Ally Financial Inc (ALLY) 2007 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2007 GMAC earnings conference call. My name is Latasha, and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance, please press *0, and a coordinator will be happy to assist you.

I would now like to turn the presentation over to Ms. Susan Shank, Director of Investor Relations. Please proceed.

Thank you very much, Latasha. Good morning, everyone. As Latasha mentioned, this is Susan Shank from Investor Relations at GMAC. We want to thank you for joining our 2007 fourth quarter review of results.

If you have gotten the presentation from our website, you will see that on page two, there is a legend regarding forward-looking statements and risk factors. The contents of our conference call will be governed by this language.

In addition, to comply with Regulation G, we have provided some supplemental charts at the end of the deck that providing reconciling data between managerial financial results and GAAP. I'd like to highlight that we're broadcasting this call via the Internet, and that the financial press is participating.

This morning, Robert Hull, our Chief Financial Officer, will cover the 2007 Q4 earnings review. After the presentation portion of the call, 30 minutes will be set aside for questions from investors and analysts, followed by a 30 minute Q&A session with the financial press.

I'd also like to mention, we have several other executives available to assist in answering your questions. With us today are Jim Jones, Executive Vice President and CEO of ResCap; Bill Muir, President of GMAC; Sam Ramsey, Chief Risk Officer of GMAC; Linda Zukauckas, Group Vice President Finance; David Walker, Treasurer of GMAC; David DeBrunner, GMAC Controller; Ken Fischbach, Managing Director of ResCap Investor Relations.

Now I'd like to turn the call over to Rob Hull.

Good morning, and thanks for joining us. I know you're anxious to understand our results, but I wanted to highlight a few changes for you up front.

First, there are a large number of one-time adjustments reflected in our Q4 results, and so, comparisons to the year-ago period are difficult. As a result, we'll focus primarily on absolute earnings, rather than year-over-year or quarter-over-quarter comparisons.

Second, we've reformatted the income statement to what I call a classic financial services or universal bank model, to offer more clarity.

And third, we've attempted to further simplify today's presentation by only using GAAP earnings, and not introducing the concept of operating earnings, as we have in prior quarters.

So now, let's jump into the presentation.

Q4 and full year 2007 were challenging periods for GMAC. To be clear, we've taken aggressive steps to address our disappointing performance throughout 2007, knowing that there may well be more to face in 2008. Let me touch on what we accomplished in 2007 first.

GMAC reduced its balance sheet by roughly $40 billion from year-ago levels. At the same time, we increased cash levels to reduce short-term risk to the enterprise, and provide a solid footing for our operations.

Both auto and ResCap have tightened and redesigned underwriting and origination standards. We've taken painful and appropriate impairments and reserves throughout the year, to set things right. Most importantly, refocusing GMAC and ResCap on core fundamentals, including our scalable servicing platforms, our broad international footprint in auto and insurance, a large share of retail and commercial auto finance, a consistent insurance business leveraging an existing auto distribution network, and exclusive tenure partnership with General Motors, and approximately 18 million retail accounts ripe for cross-sell.

So turning to slide four, you'll see that today, we're reporting a consolidated net loss of $724 million. The loss was driven by operating performance at ResCap, which more than offset profits at insurance and auto finance.

Global auto had net income of $137 million for the quarter. Insurance earned $68 million, and ResCap had a loss of $921 million, driven by asset writedowns, impairments, restructuring costs, and weaker consumer credit, partially offset by gains from the retirement of debt and deconsolidation.

For the full year, GMAC had a net loss of $2.3 billion. ResCap dominated full year results, as it did with the fourth quarter. Global auto had net income of $1.5 billion for the year. Insurance earned $459 million, and ResCap had a full year loss of $4.3 billion, due to the stresses in the mortgage sector, which I know you're aware of.

In response to the turmoil in the market, both GMAC and ResCap have raised liquidity, and are ending the year with significant cash balances. GMAC's consolidated cash and highly liquid marketable securities was $22.7 billion. This number includes ResCap cash of $4.4 billion.

Moving on to slide five. Slide five provides net income by segment, as well as some of the special items that drove performance in the quarter, and in the year. We put these here to be completely transparent.

Full year 2007 results will include a $455 million after-tax impairment of ResCap goodwill, leaving virtually no goodwill in that division. Q4 2007's full year results for our insurance operation are down somewhat on a year-over-year basis, due to a $570 million one-time after-tax capital gains generated in the fourth quarter of 2006, when we rebalanced our investment portfolio in that division. ResCap reported several one-time items in Q4 2007, starting with $125 million of costs related to the restructuring we announced in Q3.

On the positive side, GMAC and ResCap recognized $563 million of gains from the repurchase and retirement of ResCap bonds in the quarter. While ResCap technically booked a $438 million gain related to the sale of residual cash flows and the deconsolidation of several on balance sheet securitization structures, the true net economic effect was an in-period benefit of $157 million for the quarter, as $281 million of that gain was provisioned--taken simply within the quarter.

Now let's look at the individual segments in more detail, beginning on slide six. The first slide lays out key metrics for our auto finance operation. The first graph on the slide shows auto's net income for the last eight quarters.

As you look at the trend, remember that Q4 2006 results included a $383 million benefit from the LLC conversion. Results in 2007 were driven by a combination of asset levels and gain on sale results.

Moving to the right, you can see that GMAC increased new and used auto originations in Q4 2007, compared to year-ago levels. New vehicle financing originations for the fourth quarter of 2007 amounted to $13.4 billion of retail lending and lease contracts, versus $10.8 billion in the fourth quarter of '06. The year-over-year increase is a result of a GM marketing program in Q3 '06, which pulled volume ahead, reducing the fourth quarter of '06. Used vehicle originations in the quarter were $1.9 billion, up from $1.4 billion in Q4 '06, reflecting our continued efforts to diversify our auto finance revenue base.

Despite the increased originations, on balance sheet retail auto loans were down, as we accelerated our transition to an originate to distribute model, and further streamline our balance sheet. In contrast, service assets were relatively flat. The last graph shows the accelerated gains on sale generated by our transition to the originate to distribute model. Once the distribution model is in full force in '08, we expect a more predictable level of sales activity.

