Ally Financial Inc (ALLY) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2009 GMAC Incorporated earnings conference call. My name is [Katina] and I will be your coordinator for today.

At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this presentation. (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, Katina, and thank you, everybody, for joining us this morning as we review GMAC Inc.'s second-quarter 2009 results. You can find the materials we will be referencing during the call either on the ResCap or the GMAC website.

In the slide deck on those websites, I would like to direct your language -- your attention to the second slide which covers forward-looking statements and risk factors. That language will govern everything we discuss during this call and during the Q&A period.

To comply with the SEC's Regulation G, we have provided some additional slides as supplements at the end of the deck to reconcile any managerial numbers to GAAP accounting, if they aren't already reconciled on the page themselves.

This morning, Rob Hall, our Chief Financial Officer, will cover the second-quarter earnings results. After the presentation portion, 30 minutes will be set aside for Q&A with investors, analysts and the financial press. When we reach that portion of the call, the operator will instruct you in how to queue to ask a question.

To help in answering your questions, we also have with us today Jeff Brown, GMAC's Corporate Treasurer, David DeBrunner, GMAC's Controller, and Jim Young, the CFO of ResCap.

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

Thank you, Susan. Good morning.

As you've already seen, we reported a net loss for this quarter of $3.9 billion. This headline number is large and real, but it is important to put it in context. It reflects significant actions on the part of management to put legacy issues behind us. While this effort is not yet complete, we believe we are close to the end of the cleanup. These steps were planned actions and our economic impact had already been baked into the analysis we review with our regulators and with the U.S. Treasury during the stress test process.

The major items impacting the second quarter included conversion of GMAC from a partnership to corporation, triggering a $1.2 billion non-cash tax charge. The sale of several internal mortgage portfolios, combined with provision, impairments and reserves on other mortgage assets was a $1.6 billion impact; a hard, strategic look at and possible sale of our consumer Property and Casualty insurance business, yielding a write-off of $607 million of goodwill; and the write-down of the resort portfolio in our commercial finance business of $105 million. Without these $3.5 billion of charges, GMAC core earnings would have been an after-tax loss of roughly $400 million for the quarter.

The quarter's cleanup was balanced at a certain level by some sizable accomplishments we put down on Slide 4. In April, we were named the preferred financing provider for Chrysler dealers and retail customers. In May, we raised $3.5 billion of new capital toward our stress test requirements through the sale of mandatory convertible preferred to the U.S. Treasury. In the same transaction, the U.S. Treasury purchased another $4 billion of our MCP to support the needs of our new Chrysler business.

We launched the Ally brand for our bank. This rebranding we believe is pivotal to our future growth strategy.

Another accomplishment for Ally Bank was receiving an expanded exemption from 23-A affiliate restrictions, allowing the bank to fund more GM-related originations. It's important to note that we grew our retail deposits at Ally Bank by 30% quarter-over-quarter and 250% during the year.

GMAC's ownership was restructured in May to meet bank holding company requirements. And with it, we put in place an entirely new Board of Directors. We also issued $4.5 billion of bonds under the FDIC's Temporary Liquidity Guarantee Program, or TLGP. In June, GMAC LLC was incorporated and is now GMAC Inc. And finally, GMAC's credit losses from the GM bankruptcy have been negligible.

Okay -- highlights for the second quarter on Slide 5. We have already touched upon several of the items driving the quarter. Let me go through a few more.

Credit performance continues to deteriorate and outside of used cars, asset prices are weak. Both of these trends put pressure on our results. We exited certain businesses in countries that were not part of our core strategy going forward. We are also launching an aggressive expense reduction initiative to eliminate about $1 billion of annual run rate by the beginning of 2010 to better match our revenue base.

We've assigned a team to this and they are still in the early stages. I will provide more details on future calls on that performance.

We don't anticipate these savings will improve 2009 results. There will likely be additional costs in Q3 and Q4 related to exiting fixed-cost agreements, but these actions will help reset our expense base.

We're still focused on growing our core business with the Chrysler deal, and growing Ally Bank.

On Slide 5, we have highlighted the $3.5 billion of the specific items related to strategic decisions made in the quarter. The remaining $400 million of losses is mainly driven by mortgage operations in the Corporate segment, partially offset by global automotive pretax results.

