Ally Financial Inc (ALLY) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2009 GMAC LLC earnings conference call. My name is Stacy and I will be your conference moderator 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 the conference. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Ms. Susan Shank, Executive Director of Investor Relations. Please proceed.

Thank you very much, Stacy. Good morning, everyone. Thank you for joining us as we review our first-quarter 2009 results. You can find the materials we will be referencing either on the GMAC website or on the ResCap website.

As you look through our presentation materials, I would like to draw your attention to the forward-looking statements and risk factors on the second page of the chart set. The content of our conference call will be governed by this language.

I should also mention that to comply with the SEC's Regulation G, we've provided some supplemental charts at the end of the deck that reconcile managerial information to GAAP accounting.

We're broadcasting this call live both via phone and the Internet. Both the financial community and the press are participating.

This morning, Rob Hull, our Chief Financial Officer, will cover the Q1 results. We also have a few additional people in the room to answer questions if need be. With us today are Jeff Brown, the GMAC Corporate Treasurer; David DeBrunner, GMAC's Controller; Tim Russi, the CFO of our auto and insurance operations; and Jim Young, CFO of ResCap.

After the presentation portion of the call, we will set aside 30 minutes for questions from investors, analysts and the financial press. Now I would like to turn the call over to Rob Hull. Rob?

Thank you, Susan, and thanks for joining us this morning to review GMAC's first-quarter results. Before we get to the results, I would like to give you some color on how current events in the US auto industry are affecting GMAC, starting on slide 4.

Last Thursday, President Obama announced his strategy for the reorganization of Chrysler. As part of that plan, GMAC has agreed to step up and fund new commercial and retail auto sales for Chrysler on a go-forward basis. As the President noted, healthy auto manufacturers require healthy auto finance companies, something we say a lot around here. GMAC has agreed to fill that role for Chrysler and its dealers and customers. At the same time, we will maintain our commitment to the GM dealers and their customers, who have been the backbone and the core of our auto finance business for 30 years -- for 90 years.

GMAC will be the preferred finance provider for Chrysler dealers to fund new inventory purchases. In addition, we have completed a four-year agreement to provide incentivized retail financing. All new originations, both consumer and commercial, will be underwritten using GMAC's existing criteria. The Chrysler agreement leverages our core strength in automotive financing and will provide diversification for our auto finance operation.

In conjunction with this agreement, the US government has indicated that it intends to support the GMAC in this effort by making liquidity and capital available to support the Chrysler business. I'm sure many of you are anxious to understand what form this support might take. It is our understanding that the details have not been finalized, and until they are we won't speculate on the form or size of that support.

You have heard me say before that we won't make new loans unless we have a way to fund them, and that hasn't changed. We are honored that GMAC has been tapped to be part of the administration's solution to restructure and stabilize the US auto industry. This is really a giant step on GMAC's journey toward being an independent, safe, diversified auto bank.

In addition, the agreement confirms our strong leadership position in automotive wholesale and retail credit. After all, GMAC is now the financial platform for two auto manufacturers. The other manufacture is, of course, General Motors. I want to address head-on our relationship with GM and the risk of a GM bankruptcy.

First, let me say that we will not speculate on the probability of such an event or potential timing or strategies. We are not privy to GM's plans, and to comment on any potential GM event, timing or structure would be pure conjecture, as you might imagine.

What I can say is that GM is a major customer for us, and an adverse change in GM's business or a GM bankruptcy would have a negative impact on GMAC. Many of the customers for our auto finance business are GM dealers, customers of GM dealers, and GM-related employees. The volume of GM's sales is a big driver of our auto originations volumes.

The resale value of GM vehicles affects the money we receive when we sell repossesed vehicles and off-lease vehicles. And as you know, we have a large leased vehicle book. We have direct credit exposure to GM, and we have a number of contractual arrangements with GM, which could be caught up in a bankruptcy proceeding.

In addition, certain of our funding arrangements have GM Chapter 11 or GM liquidation triggers. Specifically, our off-balance-sheet dealer floor plan securitization known as SWIFT XI will go into an early am period upon a GM Chapter 11 filing. Our $11.4 billion secured revolver will become due and payable on the event of a GM liquidation, obviously much different than a GM Chapter 11. We don't expect that outcome.

We have summarized these points on slide 5, but our 2008 10-K provides more complete disclosure. We have outlined all these risks in detail in the 10-K, starting on page 12. I encourage you to review that information.

Clearly a GM bankruptcy would not be good for us, but don't get me wrong; a GM bankruptcy would not trigger a GMAC filing. GM is a shareholder and a customer of GMAC, but we are separate companies. And through the process of becoming a bank holding company, GM no longer controls GMAC. Furthermore, GM doesn't guarantee any of the debt of GMAC, and GMAC doesn't guarantee any GM debt.

GMAC's risks from a GM bankruptcy are due to our business linkages, not to GMAC's ownership structure. And we are fully aware of this as we underwrite new consumer and dealer loans. In addition, under some of our agreements with GM, GMAC has the right to offset certain of our exposures to GM against amounts GMAC owes to GM.

We want to see GM succeed, that's for sure. But we are taking the appropriate steps to prepare GMAC for whatever might happen. I won't go into the specific actions we are taking, but know that this situation is a highest priority for us now.