If you turn now to slide seven, you'll find the income statement for auto finance, which reported net income, as I mentioned, of $137 million in Q4. Q4 2007 results were adversely impacted by $74 million residual writedowns, and an $80 million unfavorable tax valuation adjustment.

Also impacting our results were lowered net asset margins, as our cost of funds increased due to our rating changes and capital market disruptions in this declining rate environment. Foreign exchange gains from our overseas operations partially offset the negative trends in the quarter.

Finally, we increased our allowance coverage rates in line with industry trends. The increase in coverage ratios increased our provision by roughly $300 million. At the end of the fourth quarter, our coverage rate--that is, allowance divided by managed assets--stood at 3.87% for our domestic business--significantly up--and 1.42% for our international business.

You can see on slide eight an increase in delinquencies in the auto portfolio, and you'll find the related loss data on the next slide.

As the U.S. economy has softened, and various regions of the country cope with the housing market turmoil, delinquencies and losses have increased, but as you'd expect they would. The increase in both delinquencies and losses is relatively mild, and in line with past experience at GMAC in weakening scenarios. The increase in delinquencies and losses largely comes from our non-prime book, roughly 16% of the portfolio, and is primarily in regions of the U.S. hardest hit by home price depreciation.

In response to these events, we've tightened our credit criteria three times over the course of 2007, and generally in our lowest credit tiers--what we call D&E. The effects of our actions show quickly in the risk distribution of our new originations. For example, for all of 2006 and 2007, the percentage of new loans booked in North America that were non-prime was 12%. They were already down to 9% by December.

It's also important to remember that auto contracts are fairly straightforward in design, and different from many of the exotic ARM mortgage products you read about in the news. Our North American retail book consists of fixed-rate contracts with no option payment features.

Auto loan collateral depreciates from day one. Buyers and lenders don't count on auto depreciation--auto price appreciation in their calculations. Our underwriting is based on long-term credit trends, rather than short-term shifts in the cycle.

Asset quality trends in Europe were favorable in 2007, with both delinquencies and losses lower. Asia/Pacific and Latin America trends are very similar to what we're experiencing in North America, albeit for different reasons. The increase in delinquencies and losses in these areas is more indicative of the seasoning of the operations in the portfolios, than of economic softness in the relevant countries.

We're adapting our collection capabilities in light of the increase in delinquencies. We've increased the number of collection associates by 400 people, or 40%, during the year. We've targeted our most experienced resources at areas that represent the highest risk, including non-prime customers, and again, specific regions hardest hit. We've accelerated and increased our outgoing contact with higher risk borrowers.

We remain concerned about the outlook for the economy and consumer credit, and we're moving aggressively to mitigate these risks, and the potential impact credit deterioration could have on our book. Finally, we're very confident that our loan loss reserves, at $1.4 billion, provides sufficient coverage for potential losses in the current scenario.

So, turning to GMAC insurance, slide ten lays out what we consider to be the most important measures for this business. As you look at the eight-quarter trend for net income, you can really see the impact of the portfolio rebalancing I mentioned, that we did in the fourth quarter of '06. Recall that we realized $570 million of one-time gains from that action.

Core earnings, which is shown to the right, excludes capital gains, and is the industry's preferred measure of year-over-year performance. Q4 '07 includes a higher effective tax rate in the quarter, losses from the California wildfires, and an increased loss provision based on regular loss estimate reviews.

This difficult environment also reflected itself in the combined ratio, which has increased to 96.9% in the fourth quarter. Part of that increase relates to a higher component of personal auto in the U.K., related with our U.K. Provident acquisition.

Moving to the premiums written graph, which gives an indication of future revenue, results are up slightly year-over-year, but the market remains intensively competitive. Our international ops are posting strong growth in insurance. Conversely, pricing for our personal lines products in the U.S. remains quite difficult.

So now, let's turn to ResCap on slide 12.

Before we dig into these numbers, I just want to talk briefly for a moment about our strategy for the mortgage business. In our U.S. residential operations, we continued to reduce the size, risk and complexity of the balance sheet. For example, during the fourth quarter, ResCap sold residual cash flows related to several non-prime, on balance sheet securitizations, resulting in a deconsolidation of approximately $22 billion of securitized assets and related debt. ResCap sold residual cash flows resulting in approximately $22 billion.

We're continuing 2007's almost singular focus on prime, conforming mortgages in the U.S. A majority of that production is now being originated in GMAC Bank, with its lower cost of funds. We're only originating other products when there is a funding and distribution capacity for these assets.

Our scalable servicing platform is the key to ResCap's mortgage strategy. We believe we have an outstanding servicing platform that can handle three times the current volume, and our portfolio has remained stable despite the turmoil in the mortgage industry.

As for our business lending portfolio, we're managing the balance sheet down aggressively, as you can see the chart on slide 13, our responses to the tough climate for home builders today.

We're reducing our international portfolio by curtailing production. As in the U.S., if we don't have distribution capabilities for an asset, we simply won't originate it.

You can see the result of these strategies in the graphs on slide 13. The net income graph shows that we've reduced the losses in Q4 '07 compared to Q3, as a result of the actions we've taken. We know we have some distance to go here, yet.

A key strategy, as I mentioned earlier, is reducing total assets, and you can see the progress we've made. Assets at ResCap have decreased by $48 billion from the end of 2006. The biggest driver is a reduction in assets associated with on balance sheet securitizations, which we mentioned previously. Year to date, ResCap has deconsolidated roughly $26 billion of such assets. Reduced production levels and asset impairments have also reduced the size of the balance sheet.

Another important factor in reducing our liquidity risk for ResCap is the use of GMAC Bank. Mortgage assets in GMAC Bank have increased roughly $5 billion in 2007.

In contrast, the mortgage servicing portfolio has remained quite stable. The non-prime and non-conforming portfolios have decreased, but this has been largely increased by increased prime servicing. As we emphasize third party servicing, we expect our $4.7 billion MSR pool to be stable and growing.

Total ResCap loan production has decreased significantly year-over-year, to just under $21 billion for the quarter. In Q4, we made further cuts to prime non-conforming, non-prime, and prime second lien originations in the U.S. Non-prime originations have been reduced to virtually zero, and prime non-conforming has decreased dramatically. International production was cut more than 40%, compared to Q3 levels.

Subprime balances at ResCap--and we generally don't talk to subprime here, because we don't measure for it, and that would be FICOs generally less than 660--now total, we believe, less than $4 billion of economic exposure, and have already been marked down substantially.