Mortgage ops continues to be negatively impacted by credit expenses. The main driver for the Corporate segment was $344 million of amortization from the Q4 '08 bond exchange, the recurring non-cash charge that will impact results over the next three to four years.

Despite the weak results for the quarter, we are encouraged by some positive trends. In the US, used vehicle prices continued to rise this quarter. In fact, they have risen over 16% since December. Prices in May and June were higher than year-ago levels. This pop in value has reduced loss severity on our US auto book. The same trend has created $134 million of gains on lease disposals in the quarter as well.

We are strengthening our relationship with Chrysler and we completed most of the structural work to integrate Chrysler dealers into our systems. GM Company is out of bankruptcy, and GMAC has no material credit losses from the GM filing to date.

Mortgage originations have continued to increase quarter-over-quarter as mortgage rates improve. We've also increased our capital and our cash. We ended the quarter with an estimated tier 1 capital ratio of 13.7%, well above the 6% well-capitalized standard.

GMAC had cash of $18.7 billion, up roughly $5.4 billion from last quarter. The increase was driven by the treasury's $7.5 billion capital investment in May and $4.5 billion of new unsecured debt issued under the TLGP as I mentioned, offset by unsecured maturities during the quarter and paydowns on secured facilities which we can redraw at any time.

You'll find a breakdown of pretax income and net income, by business unit, on Slide 6. Throughout the rest of the discussion, we will focus on pretax income for the segments, due to the $1.2 billion impact associated with incorporation.

Global Auto had pretax earnings of $346 million for the quarter, due mainly to lower funding costs, lower loss severity, and gains on lease disposals. Insurance had a pretax loss of $476 million for the quarter; the largest single driver was a $607 million goodwill impairment. In addition, the total size of our dealer products insurance book has decreased with reduced inventory volumes driving operating income lower.

Mortgage ops had pretax losses of $2 billion for the quarter, mainly due to losses and write-downs associated with the wind-down portfolios and continued increases in credit provision and repurchase reserves.

Finally, our Corporate and Other segment had $616 million of pretax losses stemming from the bond exchange amortization I mentioned before and the resort finance write-down which I also mentioned.

Before we get into the segment results, let's talk just a little bit about GMAC's incorporation on Slide 7. Our conversion from a partnership to a corporation this quarter had a $1.2 billion accounting impact to recognize net deferred tax liabilities on our balance sheet.

There were two primary benefits that drove the decision to incorporate. First, incorporation gives GMAC more flexibility in our capital structure, benefiting both the Company and our equity holders. As an LLC or pass-through partnership, we were limited to no more than 100 equity holders. Incorporating removes that limit and gives GMAC the flexibility to issue shares as needed, when needed.

Second, this eliminates required dividends to cover owners' taxes on GMAC earnings. Going forward, we should recover a large portion of this loss as the difference between book and tax reverses.

Okay, let's go on to Slide 8, which starts our Auto Finance section. During the worst US recession since the 30s, we've seen auto losses and delinquencies spike and yet this segment still made money in the quarter. A key positive for Q2 was the continued improvement in used vehicle prices from the first-quarter '09 levels. Credit performance remains a challenge in our retail and dealer books, but for now declining loss severity balances out the increased frequency.

Finally, we are putting the TARP capital investment to work by increasing retail originations to $6 billion in the quarter, a dramatic improvement from the fourth quarter in '08 when we were forced to sharply curtail lending due to funding constraints.

Page 9 is a one-pager on how things are progressing with Chrysler. As of quarter end, over 95% of the dealers in the US and Canada have been activated and able to send retail applications to GMAC.

In Q2 '09, Chrysler dealers sent to us over 40,000 US retail loan apps compared to just over 2,000 a quarter ago. For the quarter, we had a 4% average penetration rate of Chrysler's US retail sales, but this masks the fact that our penetration has risen from 0.4% for the month of April to 9.5% at the end of June as we gain traction.

We've outlined the impact of GM's Chapter 11 bankruptcy in a one-pager on Slide 10. A new entity named GM Company has emerged from bankruptcy proceedings. GMAC's contract with GM was transferred to this new entity, which means the GM Company has assumed all of the payment obligations that GM previously had to GMAC.

