with the fed as our, as a major regulator, and we have the ongoing i would say probably daily dialogue, not myself, but daily dialogue with them. and i have a meeting at least once a month with my management team and the fed on a whole array of compliance related issues. we have a similar relationship with the fdic, which is critically focused on allied bank which is very important to us.

and so those are relationships which are challenging. they challenge us constantly to do a better job. >> do your board members realize they have a fiduciary duty to shareholders as a whole? or do you think that they give themselves representing treasury? >> i think the board, as a responsibility, realizes it has a responsibility to the shareholders and stakeholders as a whole. but we are very mindful of the fact that treasury owns 56 percent of the company on a fully diluted basis, much more than that. >> i just want to make of these guys don't view themselves as government flunkies basically. >> absolutely not. 11 of the things that was designed very on an established the board there was an extensive dialogue with treasury as to whether or not all the board members could in fact function as equal partners in the board

and in fact, that was affirmed. with regard to treasury, i would say first of all it's been a very positive relationship. to be able to get a last round of financing done between the time i joined the company on the 17th of november and the 23rd of december, showed a remarkable degree of responsiveness and competence on the part of treasury. i would describe the interactions that i've had with treasury as being those you would expect of a concerned and committed shareholders. we have had discussions in which, you know, i and my team have been challenged strongly on many issues. start i think we'll have to stop there, mr. carpenter, but we have a point. thank you. mr. neiman? >> i would like to shift to a

subset of issues around rescap and your mortgage business. as you know, our panel has taken a takeover -- particular interest on the foreclosure crisis in overseeing the implementation of the treasuries hamp program. in revealing the treasuries most recent report as of the end of january, gmac, the mortgage inc. has reported the highest percentage of delinquent loans that have been converted to trial mods or permanent mods at 50%. an impressive number. is there something that you would like to share with us as to whether you are doing, employing a process or resources that you think we would benefit from hearing, or that other servicers? >> thank you for the opportunity to brag a little bit. we are very proud of that track

record. we actually modified in total 100,000 mortgages since becoming a holding company. we have modified 12,000 permanently modified mortgages under the hamp program which is more than any other mortgage servicer, even though we are not by any means the largest. and the highest percentage of delinquent is. and in terms of lessons learned, mr. neiman, i think that like any new process, it has had its, you know, growing pains. and i think the thing that we did right from day one that has allowed us to be as successful as we have been is we were very focused on getting documentation from the end customer up front, and not relying on verbal commitments, and sanction was the david and we will give you

the temporary, you know, the temporary period of time. there are other things, if i had my mortgage team here, they would give you three or four other ideas. i would be happy to correspond with you separate. >> that was very helpful. in picking up on your remarks about lessons learned, we also have lessons learned in our industry of financial institutions who have relied on reliable sources of deposit funding who haven't had an over emphasis and as bank mortgage companies and unfortunate some of those lessons involving whammo and indy mac that turned out not to be very successful. can you share with us, any of your strategies so that to the extent you intend to stay in this business will not end up with the same result? >> i would make two observations. the first one is if you look at

dinner financing, this is a business we have been in for 90 years. and that, we've been in the auto finance financing for 90 years. we've only lost money in one year, 2008. if you look at your financing just to take that segment, dealer financing has typically had losses of five to 10 basis points. and in the worst year that we've seen, which is 2008, 20 basis points. so losses are extraordinarily flawed by any standard i am aware of. and secondly, on the automobile side, retail side of the business, i would say somewhat, you know, somewhat facetiously but the last thing a consumer wants to do is give up their automobile. they will give up many other things before they give up their automobile. and so our track record, a, because of the importance of the

automobile to the customer, and b., because we're financing and asset where in the worst case we can read process without selling our loss experience relative to other areas of consumer activity like credit cards is extraordinary favorable specs or is this dependence though yes, you've had a track record of low loss rates and with respect to dealer financing, but how do you assess the interdependence on an auto industry that is so fragile at this point? >> well, i think again, that's a very good question and i'm not sure i can give you the perfect answer, i would say in this situation, obviously the dealer has a dependency on the manufacturer. and if anyone in the manufacture of a problem, the dealer has a problem. we have the benefit of having a loan against an asset, we know

exactly where it is, we know what the vin number is and we know how to go in and drive off a lot. and that gives us an awful lot of, an awful lot of protection. even in the worst of scenarios. >> thank you. my time has expired. >> thank you. mr. mcwatters? >> thank you. would you please briefly describe how the $17 billion of taxpayer funds have been used by your company? in other words, what with the uses of those funds because i will have to defer that to rob because i wasn't there through the whole period. >> sure, and fair question. and so the inflows and outflows are probably complex like 170 billion-dollar business, but suffice it to say, when we do and origination and a quarter like a 6 billion of auto or the 18 billion of the mortgage come a we are rigid mortgage and it we said they resell them when they cure to the agencies on the