I want to shift over to Q1 results, but before we get into the numbers, I want to talk for just a moment about changes in the presentation. Throughout this call, you will hear me talk about mortgage operations rather than ResCap, as you've heard in prior quarters. Recall that ResCap sold its nonvoting interest in GMAC Bank to GMAC LLC, or the parent company, back in January to simplify and consolidate ownership of our legal entities here.

Prior to that sale, all of GMAC Bank was consolidated in ResCap's legal entity results. But for GMAC reporting purposes, we moved the auto division of GMAC Bank into our auto finance segment. Today, 100% of GMAC Bank, including the mortgage division, sits outside the ResCap legal entity, and with GMAC LLC at the top of the house.

To align our external reporting with how we manage our business, we have created the mortgage operations segment, which consists of the ResCap legal entity plus the mortgage divisions of GMAC Bank and ResMor Trust. This is entirely in line with the way GMAC has presented the operations in the past, and it aligns how we manage the business.

By the way, the results for GMAC's mortgage operations and the ResCap legal entity are now significantly different. Because this is a GMAC results call, we're going to focus on GMAC and the mortgage ops segment, with only occasional references to ResCap.

Okay. Turning to slide 6, you will notice many of the trends we talked about in 2008 carried through to the first quarter of 2009. Capital markets remain disrupted. Credit performance continues to deteriorate. And asset prices are weak. All these issues put pressure on our results. Despite these stresses, we're focused on positioning GMAC to succeed when these pressures ease.

A prime example of this is our recent action to expand both auto and mortgage lending. On the auto side, we've expanded retail auto lending in the US and taken temporary actions to expand dealer credit. Our arrangement with Chrysler underscores our commitment to the auto finance space.

On the mortgage side, we have reentered the prime nonconforming jumbo mortgage market. We have also put significant effort to date toward meeting the requirements of being a bank holding company, which means building the systems and organization to meet regulatory requirements.

Okay, on to the numbers. GMAC had a loss of $675 million in the quarter, stemming from our mortgage operations and our corporate and other segment. The main drivers of this quarter's results were continued weak performance and $267 million of discount amortization from the Q4 '08 bond exchange in the corporate and other segment, partially offset by debt repurchase gains.

Let me take a minute and explain the $267 million amortization. Remember that the new bonds we issued in our bond exchange in December were put on the books at market value, which represented a discount to par. Over the life of those bonds, we will have to amortize that discount and write the bonds up to par. In the first quarter, that amortization totaled, as I mentioned, $267 million, and it rolls up into the interest expense line on the corporate income statement.

Despite the weak results in the quarter, we are encouraged by some positive trends as well. We're seeing both mortgage originations and auto originations increase nicely. And in the US, used vehicle prices seem to have stabilized, although prices are still well below year-ago levels.

Granted, a few months of data doesn't constitute a trend, but we think the results are encouraging.

We ended the quarter with a Tier 1 capital ratio of 10.6%, making us well-capitalized as defined by federal regulators. Note that this does not take into account results of the Federal Reserve stress test or their evaluations or their view of us, which will be announced later this week.

At the end of the quarter, GMAC had cash of $13.3 billion, down roughly $1.9 billion from year end. Remember some of this cash sits in legal entities that are firewalled and regulated, such as GMAC Bank. So GMAC can't readily access their cash. We will take you through what cash sits where later in the presentation.

You will find a breakdown of net income by business unit on slide 7. Global auto, as you can see, earned $225 million for the quarter, due to weaker credit performance, partly offset by lower funding costs. Our insurance unit earned $50 million for the quarter. This was down from the first quarter of '08, driven by investment impairments and a lower volume of business.

Mortgage operations lost $125 million, which includes a $900 million pretax gain from debt extinguishment. The other key factors here were weak credit performance and changes in the net MSR value there. Our corporate and other segment had a loss of $825 million. The key drivers of that were eliminations and OID amortization expense, partially offset by debt retirement gains there as well.

Okay, let's flip to slide 8, which begins the auto finance section of the deck. I'm sure you remember how we were forced to cut originations in the fourth quarter. We eliminated leasing in North America, raised the minimum FICO for US loans to 700 and began exiting 17 countries in our international footprint. Our originations fell from roughly $15 billion a quarter to just $3.3 billion in the fourth quarter.

However, as soon as we started receiving bank -- TARP funding under the bank holding company approval which we received, we immediately increased retail lending. It takes time, however, to change consumer and dealer behavior to bring back the customers we turned away in November and December.

Our North American originations got off to a slow start in January, to say the least, and we originated $3.8 billion for all of Q1. However, originations have increased every month in the quarter, and we've seen that trend continue on into April. We don't expect a return to the $15 billion per quarter run rate anytime soon. Auto industry volumes have fallen significantly, and we have discontinued certain products and countries. But we will continue our efforts to rebuild volumes throughout the year.

Used vehicle prices improved from Q4 levels, albeit at a lower level than a year ago. And that has been a good sign for us. On the down side, funding outside of GMAC Bank remains a challenge. For this reason, we are anxious for the final details of the financial support the US government has indicated GMAC will receive as part of the support for Chrysler.

The key drivers for auto finance are on slide 9. The first graph on the slide shows global auto's net income for the last eight quarters. The next graph, on the lower left -- excuse me. Q1 was a net profit of $225 million, and I will walk you through the key components when we get to the next slide.