As the bankruptcy played out, it didn't create significant losses for us. Used car prices held up and actually increased. Sales volumes and dealer inventories did in fact fall, and we will see where they go from here. Dealer closures will happen gradually and we've seen -- we have certain arrangements with GM to minimize our credit losses there. There was no impact to our secured bank revolver, although our Swift 11 securitization is winding down. I don't want to say that we are free and clear, but the uncertainty appears to be behind us, and we believe we will have minimal credit losses stemming from dealer closures going forward.

The key drivers for auto are found on Slide 11. As you see in prior quarters, the first graph shows Global Auto's pretax income for the last eight quarters. When you strip away the noise created by the volatility in the auto industry, auto finance has performed acceptably. Moving to the right, you can see the trends in consumer auto originations improving quarter-over-quarter, but still down from a year ago. The year-over-year comparison is a bit misleading, since GMAC was still operating leases last year.

Last is our US remarketing data. This is what we are 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 has continued to trend up as used vehicle prices have continued to rise month-over-month, and we are now not only above '08 but getting back to '07 levels.

Keep in mind that, when we impaired our lease book in 2008, we made assumptions about future used vehicle prices. If we sell vehicles for more than what we've written them down to, the benefit will flow into income as gains on lease disposals captured in noninterest expense on the income statement. In Q2 '09, that gain was $134 million.

On Slide 12, you will find the income statement for Auto Finance. A key driver here is our smaller book of business. For example, total financing revenue is down about $1.2 billion, due largely to lower asset balances. Interest expenses of course dropped significantly as well, reflecting lower debt levels and a shift in mix towards lower-cost debt.

If you drop down to the depreciation line, you'll see it's down year-over-year although it hasn't fallen as quickly as our lease balances, which are down about 34% from a year ago. When we set our depreciation rates, used car prices were significantly lower than they are today. Given the recent rebound in used vehicle prices, we will continue to monitor market trends. For your reference, residual values currently represent $14.7 billion of our $19.2 billion North American lease book.

Moving on, the credit provision line is down significantly. And, in the noninterest expense line, we are seeing a benefit from the increase in used vehicle prices.

On Slide 13, we provided our credit allowance as a percentage of assets. You can see in the table, we increased our allowance coverage ratio percentage for both traditional retail loans and commercial loans compared to the levels a year ago, despite lower credit provision for the quarter.

In the fourth quarter of '08 and the first quarter of '09, we built up most of our necessary reserves while our portfolio size was shrinking, which is why the coverage ratios have increased versus last year but are flat to Q1.

On the consumer side, although economic conditions have continued to weaken compared to Q1, that has been offset by higher used vehicle prices.

In regard to the Commercial book, I will walk you through a few more details. In North America, we decreased our Commercial reserves to $164 million, which is $18 million lower than third quarter but $121 million greater than a year ago. This represents a coverage ratio of 0.8% for the quarter. The coverage ratio has increased from 0.2% from a year ago related to the deterioration in new vehicle sales, limited access to credit, and lack of consumer confidence which negatively impacted dealer performance.

For the international book, coverage has been increased to $55 million at quarter end, versus $48 million last quarter and $30 million a year ago.

Okay, Slide 14, you'll see there's been a drop in loss percentages for Q2 versus the prior quarter. This is a change from the trend over the past eight quarters, when we consistently saw loss percentages rise. We don't want to get too excited about one data point, however. There are several factors driving the mostly upward trend in loss percentages.

First, our portfolio is shrinking. Losses are measured against a reducing denominator skewing the percentages upward.

Second, fresh auto loans have low loss levels in the first year after origination. Losses rise afterwards, so loss percentage naturally increase over season as the portfolio ages.

And third and last, loss frequency continues to rise in Europe and North America as unemployment in those markets increases.

Despite the negative trends, losses as a percentage have dropped due to improvements in loss severity. Average gross loss severity on our North American service book is about 10,400 per unit, an $850 improvement from the first quarter of '09. Given the impact of loss severity here, we added the chart on Slide 16 where loss severity peaks out at the end of '08.

Delinquency trends are on Slide 15 and are increasing. The shrinking and aging of the book and higher unemployment are the key drivers. If you look back to Slide 14, you'll see that there's a disconnect between the quarter-over-quarter trends for delinquency and those for losses. Losses have improved while delinquencies have deteriorated. The disconnect here is due to the improved loss severity we saw during the quarter, which I mentioned.