So, moving to ResCap's performance on slide 14, we recorded a net loss of $921 million for the fourth quarter of 2007. The result was driven largely by asset writedowns and impairments, a proportionately higher credit provision, and restructuring costs, partially offset from gains from the retirement of ResCap debt and the deconsolidation of certain assets and debt, as mentioned.

Credit provision remained high at $830 million, due to continued high loss severity. We pegged our coverage ratio at 2.67%, up 41 basis points from a year ago. ResCap recorded writedowns on credit residuals and mortgage-backed securities as well as market driven impairments on real estate assets and equity investments of $633 million. In addition, we took a restructuring charge of $127 million related to facility closures and reducing the workforce by roughly 3,000 associates.

Q4 results benefits from a $522 million gain recognized on debt retirements, which I mentioned earlier. In addition, we recorded a $438 million gain on the sale of certain credit residuals, which as I mentioned, really is an interior lift of only $157 million.

As mentioned earlier, ResCap deconsolidated assets and the related debt from the balance sheet. Following these actions, the provision for loan losses is expected to decline at future quarters in ResCap.

If you're looking at year-over-year results, recall that Q4 '06 results included a $523 million benefit as in auto, related to the LLC conversion a year ago.

To stabilize ResCap, we've significantly reduced our exposure to non-prime risk. Slide 15 illustrates the progress we've made throughout 2007. As I mentioned previously, we've reduced our non-prime servicing book. It has decreased about 24% since the end of Q1 2007.

Non-prime, as you may recall, includes all our subprime book of customer scores less than 660, high FICO and high LTV mortgages, purchased distressed assets, and certain international assets.

The decrease in our warehouse lending book is even more stark, as you can see on the chart on slide 15. Our warehouse lending business finances other mortgage originators, and is a part of our strategy at ResCap. We have exited a number of these relationships, and have made--and have placed more into workout status. This book will continue to decline as these workouts progress.

In the held for sale portfolio, we've become far more disciplined about only originating loans we know we can profitably distribute. That's let us cut the HFS book down to only $12 billion, most of which is prime.

We're aggressively looking for windows to sell our HFS assets. We've transferred loans from HFS to help our investment, as we changed our intent with regard to those assets. Of course, those transfers were made at existing market prices.

In Q3 '07, we transferred $6 billion of our U.S. assets from HFS to HFI, and in Q4 '07, we transferred another $4 billion of our international assets to HFI.

Despite the loans transferred in from HFS, the HFI book is still down significantly, showing our efforts to streamline our balance sheet. This is due in large part to the deconsolidation of securitized assets, as we previously discussed. The rest of this decline stems from asset runoff and loan chargeoffs.

Remember, that of the $42 billion we hold in HFI loans, $17 billion--most of which was non-prime--has been legally sold or securitized, leaving ResCap with economic exposure to this asset of only $25 billion, a fairly small portion of which is non-prime.

On slide 16, we've laid out the credit trends for the ResCap book. The credit quality of the HFI portfolio remains challenging, and we continue to experience higher delinquency levels, although we were not heavily exposed to subprime in this base of assets, as I just mentioned.

On an absolute basis, delinquency figures declined in Q4 2007 compared to Q3, primarily due to the consolidation issue. The chargeoff levels for consumer mortgage assets continue to remain high, due to increased severities resulting from stress in U.S. residential housing values. The lending receivables portfolio has been influenced by the slowdown in the residential construction sector. The chargeoff level in Q4 remained in line with the industry.

ResCap ended the quarter with $4.4 billion of cash and equivalents, and $6 billion of equity, as you can see on slide 17. The cash balance is down to about--down about $2 billion from the end of the third quarter for three reasons.

First, we used $380 million in the tender offer for ResCap bonds. Second, we deployed capital against our international operations. And third, we optimized GMAC Bank's balance sheet.

ResCap ended the year with equity of $6 billion, which exceeded a $5.4 billion covenant contained in several key bank agreements. We've not drawn upon our existing credit facilities, and they remain available to us, as does FHLB funding for GMAC Bank. Our attention is focused on ensuring we maintain liquidity and meeting our funding obligations in 2008.

Of ResCap's $19 billion in unsecured debt, $4.4 billion will mature in 2008. This represents both a $1.75 billion term loan, and ResCap's public securities. There is also $14 billion in unsecured debt maturing past '08, and we see that as a forward source of funding stability for us.

Finally, we are executing on a variety of fronts to ensure we meet all our obligations. These initiatives include asset sales, additional secured borrowings, and discussions with our banks on restructuring and extending the term loan. We'll be happy to discuss this further with you during the Q&A.

Though we renewed or replaced a number of maturing credit facilities in '07, much of the increase in our cost of funds is attributable to the terms of those new renewals and replacements.

ResCap also has significant maturities this year on its secured book. GMAC and ResCap continue to aggressively work to maintain adequate liquidity, including negotiation of renewals, replacement facilities, and use of other existing alternative liquidity sources.

All right. So moving back up to the GMAC consolidated level on slide 18, we ended the year with $22.7 billion in cash and securities, and $15 billion in equity--a reduction of $6 billion in the cash book from September 30th. As you recall, we substantially increased cash balances in the third quarter in response to the unfolding market disruption.

We used a portion of that cash to retire debt and funding loan originations in the fourth quarter. Slide 18 provides you with a consolidated cash roll-forward, as well as the specific numbers for the pieces of GMAC.

Obviously, the liquidity markets continue to be challenging. We have continued to roll our asset-backed auto commercial paper, and renew our important bank facilities while issuing new asset-backed securities, albeit with less favorable terms. In addition, we're still delivering into our long-term whole loan flow agreements.

It is clear that Q4 '07 was a challenging period for GMAC and ResCap. However, the actions we've taken throughout '07 to reduce both our cost base and our risk profile are starting to have an impact. That much is clear.

We've outlined those actions on slide 19. We've restructured ResCap. ResCap and GMAC have tightened lending standards. We've reduced the size of the balance sheet. ResCap reduced its 2007 asset base by $48 billion, including $26 billion of assets in on balance sheet securitizations.

Auto has accelerated its originate to distribute model. We've taken the appropriate impairments and reserves to reflect the tougher market conditions, and are ready for '08. At the same time, cash has been increased to record levels, to protect operations.