Moving to the right, you can see the trends in consumer auto originations I highlighted earlier. The next graph, on the lower left, is our consumer servicing book. You can see that we aren't replacing assets as quickly as they run off.

Last of all, we have our US remarketing data that I alluded to before. This is what we're getting at auction when we sell off-lease vehicles, shown as a percentage of our estimate at the time we wrote the lease. It roughly tracks used vehicle prices.

Take a look at the green line, which shows 2009 data. It's been trending up as used vehicle prices rose month to month, and it's above Q4 '08 levels. It's still down versus Q1 '08 and well below the estimates we made when we wrote those leases. Keep in mind that when we impaired our lease book last year, and we did so substantially, we made some assumptions about future used vehicle prices. If we can sell the vehicles for more than that, you will see that benefit flow into the -- into income as gains on lease disposals.

On slide 10, you will find the income statement for auto. The key driver here is the lower volume. For example, total financing revenue is down about $900 million, due largely to volume. Interest expense has dropped significantly, for a few reasons. The outstanding debt has declined, reflecting our shrinking balance sheet. On top of this, we've converted some of our debt to preferred equity through the bond exchange. In addition, the proportion of secured debt in the mix has increased, driving down the cost of funds.

Lease balances, which drive the depreciation line, are also down about 30% from year-ago levels. This was partially offset by an increased depreciation rate as a percent of the assets, due to the aging of the book and our lower residual value estimates. The depreciation line also includes a $36 million impairment on our international operations' lease book. By the way, residual values represent roughly $15 billion of our $21 billion North American lease book.

I want to draw your attention to the other income line now. Almost all of the year-over-year drop is due to negative marks on residuals and other retained interests. We have called out the associated dollar amounts in the notable items for your reference.

The credit provision is up a bit year over year. Again, this quarter, we increased our allowance coverage ratio for both commercial loans and traditional retail loans. Let's start with the commercial portfolio.

In North America, we maintain our commercial reserves at $182 million, in line with year-end levels. This represents a coverage ratio of 0.83%. For the international book, coverage has been increased from $41 million at year end to $48 million at the end of the quarter.

For the consumer book, we have increased our coverage ratio, but absolute provisions are down due to the smaller book size. We have kept the coverage ratio for our North American book about flat with year-end levels at 4.99%, roughly one-third of which is for our retail balloon product. At the same time, we raised the ratio for our international operations from 1.71% at year end to 1.86%.

If you compare the coverage ratios to Q1 '08, the increase is even more dramatic. Our global consumer coverage ratio has risen from 2.77% last year to 3.75% this year, while commercial has increased from 0.21% to 0.81%. So despite a smaller book compared to a year ago, our credit provisions are higher this quarter.

By the way, I want to mention here that the Q1 '09 provision includes a release for our retail balloon contracts. Based on current used vehicle prices and the shrinking portfolio, we determined it was appropriate to reduce about $60 million in reserves here.

Moving to the noninterest expense line, this is where we are seeing some benefit from the stabilization in used vehicle prices in our improved remarketing results.

Slides 11 and 12 are our usual look at retail asset quality. Once again, losses continue to increase. Frequency continues to rise in Europe and North America as unemployment in those markets increases. In addition, low origination levels in Q4 '08 and this quarter mean that the portfolio is aging, pushing up the loss percentage.

In general, fresh auto loans have low loss levels in the first year after origination, as you might imagine. But losses rise afterwards, so loss percentages naturally increase as a portfolio ages. We estimate that about 40% of the increase in loss rates in our North American book is due solely to the shrinking asset base.

Severity is up versus year-ago levels, but it's improved somewhat from Q4 '08. Average gross loss severity on our North American service book is about $11,200 per unit.

In response to these trends, we have increased headcount in our servicing and collections area. Our Semperian servicing operation has also implemented more than 40 new loss mitigation initiatives over the last year and a half.

I won't spend too much time on delinquency trends on slide 12 since they are driven by a lot of the same factors as the losses, and track closely. Again, unemployment, economic weakness and the age of the portfolio are the key drivers here. A large portion of the deterioration in North America is due to the aging of the portfolio.

Among our international markets, the change stems largely from two especially troubled markets, Spain and Colombia. We expect delinquencies and losses to remain high until economic conditions improve and/or the size of the portfolio stabilizes.

Okay, let's turn to GMAC Insurance on slide 13. The main performance drivers in this business are lower premiums written and an increased combined ratio. Also, we sold GMAC Reinsurance at the end of last year. Without that business line, our book of business, both written and earned, naturally drops. Adding to this, the weaker economy and lower vehicle prices have pushed down volumes in our personal lines and dealer products.

The other point I would like to make here about insurance is that we are reshaping the business to reflect market realities. We have exited noncore business such as reinsurance and some personal lines businesses in certain markets, and we are considering new products for markets with growth opportunities.

Okay. Turning to slide 14, insurance had $50 million of net income in the quarter compared to $132 million a year ago. The year-over-year drop reflects investment impairments, the sale of GMAC Re and lower contract volumes, driven by lower auto sales, as we have discussed.

Core earnings, shown to the right, excludes one-time items and gives you a better picture of the true operating performance of the insurance business. The year-over-year drop is due to the sale of our reinsurance business, as I mentioned, and increased reserves on our international book.

Moving to the bottom left-hand corner, you can see the impact of these reserves. Lower wholesale insurance premiums, driven by lower dealer inventory levels, also hurt our combined ratio.