Okay, let's turn to insurance on Slide 17. The biggest single driver of the negative results for the quarter is Goodwill impairment, as I mentioned before. Excluding the impairment, performance declined year-over-year due to lower premiums, partially offset by favorable weather losses. The sale of the non-core insurance lines is part of our effort to reshape our insurance business.

Another factor we are considering during our strategic review is the impact of the recent A.M. Best downgrade of our insurance businesses from A- to B++ in the quarter. Our dealer-related products have been the most exposed to this downgrade, but the team is working to mitigate the risk going forward.

On Slide 18, you'll see the pretax history for insurance here. We stack the bars to show how much pretax earnings relate to businesses sold in prior quarters. The year-over-year drop in core earnings is due to our smaller book of business and increased reserves on our international book.

Moving to the bottom left-hand corner, you can see the positive impact of lower weather-related losses.

The last chart on this page is for premiums, which shows the volume decline. The decrease reflects our exit from certain lines of business as well as the impact of lower vehicle sales.

Okay, I want to take you to Slide 19, which is the condensed income statement for insurance. This reflects all of the trends we've been discussing.

Earned premiums have fallen to about $800 million as a consequence of lower premiums written. Investment income was up a bit, despite a smaller portfolio, due to losses from market volatility a year ago. Note that outside of Goodwill impairment, the expense lines are down, a benefit of lower volumes and the sale of GMAC Reinsurance.

While we are downsizing the non-core business, the core dealer products and service area continues to be a solid business for us. And excluding the one-time impairment our steadiest performer through this 19-month economic downturn is clearly insurance.

Let's turn to mortgage ops on Slide 20. Remember that mortgage ops [includes] (corrected by company after the call) the ResCap LLC legal entity, plus our other retail mortgage platforms.

We continue to be positively impacted by the mini-refi boom, as average mortgage rates remain low. 30-year average fixed rates for the second quarter were 5.02% compared to 5.06% in the first quarter and down from 5.87% in the fourth quarter of '08. Originations from our core mortgage platform, our domestic and Canadian retail mortgage ops, have increased compared to last quarter. Overall, we experienced higher margins as our mix of government loans increased from 35% last quarter to 41% this quarter.

Our legacy asset portfolios are still a drain and will continue to present challenges as we wind them down. We took write-downs related to asset dispositions in the UK, Spain and Australia, which resulted in a combined loss of $600 million. We took write-downs, provisions and reserves on our non-bank legacy businesses, which resulted in a loss of roughly $1 billion. The net impact of the MSR valuation was more negative in Q2 this year compared to last year, but improved from the first quarter.

On a positive note, according to FHA and Case Shiller, home prices have actually increased recently and housing starts have begun to increase.

Details for the quarter can be found on Slide 21. The upper left-hand corner shows the mortgage ops pretax loss of $2 billion, which is in line with and in fact just a little bit better than our stress test assumptions.

Take a look at the graph to the right. The balance sheet is down compared to a year-ago levels, but has increased from the first quarter as we continue to sell assets and wind down our legacy operations.

Notice the primary service portfolio in the lower left-hand corner is down to $381 billion. Despite the pickup in volume, new originations remain lower than asset runoff.

The last graph simply lays out the origination trends we've been talking about. You'll see the prime nonperforming volumes increased throughout the past year, primarily due to an increase in government-backed mortgages such as VA and FHA loans, as well as our entry into the prime jumbo market. On Slide 22, you can see how these trends flow through the income statement.

Total financing revenue is down significantly due to a 17% balance sheet reduction from a year ago. Net servicing revenue is down from the prior year, but better than last quarter due to improved net valuation position.

The gain on sale line, while negative, is much better than on a year-over-year basis. You might remember that we had marked to market hits on our HSF book last year that were sizable. Those marks flow through this line.

The provision for loan losses is up sharply and we'll hit that on the next slide.

Before that though, let's take a look at non-interest expense. We've reduced employee and professional costs by over $200 million compared to year ago, and we remain focused on cost cutting there. This is real progress but it is masked by $216 million of expense for repurchases for rep and warranty and other reserves. We believe we are now adequately reserved for this exposure, although through the recession the volume of repurchase requests has continued to grow.

The credit trends are on Slide 23. Unfortunately, on the consumer mortgage side, the story isn't as good as in auto. Loss frequency and severity are both up here due to economic weakness, seasoning of the portfolio, and depressed housing values.

