Ally Financial Inc (ALLY) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the quarter four 2008 GMAC earnings call. My name is Shane and I'll be your operator for today. At this time participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to the host for today's call, Ms. Susan Shank, Director of Investor Relations. Please proceed, ma'am.

Thank you, Shane. Good morning, everyone. I'm Susan Shank. I run Investor Relations for GMAC and ResCap. I want to thank you for joining us as we go over GMAC and ResCap's fourth quarter 2008 results. Before we get started, I do want to point your attention to the forward-looking statements and risk factors on the second page of the chart set. That content will govern everything that we talk about in this call today.

I also want to let you know that to comply with Regulation G from the SEC we have included some reconciling charts in the back of the deck to tie certain managerial presentation to our GAAP numbers. We are broadcasting this call live via the Internet. The financial press is also participating in the call today. This morning Rob Hull, our CFO, is going to take us through the results of the quarter. The presentation portion of the call will last about half an hour. Immediately after that we will have roughly half an hour of Q&A.

I would also like to mention we have got a few other people available with us today if we need them to answer questions. On the phone and available for questions are Bill Muir, President of GMAC, Jim Young, the Chief Financial Officer of ResCap, David DeBrunner, the Controller of GMAC, and Bill Solomon, GMAC General Counsel. With that I would like to turn the call over to Rob.

Thanks, Susan. And thanks for joining us this morning. There is a lot we want to cover today so I'll get right to it. First, I don't need to tell you 2008 was a challenging year. Not only for GMAC but for the finance industry. The combination of global economic slowdown and disrupted capital markets put pressure on our operations and our results. But make no mistake, despite all these pressures we are still here.

Second, a troubling aspect of the environment in 2008 was that it hurt our ability to support the most critical part of our business, our customers - dealers, car buyers and home buyers. We know that GMAC's value depends on our customers. We tried to fairly balance the needs of our customers while coping with limited funding. We have had to make some painful tradeoffs such as halting most US auto leasing activity on all retail auto loans to borrowers with lower FICO scores. As you'll hear today, with the positive events of the fourth quarter we are reversing many of these actions. On results, I have to say I have waited patiently all year to report not only a quarterly profit but to provide clarity on GMAC and our strategy. I now can do it.

In 2008, GMAC completely reshaped all aspects of the Company. We have listed some of the events on the fourth slide of your deck. It was a remarkable year. I won't walk through each item, but I want to highlight just a couple of things. First , we restructured our North American and international auto ops to reflect falling auto sales and our funding challenges. ResCap was also restructured to bring the organization into line with the realities of the mortgage market. We sold a number of non-core operations, including GMAC Home Services and our GMAC Reinsurance Unit. We tightened underwriting across the board and keyed our originations to available funding. As funding become more and more scarce, we limited some products. We curtailed leasing and we restricted US auto originations. We completed a series of massive refinancing transactions and bolstered GMAC's capital position. And of course, as you know, GMAC received Fed approval to convert to a bank holding company.

This last item is critical. On December 24th the Fed approved GMAC's bank holding company application. At the same time, GMAC Bank converted from an ILC to a state non-member bank. Soon after, GMAC received a $5 billion investment from the Treasury's TARP program plus a $750 million capital injection from its shareholders. I want to note here that once GMAC received funding from the TARP, we immediately expanded our consumer auto lending, lowering our minimum FICO in the US to 621. To be clear, GMAC is is not abandoning its underwriting standards and making speculative loans. We are simply returning to some of the markets we left behind last year. It will take time to win back the customers we were forced to disappoint earlier, but this is a crucial first step. I would like to also note that the $5 billion TARP investment is not fully used or applied.

So far we put funds toward consumer auto lending and toward cash required in our bond exchange, the largest of its kind ever completed. But to return to what we have done to support our bank holding company transformation, we raised additional equity in early January by completing a rights offering for $1.25 billion of common equity equivalents and repurchasing debt for an estimated gain of another $600 million.

The events of the fourth quarter, including the new capital base, have reshaped GMAC into a unique bank holding company and a pivotal player in the US auto industry. Of course, the cold reality of the funding and credit markets will require even more focus and staying power in 2009. I'll cover these challenges later.

For now, let's focus on the specifics of our Q4 performance. You can turn there to Slide five. The consolidated net income of $7.5 billion was driven primarily by a sizeable gain from the bond exchange and debt retirement that took place in December. The gain offset significant losses from Global Finance and ResCap. Global auto lost $1.3 billion for the quarter due to falling used vehicle prices, weaker credit performance and mark-to-market related losses. Insurance earned $95 million in the quarter, driven by the sale of the reinsurance business. ResCap lost $1.7 billion excluding gains from debt retirement as the continuing distress in global real estate markets drove higher provisions and reserves and lower net interest margin. The bond exchange and subsequent debt retirement created a gain of $11.4 billion after tax.

At the bottom of the page you'll see that GMAC ended the quarter with consolidated cash of $15.2 billion, up roughly $1.7 billion from the end of the third quarter. ResCap held $7 billion of that amount. ResCap cash includes GMAC Bank cash of $5.5 billion. For your reference, Slide six simply covers the breakout of net income by segment. Let's have a quicker look and deeper look at auto finance.

Turn to Slide seven, please. The first graph on the slide shows Global Auto's net income for the last eight quarters. Q4 of '08 resulted in a net loss of $1.3 billion, as I mentioned. And we'll cover that in more detail in a moment. For now, I just want to note that lower used car prices were a large, if not the primary, driver of the loss. Moving to the right you can see the consumer auto originations all but collapsed in the fourth quarter. Industry and GM sales were extremely weak in Q4.