The last item on this page is a premiums written chart, which illustrates the way volumes have declined. Almost half of the year-over-year decline is due to the sale of reinsurance. To help illustrate the impact of the reinsurance sale, we have noted the portion of premiums written from GMAC Re in past periods in the stacked bars. About a quarter of the year-over-year decrease stems from lower volume in our dealership products, reflecting weaker vehicle sales volumes. The remainder of the decline is due to our decision to exit underperforming personal auto insurance markets.

I want to take you now to slide 15, with the condensed income statement for insurance. This reflects all the trends we've been discussing. Earned premiums have fallen about $850 million as a consequence of lower premiums written. Investment income was down as well, due to a smaller portfolio, again the sale of GMAC Re, as well as $45 million of impairments on some financial sector investments we held.

Other investment income decreased, primarily due to lower yields on cash and gains from the sale of a small book of personal lines business in the first quarter. Note that the expense lines are down, a benefit of lower volumes and the sale of GMAC Re again. The insurance business continues to be our steadiest performer throughout this economic downturn.

Okay, let's turn to mortgage operations on slide 16. We've got some good progress to talk about in mortgage. Originations from our core mortgage platform, our domestic and Canadian retail mortgage operations, and our warehouse business have increased compared to last quarter. The refi boom is driving higher volumes of prime conforming and government loans. We are seeing better margins from our conforming originations in government products, as well as improved gain-on-sale results.

We just reentered the prime jumbo market, which will provide an additional boost to margins. The last two years of cost-cutting are generating results. And we are beginning to modify loans through participation in the government's Home Affordable Modification Program.

That isn't to say that our mortgage operations segment is out of the woods. Our legacy asset portfolios are a drain and will continue to present challenges as we wind them down. Credit provisions on the legacy business continue to rise. We have increased repurchase reserves for previous loan sales we have made. And Q1 results also include a significant loss from MSR valuations in the period.

Nonetheless, we are encouraged by the positive trends. As we continue to reduce the size of the legacy book, we believe results should stabilize. Details for the quarter can be found on slide 17.

The upper left-hand corner shows the mortgage operations loss of $125 million, which includes $900 million in pretax gains from retirement of debt. Take a look at the graph to the right. After two straight years of decreases, the balance sheet has increased slightly in the first quarter.

We're continuing to sell assets and wind down our legacy operations, as I mentioned. However, our core US residential and warehouse businesses grew during the quarter as a result of the refi boom we are in.

Moving on to servicing, in the bottom left-hand corner, the primary servicing book is down to $386 billion. Despite the pickup in volume, new originations remain lower than asset runoff. The last graph simply lays out the origination trends I have been discussing.

On slide 18, you can see how these trends flow through the income statement. Revenue is down significantly due to a 33% reduction in the size of the balance sheet. Interest expense has been halved through a combination of lower debt and a lower cost of debt. Servicing fees are down in line with the size of the servicing book.

The servicing asset valuation, net of the hedge, is down dramatically. In Q1, we recognize a positive $410 million from valuation moves on the MSR, net of the hedge. That was in Q1 '08. This quarter, in contrast, we booked a negative $360 million from valuation moves. The impact of lower interest rates was only partially offset by performance on our hedge.

I've already mentioned the positive impact of a better gain-on-sale margin and GMAC's debt forgiveness, so let's jump to the other loss line. A year ago, we took $435 million of negative marks on securitization resids, which did not recur in this quarter. The provision for credit losses is up sharply, and we'll go into more detail on that on the next slide.

Before that, though, take a look at noninterest expense. I mentioned the impact of our cost-cutting efforts at mortgage ops. We reduced employee and professional costs by almost $190 million compared to a year ago. This is really good progress, but it is masked by $195 million of increased reserves for repurchases and another $65 million in reserves for Cap Re, our mortgage reinsurance business.

The trends are laid out on slide 19. On the consumer side, the story remains the same as in auto. Frequency is up due to both economic weakness and seasoning of the book. Weak property markets around the world mean that severity remains high. We've seen chargeoffs dip slightly in Q1 compared to the prior quarter, mostly as a result of the timing issue on loan foreclosures.

If you look at the graphs on the right, you will see similar trends in our lending receivables book. Nonaccruals and chargeoffs remain high, primarily driven by the homebuilder lending book, which are being wound down. However, you can see that the Q1 '09 results are a bit better than the prior quarter.

The improvement comes from increased balances of prime warehouse loans. This is high-quality business, and it is increasing the denominator without, fortunately, adding to the numerator.

One quick aside -- with the acquisition of GMAC Bank by GMAC, we have moved the bank's auto dealer real estate loan portfolio out of the mortgage operations' lending receivables book this quarter. We have adjusted prior quarters on these graphs to exclude those loans in all periods.

Before we leave the mortgage ops section, I want to mention to you that you will find some high-level data for the ResCap LLC legal entity on slide 35. Again, we don't plan to discuss that this morning. A full balance sheet and income statement will be available when ResCap files its 10-Q shortly.

The last segment is corporate and other, which posted a loss of $825 million this quarter. As a reminder, this segment includes our commercial finance business, our equity investments and other corporate activity. Since it was so significant this quarter, we've included a segment income statement on slide 20. The biggest line item here is loss on debt retirement, which includes two key items.