Weak property markets around the world mean the severity remains high. There are signs that domestic home prices may be starting to stabilize, but it is still too early to tell.

Charge-offs increased significantly due to higher delinquencies. Note that, in order to normalize the trend, in this chart we exclude a one-time catch-up amount triggered by a change in our accounting policy and transfers of assets from held for investment to held for sale. Non-accruals are down as well, as we transferred legacy assets to held for sale in anticipation of their sale.

If you look at the graphs on the right, you'll see similar trends in our lending receivables book. Non-accruals and charge-offs remain high, driven by our homebuilder lending book, which is winding down.

Before we leave the mortgage ops section, I want to mention you'll find some high-level data for the ResCap LLC legal entity on Slide 39. The full balance sheet and income statement will be available when ResCap files its Q in a few weeks.

Our last segment is Corporate and Other, with a pretax net loss of $616 million for the quarter, and you can find that on Slide 24. As a quick reminder, this segment includes our commercial finance business, certain equity investments and other corporate activities.

The biggest items here are interest expense and provision for loan loss. Interest expense is mainly driven by the amortization from our bond exchange, and provision for credit loss was negatively impacted by the write-down of the resort finance assets that (inaudible) in this segment.

That brings us to consolidated GMAC capital and liquidity. GMAC ended the quarter with $18.7 billion of cash on a consolidated basis, up $5.4 billion from the end of the second quarter from March 31 '09. On Slide 25, we walk that change. The first column of numbers is consolidated GMAC. The other columns break out cash to illustrate what we hold or trap outside of Ally Bank, ResCap and the insurance sub, and what's held within those entities. Keep in mind that insurance, ResCap and the bank all have legal or regulatory firewalls limiting our ability to remove or access cash from those entities.

If you look across the net change line, the main drivers of the increase in cash were the capital investments by the U.S. Treasury, increased deposits at Ally Bank, and new TLGP funding, which I mentioned, net of unsecured bond maturities and paydowns on redrawable secured lines.

Slides 26 and 27 cover equity and our capital ratios. On Slide 27, you will see we ended the quarter with 13.7% Tier 1 ratio, an improvement from our Q1 '09 ratio of 10.4%. Note that these numbers are preliminary and won't be final until we file our 10-Q. The biggest driver of the increase is the $7.5 billion equity investment, partially offset by the net loss for the quarter.

The last slide in this section is a review of Ally Bank, the centerpiece of our long-term funding strategy. We continue to grow our deposits. In Q2, retail deposits grew over $3 billion and were 57% of the total mix.

With that, let's flip onto Slide 29 and conclude. In Q2, we took key actions to better position ourselves going forward. Unfortunately, some of these efforts negatively impacted net income, but all of these actions were defining steps for us at GMAC Inc.

A few of the major accomplishments in Q2 -- we are receiving the $7.5 billion of TARP, issuing $4.5 billion under TLGP, starting Chrysler lending, converting to a corporation, and disposing of several troubled mortgage books.

There's no question that our operating results remain stressed as the recession and unemployment weigh on credit performance and origination volumes. Despite all of the negative global economic pressures, there are still a few key positive trends that should drive more stable results going forward. Used auto prices have stabilized and actually improved, helping both our lease results and loss severity. GM and Chrysler have exited bankruptcy. Home prices may in fact level out in the US, although we'll have to see. Mortgage originations have shown positive upward trends recently. Our mortgage servicing platform continues to perform well. And our deposit base is building fast.

Finally, we are making progress whittling GMAC down to our core business. We are transforming GMAC from a wholesale funding collection of lending platforms to a deposit-funded enterprise lending to consumers and small businesses.

Our new model clearly has a different risk profile from where we started, which should show up in results over time. So, to accelerate the model shift, we continue to focus on our five key strategic initiatives -- one, transforming GMAC to comply with the BHC requirements; two, strengthening our capital and liquidity by shifting our business to a deposit-funded model; three, enhancing the management team and infrastructure; four, diversifying revenue always within the limits of available funding; and five, improving GMAC's risk profile and our returns by focusing on credit quality and reducing run rate expenses.

With that, we will turn to Q&A.

Thank you, Rob. We are ready to take calls from investors. Please inform the callers how to queue up.