As I said at the beginning, we're refocusing GMAC and ResCap on core fundamentals--our scalable servicing platforms, our broad international footprint, our large share of retail and commercial auto, our consistent insurance business, and exclusive partnership with GM, and 18 million retail accounts.

I won't waste your time with detailed forward-looking statements--we don't do that. We believe we've made the right decisions, and the right changes to the balance sheet and the operations. At the same time, we know '08 will be another challenging year for us, and may call for further aggressive tactics, which we're ready for. We believe we can return GMAC to profitability in 2008.

And with that, let's move to the Q&A.

Thank you very much, Rob. We will now have half an hour of questions from investors and financial analysts, followed by a half hour question and answer period for the press.

Latasha, would you please remind people how to queue up for the questions?

Sure. (operator instructions)

And your first question comes from the line of Brian Johnson with Lehman Brothers. Please proceed.

Good morning. Can you give us a little more color on the deconsolidation transaction? And is it fair to say--first of all, what was kind of the face amount transferred, where did it go, where is the cash in versus cash--liabilities out, and that going to show.

Sure, Brian. I'm going to ask David DeBrunner, our Corporate Controller, to talk you through the deconsolidation effort we did in the first quarter.

Sure, Brian. With regard to the deconsolidation transaction not related to some secured financings that have been entered into the past, where we had retained some residual interest in those--with regard to those transactions, they met the criteria for a legal sale but not for an accounting sale.

So what happened in the fourth quarter is, we sold those residual interests, as well as we made--took some other actions with regard to those assets and liabilities and structures that resulted in the deconsolidation of those from an accounting perspective. So you had HFI loans on the books of about $22 billion, and related secured debt of about $21.9 billion. The net result of that deconsolidation, with your liabilities being greater than your assets, resulted in the gain in the quarter of the $438 million.

Within the quarter as well, there were some provisions against those, so kind of the net pickup in the quarter was $157 million.

So you would have posted those provisions, just given the credit performance of those.

We would have, yes.

And how is it possible--given the concern of investors over those kind of loans, how is it possible that they were actually sold at a gain?

Again, the gain was driven by the deconsolidation of the assets, not by the sale of the residual interests. So if you think about it, we took the marks on the loans. The loans were recorded net of the allowance, so the allowance on the loans had caused the amount of the net loans to be less than the debt, so that when we deconsolidated, with the assets going off the sheet and the liabilities going off the sheet, that drove that gain. It wasn't driven by the sale of it.

Okay. Thanks.

Your next question comes from the line of James Leda with Merrill Lynch. Please proceed.

Good morning.

Good morning.

Can you hear me? Hi. I just wanted to ask about the debt repurchases of ResCap debt at the GMAC level. Can you give us a little flavor as to the maturity profile? Were these shorter dated instruments that were repurchased mostly, or were these more longer dated?

Let me pass that to our Treasurer, David Walker, who will talk a little bit about--they're mostly--they're more short dated instruments. But I'll let David address that.

ResCap has a variety of debt from inside of a year, all the way out to 2015, and the purchases of debt were more on the shorter end--meaning, not out ten years, but we had a tender offer, as you know, at the ResCap level for '08 and early '09 paper, and the buybacks were a little bit beyond that, but not too far out the curve in general.

It was a mixture of debt, looking at opportunities in the marketplace, and what was available at certain prices. So it was a broad mix of different maturities that we had outstanding.

Are there certain maturities that you might be targeting in particular, go-forward? I know in the release, you said that as opportunities came up, you would look to be opportunistic.

Yes. We would continue to be optimistic, but have no other comment about future plans beyond that.

Okay, and just one other question. I wanted to ask about your expectations for cash burn, or generation, through 2008, and kind of link that to the cash calls that you have coming up through the year, that you've already highlighted on the call.

Brian, we certainly can talk about funding and cash burn a little bit. I'll ask Sam Ramsey, our Chief Risk Officer, to take that.

As Rob said in his comments, in response to the market situation, we increased cash balances significantly in the third quarter, and used some of those in the fourth quarter for the purposes he defined.

We would continue to maintain--I would call it somewhat elevated levels, as long as the markets remain tight. But over time, we would expect to return to a more normalized level of cash balances.

Okay, and one last quick one. How much did the debt go down at ResCap? And then I'll jump back in the queue. Thank you.

Well, when you say, how much did it go down, the total face value in debt purchased was $1.6 billion, for a weighted mark of about 67.

Perfect. Thank you.

Right.

Your next question comes from the line of Satish Pulle with Merrill Lynch Principal Finance. Please proceed.

Good morning. This is Satish Pulle from Merrill Lynch Principal Finance in London. I just wanted to sort of take you back to your slide number 15 on the presentation, and try and marry some of the numbers there with what I've seen, both in your Q3 10-Q, as well as the provisions for loan losses that you've taken this quarter.

I guess my questions would be, if I am looking at the loans held for investment at Q4 '07, focusing on the $25 billion of prime and other, the first question is, how much of that is prime second lien, and what exactly do you mean by prime non-conforming debt?

And the second question would be, is it right to say that against that $25 billion, what you have in mortgage HFI reserve balances was $1.7 billion at the end of Q3, and you've added $800 million during Q4?

Thank you.

Okay, well, let's handle those one piece at a time. The first question was, regarding the $25 billion in prime and other on the chart, on loans held--HFI loans, right? And your question was--your question was, exactly--what did you want to know about that?

How much is prime non-conforming, how much is prime second lien, and exactly what do you mean by prime non-conforming?

Okay, Jim Jones from ResCap is going to take that question. Jim?

Okay. The--as to what we mean in terms of prime, first of all, the domestic definition is with regard to what's acceptable to Fannie and Freddie, in terms of agency definitions there, (inaudible) definitions.

We use a slightly different definition with regard to our U.K. operation, but that--it would not be a material difference in terms of what the overall statement is.

The non-conforming bin would include what we would characterize as ALTA loans, and governments, and some of our second population. There is virtually no non-prime being produced at this point in time, so I'll leave that one.

As far as the sub-segments are concerned, in terms of the breakouts of that, I'll leave that to the K, when we publish that later in the month.

Right, okay. But is it fair to say that against that $25 billion, you had about $1.7 billion in reserves as of Q3, and you've added about $800 million this quarter?