There was a negative $900 million pretax amount, which move some of the gain from the bond exchange from corporate and other to mortgage ops. We also recognized $634 million of additional debt retirement gains in this quarter. Then there is the $260 million of pretax OID amortization I mentioned. Results were further impacted by a negative $87 million mark on commercial finance assets. Most of the remaining variants stem from intercompany lending, intercompany eliminations and derivative valuations.

That brings us to consolidated GMAC capital and liquidity. GMAC ended the quarter with $13.3 billion of cash on a consolidated basis, down $1.9 billion from the end of the year. On slide 21, we walk that change for you.

The first column of numbers is consolidated GMAC parent. The following column breaks out cash to illustrate what is held outside of GMAC Bank, ResCap LLC and the insurance sub and what is held within those entities. Keep in mind that insurance, ResCap and the bank all have legal or regulatory firewalls limiting our ability to remove cash from those entities. Cash held outside those entities can be more easily moved around as needed to handle maturities and other cash needs.

If you look across the net change line, the main driver of this decline was cash at GMAC Bank. The bank increased its loan and investment securities asset by a net $4 billion, while deposits increased only $2.4 billion. Cash at ResCap and insurance was fairly flat at year end. Cash outside those entities dropped by about $500 million. Unsecured maturities in the period of $2.1 billion and a reduction of $6.4 billion in secured debt were only partially offset by lower asset levels and the rights offering of $1.25 billion we did in January.

Okay, slide 22 walks capital from year end to the end of the first quarter. At the end of '08, total GMAC equity was $21.9 billion. First-quarter net income, excluding the impact of the January debt exchange, was a loss of $1.3 billion. We carried two capital-generating transactions in January -- a rights offering for $1.25 billion I mentioned of fresh common, and a debt repurchase that generated a gain of $600 million.

During the quarter, $230 million of preferred dividends were paid out. Netting these amounts against OCI and a minor FAS 158 change to retained earnings, we ended the quarter with $22 billion of capital.

We have provided several key capital ratios on slide 23. Please note that all these numbers are preliminary and won't be final until we file our 10-Q toward the end of this week. Bank regulators have historically focused on Tier 1 capital ratios for bank holding companies. With a 10.6 Tier 1 ratio, as I mentioned earlier, GMAC does qualify as well-capitalized under the federal regulators' guidelines. Remember, however, this does not take into account the stress test results or any other evaluation that will be released later this week by the Federal Reserve.

Recently, regulators have been looking at Tier 1 common ratios, too, and we have included that data, along with a few other key measures. Tier 1 common equity is simply the traditional Tier 1 equity minus any nonvoting equity in that number. The 10-Q will contain more detailed information on all our regulatory ratios.

The last slide in this section is a review of GMAC Bank, which is a key component of our long-term funding strategy. We continue to grow our deposits, and we're increasing the mix of retail deposits versus broker. We think that's a good thing.

You can see that in Q1, retail deposits were nearly half of the total mix, up from just 21% a year ago. On the asset side, the auto division had $10.8 billion of assets, about the same level as a year ago. Remember that as long as GM is considered an affiliate by regulators, we face limits on the amount of new GM wholesale funding and consumer funding for customers of GMAC-financed dealerships that can go into GMAC Bank. However, it's our plan to originate new Chrysler volume in the bank as long as it meets the bank's underwriting criteria. The mortgage division had assets of $25.6 billion, up more than $3 billion from the prior quarter, due in large part to refinancings.

Okay. With that, let's conclude on slide 25. As I mentioned at the start of the call, GMAC is lending again to car buyers, auto dealers and homeowners. We've been able to leverage the benefits of our bank holding company status and the TARP funds we received in December to return to our core lending operations.

Since we received the capital investment under TARP at the end of '08, GMAC has increased new US retail originations by 110% on a quarter-over-quarter basis to $2.1 billion for the first quarter of '09. We have also increased the mortgage origination by 58%. On top of that, we have expanded credit available to GM dealers.

The Chrysler agreement provides an opportunity on many levels for us. We will make more credit available to dealers and consumers in the US auto industry. We will leverage our expertise and fixed cost base in global auto. We will fundamentally diversify our auto finance business for the first time in our 90-year history. And we will attempt to validate the US government's broad support of our model through flawless execution, we hope, of our five core strategies.

These strategies are, as you may recall from the first quarter, to transform GMAC to comply with BHC requirements, to strengthen the capital base and liquidity position, to enhance the management team and infrastructure, to diversify revenue within the limits of available funding always, and to reposition GMAC's risk profile to drive returns. From day to day, we continue to hack away at these five strategies, laying the groundwork that will let us succeed and grow as the capital markets return and economic conditions improve.

And with that, we will move to Q&A.

Thank you, Rob. Stacy, we're ready to take calls from investors and from the media. Please inform our callers how they need to queue up to ask a question.

(Operator Instructions). Brian Johnson, Barclays Capital.

Could you give us some color on the GM retail and wholesale share, how it tracked through the quarter, and then to the extent you are knowledgeable of it, the Chrysler Financial share? And then what might be your targets going forward in both the GM channel and the Chrysler channel?

Sure. On the GM side, and you can see some of this in the back of the release that we published, our penetration of GM was about 17% on the retail side. But that was a building number. We actually finished closer to 30% for the quarter, in the last month of the quarter. So that's a pretty good distance from our 49% penetration that we had a year ago. And we would like to get back to that.