auto side. we made largely self-made to flow agreements. we may hold some of them in the bank, but largely we may also securitize those like we did in two transactions in the backend of 2009. so those funds in the charges they came in at were used to create capital so we could borrow so we could go to the market and get more liquidity to give it to that kind of origination. so strictly speaking it has gone to the origination for autos and mortgages over the course of time. mortgages will turn very quickly and will get that cash back. >> okay. thank you. what specific risk management and internal control policies and procedures have you adopted to ensure that there will not be the need for another bailout? >> we have, we have significant internal risk controls, which are in compliance with bank

holding company, fed, fdic regulations. they, as you know, examine us constantly for our adherence on compliance and risk management. we have at the board level at risk and compliance committee that meets every month, in which management reports do. we have very significant policies in terms of risk limits, whether it be on securities or whether it be on loans, we have credit policies in place all of which well-defined all of which are monitored closely by the management chain, all of which are audited by a own auditors, all of which is regulate audited by the fed and the fdic examiners. so extremely comprehensive. risk management procedure. >> thank you.

has gmac sold any mortgage-backed securities to either the fed or to treasury? >> not to my knowledge. >> great. as a segue to our next panel, mr. whalen has his remarks, he gave them an f. rating and overall a negative rating for gmac. i think it's only fair that you have a chance to comment. >> i haven't read his remarks, and i have no idea of what basis he would reach that conclusion. all i can say is allied bank is one of the best capitalized banks around, it has a great insensible consumer marketing strategies that is in that base, i think is a bright spot. >> okay. does your auto finance business

earn a rate of return into itself sufficient to attract third party capital, private sector capital? >> yes, it does. it's consistently as i said been profitable exit in 2008. with the right kind of capital structure long-term, on a return on equity basis or any other measure you would like to use it is an attractive business. and i know this is before your time, but why was there a need for rescap? >> that is before my time. general motors at some point decided to diversify its financial services activities into the mortgage business, and you have to ask them why they did it at the time. >> fair enough. i am done. >> thank you very much. thank you, mr. carpenter, thank you, mr. hull. we appreciate you being here today. very much, and i would like to

call the next panel. spent thank you. >> thank you for coming. >> mr. whalen, senior vice president and managing director of institutional risk analytics and mr. ward is an analyst with, so life? soleil-ward transportation research. thank you both for being here today. i asked you for your opening remarks, and as i have with earlier witnesses, please hold into five minutes. will put your entire written statement in the record. mr. whalen, how about we start with you? >> thank you, madam chairman, members of the panel. i am going to take advantage of the fact that i get to go last

and make some observations on what i've heard this morning since you have my written comments. first, we have the fascinating dichotomy of on the one hand, a captive financing vehicle. and on the other hand a bank holding company. i worked at the federal reserve bank in new york and the banks supervision area. and i very firmly with the criteria for approval under section 12 for bank holding companies. the thing that troubles me is in effect if you want to look at the big picture, we are essential using fdic deposits as a replacement for commercial paper. that's really what is going on here. and going back to some of your earlier comments about approval process, credit standards for consumer sales of automobiles, what i think you have to appreciate is the captives take the sales that the banks will not. regardless of the price of the loan. the reality is when the salesman puts the customer's social

security number, the vehicle, the terms of the lease or loan into the computer, it says yes or no. so for example, when i take a lease from bulbul as i'm getting ready to do right now, i end up with ford motor credit. because these are neither the will take my visit. and that is about the salesman ultimately takes with and that it is a more expensive though to me and there is indeed a much higher risk premium today than it was a couple of years ago. i hear this constantly from people in the chama who i speak too. the second issue goes back to the first panel, and choices and how we did things. to me, indeed i think this was borne out by the commons by gmac management, not cleaning out gmac has indeed left a millstone around their neck. and while i hope and expect the reserve they have taken for the repurchase of defaulted loans is going to be adequate as they

just testified, i'm not optimistic on that front. i think both rescap and the other originators of private-label securities nation's, and remember what we're talking about in the past is paper that they didn't necessarily self defending or freddie. they oftentimes are going into them with pure private-label market. and i think the loss rates are going to be quite high. and i would be really surprised if rescap did not continue to be a source of funding need in terms of credit going forward for a number of years. you won't necessarily see it immediately, because litigation, the process of foreclosure, all of these things take a lot of time. but i will tell you that that lingering question, that claim is going to prevent them from offering shares to the public, in my opinion. i've worked as an investment banker and on ipos as was restructurings and i can take right now there is no way in god's green earth that any rational investor is going to want to take a flyer on what's

going on in the mortgage side of this business and till they're pretty sure of what that outcome is going to be. so i think that question is going to conclude an initial public offering as an exit strategy until such time as we absolutely know what's going on with rescap. finally, let me say i think that, you know, why i have a great love and admiration for my friends in the federal reserve system, the decision to make gmac a bank holding company was a very tortured ones. and i am not privy to what they talked about with treasury and the other parties, but i can just a speaking as a bank in us as a principle of the company that rates every bank in the united states and does so from a consumer perspective, now my ratings are a lot tougher than moody's and s&p, because of the leaders of woman in a bathroom bunny slippers who subscribes to value line who came to her office want to want to know where to put $7 million of her