Thank you. (Operator Instructions). Eric Selle, JPMorgan.

Just starting out with some stuff on -- the delinquency trends in autos, what do you guys see in that in the third quarter? Is that continuing the escalation you saw in the second quarter?

You know, Eric, we don't make forward-looking statements on where we think that will go. You can see the trend line hasn't abated yet. That is our forward predictor of losses in most cases.

I would only say that the big drivers of that are unemployment and, if you continue to see unemployment rise, that there's a reasonable expectation that delinquencies won't abate. I think that's all I'd say about it.

If you look at your current allowance, obviously provisions, what is the internal assumption of peak unemployment in the US?

We really don't give out peak assumptions, or assumptions on our loss modeling. So I think you have another question, Eric?

Yes sir. Just getting an update on ResCap, where does the $1.3 billion revolver stand? I thought that was supposed to mature at the end of July.

It was originally a $3.5 billion revolver at ResCap. I don't know of any $1.3 billion revolver. But all of the ResCap facilities that are outstanding now have been extended, most of them through to September. That facility has about $2 billion outstanding on it right now.

And just a question on ResCap. I mean, it seems like we keep forgiving debt and extending these maturities. I mean, what is your current view on ResCap and why not cut it off? It seems like it is the biggest driver of the hole in the stress test. You know, what is your current view on ResCap and why not cut it off and force it into filing? It seems like your capital would benefit greatly.

Good questions, Eric, and clearly we get these every quarter. The first response is always the same, which is we will continue to support ResCap so long as it protects the interests of our stakeholders. So that means we are looking at this business. There are no options that are off the table for ResCap, but recognize -- my second point would be we have a core competency in origination and servicing.

On the servicing side, we are the fifth-largest in the US. In origination, we are sort of roughly around number seven. We think these are strengths for us. The legacy portfolio clearly is giving us challenges; I mentioned that in the speech, so we do wrestle with that. We do believe we've pulled a lot of the losses forward, and you heard that in the speech today. I would never be so aggressive as to say they were over, but I think we've handled a lot of the cleanup here. As long as we see the functionality and assets in this business as benefiting the stakeholder, we will stay in it.

Just specifically, I mean what is the plan here? I mean what interest are you guys protecting? I mean, this thing is still bleeding around $2 billion a quarter. I guess two questions -- one, is that supposed to abate to maybe a gain? Then what is the ultimate plan? I mean is this to -- I mean it seems like there's a lot of funding on government, and it's not a lot of opportunity for profit. When do you guys think you can get this to turn around to a profit? Is that depending on borrowing costs? I just guess, I am just looking for the 6 to 12-month plan on that thing.

Sure. Well, you can imagine we are probably not going to give you a 6 to-12 month plan. But what I can tell you is that, when we ran the traps with the Federal Reserve on all the loss content of all of our assets, we pounded on ResCap the hardest. None of these losses you see in this quarter were in excess of what we planned with them. Some of them happened sooner and we pulled them ahead to try and get this behind us. So that was really the thesis on that.

Clearly, the ResCap story is not finished, and we continue to work with that business. But as I said, part of that 6 to 12-month story would have to be, we think, origination and servicing are core strengths for us, and we are not ready to give up on those yet.

And then just finally, what are the plans to fill the $5.6 billion of capital required for the stress test? Then I will jump off. Thank you.

The balance of the stress test capital, the $13.1 billion you allude to, is still the subject of discussion between GMAC and the Fed. Until November when those discussions are finished -- and it's dynamic and I'm sure there's a lot that will happen between now and then -- we really won't have a clear answer, nor one we can disclose.

The next question, Susan?

Doug Karson, Banc of America Securities.

I wanted to see if you could share with us the outlook for just generic auto ABS funding. It used to be a big driver of your funding program, and it looks like things are getting a little bit better in the market but if you could maybe give us some color on that.

You know, it's a great point. When I first started here, auto securitizations were just part of the running business as usual of the auto company. We haven't had an auto securitization in well over a year, really more than a year and a half. While there have been some in the markets, the majority of those ABS trades have been with a TALF, and so we eagerly would love to see those markets come back.

Having said that, the good news for us, Doug, is that we have actually -- we still have some very healthy flow agreements in place into which we can place auto assets. We have a growing base of deposits that can fund them and the sufficient 23-A exemption in our bank so we can place them there as well.