I'm not going to give any guidance, Brian, but suffice it to say, we were down to a trickle in the last month of '08, and in January, as I alluded. So assume that 30% is a low number, even though it's much higher than where we were, and we would hope to get back to where we've been before. So I will leave it at that.

On the wholesale side, our penetration remains fairly constant with GM. And I won't give any more guidance on that.

You asked questions about targets for Chrysler. It's just too soon to say on either side. We haven't started originating on either side of that equation at this moment.

And what would it take on either your balance sheet, residual market or underwriting performance to get back into the leasing market either at GM or Chrysler?

The leasing market, it's not really about any of those factors. For us to reenter leasing, Brian, requires -- and we're working on this with General Motors -- requires a revisit of the very structure of how we do operating leases. And it may be that we go to finance leases and don't reenter operating leases. The leasing phenomenon was one that I don't think we will ever see leasing in the form it was in before.

Really, when you look at the finance end on a pure basis, you've got to make sure the risk-sharing makes sense, the residual values up front make sense, and that you have an economical instrument at the end for us to hold.

So in our lease book that we are still sitting on, roughly $23 billion worth of leases, we want to make sure if we build that back again -- because it is shrinking very, very fast, with an average life of sort of two-plus years on that paper -- that we build something that has stronger credit quality and collateral quality and better assumptions on residual. So I don't -- I think it's going to take a restructuring of how we do leases in the United States before we enter that market in any real way.

Okay. Would it be fair to say that you are approaching this more like an independent bank would across the leasing business as opposed to a traditional captive finance role to take what's given?

I think that's exactly right, Brian, although let me tailor that a little bit. And I mentioned that in my comments. We see ourselves as an auto-centric bank. And so to say -- we have a mission to support the auto industry. So we're always going to lean toward making solutions there that a normal kind of general retail bank mightn't pay that much attention to. This is important to us, and if there's a way we can make it work, we will.

Doug Karson, Banc of America Securities.

If you could help us with some of the drivers behind the global auto finance provisioning for credit losses, it's decreased a lot from 4Q, which I think was around $510 million. I know the asset base is down about 10%, but credit losses seemed to tick up. If you could just help us understand if we've seen a new trend?

No, I don't think we're seeing a dramatically new trend at this point. Remember, coverage ratio, as I alluded, is up. And it's up in a real way. So you have the offsetting factors of absolute dollars of provision, which you are observing, Doug, and the coverage ratio itself. So you really have to track against those two measures.

So I would say that -- and again, you can look at the asset quality charts of both losses and delinquencies on retail auto, and you can see that there's really been no easing of that performance. Having said that, I would also tell you that severity has improved. So frequency continues to uptick. Frequency is tightly correlated with unemployment. You're going to have to make your own judgments about where unemployment goes to make an extension of where that's going to go. But having said that, I think you're just -- you're seeing the absolute dollars drop because our book of business is so much smaller. And we're not going to replenish it at the same rate, given these origination volumes.

Did you guys adopt any of the new mark-to-market accounting adjustment rules, so did that have any impact?

Not in '09. We have made no changes to our accounting policy in '09. And recognize, we -- well, other than a FAS 159 election in January of '08, no, we have made no material changes. We've already sort of been doing mark-to-market accounting on our held-for-sale book in a pretty thoughtful way and a modeled way. So we have not had to make those changes.

This is David DeBrunner, the Controller. We did not early-adopt the new standards that are out. We will adopt those in the second quarter.

Okay. And this is a little bit of a tough question. Thank you for that. On slide 5, you highlighted the $11.4 billion revolver has a liquidation trigger in the event of a GM liquidation. And kind of academically, if you could help us, would a 363 bankruptcy in any way qualify at as a liquidation? Because in that, part of the company could be liquidated, without really knowing what the credit agreement says regarding that trigger. So could a 363 potentially classify as a liquidation and trigger that bank line?

Yes, I think that's a discussion for our lawyers. And we're not going to give any more clarity on sort of the technical components of an 11 versus a 7 or an 11 with a 363. This is largely new territory for us, so we will set that one aside.

Okay. And then final question is, the balance sheet cash, are you comfortable with the balance sheet cash where it is? It's ticked down a bit. And do you have a number, like a minimum amount of cash that is saved to run the business that you could share with us?

No, we don't offer a benchmark on that. We'd always like more cash, at least in this current environment, as difficult as it can be. We watch our liquidity literally daily. And we, at this point in time, we don't feel we are short on cash in any way, but I'm not going to give you a target. Obviously, we've got maturities and demands. But recognize also, we have originations drawing our cash. We will never originate ourselves in a position where we feel our cash is in peril. So we have both brakes and accelerators on our cash position.

Great. Thanks a lot. That's it for me. I appreciate it.

Eric Selle, JPMorgan.

Just dovetailing on that question, did you guys give your net chargeoffs in autos and ResCap? Do you guys have that for us?

We provide provision. We don't provide necessarily net chargeoffs. So you can use the provision line.

Okay. And then I guess another way of asking that is, your provisions obviously dropped in autos. I know the book of business is lower. Is that around $1.90 sustainable, given the line in chargeoffs? Because if I use chargeoffs from the fourth quarter, it looks like you are about -- your provisions are about half of your chargeoffs.