In addition, the tight funding situation forced us to severely curtail origination. In October we restricted new loans in the US to consumers with credit scores above 700. And historically, 700 has represented about 53% of our total book. We did almost no leasing whatsoever in the US or Canada in the fourth quarter. International originations were lower as well. As you may remember, during Q4 we pulled out of several countries in Europe and in Asia. Once our funding situation improved with $5 billion in TARP funding from the US Treasury we immediately ramped up our US retail lending. The next day we revised our underwriting to include customers with credit scores of 621 and above. GM announced a promotional APR deal the very same day and originations have begun to tick up. But they are certain nowhere near our historical run rate. The graph in the lower left section of the slide shows our consumer servicing book which came in at $101 billion. This drop was largely due to lower originations in recent quarters which weren't enough to offset loan sales and portfolio runoff.

The last graph on this page illustrates the trends and remarketing proceeds from US retail lease terms. These results tend to track used vehicle prices which, as I mentioned, softened. During the third quarter it looked as though prices might begin to stabilize. However, they took another downturn in the fourth quarter, driven particularly by cars in the United States.

On Slide eight you'll find the income statement for auto. Net financing revenue or margin was down significantly year-over-year. We had lower margin due to smaller portfolio and higher funding costs, higher depreciation costs per vehicle and a further impairment of our lease book. I'll talk about that. We impaired our US lease book by $384 million. This impairment only included cars, as compared to impairments in the prior two quarters which, as you may recall, were for SUVs and trucks. Although SUV and truck prices stabilized in Q4 and even increased some in December, car prices have shown steep declines. You can find more information on these trends on Slide 34 in the supplemental charts.

The lower used vehicle prices led not only to the lease impairment but to higher depreciation expense. Though the depreciation expense is lower in absolute dollars, it is higher relative to the smaller lease book, mostly due to lower lease originations in 2008. Residual value in our $24 billion North America lease book now stands at roughly $17 billion, and we've impaired about 26% of our vehicle count so far this year, in 2008, that is. The gain on sale line varies with market conditions and how much securitization we do in a given quarter. Although we did far fewer deals in the fourth quarter this year than we did a year ago, we had some positive mark-to-market results on our HFS book. We recognize mark-to-market reductions on residual interest in the investment income line of $114 million, reflecting increased loss assumptions. In addition, yields and other investments decreased. Other income decreased due to unfavorable markets on derivatives, mostly net pay fixed swaps due to decreases in live or and lower interest rates on investments.

Credit trends continue to be a drag on auto's results as we increased our allowance-coverage ratio for both consumer and commercial loans. Let's hit the consumer book first. At the end of the fourth quarter, our consumer coverage rate was 5% in our North American operations, up from 4.3% in the third quarter. And for our international operations it was 1.7%, up from 1.6% in the third quarter. We substantially increased the credit allowance on our commercial book also. In North America we have almost doubled our credit allowance on the commercial book. Our commercial reserves now stand at $182 million, admittedly small compared to $96 million in Q3. Big enough. This represents a coverage ratio of 84 basis points.

For the international book, coverage has been increased from $33 million to $41 million in the fourth quarter. Commercial, as you know, has largely been a loss-free book historically. In all, the revised reserve levels resulted in $510 million of credit provisions in the fourth quarter. Moving to the noninterest expense line, you can again see the impact of used vehicle prices as remarketing expenses and losses on vehicle disposals show through.

Let's look deeper into asset quality on Slide nine. We've got several trends converging to drive up losses as a percent of assets. Globally, our annualized credit losses rose to 2.1% , the highest level we have seen over the past two years. Loss severity has increased, putting more pressure on the loss rate. Average gross severity on our North American managed book is about $12,100 per unit, meaning we are now losing roughly that much on each troubled credit. Economic weakness, especially higher unemployment, has caused frequency of loss to increase in North America and Europe. And auto originations in 2008 in the portfolio was aging and pushing up a loss percentage. In general, fresh or new auto loans have low loss levels in the first year after origination, as you would imagine, but losses rise afterward. Even if nothing else influences losses, loss percentages increase as a portfolio ages or seasons.

On Slide 10, fourth quarter delinquencies show a very similar trend. Higher delinquencies directly correlate with unemployment, which while at 7% nationally is peaking 10% in some US states. On top of that, as the portfolio seasons, delinquencies tend to tick up. At this point, absent improvements in the economy, our used vehicle prices expect delinquencies and losses to continue on their current trajectory or path.

Okay, let's hit insurance on Slide 11. Net income for the fourth quarter was $95 million compared to $68 million in the fourth quarter of 2007. The primary drivers were a gain on the sale of GMAC RE, which I mentioned before, offset by unfavorable investment results, lower premium levels, an impairment of goodwill related to our personal lines business. Core earnings shown to the right exclude the one-time items and gives you a better picture of the true operating performance of the insurance business. Core earnings excludes capital gains and losses, the gain on sale of businesses and goodwill impairment and is an industry standard.

Core earnings for the fourth quarter were relatively flat year-over-year. The year-over-year impairment -- improvement in a combined ratio of 92.9 is driven primarily by the elimination of our GMAC RE business which had a combined ratio higher than the average. On the premiums written graph, results are down significantly compared to a year ago in third quarter levels. Q4 '08 written premium was reduced when we see that a block of premium was related to the sale of GMAC RE. If we exclude this one-time GMAC RE impact, Q4 written premium would have been $734 million.

Volumes for our extended service contracts were down due to a combination of lower vehicle sales industry-wide and tighter credit standards, which make it harder for car buyers to finance these contracts as we often roll the cost of the contracts into the overall financing package. Keep in mind that due to the way these contracts earn out, the revenue impact from the lower volumes will have a three-year to five-year \lag. US personal lines business also saw lower volumes.