So I think, for capital and liquidity, we are okay. For the auto securitization or the ABS markets going forward, your guess is as good as mine. But we sure hope they will open up eventually here.

As far as funding, those whole loan programs where you sell directly to companies such as BofA, I think ours expires in 2010 from what I remember. Are you reaching out to other institutions with this idea of originating to sell? Is that something that could be in the forward plan?

Two things on that, Doug -- first of all, I wouldn't give out specific details of any flow agreement or contract. I don't think the counterparty would want me to, nor would I want to. But I would say they have been great agreements for us, the ones we have in place. We found other sources of funding which I just mentioned. Sort of Ally Bank is becoming centerpiece of that, and originate to distribute is the model here. We embarked upon that born of both necessity and kind of a better way to run the business using capital. So over time, I think we want to keep that going. The good news is we have sufficient capital and liquidity to carry on.

Once again, absent ABS markets and those flow agreements, we have other tools at our disposal. So, I wouldn't give you a further view on that, but we've enjoyed those flow agreements.

Great. Then the last question for me -- thanks for that. On Slide 41, it reads "2010 maturity profile is $24 billion", of which it looks like most of it is secured. Based on the cash you have on the balance sheet and some of the liquidity you have, is that a number, if nothing changes in the market, that you should have no problem satisfying? Or embedded in that number is a hope that things get better in the economy to meet all of those maturities? I'm kind of wondering how safe we are in that number.

I don't -- I think we have created enough capital and liquidity where we are now with $26 billion worth of equity and almost $19 billion worth of cash, and lower volumes than we've seen in a while. I am not so worried about that. I mean, I would be more focused if the blue component of that stack bar, the unsecured piece, were much, much bigger. But the secured stuff has collateral that will run off with it and pay that indebtedness down. So I don't worry about the viability of the health of the enterprise based upon that bar.

Great. Well, thanks, guys. That's it for me.

Louise Pitt, Goldman Sachs.

Good morning, everybody. Just a couple of questions -- I guess, with respect to the debt forgiveness that you had at ResCap, can you give us any more details on which debt levels?

Sure. We used about $1.3 billion par value of bonds we bought back in the bond exchange at year-end. They've been sitting in inventory with us since then. We have a very, very small bit left and that contribution created a roughly $817 million or so gain for the ResCap legal entity, which you'll see in their results when they are published.

You know, I wouldn't give any further color on it but again, that's where the quantum of bonds came from, which was the bond exchange in December.

Do you intend to increase that small amount that you have left by buying back on the market, or that's not one of your optimization strategies?

I'm sorry, Louise. Do I intend to do what?

Oh, I'm sorry. Do you continue -- do you expect to continue to buy back ResCap debt, either in the market or otherwise to continue to support the entity via bond buyback?

Well, there are two questions there. I mean the first question is, if we were ever to do OMR activity, it would be something we would handle in a more orderly process. So we have no plans on the table at this very moment to do that. I'm not sure I heard the second question; I think it was about further support with bonds but I'm not sure.

Yes, it was all rolled into one, so that's fine, thank you. Just a couple more -- 23-A asset transfers that you just mentioned, are there any more plans for those? Are they part of the capital plans that you're discussing with the government right now?

Well, let me just make a minor correction. The 23-A exemption and the feds grant to that, there were no asset transfers per se, Louise. It is just new originations can go there. So we didn't actually wholesale move assets out of the holding company into the bank. We are always in active dialogue with all of our regulators, both the Fed and the FDIC, but suffice it to say I think we are very, very pleased with the exemption we were given. Until we need it, I don't see us pounding for more in this particular area. But again, those are sort of confidential discussions with the Fed and I would leave it up to their wisdom.

So does that mean that discussions about asset transfers are not on the table in that case -- it's more the exemptions, if anything?

You know, Louise, I would prefer not to be specific on that only because it's a dynamic set of discussions with the Fed and they always prefer that we not discuss it publicly.

Okay, great. Then just one quick last question. You still have around $3 billion of remaining TLGP, although I understand that you need to get approval to issue that. Are there any plans to go ahead with issuance of the remaining TLGP allowance?