Rather than give color on that, I think you have to -- you, just like we, have to make our own judgments about the trajectory of losses here. We've talked about severity having stabilized, which is nice. Some of that's seasonality -- some of the losses are going to be seasonality. But more importantly, we've seen severity stabilize, if not drop, for the period. Frequency continues to tick up. And again, I think as long as you see trends in unemployment tick up, we're going to find ourselves charging off more in the period. That's just the way the losses are going to travel.

Having said all that, we are also at a period in our history, certainly the auto industry has never seen retail losses at this level. This is an historical high. So you have to make your own judgment whether that means we are reaching an end or whether that means things are going to get worse.

And then one line that also jumps out at me is your gain on sale in ResCap. That hasn't been positive since the fourth quarter of '07. Is that something we should look to continue? Or is it going to be fairly close to zero? Because it jumped pretty high in the second quarter of last year to about $1 billion. Is this kind of the range we should look at going forward, assuming the market is flat versus now?

First of all, you have to recognize that Q1 '08, which is what we do our comparative on for mortgage ops on slide 18, Eric, we had huge marks in that period. And so that captured some material losses in that window. And so it distorts the view.

I'm not going to give guidance on what you could expect on gain on sale, but suffice it to say that margins have improved in that core business, that the boom of conforming originations placed with the GSEs has given us more lift, and we are encouraged by it. And I would hope that number would grow if mortgage volume keeps up.

Okay. And then finally, you guys said you are not going to lend without liquidity. Can I take that as an implication that you wouldn't take on Chrysler Finance without some government support?

You can, and I think we said that very clearly. I think Obama said that in his speech. And I think we have an understanding on that with the federal government.

Looking at the various avenues, if you can, the TLGP, the TARP, the TALF, how do you rank those as potential sources? Or is it still unclear at this point?

Those are all very, very different sources, right? So on the TARP, we've already received funds. To the extent there is more to be received on that, that's obviously critical to us. And you can imagine that that's funding that could flow from anything from a stress test to the Chrysler deal, but we're not going to comment on it. So that would probably rank up high.

But having said that, until the TALF changes its agency interface on relevant auto collateral, it won't work for us, because it requires a AAA rating. And the rating agencies won't deliver that. And as far as the TLGP is concerned, we have an application pending, and we'll just wait to see how that comes out.

And then without government funding, are you guys comfortable with your 2009 maturities?

We have plans to work through 2009 with our current liquidity without government funding. But remember, as I said, there are brakes on origination that can kick in should other factors, certain factors go in different directions. And as you can imagine, Eric, there are a lot of variables with Chrysler, with a potential GM bankruptcy, with GM originations. It's so dynamic, but we have plans to work our way through the year if we need to.

And then just final question -- does ResCap have your full support? Does it continue to have that full support?

We say this every period. It's a great question, Eric. We evaluate our support of ResCap, just like all of our businesses, frankly, although ResCap, because it's walled off, require special care. We, both from a capital and liquidity basis, we evaluate it constantly, monthly, if not more regularly. It continues to get our support. You have seen that. And as long as it's in the interest of the core GMAC stakeholder base, we will continue to support it.

Okay. Thanks a lot for your time.

Monica Keany, Morgan Stanley.

I was wondering if you could comment a little bit on whether or not you are looking at 23A exemptions as a way to kind of have a game plan for the unsecured maturities?

I guess I would start by saying, Monica, that GMAC Bank is, if it's not critical, is the centerpiece of our funding strategy going forward. That's why we made a BHC application and received it on December 24 last year. So you are in the right direction.

23A, we were granted a limited 23A exemption in December for some retail auto business. And obviously, we can flow our mortgages through there as we -- our mortgage ops business through there, as we have traditionally.

I wouldn't necessarily link it to handling unsecured maturities, but suffice it to say we have shown our ability to grow deposits very aggressively. Our marketing team has done a terrific job. We've put more than $2 billion on the books of incremental deposits in the last quarter. And so to the extent we could fund assets in there, around the parameters of 23A and through broader 23A exemptions, to the extent they are granted, it will help in our broader cash demands in the rest of the enterprise, and it won't drain other sources of cash, which would allow us to handle maturities more effectively.

So the short answer is, the more 23A exemption granted, the more assets we can fund in the bank, the less demands we have outside the bank.

But I guess I'm just asking what directly -- I mean, is that a source of cash potentially to sell assets from GMAC LLC to the bank to free up cash to send back to GMAC LLC? Is that part of the game plan, or you can't do that if you get the exemptions?

No, you can't. You still have to look at a bank as a separate legal entity within our broader holding company, within our broader bank holding company structure. So no, I can't raise deposits in GMAC Bank and take that cash out of the bank and pay off debt at the parent company level. It doesn't work that way. Having said that, I can offset other demands by funding assets that might have been funded at the parent company level in the bank with a 23A exemption, freeing up cash demands that way.

Got you. And then in terms of the revolver, the secured revolver, the 11 for -- I'm sorry, so in a -- it triggers in a liquidation and also with a substantial sale of assets in a Chapter 11? Is that right? I just want to make sure I have that right.

No, just in liquidation, and that's all we said on that. And really, that's our understanding, Monica, at this time, is that in a 7 liquidation, it triggers. In an 11, our understanding is it doesn't. And we just won't go any further than that.

Okay. And then how much -- I don't know if you gave this -- how much was drawn on that at the end of the quarter?

On the -- no, we don't give out standings on that.

Okay, but that would be in the Q, or--?

