GM Financing To Open Banks- Toasters anyone?

DETROIT, March 19, 2004; Michael Ellis writing for Reuters reported that General Motors Corp.'s finance unit plans to open a bank, selling certificates of deposit to diversify assets after a series of rating downgrades made it more expensive to tap debt markets, officials with the unit said on Friday.

The bank in Utah will not have retail branches for consumers, but it will allow General Motors Acceptance Corp.'s auto finance arm to tap a new market, selling federally insured certificates of deposit to brokers.

GMAC's auto finance arm hopes that over the next three years, the bank will account for about 5 percent, or $8 billion of its assets, said Jerome Van Orman, the chief financial officer for GMAC's North American operations.

"We've had a series of ratings downgrades over the last couple of years. Because of that, we've concentrated on expanding on how we fund the GMAC balance sheet," Van Orman told Reuters. "The common theme is funding diversification, expanding the investor base in different markets, and this is an element of it."

GMAC, as well as Ford Motor Credit Co., the finance unit of Ford Motor Co., have sought new ways to borrow after a series of debt downgrades increased their borrowing costs in the corporate bond market.

In October, Standard & Poor's affirmed GM's and GMAC's debt ratings, but kept its outlook negative, meaning that further downgrades could come over the next 18 to 24 months. Moody's Investors Service also as a negative outlook on GM and GMAC.

Both Ford and GM have increased their reliance on borrowing in the asset-backed market, and GMAC has sold unsecured debt to retail investors.

The bank will be named GMAC Automotive Bank and based in Salt Lake City to take advantage of Utah's favorable banking regulations, said Mark Hales, selected by GMAC to become president of the bank.

Unlike most states, Utah state laws allow companies to open state-chartered banks, called industrial loan companies, to provide limited financial services. The FDIC regulates most of the industrial loan companies.

GMAC filed an application to open the bank last month, and expects a decision from the FDIC (News - Websites) in four to eight months, Hales said.

Other parts of GMAC also operate banks. Its commercial mortgage operations also has a Utah bank, its residential mortgage arm has a thrift in Delaware, and GMAC operates several banks in Europe.