On Slide 12 we lay out a condensed income statement for insurance which gives you additional color about the business. Earned premiums have fallen slightly, reflecting the sale of GMAC RE, an unfavorable mix for the extended service product and lower levels of revenue from the US personal lines business. Investment income was lower due to realized losses and impairments driven by the volatility in financial markets. Other income of $132 million includes a one-time gain from the sale of operations of $98 million pretax. The last thing I want to point out on this page is that we impaired goodwill at our US personal lines business for a pretax charge of $42 million. If you strip out the one-time item, the insurance operation still remains a solid performer for us.

That brings us to ResCap on Slide 13. For the last two years we worked hard to reduce ResCap's balance sheet and lower operating expense. Sadly, market conditions are impeding some progress here. Depressed market conditions still make it tough to shed weaker assets and we continue to take marks on our book due to weak real estate prices and poor consumer credit trends. Despite the challenges, ResCap met all the its covenants in the fourth quarter due largely to continued support from GMAC.

Details for the fourth quarter can be found on Slide 14. The upper left-hand corner shows ResCap's fourth quarter loss including gains from debt retirement of $981 million. If you back out the gain from retiring debt contributed by GMAC, ResCap shows a loss of $1.7 billion. Moving to the right you can see that, despite the challenges, we have made progress reducing ResCap's balance sheet. At the end of the fourth quarter ResCap's balance sheet stood at $58 billion, down almost 60% from its peak at the end of 2006 and $9 billion lower than the prior quarter. Reduction stems from asset sales, low origination levels, write-downs, impairments and deconsolidations over time.

In the bottom left-hand corner, the primary servicing portfolio has declined to $394 billion. Originations are much lower than asset run-off and we sold several servicing portfolios over the past year. The last graph illustrates what I have been saying about originations. ResCap loan production fell to only $9 billion in Q4, this appears almost an historical low, reflecting domestic market conditions, tighter underwriting standards and elimination of all international production except for Canadian insured loans.

All these trends, of course, ripple through ResCap's income statement which was provided for you on Slide 15. Net financing revenue showed a loss of $177 million, reflecting a higher level of NPAs, lower originations and lower total asset levels. Servicing fees of $334 million reflect the reduced size of the book, both from asset run-off and the sale of certain servicing assets during '08, as well as a higher level of delinquencies. Servicing asset valuations net of the hedge were a negative $248 million due to interest rate movements, increased volatility and differences between performance of the MSR and the attendant hedge.

Moving to the gain-loss on sale line, remember the Q4 2007 results are distorted due to a significant one-time gain from a deconsolidation of about $21 billion of on balance sheet securitizations we did. On the next line you'll see $757 million pretax of debt extinguishment gain. GMAC contributed ResCap bonds purchased in the recent exchange with the face value of $976 million to ResCap and ResCap retired them. The other expense line include losses on REO, lower earnings on investment balances and losses on investment securities, among other things. Provision for credit losses went down only slightly year-over-year, despite the significant drop in asset levels.

We increased the allowance as in auto for loan losses for the HFI lending receivable books as a result of increased severity and frequency largely due to our IBG and BCG units. Our consolidated coverage ratio was 6.26% without the impact of FAS 159 assets, and 5.87% including them. I would like to spend a moment on the noninterest expense line before we move on. The team at ResCap has made a lot of progress in reducing structural cost, but we know we have aways to go.

Lastly, if you look at the notable items on the bottom of the page, we already covered the first two as we walked through the income statement, but the last item, foreign exchange impacts, doesn't really jump out at you from the face of the income statement because it hits several lines. In total, FX had a pretax impact on ResCap of $122 million.

With that let's roll on to Slide 16. Deterioration in the credit quality of the mortgage book, like the auto book, is driven by following originations and portfolio seasoning as well as more traditional credit factors. Increased frequency and severity are simply exacerbating the problem. Excluding FAS 159 loan impacts, nonaccrual loans as a percentage of HFI loans increased to 16.9% due to the weak consumer credit and falling prices. Net chargeoff as a percentage of HFI loans increased to 0.92% excluding FAS 159 loans. Nonaccrual loans as a percentage of lending receivables fell to 20% because we wrote off certain loans which simultaneously drove a pop in net chargeoffs equal to 4%.

You'll find ResCap's cash and equity stats on the next slide. Total equity at year-end for ResCap was $2.2 billion. In Q4 GMAC contributed ResCap bonds, as I mentioned, with a face value of $976 million and a market value of just over $220 million. In addition, GMAC forgave $690 million of other debt. As a result, ResCap had consolidated tangible net worth, excluding GMAC Bank equity, of $350 million, exceeding the minimum requirement of $250 million. ResCap was also above its cash covenants at year end. The consolidated ResCap Cash balance of $7 billion included $5.5 billion at GMAC Bank, as I mentioned earlier.

While on GMAC Bank, we just completed the transaction that shifts all ownership of GMAC Bank to GMAC. The details of that are on Slide 18 this morning and an 8K was released this morning. At the risk of getting too technical, GMAC Bank's parent company called IB Finance Holding, was jointly owned by GMAC and ResCap. ResCap held nonvoting shares and GMAC held voting shares in the entity. GMAC also held $806 million of preferred interest in ResCap that were convertible into preferred for IB finance.

As part of this deal, we converted the preferred. In addition, GMAC forgave $830 million of ResCap debt in exchange for all of ResCap's nonvoting interest. The end result is that GMAC now cleanly owns all the economic interest in GMAC Bank. A few things to note. ResCap and GMAC Bank will continue their business relationships for sourcing and servicing mortgage loans. GMAC Bank will no longer be consolidated in ResCap's GAAP financial statements. And GMAC GAAP reporting at the top of the house will not change. I mentioned the bank's $33 billion of assets at year end. Remember that those were consolidated into ResCap and they are separate statements.