Satish, the total reserve, for the total enterprise, stood at $2.8 billion, $1.4 billion of which was attendant to ResCap. So it has changed from period to period. That, of course, I'm sure, is due in part to some of the assets removed from the books here, the deconsolidation issue. And that will help you navigate from one quarter to the other.

Does that answer your question at all?

So that was $2.8 billion for the--all of GMAC?

Right.

And $1.8 billion for ResCap?

No, $1.4 billion for ResCap.

Right. Okay, that's fine. Thank you.

Your next question comes from the line of Chester Luy with Barclays Capital. Please proceed.

Hi. Good morning, everyone. Just a few questions here.

First, given unemployment and consumer confidence trends, where do you see delinquencies trending over the next few quarters? It seems like 30-day delinquencies rose about 15 basis points year-over-year during the quarter.

Chester, you're talking about ResCap more than auto?

I'm talking about auto finance.

You're talking about auto. Let me let Bill Muir, who's the President of our auto businesses, take that question. Bill?

Sure. Well, we're seeing delinquencies up about 30 to 40 basis points, when we look year-over-year. And that's a trend that's kind of settled in with us, starting at the end of the third quarter and running through the fourth quarter. And we kind of expect to see that continued pressure going into 2008.

And a lot's going to depend on what happens in the economy. So--I mean, you have to take your view on the economy, your view on unemployment, and put it on top of our trends, and make your own forecast.

But at this point in time, we've seen this increase, and it's running consistent, and we're--it feels like we're very much on top of the situation, and comfortable with what we're doing.

Right. During the last recession, 2000-2002 recession, where did 30-day delinquencies go up to?

Over the past five years, we've run between 2% and 2.25%. If I go back to 2002, our 30-day delinquency was almost exactly 2%.

And '91 to '92? That recession?

You know, I'll tell you--my memory doesn't go back that far. I'm sorry--nor does my cribbed information sitting in front of me.

Sure. Seems like used car pricing continues to fall. Can you talk a little bit about this, and trends going forward, particularly as it relates to severity?

Well, actually, when we look at our--the results of our vehicles coming back off lease, and the proceeds that we get from them, they're pretty much flat year-over-year. I can find the data somewhere, but it's--I think it was $14,800 last year, and it's $14,700 this year, per.

So we're actually seeing a pretty flat trend. If you look at some of the Manheim data, you do see a little bit more weakness, but a lot of that data is--the most recent stuff, the fourth quarter information, is a little hard to sort through, because it's a very weak period in the year.

So right now, actually, used car prices have held up very well, and our outlook is pretty positive, because all of the--one of the biggest drivers in terms of the used car market is what the manufacturers do, in terms of creating used vehicles, by doing a lot of leasing or by selling a lot of vehicles to the rental fleets, which then come back on buyback programs. And all of the manufacturers, especially General Motors, have shown tremendous restraint. And so the actual--the volume of off-lease and nearly new used vehicles coming into the market have been running steady. And for us, it's been running in the 300,000-unit range for the past couple of years, and that's what's really helped used car prices for us.

Chester, you'll see on slide 24 in the supplements to the deck and the appendix, some discussion on our lease values--terminations. In addition to that, as Bill said, the entire fleet sales effort of GM is down. And that's helped us.

Also, our remarketing and Smart Option utilities have really helped retain, or hold up value for us in this regard.

Right. Are there plans by GMAC to inject more capital into ResCap, particularly in light of potential covenant violations down the road?

There are no plans to inject capital at this point into ResCap. But we are committed to supporting ResCap, to the extent it doesn't hurt our other businesses in the portfolio. And we believe we have a funding plan and tactics to work out through '08, where we shouldn't need to do that.

Right. My final question is, given higher delinquencies, are you witnessing tightening of borrowing standards across the industry?

We are not--you can see, it was in the Journal this morning. I mean, there's an article about tightening of lending standards. In the auto industry, I'd have to defer to Bill, to see if he's seen any action on that.

Well, we have selectively tightened our underwriting standards, starting in the end of the third quarter and the fourth quarter, as we saw the consumer weakness coming along. We have done that.

And I guess, just anecdotally, we've seen a couple of participants in the marketplace actually announce that they're exiting the business--you know, a couple of the smaller bank lenders. And anecdotally, we hear kind of similar type messages coming out of the other captives.

So it's the kind of normal, kind of gradual adjustment that one makes when you see a trend change in the marketplace. It's not any kind of a--since we've always had very steady, very consistent underwriting to begin with, you don't need to take any kind of a rash adjustment to deal with the situation. We're doing it very step by step.

So the answer is, it's a long way to say yes. We're seeing some tightening in the business. We're certainly doing it, but it's gradual, it's measured, and we feel like it's appropriate.

Great. That's all I have. Thank you.

Thanks, Chester.

Your next question comes from the line of Mark Alter with Credit Suisse. Please proceed.

Hi. Good morning--thank you. Could you talk a little--you said you're committed to--you've got a funding plan, and a lot of this is in the second half of next year. Can you make any further comment on what that is? And perhaps, at the end of the third quarter, you mentioned that 78% of your secured funding expires by the end of September of this year. Has that number changed at all? Talk a little bit about the progress?

Yes, Mark--in a second, I'll hand that over to Sam Ramsey, our Chief Risk Officer, who is driving the funding tactical plan as we go. I don't know where you got that 78% number. We have $15 billion in secured--

It was out of the Q.

Okay, and $15 billion in secured, maturing in '08, as well as $4.5 billion in unsecured. Those are the numbers I would give you.

It was the committed secured. It was a comment up in the Q.

Right, (inaudible). Anyhow, I think the thrust of your question was on, what--give some more detail around how we navigate through those maturities. And I'll hand that over to Sam Ramsey.

Well, what I would say is that we have very detailed forecasts of both our sources and uses of funds over the course of the year. And of course, manage that very carefully. And as Rob said, our outlook is that we have access to sufficient funding and sources of cash to meet our obligations, and continue to support the operation.

And part of those plans, we've commented publicly on many occasions, include the continued reduction in the size of the balance sheet, as well as the risk profile of the balance sheet, as we will just continue on plan with those arrangements.