That will be in the Q. The majority of it is drawn. But having said that, we will give exact results when the Q is dropped toward the end of the week.

Okay. And then do you have a sense to give us of the exposure that GMAC may have right now to, for example, like Pontiac, given that that's something that GM is looking at winding down, and how you are thinking about residuals going forward?

No, it's a good question. We talk on the second or third slide about GM exposure. There's pretty extensive language about it in our K. Having said that, we don't talk to specific brands or nameplate exposure. We have certain protections with GM on those. So obviously, when you look at that $2 billion exposure, that includes a discussion or the effective impact of things like Hummer, Saab, Pontiac, Saturn -- any brands that we might have an exposure to, our auto team has measured our exposure there and worked it into that $2 billion exposure number.

Okay. And last question is, do you have a target growth rate for the bank? It looked like the deposits were up fairly meaningfully on a sequential basis, which is good. But just curious if you have any color you could give us on the outlook for there?

We don't, Monica. The framing on bank growth is on assets. There are asset caps imposed by the FDIC, who protect the deposits of that unit. And so we have to live within those growth parameters, and they are not unlimited.

Great. Thanks.

Ben Wilson, Barclays Capital.

I listened to your comments on ResCap as a separate legal entity, but I was hoping you could give us a little bit more clarity around what operations remain at ResCap versus GMAC Bank?

Operations? Well, there are two different ways to think of that, Ben. So one is, there was something like $22 billion worth of auto loans in the bank. Those now don't sit at the ResCap LLC level. So just in terms of balance sheet, those now belong to the bank, which they always belonged to the bank, but the bank now belongs to the parent company.

But that's sort of an inventory of assets, if you will. Operations that were in ResCap are still in ResCap, right? So servicing, origination, all the core functionality still sits in that legal entity. This is just about the bank and the attendant assets for the bank. ResCap provides those services on arm's-length agreements to GMAC Bank, and those have not come out of ResCap.

That's very helpful. And just for the avoidance of doubt, the home loan modification program is going on through ResCap?

Yes, that's correct. And we've already -- I think we've processed more than 1000 apps at this point, and there's something like 30-odd-thousand pending. So we are fully engaged in that program.

Terrific. And then just one more question. I was hoping you could clarify exactly which debt securities were forgiven during the first quarter, aside from the GMAC Bank transaction with the second liens?

We don't disclose the specific securities that we forgave. Over the course of the quarter, we forgave about $1.3 billion total debt to ResCap, but we are not going to address the individual series on that that one, Ben.

Okay, that's all I had. Thanks.

Alberto Tunon, Imperial Capital.

Kirk Ludtke, CRT Capital.

Operator, we are running out of time, so this will be the last question.

I just wanted to get a sense for how much Chrysler business we are talking about. Do you have a rough sense for what the total footings of Chrysler Financial are?

Kirk, we do. But until we finalize all the agreements with Chrysler with the new OEM, who obviously they were in bankruptcy court today -- they will be in it today -- we can't finalize that until all of our agreements are flushed off by the bankruptcy court. Suffice it to say, you can look at their historical volume versus GM volume and kind of swag it that way. That's how I'd direct you. It won't be insignificant. We hope Chrysler emerges with plenty of volume, because it will validate all the things we believe in supporting them with this new master automotive finance agreement we've agreed to.

Great. And then also, with respect to the TLGP that you mentioned that you have an application pending, how much could you issue under that program?

That number varies because it's at the discretion of the FDIC. And the number probably is less than 10 and more than five. How about that?

Okay. That's a lower number than I remembered from the last call. Am I mistaken or --

No, you are right. And so as we continue to refine and understand what's eligible in the eyes of the FDIC, we change -- our expectations adjust. But that's where we think it will fall now if it works out. And again, all these are conjecture at this point.

And those are -- is that the 125%?

Yes.

That's the 125%.

Right. So what would have changed there, Kirk, is the base of relevant unsecured debt attendant to it.

And when do expect to hear on that?

I really can't say. Remember the regulators work at a tremendous workload on their own pace. And when they tell us, they will tell us.

And then last topic, how do you -- could you give us a little bit of color as to how you plan to protect yourself in the event of a GM bankruptcy with respect to this $4 billion of exposure, particularly the unsecured exposure?

It's $2 billion probable exposure. And besides things like the right of offset, besides normal mitigating actions -- and I can't be very specific on that, Kirk. It would be inappropriate to do that. I would just tell you that we would expect in a GM bankruptcy, because of our critical role relative to GM's success and survival -- remember, we are sitting on a huge base of dealer floor plan for them, that in all likelihood there aren't a lot of other providers for, which is I think is an understatement -- that we would expect that our broader MSA agreement with them, our Master Services Agreement, would sit up front close in a GM BK and that $2 billion would hopefully would be honored by GM as we move through a bankruptcy so that we would feel comfortable in providing ongoing credit to them.

Okay. Great Thank you.

Terrific. Well, thank you, everybody, for joining our call today. We appreciate your continued support and your interest in GMAC. We will have a replay of this call available after noon Eastern time today. The transcript will be posted within about two days' time on the GMAC website and the ResCap website. And also, the details on the replay of the call will be available on the investor website and the media website.

Thank you very much, operator, and thanks, everyone, for listening.

We thank you for participation in today's conference. This does conclude your presentation. You may now disconnect, and have a great day.