Slide 19 provides additional details including deposit levels. Over the past several quarters we talked about our intentions to prudently grow GMAC Bank into an even more significant part of our operation. GMAC's BHC status makes this plan that much more feasible over the long run. We continue to grow the deposit base at the bank with stepped-up marketing and competitive rates. Deposits increased by $1.7 billion over the quarter to $19.3 billion. During the fourth quarter, while the balance sheet remained largely flat we did shift the mix a bit. Auto assets increased from $9.4 billion at the end of third quarter to $10.9 billion at the end of the fourth quarter, while mortgage assets shrunk from $23.5 billion at Q3 to $22 billion at Q4.

Keep in mind there are limits to how much auto assets we can put into GMAC Bank due to Reg 23A restrictions on new GM wholesale funding and consumer funding for customers of GMAC finance dealerships.

Slide 20 gives you a little color and explanation on this. Basically, so long as GM is considered an affiliate of GMAC Bank, the bank can't fund dealer inventory finance on new GM vehicles there without a special exemption. To complicate things further, the bank can't buy retail loans on a GM vehicle if GMAC provided the dealer floor plan financing for that vehicle. And GMAC finances more than 75% of GM's dealer population. There are also restrictions on the bank's ability to do leasing. So until GM is no longer an affiliate, the growth of GMAC Bank's auto portfolio will be limited.

Before we move on, I need to give you some color on the other segment, which posted a loss of about $1 billion, excluding the gain on the bond exchange. There are two key drivers. First, substantially impaired some equity investments there. And second, we had negative results from inter-company lending and carry and eliminations from consolidations in the other unit. Okay.

Slide 21 walks us through GMAC's consolidated cash balance from Q3 levels to year end. GMAC ended the quarter, as I mentioned, with $15 billion on a consolidated basis, up almost $2 billion from the end of the third quarter. This was due largely to the $5 billion TARP investment plus sharply reduced asset levels offset by significant debt maturities in the cash portion of the bond exchange. Keep in mind that of the $8.2 billion cash outside ResCap and outside GMAC Bank, a subset of that sits in foreign subs and in the insurance company, and is therefore not quickly accessible to our domestic treasury operations. ResCap cash was nearly unchanged compared to the end of the third quarter as higher cash levels within GMAC Bank offset debt pay-downs elsewhere at ResCap. The $500 million increase in GMAC Bank's cash stem from higher levels of deposits.

Slide 22 is another roll forward, but this time for capital. At the end of the third quarter total GMAC equity was $9 billion. The gain from the bond exchange, as I mentioned earlier, added $11.4 billion and preferred issued as part of the bond exchange created another $230 million of capital. The TARP investment increased preferred capital by $5 billion while GM and Cerberus contributed $750 million of common equity. All of this was offset by our operating loss of roughly $4 billion in the fourth quarter and a reduction of $800 million of OCI, bringing total equity to $22 billion at the end of the fourth quarter.

It is interesting to note that we closed two other capital generate transactions in January. A rights offering for $1.25 billion of fresh common and a debt purchase that generated another gain of about $600 million. If you add these two transactions before operating performance in the first quarter they bring GMAC's book equity to nearly $24 million, and you can see I've circled that on the bottom right corner of page 22.

I suspect you'll want to know how to reconcile these numbers with the minimum red capital for Fed initially requested for GMAC . Let me talk about that for just a minute. The initial target was based on certain assumptions about the size and structure of GMAC's balance sheet and likely operating performance. Over the course of the application process, as we refined our projections for assets and performance, the red capital target was refined along with it. The regulators developed a target based on classic risk-based capital ratios, taking into account revised asset projections, future P&L performance and the transactions that were scheduled to close shortly after the end of the year which I just mentioned.

We've added a new slide, 23, to highlight the change in our capitalization over the past year. If you look at a simple equity to assets ratio, it got as low as 4% at the end of the third quarter, but has now jumped to almost 12% at year end. Tangible equity to tangible assets shows the same trend, rising from 3.7% at the end of the third quarter to almost 11% now.

We have also provided GMAC Bank's covenant leverage rate-- GMAC's bank covenant leverage ratio on the same page. Clearly, we are well above the 11 to 1 limit. More important now is the Federal Reserve's focus on GMAC's total risk-based capital. If we look at the pro forma capital position including the capital raised in January, we estimate GMAC's total risk-based capital ratio is in the neighborhood of about 12%. Remember that the well capitalized standard is only 10%. The total risk- based capital ratio replaces the equity to assets ratios which I just mentioned that were required under the ILC waiver we obtained earlier this year. GMAC plans to reduce both its asset base and create additional capital to meet the Fed's ongoing expectations.

The next slide is provided for your info only. It lays out GMAC's consolidated maturity schedule including both secured and unsecured debt. The only thing I point out here is GMAC still faces significant maturities in 2009. How will GMAC meet those maturities you might ask? There's an overview of our funding strategy on Slide 25. The transformation to a BHC allows GMAC to make some changes to our funding strategy but our overall funding will not change much from 2008. Within GMAC Bank, deposits and FHLB funding will be the key funding sources. Outside the bank, funding will likely be a bit more of a challenge.

We will continue to concentrate primarily on secured committed funding sources such as the secured revolver we put in place last summer. In addition, we are pursuing Government sponsored funding efforts such as the TALF and TLGP for which GMAC is fortunately eligible. We're working to expand the funding possibilities in the deposit taking entities we hold outside the US For example, we are considering funding Canadian auto assets through our ResMor trust unit. Naturally, when the public unsecured and ABS markets reopen we will take advantage of them, too, but we're not counting on it for now. Originations will be deliberately limited, as I've mention the multiple times, to fit within our available funding sources and footprint as was the case in the 2008, particularly in the fourth quarter.