Okay, and a couple of questions on the GMAC Bank. Could you--it looks like, and I think you made the comment, that the parent put more capital throughout the year, every quarter, into the GMAC Bank, I guess for growth? But secondly, the non-accruals look like they only ticked up a little bit at GMAC Bank, but your 30- to 90-day delinquencies are up, what, about 40%, which is well in excess of the growth of the balance sheet.

What are--is there just--that's just the market, or is there a change in the complexion of the GMAC Bank HFI portfolio?

No, we--yes, to we continue to build that bank. It's sitting at about $28 billion in total assets. You asked about--$8 billion of which is auto, and the balance of which is ResCap.

I'm not sure exactly where the second--on the--we'll take the non-accrual paper second. What was the first part of your question again, Mark?

I think you had sort of mentioned in the introduction that--or, implied that the parent had put more money into the GMAC Bank. And from their statements, it looks like there's also some more--there were some more investment into GMAC Bank during the year. The capital grew in excess of earnings. I guess that's the question.

Yes. We have made investments into GMAC Bank, but it has been small. What you're perceiving is into ResCap. What you're thinking about is into ResCap, presumably.

No, it was actually the reports that you filed--that ResCap Bank filed. Excuse me, GMAC Bank filed.

The equity in the bank continually grows, and actually, we--the way we do it is, we kind of look ahead, and we're usually seeding capital into the bank, where we see the assets going. And we do that always to keep, from a regulatory standpoint, safe and sound, and meeting our capital ratios at the bank.

So all you're seeing is, on a--kind of a planned basis, the capital going up in line with the planned increase and actual increase in the assets.

Right. So we're still sitting on about $3 billion worth of equity in that unit. David Walker, do you want to talk a little bit about the funding over time of GMAC Bank, to the extent you have any input on that?

I was just going to say that, yes, so both the auto side of the bank and the mortgage side of the bank have grown throughout the year, capital is injected into the bank to meet the regulatory desires that we have. So that's just a natural process, as we use the bank to a greater and greater degree.

Mark, I don't recognize your delinquency numbers, either. Can you tell us where you got those?

Again, it looks like it's out of the regulatory filing that the bank made. I'm just trying to confirm it. It looks like 30- to 90-day delinquencies were $195.4 million, versus $138 million?

Mark, this is Susan. Why don't you get off line, and--

Sure, if--okay, I'll give you a call.

Great, thank you.

That would be great.

Your next question comes from the line of Jonathan Steinmetz with Morgan Stanley. Please proceed.

Thanks. Good morning, everyone. A few questions on the auto side of the book.

Bill, you referenced a 30 to 40 basis point rise in delinquencies, but it looks like on the sheet, it went to 2.77% in North America from 2.62%. What were you referring to, and was that a 60-day number? And if--could you give us a 60-day number, if you have one?

The--I guess, the 15 basis point increase on the chart that we sent out for North America is--I mean, it is a combination of what we've got with the core U.S. book, our Canadian operations, our kind of nouvelle--so the number on the chart is right. In the core U.S. book, if I go back from the beginning of the year to the end of the year, that's where my 30 basis points is coming from.

So--no, when you look at the chart, that's the right number. It's up 15 basis points.

For North America.

Yes, for North America.

Right.

And do you have a 60-day number you could share, year-on-year?

No, it's not--

We've not made that available.

We've not made that available.

Okay. What do you think is causing, then--when I compare, versus Ford Credit, there seems to be a little bit of a disconnect. They were up from about 75 basis points in the prior year to about 1.13% in their book, and yet, in North America, you guys were actually down, albeit they were starting from a lower level. But the year-on-year seems to be getting a lot worse there. What do you think is keeping your book from showing a worse year-on-year?

I don't have any--I can't really tell you what's going on at Ford. I mean, it's--I just really can't comment on it.

Okay. And last question. On the severity numbers, you were at about--over $9,700 this quarter versus $9,200 last year, and I think in the third, it was about $9,000. What is driving up that higher severity?

Well, it's usually mix, in terms of the vehicles, as well as--in our case, if we have basically more trucks in the portfolio, we're going to--and more high valued vehicles, is one of the biggest drivers that we see in terms of our mix. And it also has to do with the--kind of the term, when people actually--we see a little bit more of kind of a trend towards--with the weakness in the economy, an earlier default from a less seasoned portfolio. So that's another issue that will drive that delinquency up.

So would you, then--I guess, going forward, expect it to stay up towards this level, compared to reverting, then?

Within normal seasonal ups and downs, the answer would be yes.

Remember also, that our portfolio now is a--has a shorter average life, right? We're securitizing through our originate to distribute model sooner. And so, you are going to have less seasoned assets on books for shorter periods of time.

Yes, but delinquency is up, whether you look at it on a managed or a serviced basis. So that is something that we are dealing with.

Okay. Thank you.

Your next question comes from the line of Ryan O'Connell with Citigroup. Please proceed.

Thank you very much. I just wondered if you could talk a little bit more about the writedowns you've taken on your held for sale portfolio. As of the end of the third quarter, you had about $3 billion in subprime, and about $8 billion in prime non-conforming. Now, you don't have to be guided by this, but certainly, the ABX index during the quarter declined a lot--roughly 35%.

Could you talk some more about the actual dollar amount of writedowns you took on those kind of mortgages?

Thanks.

Well, first, there's a significant items chart on ResCap on page 28 of the slides. And I think that gives you some of the detail, Ryan, you're looking for. You'll find HFS value adjustments for the last several quarters, and you can see that there.

Right, I saw that. That's about $90 million. But again, you had a large amount--if I do the math right, that's only like, about, a 2% writedown.

Right. I'm sorry--I'm not following your question exactly here.

Sure. The value, at least as indicated by various indices for subprime mortgages, went down dramatically during Q4. My understanding, too, is that the market for prime non-conforming product was very difficult in Q4.

You transferred about $5 billion in mortgages from held for sale to held for investment. So my question is, what was the scale of the writedowns you took? I'm wondering if the $90 million was just a net figure? Or is that it?

$90 million is a net figure. It does include international in there, as well. There are mix issues that drive that number as well, Ryan. And I'd leave it at that.

Thank you.

Your next question comes from the line of Samuel Crawford with Stone Harbor. Please proceed.

Thanks very much. Are there any circumstances on securitized transactions, where you all are services, where you all are obliged to withhold servicing advances and proceed to a bulk sale of assets?