money that was sitting in a credit union. so when i give her an a or an effort, for a given that i've got to be sure that she's going to be okay, even if she is above the insured limit. i think the fed has created a terrible problem here. because i'm the one hand they have to regulate this entity as though it were in fact a bank holding company. but indeed is a monoline that has two-thirds of its liabilities and non-core funny. funding that could walk out the door to more because allied has put in place those terms. the customers can leave without penalty. so i think going forward the panel should really focus on what businesses this company and, what business is it going to be in prospectively, and how stable is that business? and i would be happy to answer questions. >> thank you, mr. whalen. mr. ward? >> thank you. i appreciate being here today and giving the opportunity speak with you. my name is michael moore. i'm an equity analyst at ipo the auto industry for about 30

years. i currently published research on board as well as auto suppliers and some of the. by thomas will be limited to the competitive implications of an integrated gmac and general motors in valuation in equity markets for an exit strategy multiple for an integrated gm and gmac. it's my opinion that gm and gmac will need to be reintegrated and/or to provide the maximum value over. my opinion is really based on four variables. first competitive position. i think when you look at an integrated approach in our view it is the most efficient tool to address several are area. most consumers to make purchase decisions based on a monthly payment. gm is currently at a disadvantage in my view relative to its primary competitors that have captive finance companies because of the cost, the route of kosygin numbers. the second point under that competitive position be a marketing tool, marketing it

says are they part of the competitive let's keep in the vehicle sales market. captive finance can be provided flexibility offer reduced rates as we've heard as well as lease payments or other options that are attracted to consumers. competitive response was in that same category. gm has lost market share in the u.s. market, its biggest market for the last 10 years. the market is getting increasingly competitive over the next 10 years, not less competitive. gm needs every advantage it can get that its bankruptcy process has slowed some of its new product development and it's going to be a significant disadvantage to both ford and toyota, its two competitors. lassie which was not talked about much to his customer loyalty. in our view vehicles finest to a captive doesn't has the complete ownership experience. the second point relative to dealers, and he now source of financing for dealers definitely provides more consistent autofocus going at a 90% level if that wasn't the case. one thing that was not mentioned is that most pickle

manufacturers to provide what they call floorplan as this is that if a vehicle is sold quick enough to do gets a kickback or reading over some of the interest cost. adger go forward, two big triple double have to be monitored, the industry there is now about one-third reduction in to your inventory. gm alone has taken about 700,000 out of your inventory. remember those are vehicles that were being financed and paid for and that is close to $20 billion of less capital needed in the floor plan side of the. as you go forward kids will have to invest in their stores. they have relied on the vehicle manufactures and a captive finance to provide some of that financing. as you look into for efficient i vehicles, electric bills and other things that will require some investment. the third table that i would look at is the source of income and financial flexibility. if you look at gm the auto mode between 2002007, and contribute

$8 billion in after-tax earnings to gm. and a highly cyclical industry, that stable stream of earnings is very vital. as far as when you're looking at valuations compared it to other vehicle manufactures. source of cash, if you look at ford motor credit, ford motor credit provides a string of, one of the reasons that is help for to survive some of the downturn we've seen they have been able to tap them for financing and get rid of some of their debt as well as cash to run their auto business. and lastly, it does provide a source of financial flexibility for the vehicle manufactures as they're able to offset some of their tax liability. lassie on the you wish and, i think when you look at the duke of manufactures, the two most common metrics people's use to guide equities are on an enterprise aces, and on a pe basis. gm when you have, do not have a captive finance subsidiary, they're going to be at a discount to their peer group

specifically for do. right now forward is trading at about five times expected 2000 base. and is trading at about eight times expected 2000 in the earnings on earnings-per-share or pe basis. the ownership of ford motor credit definitely contributes or will contribute to for spring of multiple relative to gm but if you a public traded stock today i would expect ford to commend everything 20% premium and the lack of a captive finance and public account for half of that. thank you very much and know we have to try to answer any question. >> thank you, mr. ford, thank you, mr. whalen. i am trying to thread through a story about why it is that gmac got the kind of rescue that it has got. and at least one of the stories that treasury tells around this is that they made the decision to invest in the auto industry, the star during the bush administrator was carried on during the obama administers and. in large part because of jobs

and others systemic applications. we written about that the past week, may write about in the future. but that is a version of what is happening. so gmac, the story goes, is essential because without gmac, you can't save chrysler and gm. indeed, think you probably heard mr. bloom said he is a we couldn't even take the risk of running gmac the bankruptcy because gmac was absolutely essential to the survival of gm and chrysler. and without it they would have failed. now, i just want to press on that part of the thread, kick because you address apart in your written remarks in part of it because it's in the georgia. and panel discussions with the former gmac ceo, al demolay know, he said no, it isn't by itself over together could have done it and hear what he is document is replace gmac's floor plan financing of gm dealers at the time. it was a concentration of risk that no one would take on. i don't know anyone w