Before we leave this page I want to flag a recent development at one of our funding structures. We previously disclosed we were evaluating options for our NCAT asset backed CP facility which had reached a wind-down event when some lease and wholesale assets in the trust were downgraded. In the end we decided to let the structure go into wind down. This means that NCAT and the related facility can no longer buy new assets. As the existing assets mature the facility will contract. This doesn't mean that GMAC has to fund the assets currently in the trust. NCAT can continue to sell CP to fund the assets or even draw on backup credit lines we have. We do not plan to fund any new assets through NCAT this year so the wind down does not have any material impact on our funding plans as of yet.

We laid out some of the immediate changes driven by GMAC's new bank holding company status on Slide 26. We're in the process of overhauling our corporate governance and ownership, a big task, renegotiating our agreement with GM and shifting our business model. We also need to develop and implement systems and processes for compliance with bank regulations or regulatory reporting, something GMAC has never had to do other than at GMAC Bank. While none of this is glamorous, it is necessary and we continue to amass the technology and augment our talent base strategically to hit these objectives. For your reference, we have included a table showing the ownership of GMAC voting interest on the bottom of the page which you might find interesting.

The next slide provides some additional details about the composition of our new Board. And last of all, Slide 28. Clearly, 2008 was a tough year at GMAC and financial services, but as I mentioned we made the tough choices, I I believe, and once again, as I like to say, we are still here. We are better positioned as we face 2009 but we have still got a number of hurdles to clear. The funding markets remain stressed. Credit performance is deteriorating and home and auto prices are dropping. We have the challenges that are new that we face as we reshape GMAC to become a bank holding company, such as redefining our relationship with GM, complying with regulatory requirements and diversifying our risk.

So to address these risks we will focus on five core strategies in 2009. You'll hear more about these in the coming quarters. One is to transform GMAC to comply with BHC requirements. Two, strengthen our capital base and liquidity position. Three, enhance the management team and infrastructure. Four, diversify revenue within limits of available funding. And five, reposition GMAC's risk profile to drive higher returns. Executing these five strategies we believe will provide GMAC with the most opportunities to succeed. We have got our work cut out for us, but after 2008 we think we are almost ready for anything.

With that we can

Thank you, Rob. Shane, we are ready to take call from our investors. Would you please remind our callers how to queue up to ask a question.

Sure, thank you. (Operator Instructions) Your first question comes from the line of Douglas Carson from Bank of America.

Good morning, guys. Thanks for taking my question. I had a question regarding the potential for the TLGP bonds. I know timing is uncertain, but can you provide us maybe an update of where you are in the process and maybe confirm with us how much debt would be eligible? I think it could have been around $12 billion. If you can maybe give us some color there if possible.

Sure, Doug. So obviously, the decision on the TLGP is ultimately the FDIC's decision as they sponsor the program.

We have been in close contact with our regulators and we are pursuing, as I said we were. You're generally right about how it is structured, that debt maturing before June 30th does put, if you do the math here, to somewhere between $12 billion or $13 billion but we believe there is actually possibly for more reach beyond that number, maybe as high as $20 billion. Having said that, we are pursuing it and our team is meeting with the FDIC and all I can tell you is that we are doing our best to make it work and we hope it will.

Great, thanks. My second question is regarding NCAT. I see something triggered a wind down in that conduit. I'm wonder how much CP is currently outstanding there? And was that something that was kind of planned or was that a surprise, given industry conditions? I'm just kind of curious about that and concerned about that being a vehicle for funding used for a long time if the bank holding status kind of replaces that liquidity somehow, or is that liquidity that we still would have the benefit of using?

That's a good question, Doug. So the NCTA currently has $8 billion outstanding. As an interesting note, $7 billion of it was a CPOF program from the Federal government. We had not planned to drive this into wind down. That had to do with triggers inside the agreement. As I said, it doesn't put us at a huge crisis for the year by any measure, but it would have been nice if it had stayed in place.

Again, those assets will wind down and we won't be able to buy new assets in the facility. We will have to use other funding vehicles that we have to regenerate it. And again, NCAT has a variety of different types of product and it's from retail to wholesale. But at day's end, we think between our flow agreements with our outside parties, between things like the TLGP, we have plans to work through it.

Okay. Then finally, strategically, regarding ResCap, what actions are you taking with the BHC status to improve profitability there? We are trying to figure out in the market how that helps ResCap. I mean, earnings were pretty weak this quarter. Can you just maybe give us some framework of how the bank holding status could actually help ResCap?

On a bank holding company level, let me answer another part of the question. First of all, I think I said in my comments that ResCap as its volume, much as the auto company, continues to shrink, we have to think about the size of that organization relative to the volume it throws out. It is still Number 7 in the United States in origination which is sort of an interesting fact about it.

BHC has certain attributes that -- and certain funding utilities. We talked about some of them that we will pursue, but at this point we are not going to be any more specific about what we are chasing with ResCap through the Government. Again, there are open discussions going on and we think we have as good a position as anybody to help that business out. The Government has been incredibly generous with us so far and recognized the importance of the US homeowner, and so my guess is we will continue to be successful on that front.

Great. That's it for me. Thanks, guys.

Your next question comes from the line of Kurt Ludke from CRT Capital Group.

Good morning, guys. i was wondering if you could help us quantify the potential funding from some of these other programs, particularly the TALF?

We talked obviously about the TLGP. We are working very closely with Treasury on the TALF. I'm going to actually pass this one to Andre Magaziner (ph) who is on our Treasury Team and let him talk to you a little bit about the state of play on the TALF.

Good morning. The principle alternative to the TLGP or the principal other facility that we're looking at is the TALF. Obviously, from an auto perspective it covers all three of our assets classes - retail, lease and wholesale.

We do have a number of funding alternatives in place and commitments in place with respect to retail loans. And as you know, we are not originating new leases at this point and the book is obviously in wind down. On the wholesale side, clearly we are actively working with the Government and with the different regulators on trying to get the dealer floor plan loan structured in TALF. To this point, some of the details of the facility are still being worked out. We are in active dialogue with rating agencies on their views, and I think it is still too early to tell how that whole thing will play out. I think that's probably where we are at this point.