To our knowledge, there are not.

And during the quarter, were there any withdrawals of servicing, other than by Morgan Stanley?

Not as far as I know--no.

Okay. The last question really is--it struck me that your investment proceeds in the insurance company this quarter were anomalous. The shift year to year was extremely dramatic, and they were quite low--anomalous relative to other insurance company portfolios. What's going on there?

Well, you know, we obviously booked a huge gain as we moved from a high percentage, 50%+ in the equity space, as I recall--

Thirty percent.

Thirty? A year ago to now, 8% or 9%, and the balance in fixed income. You're naturally going to have--but besides having grabbed that gain, on a one-time harvest, within a $7.2 billion investment portfolio, you're naturally going to have--with a larger fixed asset--excuse me, fixed income portfolio, you're naturally going to have far less gains.

I would think that would be an expected, ordinary course event now. So we're just taking a much more conservative book.

All right. And last thing, something that I always struggle with quite a bit.

In the ResCap held for investment portfolio, is it possible to kind of help us by cutting through the various elements of partial disclosure, and simply saying, we at this point have written down the HFI portfolio by X%? What you see on balance sheet has been written down by X%?

Well, you know, Sam, I can understand why you'd ask the question. No, I can't give you a weighted average mark, for example, in that portfolio. But anything that was moved to HFI was obviously done at low [com]. Those assets are now heavily, heavily marked in most cases--in fact, in all cases.

So I would leave it at that, Sam.

Thank you very much.

Your next question comes from the line of John Guanera with Banc of America Securities. Please proceed.

Yes, good morning, everybody. Could you guys give us a little bit of sense as to what's going on with the GMAC Bank strategy? Can you talk a little bit about, maybe, deposit trends that you might have seen there, or total asset size? Give us a sense of what you guys are doing with that?

I can give you a little bit on that, John. GMAC Bank, as I mentioned, stands at about $29 billion in total assets. There's about $13 billion in deposits in that--in deposits, which is obviously one of our optimized sources of cheap funding. We expect to grow that bank, and that deposit base. It's got about $11 billion of FHLB funding.

I think the broader message is, it's a regulated entity, and we work with the regulators as to what's an allowed increase year-on-year. But we believe that the capacity they're given us to grow is--will do, with what we need, and our existing requirements.

So we'll continue to originate assets from both auto and ResCap in that unit, and we'll hope to make it a bigger part of our strategy going forward.

Has there been a shift in that strategy? I'm looking at Moody's release that just came out, and they seem to imply that there's been a shift in your bank-level strategy.

No. There's no shift in our strategy.

So the decline in deposits is just a--on quarter-to-quarter basis, it's just coincidental? Or--

I would have thought coincidental.

Or should we read anything into it?

No, absolutely not. This is a key part of our strategy going forward. If anything, it's only grown in relevance.

OK. And then, finally, if I could, just--can you guys talk a little bit about what some of the changes in the broader environment--thinking about potential changes to conforming loan limits, acquisitions that have taken place in the space. Has that changed any sort of strategy, with respect to ResCap?

John, on one level, obviously, we're not going to comment on M&A transactions in the space, or that we might be going through. Obviously, our strategy continues to adapt for ResCap. We're looking at opportunities. We actually have engaged advisors for parts of that business, to optimize the asset base there.

I would say that obviously, it's a much more complex funding environment than it was a year ago. Internationally, very tough to get off securitizations, obviously, in anywhere near the same size and scale as we once did.

But our intent with ResCap is to be flexible, is to originate assets that only those which we can sell, which I mentioned that before. And I can't imagine anyone has a different set of strategies, given the wholesale funding environment that we're in.

Jim Jones, would you (inaudible)?

I think that the--we'll see exactly what the legislation is that comes out, and exactly where the limits go, and what the rules are that are around that. But certainly, anything that increases liquidity in the space, as we become one of the surviving providers, can only be helpful for us.

Okay. Thank you.

We will take one more question from the investors, and after that, we would like to open the line up to the press. Latasha, would you please remind the press how to queue for questions?

Sure. If you'd like to ask a question, please press *1 on your touchtone telephone.

And your next question comes from the line of Kabir Caprihan with JPMorgan. Please proceed.

Hey, guys. Just a quick question on the cash burn that you had at ResCap. I think you said it was because of what happened in the U.K. Is there any sense that--will we ever get the cash back? I mean, what--would you anticipate that to improve?

Yes, Kabir, let me pass it to Sam Ramsey, who will talk to you about ResCap cash.

I'd refer you to page 18 of the presentation, and you can look specifically at ResCap [ex bank]. And a portion of the funding was obviously used to retire debt, and then the comment was, and to support the assets in the international operation.

And as we liquidate assets, yes, you would expect to see that come back.

I would mention that, with regard to the international assets, we have managed to do securitization in the Netherlands, a securitization in Germany, whole loan transactions in U.K. And so while those exits are neither as robust as we would like, nor as available as we would like, we still have managed to find exits for part of the assets that we've generated there.

Okay, and just one more question. I guess there's a question, going back to what Satish asked.

Is there any way you can give us a break up of your allowance of reserves that you have right now in your HFI portfolio for what's not on balance sheet, securitized? And what's remaining on your portfolio?

Kabir, let me just repeat, I--we're not going to give any more clarity at that time, and what I'll tell you is, again, it's a $2.8 billion allowance. It's split roughly half-and-half between auto and ResCap, so $1.4 billion covering the entire ResCap book. We think it's more than enough.

Obviously, some of that does attach to the HFI book, and a material percentage of it. I think that's all I'll disclose at this time.

Okay, and last question, I guess. On the remaining $17 billion, do you think you can--are you trying to get this quarter down as well? And do you anticipate the same kind of gain if that's done? I'm talking about the deconsolidation effect.

We will continue to evaluate deconsolidation against what the other opportunities are, in terms of managing the balance sheet. Clearly, it's something that we've taken advantage of, and we will--we'll pay close attention to that. But we're not making a commitment to it at this point.

Okay. Thank you.

And your first press question comes from the line of Mike Meyers with the Minneapolis Star Tribune. Please proceed.

Hi. I've got a couple of questions. One is, you're dealing with a moving target on financials, obviously, and one thing we care about here in Minneapolis is, are the layoffs over? Can you say that?

