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GM says GMAC mortgage unit may not survive
2008-11-10
DETROIT - Bad news kept piling up for General Motors Corp. on Monday as its shares plunged to their lowest point in 60 years and the company said in a government filing that the mortgage unit of its finance arm may not survive. GM also said that Delphi Corp., its former parts operation that was spun off as a separate company in 1999, may not be able to emerge from Chapter 11 bankruptcy protection. GM shares dropped $1, or 23 percent, to close at $3.36. They earlier plummeted as low as $3.02 on increasing worries about accelerating cash burn and mounting losses. That marked the automaker's lowest share price since Dec. 2, 1946 when it hit $3, according to the Center for Research in Security Prices at the University of Chicago. The price is adjusted for splits and other changes. Before the markets opened Monday, Brian A. Johnson of Barclays Capital cut his rating on GM to "Underweight" from "Equal Weight" and slashed his price target for the Detroit-based automaker to $1 from $4. Johnson said that without additional funding, GM's gross cash will likely fall below minimum levels in the first quarter of next year. The analyst also said that while additional government assistance will likely decrease the likelihood of a bankruptcy protection filing at the nation's largest automaker, it also would likely significantly dilute its equity. Separately, JPMorgan's Himanshu Patel said he expects GM to receive some form of federal aid, but advised investors to be cautious given the uncertainty. He added that he expects the automaker to end 2008 with $12.6 billion in cash on hand, just above midrange minimum cash and excluding government loans. Both analysts said they expect the automaker's per-share losses for this year and next to be significantly larger than what was expected. Both slashed their estimates. Early in the afternoon, GM filed its quarterly report with the U.S. Securities and Exchange Commission that contained more bad news. The company said that the troubled mortgage industry and frozen credit markets have raised doubts that the mortgage business of its GMAC LLC financial arm can survive. The filing says that the value of Residential Capital's mortgage loans have deteriorated due to weak housing prices, delinquencies and defaults. It is also having trouble raising capital. GM owns 49 percent of GMAC LLC, with the rest owned by Cerberus Capital Management LP. Market developments have so harmed Residential Capital, called ResCap, that there is "substantial doubt about ResCap's ability to continue as a going concern," GM said in the filing. The automaker also revealed that ResCap's deteriorating finances forced ResCap to shore up its standing with mortgage finance giant Fannie Mae, the largest U.S. buyer and backer of home loans. ResCap said it posted an additional $200 million in collateral with Fannie Mae and sold off the rights to collect payments on $12.7 billion in loans, or 9 percent of the total amount it collects for Fannie Mae. Had ResCap not acted, Fannie Mae could have severely curtained its loan purchases from ResCap. GM also said in the filing that Delphi Corp., its former parts-making operation that was spun off in 1999, is unlikely to emerge from bankruptcy protection in the short term and may not be able to emerge at all. ___ AP Real Estate Writer Alan Zibel in Washington contributed to this report.
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