Okay. Thanks, Andre. So at this point it would be whatever proceeds would be generated from the retail originations?

You mean specifically with respect to TALF?

Yes.

I think -- no, and I think we are certainly looking at TALF actively from a retail perspective. We do have a lot of other committed funding facility for those asset classes. So I don't see TALF as a dependency for us from a retail loan perspective and, obviously, we are actively out there trying to originate. I think the big need from our perspective would be on the wholesale dealer floor plan side, and we are actively working that with the regulators, and that's sort of where the principal effort is being put at this point.

Okay. Is there any way to quantify what that might be?

No, I'm afraid I can't do that at this point.

Okay. Do you have a target -- you did -- you reduced assets by $50 billion in '08 and I'm curious, do you have a target for the year end '09?

No, we don't. We don't have a target either at the ResCap or GMAC level. What I would say is if originations continue at their current pace on the auto side and the mortgage side. you'll see the balance sheet continue to shrink. And while on one level that is challenging for us, we have a business model and profitability model we want to pursue, it also will ultimately help us on our capital ratios with the Federal government as we continue to lower the balance sheet size relative to the numerator. So no, we don't have a planned size of balance sheet and it will be very difficult to predict how healthy these markets can or can't be for the next kind of eleven months.

Then lastly, the growth and deposits at GMAC Bank, I guess they were up, was it $1.7 billion in the fourth quarter?

Plus or minus that's right. All driven by growth in retail. Retail. We had some compression in some categories but you know that if you watch television and watch the media, we have been marketing our retail deposit base for GMAC Bank aggressively, raising what we consider to be fairly strong solid retail deposit base and that's one of our strategies going forward.

Kurt, I think we need to --

Is that a pace that you can continue, about $1.7 billion a quarter?

Kurt, I think we need to let somebody else take a chance. Rob will add into this and we will move into the next question.

Sure, I think you can expect the pace of deposit growth to continue.

Thank you.

Next question is Monica Keany from Morgan Stanley.

Good morning. I was wondering, I don't know if you had mentioned this or not, but why specifically is the NCAT winding down? What was the trigger and is there anything else that potentially is close to trigger points that we should be thinking about.

Two things and then I'm going to pass this to Andre Magaziner (ph) who has been very close to that NCAT facility and dealing with both the rating agencies and banks that back it. First is, as I mentioned, we hadn't planned for it. And second is, and I'm trying to remember the second part of your question. Let me just hand it to Andre about the specific triggers. I know what I was going to say. There are other off balance sheet facilities that have been affected by triggers in the marketplace. I was thinking of our Swift 8 and Swift 10 facilities. Andre, go ahead.

Obviously, NCAT was put in place many years ago and, as somebody pointed out, it has been an active part of our funding activities. Back in the day when we set it up, AAA was a rating which one could take for granted. Clearly, one can't do that these days and obviously reflecting those sort of changes with respect to how rating agencies are viewing consumer credit, it is pretty difficult to continue to maintain AAA ratings or get new AAA ratings on consumer and commercial credit.

So what's obviously happened is over the past few months is the rating agencies have re-run their models and have obviously taken down some of the securities, the AAA rated securities which sit in NCAT as the assets owned by the ABCP program. And as those AAA ratings are degraded, NCAT's eligible assets effectively started to cause some triggers in the facility, and once your proportion of AAA rated assets in the facility goes down to below a certain percentage, the whole facility goes into wind down.

I'm sorry, I'm just not as familiar with this kind of structure but is it just merely a degradation in the collateral?

It's a degradation, certainly, in the rating agency's view of the collateral. They are obviously independent and entitled to their opinions and so they do what they feel they need to do and the ratings have come down. And the fact is once the ratings come down, the facility goes into wind down.

Monica, we can go into this in more detail later on if you like.

Okay, and so the followup was are there other facilities we should be thinking about that are close to trigger points in your opinion.

I mentioned two of them, Monica. While we don't have time to go into them today, there are two off balance sheet wholesale facilities called Swift 8 and Swift 10 that have outstanding -- that are outstanding and that are on the cusp of hitting trigger points but they are not certain and there are ways to fix that as we grow assets from originations on the auto side. We can talk more about that if you want to connect with our IR team afterwards.

Thank you.

Next caller?

Your next question comes from the line of Ben Wilson from Barclays Capital.

Go ahead.

Great. I was hoping for a breakout of the $976 million in debt contribution at ResCap.

That's one I would ask you to take up with us afterwards. Again, the contribution obviously came from bonds we had inventoried as part of the $22 billion tendered in the bond acts in December. I'm not going to go through the individual series that were tendered there. Do you have any other questions?

What is the timing on the 10-K?

10-K will be out at the end of the month.

Okay. Can you go into any detail -- this is the last question -- with regard to marks on the portfolio at ResCap? Where are you marking those assets now and a price, a dollar price is.

Let me say, I don't want to get overly specific on the marks on the HSF book there or effectively even the implied marks on the HFI book, but Jim Young who is the CFO for ResCap maybe he can give you a little color.

You'll see more on the mark detail when the 10-K comes out. But generally speaking the book is obviously still under stress, particularly internationally. The bulk of our HFS book is now internationally based so you'll see some write downs in there but not as dramatic as they have been in the past . And details will come out with

Thank you very much.

Next question?

The next question comes from the line of Adam Skylar (ph) from Monarch.

On Slide 24, can you provide a breakout between the unsecured and secured term securities in 2009 and just provide a little bit of detail on when some of the large secured facilities are scheduled to roll and how those discussions have been going with your banks.