Mike, we're watching that business in a dynamic funding environment externally. So I would never go so far as to say they're over. Obviously, the largest number is over. I'll pass this question to Jim Jones for any further insights he might have.

I--we continue to have a substantive employment base in Minneapolis, and we're going to respond to market conditions. And I can't--much like Rob still (inaudible), I can't commit that there will never be another layoff, in addition to which--why, we sometimes reassign jobs from one area to another, emphasizing different lines of business.

Certainly, we've been very open with regard to our associate base, in terms of discussing this. And we all understand that the best benefit to us, in terms of both job security and career opportunities, is to make the business successful.

One note, Mike. The ResCap platform, which we've bragged a little bit about here today--while we're only originating basically prime conforming at this point, it's capable of doing much more than that, and we've kept that healthy and alive, in hope that we'll get a better marketplace for selling assets as part of our originate to distribute model.

So we're doing our best to hold that business without pegging it down much further. But again, the capital markets will drive our behavior in this.

Given--much to my amazement--Countrywide found a buyer, how tough is it to negotiate for either pieces or all of the businesses to be sold? You're obviously looking to sell something.

Given that Countrywide, with all its problems, found a buyer, are you open to a sale of the entire company? Or are you just looking at a specific line or two? Can you give us a little more information about what you're looking to sell?

Sure, Mike, it's a fair question. I'm not going to, obviously, comment on Countrywide, but I will say--and I mentioned this during my presentation. We have hired external advisors to evaluate opportunities to max--to optimize that balance sheet, and we are looking at all options for that business.

Having said that, we still believe ResCap is an integral part of our overall strategy at GMAC, so it could be a component of it. It could be multiple components. And I'll leave it to that.

Okay. Thank you.

Your next question comes from the line of David Mildenberg with Bloomberg. Please proceed.

Good morning. I was wondering how resilient your support is for ResCap, given their inability to borrow funds at an investment grade.

Yes. I don't think the borrowing at investment grade is the critical issue. I think the issue is, we--and I mentioned before, we are committed to ResCap, we are committed to supporting that. We've invested billions of dollars in 2007 into that business, in multiple forms, whether it be cash or debt buyback. And so, I think we have pretty resilient support, and we've demonstrated that.

Having said that, their funding is using things like GMAC Bank, which is not necessarily rating sensitive. So I'm not sure the current rating for ResCap's debt, and particularly the latest announcement, has any bearing on our ongoing effort.

Your comments on the return to profitability--is that second half? Or can we say, second quarter?

I said that the--I said we would return GMAC--

Yes, sir.

--to total profitability for the full year of 2007--2008, excuse me. And I think that's as far as detail we'd offer, Dave.

And could you talk about activity you've seen since January 22nd? Have you--is it--what are you seeing?

Activity we've seen, January 22nd--can you be more specific?

In the ResCap, since the emergency rate cut by the Fed. Mr. Lewis at B of A says there's a refi boom going on. Are you seeing that?

We are seeing some refi boom. I'll let Jim Jones address it.

We're certainly seeing a growth in terms of applications at this point. And I don't know--we tend to be more affected by what long--what's happening with long-term rates than short-term rates. And the long-term rates haven't moved as much as the short-term rates.

But that being said, there's still a fair amount of interest. I think it will be less material than the refinance activity that took place 2004, 2003, 2005 sort of timeframe, in particular from the standpoint that appraised valuations are not going to support cash-out transactions in the same fashion that they did then. Any refinances that are taking place are largely to take advantage of better financing terms.

Thank you.

And your next question comes from the line of an investor, [Carlo Figg] with Hartford Investment. Please proceed.

Hi, guys. Thank you very much for taking the call.

As I look at the slide in which you describe the cash flows, that would be slide 18--the line that says, open market debt repurchases and tender, adds up to $1.4 billion for GMAC in total. And you mentioned that you had bought back $1.6 billion in ResCap debt, at $0.67 on the dollar.

That doesn't add up, to me, to $1.4 billion. What's the difference?

Yes, I think, [Carlos], what missing there is, we actually bought a piece of debt at the top of the house and we have not contributed it to ResCap. So the total buybacks, at face, were about $1.6 billion--$1.4 billion, we just noted here as just the amount that we're engaged in, the current transactions we were--

Okay, so today, you have ResCap debt at the GMAC level that hasn't yet been contributed to ResCap?

I'm sorry--repeat your last statement there, Carlos?

So there's a portion of the ResCap debt that you bought during the quarter that has not yet been contributed as capital to ResCap?

That's right. And we also purchased GMAC debt, so it wasn't simply GMAC buybacks, and that's some of the distinction here.

Okay. And going back to your comments on liquidity. As a servicing provider, between the moment that a loan defaults, and the moment that the foreclosure process is finalized, you're fronting the interest on that loan to the trust. Is that correct? And do you have an estimate of how big a drain that is on your current liquidity?

I understand that is correct. I don't have an estimate. Jim, can you offer any clarity on that?

Servicing and (inaudible)--servicing advances? That is true, and I will give you the balance in the K.

We do have facilities that take service or advances, so the day that the loan is due, and we need to pay up to the trust, we do so, and then we take those receivables and put them in a facility, and get funding for it at the ResCap level. And then, when those borrowers pay us off, we move that money through the system.

So from a ResCap perspective, the cash burn is fairly modest, as we have bank funding for most of that activity.

And you mentioned bank funding? So that's something that's being funded at the GMAC Bank level?

No, these would be outside bank facilities.

Oh, okay. Okay.

These monies are at the top of the waterfall on resolution, so they're well perceived from a security standpoint.

Right, but you haven't, in the past, mentioned how much is outstanding in that, and I just wonder if that is something that you could share, particularly as the foreclosure process lengthens on us.

Yes. I don't think we tend to discuss it any further. Jim--

Okay.

Yes, I understand the foreclosure process has lengthened, but at the same point in time, our total balances have diminished.

Okay. All right--thank you very much.

Thank you.

This concludes the question and answer session, and now I would like to turn the call over to Susan Shank for any closing remarks.

Thank you very much, Latasha. I'd like to thank everybody for listening to our call today. The materials, of course, are available both on the GMAC and the ResCap investor relations website, and you can find details there of any upcoming calls.

Thanks again for your participation.

This concludes the presentation. You may all now disconnect. Good day.