I'll give you a little bit of color, Adam. On the $30.5 billion of post-exchange, and remember this is just the GMAC level, not the ResCap level. There is a slide on ResCap in the back. And there is not much due coming due in 2009 for ResCap. Of the $30.5 billion roughly $11.5 billion is unsecured and the balance is secured. We are in constant dialogue with our banks on all the slices of debt, secured or unsecured.

Obviously, when it is bond we just have to deal with it as they come due and we have built a funding plan to deal with each of those and to work through our bankers when they are bank credit facilities. I think we talked a little bit about funding some of that in my comments.

Got it. And one final question relating to ResCap. Given as the balance sheet shrinks and nonperforming assets become a greater percentage of the remaining balance sheet ,can you talk a little bit of loss mitigation strategies and just kind of how --- I'm sure the servicing operation has really changed over time at ResCap, how you guys are continuing to work through that?

Sure. I guess at one level you can see the flow of servicing flow through the P&L every quarter. They steadily increased as you have alluded to, Adam, when your book becomes largely static because remember, pretty much in ResCap we are not continuing these books, they are largely in runoff. What we originate we sell to the GSEs at this point. That's pretty much the structure there. But there are risk mitigation efforts heavily in servicing . Those servicing cost are picking up as they require more resources and longer time per call. So the strategies continue within our servicing unit to deal with it.

Rest assured you do everything you can to take care of these credits. It's much higher outside the bank than inside the bank, as you would imagine, different credit quality of mortgages. But again, it is a reality we are dealing with. I don't know, Jim Young, if you would add anything

Rob, the only thing I would add is we are clearly, as you indicate, we are investing in that, in terms of investing in the people and the servicing platform. We have numerous, numerous last-minute activities going on. Thousands and thousands of loans we have mitigated, both domestic and we are also focusing internationally on loss mitigation efforts. I would say it is a clear focus of ours. We will continue to invest in it. And have seen results and expect to see more results.

Thank you.

You're welcome, Adam. Next caller.

Next question comes from the line of Sarah Thompson from Barclays Capital.

I apologize for two of us being on here. On the bond exchange, can you just tell me how much of the equity was created from mark-to-market?

Sure. It's not really mark-to-market, but there is a fair value component of it which reflects itself in an OID. But of the $11.4 billion gain, roughly $5.3 billion was OID and $6 billion was pure discount taken. If that helps?

Yes, that's perfect. Thank you very much.

You're welcome.

Your next question comes from the line of Louise Pitt from Goldman Sachs.

Good morning, guys. Thanks for the call. I just have a couple of questions. The first is can you reconcile the cash numbers on Slide 21? In the other portion you had that includes the $5 billion at the top but the $2.5 billion out in cash payments. What is the rest in that line?

In the other line?

Yeah. What takes it down to .4?

In the other line there are a number of different items. Basically they are representing the operating expenses of the business. There is nothing magical about it. It simply changes an accounts payable, accounts receivable, all of those working capital items.

That was the major portion of the cash basis?

Correct.

Great. Just a very quick question. On the $11.5 billion of unsecured that you had detailed for '09 maturities, does that include the Smart notes?

That includes the smart notes. And there are about $14 billion or $15 billion outstanding in Sart notes at this point.

Perfect. Then the final question is with respect to TLGP, how are you getting up to the $20 billion that could be included? Are you looking at this being extended past the June 30th cutoff date for GMAC? Could you explain a little bit more?

I'm not going to give too much color on that, Louise, because obviously it's really at the discretion of the FDIC. But when you read the program language there's latitude to make that number bigger than simple formulaic $12.5 billion. That's how we read into that. We are working with our advisors to see how much of that latitude is available to us and, again, it will be the FDIC's call and expressly their call. I will leave it at that.

Great. Thanks.

Your next question comes from the line of James Eustice from Churchill Pacific.

Hello. What would you say your total liquidity is cash plus various lines of credit that you have at year end?

James, I just stick with the cash equivalents number, roughly $15 billion. Because it's such a complex formula of available funding under our flow agreements, any capacity left on any of our credit lines, you know, what we can put into the GSEs. I can't imagine giving a simple answer other than what our available cash balance is at the end of the quarter.

All right. Thank you.

You're welcome.

Your next question comes from the line of Reuben Clicksberry (ph) from Redwood Capital Management.

Good morning. You have touched briefly on the question but the question it is a long-term one. When we look at the P&L if you're not making money on your interest margin and you also, of course, have noninterest expenses which are still significant. So even if you were to look five years from now what's truly the long-term strategy?

There are two questions in there. One is about margin which obviously is about fundamental economics. And two is sort of a long-term outlook. So on margin, Reuben, what you're seeing flow through the margin, and it's different in different businesses here, but in the main you're seeing a very rapid drop in volume. And while we do get some attendant drop in funding costs, you've also got a drop in rate. And they are flowing a lot including derivative activity through our margin line. We do believe this is going to stabilize so the margins have slowly come back as oddity stuff flowing through there or extraordinary item stuff flowing through there.

In addition, as the funding attendant to Government programs starts to flow through there and you'll start to see the margin return and that's the view for 2009 and 2010. Having said that, you then also asked what's the long-term view of health. And remember, when you look across the broader P&L, it is set with marks, impairments on a lot of different classes, whether it be in the auto operation, even the insurance book, then, of course, heavily at ResCap. These books have gotten a lot smaller and those numbers have to be smaller, as the percentage of the P&L delivered. So over time, provisions, marks, impairments have to drop. So one would hope that as we digested through when you pull the bond out $9 million worth of P&L hit in a full year's time, you've got to start to move to healthier assets and your marks can kind of continue at the same pace.

So I can't give you any long-term guidance because we just don't do that, but having said that you also can't continue those kind of losses because your book is just getting smaller and smaller. That is the book you hold on to.

Thank you very much.

You're welcome.

Your next question comes from the line of Ruthie Galbout (ph) from Bennett Management.

This is actually Jim Bennett taking the call for her. I was a little confused on the ResCap transaction that you did with the GMAC Bank in January. Maybe you could explain that. It seemed that GMAC Bank's book value was what?

GMAC Bank's book value at the end of the year, the total GMAC Bank's book value was a little less than $4 billion at the end of the year. But remember we already owned half the bank and we had to buy the book value attendant to the M class shares that ResCap owned. We were able to do that with another instrument that had a convertible option attached to it. So we could buy a piece of it that way. And the balance of that stock that we didn't own, we managed to buy with bonds contributed there.

So the net book value to ResCap -- was the economic interest owned by ResCap 50%?

Roughly 50% of the book value in the bank was owned by each of the mortgage company and auto company and so we bought out the piece of that total equity we didn't ordinarily own. That piece was the M class shares that were nonvoting economic interest.

So if you take the $4 billion less the $800 million, I guess that's to Cerberus --

Well, remember don't take the $4 billion, take sort of maybe -- it is really like 3/8th. So take $1.8 billion of equity that ResCap owned in that business. That was their asset in the bank. Back out the convertible option that we owned in it and then contribute the bonds that we contributed and that becomes the consideration paid.

So about $1 billion book value net of the $800 million.

I'm going to let you do the math.

Okay. And you paid $834 million of that in ResCap debt?

Roughly, that's right.

What was the market value of that debt.

We put it in there. The market value is, too, as I recall.

Okay. So $200 million paid for the residual interest.

No, actually, I'm sorry 6. I was thinking of the contribution we made at year end to prop up their capital. $600 million fair value or market value.

So $600 million. What I'm getting to is the book value, if ResCap had a book value of roughly $2 billion before this transaction --

Again -- those were the assets GM owned by ResCap in the bank. So just be specific the total book value was a little under four, their half of it So go ahead.

Now, the ResCap book value was around $2 billion at the end of the year, pro forma for this transaction?

No, ResCap's total book value also included assets outside the bank. That was closer to $3 billion.

Jim, we can go through this on the board.

My question really relates to this. Will that breach a covenant in any of your bank lines as a result?

The answer is no, Jim. The line of questioning makes sense if you -- there is a balance sheet for ResCap in the slides. You can see what their assets are and you can see what their equity is and no, this won't bust the covenant at the end of the year.

Thank you.

You're welcome. Next caller.

Next call comes from Stephanie Renegar from GMAC.

Hi, this is Stephanie Renegar from JP Morgan. I was just going to ask a question about GMAC Canada. Prior to the tender offer being completed, you guys had put out a press release from that city area and I didn't know if any of those plans, perhaps a tender offer there had changed since you did get Treasury assistance?

No, I'm not sure of the press release you're talking about, but no, nothing has changed.

Okay. All right. Thanks.

You're welcome.

Next question comes to the line of William Waite of FMC Capital.

I wonder if you could give a little bit of clarity, color, whatever we're calling it these days, on the GMAC's worldwide cost of borrowing, specifically looking into what the cost is to the banking retail operations fund?

I'm sorry, your question on the worldwide cost of borrowing which is in our press release?

Right, is 6.53%.

Right.

I was wondering if you could sort of break that out by business so that we could understand where -- what does it cost the bank to borrow in terms of their retail operations, what does it cost other subsidiaries?

We really doesn't give color on sort of a breakout on that. You can look at the margin information for each of the businesses and their attendant assets. We give both balance sheet and P&L on each business and each business and you can do some of the math yourself, I think.

Okay. Thanks.

All right. Shane, we have got time for one more question, please.

Your last question comes from the line of Ronald Martin from Volunteer Products.

I'm not sure if I should be on here. I'm an individual investor but I do have a question.

Go ahead, Ronald.

Of the GMAC bonds and notes that are issued they are paying like 5% dividend or higher. Those that are callable, why does GMAC not call them and reissue new bonds and notes at a lower rate under 5% which would still be -- you know, would compete with other corporations.

Ronald, there are a lot of answers to that question. I'm not sure we can deal with it today on the call. I will say that every piece of outstanding debt, be it secured or unsecured, we look at the features and characteristics of it to optimize our funding position. And it's just not as simple as it seems. Again, we just finished the largest bond exchange ever constructed and that was an enormous trade of debt. And we did another one this summer. So rest assured, we're looking at our external bonds and making sure we optimize. So thank you for your question. We have time for one for question.

The next question is from the line of Louise Pitt of Goldman Sachs

Thanks, guys. I just have a couple of followups. Can you give me additional details on the debt buy back in the first quarter of '09 for the gain of $600 million at GMAC.

You're talking about the one in the first quarter, you mean?

Exactly.

Louise, we will release that when we do first quarter earnings. The reason we memoed that in for you in the results was because capital we built as a result of fourth quarter activity in those two extra trades in the first quarter was really to create capital that the Government has asked. So that's why we memoed it in there. Suffice it to say, it was O&R activity.

And just a last question. On the restricted cash you mentioned at GMAC, can you detail where that sits and how much it is of the 8.2?

You're talking about the stuff sitting at foreign subs in the insurance company.

Exactly.

Why don't you circle around, Louise, with our IR department and they can give you the breakout on it. Usually that's captured in the Q's and the K. They can give you some color on it later.

All right. Thank you.

Great. Everybody, that was the last question. I want to thank you all for joining us. There will be a replay of this call available on the GMAC and ResCap Investor Relations website. Generally, that's put in place after about 24 hours. In addition, we will have a transcript of this call available once that transcript is ready in several days. And that will be permanently on our website.

Thanks again for joining us and we look forward to speaking with you again in three months. Shane, I think we are finished now.

Thank you for your participation at today's conference. This concludes the presentation. You can now disconnect. Have a good day.