It's always been in our funding plan; it remains in our funding plan. We are in constant dialogue with the FDIC. They set some parameters for us around running our bank and pricing deposits. We think we are living up to that and we hope we get the rest of the TLGP, but again that is something that the FDIC will ultimately make a decision on. We will respect whichever way they decide. Anyhow, we would like to issue the rest of it and we will see how that goes.

That runs out at the end of October, is that right?

That's correct.

Okay, great. Thank you.

Sarah Thompson, Barclays Capital.

A follow-up question on the additional money from the stress test -- I just want to make sure I understand it correctly. I realize that you can't release exactly how you are going to raise it, but is it your understanding that the government is backstopping it so if you cannot raise it from another source, you will get it from them, or is that still in question?

What I would tell you is, when the stress test results came out, that was the set of parameters they issued. They said -- and I think this is a matter of public record -- that if you couldn't raise it through other means, the government would provide it. I think that's a dynamic equation going forward, and so we obviously will do everything we can to obviously match the capital requirements of the Fed, but also to raise funds ourselves when possible.

I would just say right now that is a wait-and-see environment with them, and again, it's dynamic. So if they change their position on it, that's their right.

Okay, fair enough. And then on Slide 25, it's a nice walk -- thank you -- on the cash -- what is -- there's a large other bucket. What is in that number?

2.4 in GMAC consolidated. I just want to look at my notes here. Okay, the largest piece is in Ally Bank. And my recall on that -- right, right, right. That is the movement of investment securities, exactly right.

That's the movement of investment securities at Ally Bank?

Right.

And then what would the ResCap one would be?

Jim, do you recall what the movement of ResCap (inaudible)? I think it is small, various items across ResCap. It's really a plug for "other" there. It's a series of cats and mice in that one.

Okay, terrific. Thank you.

Bill Green, Callen Road Asset Management.

Can you tell us, of the $5 billion capital that you have to raise, approximately how much of that applies to losses that you expected at ResCap?

Yes, you know the $5.6 billion that people alluded to, the balance of the $13.1 billion spoken is across a whole different set of components. You can -- that data which was public you can kind of look at on the Fed's website. It doesn't give you a lot of clarity as to how it is applied, and so we generally don't discuss those allies with the Fed publicly.

Can you say how much of the new mortgage originations that were done in the quarter were done at ResCap versus Ally Bank?

The new originations in the quarter -- recognize that kind of 99% of the new originations are flowing right to the GSEs, to Fannie and Freddie. And so while they make their way through the bank, then you can see the pop in the held-for-sale book in the bank. They are largely all going through the bank at this point. So we are not creating assets and holding them at mortgage ops; we are creating them, either flowing them through the bank and selling the GSEs, or in the case of our jumbo book, creating a portfolio of something upwards of $2 billion and holding it in the bank. So there's really nothing going into -- of any material level going into ResCap, the legal entity.

So going back to your earlier statement, that you regard your core competencies as being originating and servicing, if GMAC was no longer to own ResCap, your core competency of originating would be unimpacted? You know, it kind of just seems like you are taking a decent amount of loss at ResCap with no light at the end of the tunnel, but no new business is really being done there. As you said, you stamped on ResCap pretty hard and that's where a decent chunk of the losses are going to come that's going to require you to raise capital.

If you think of ResCap as just the legacy asset groupings -- our international group, our business lending group, and our principal investing group -- yes, there's no new business being flowed through those units. If you think of it as the origination and servicing platforms, which both sit in ResCap LLC, those businesses are alive and well, they are improving and they are profitable.

But the origination is actually happening at the bank, which is no longer legally owned by ResCap. It is owned by GMAC, correct?

That is technically correct. I mean, Jim, would you change --?

Yes, so the only comments I would make is clearly the servicing platform is an extremely valuable asset in our minds, and that's obviously inside the legal entity of ResCap.

The origination activity is actually split somewhat between Ally Bank and the legal entity of ResCap; the correspondent origination channel is inside the bank, so the legal entity owned by GMAC. The direct-to-consumer origination channel is owned by the legal entity of ResCap.

However, to Rob's point, all of the funding goes through the bank and then there's intercompany transfers between the bank and ResCap.

I guess when you -- just, I will move on but when you say you are going to kind of do what's best for your stakeholder, doesn't it then boil down to that you would have an internal evaluation of what the mortgage servicing platform is? To the extent that is less than the value of losses that you are likely to take on ResCap under the (inaudible), then from an economic perspective, it no longer makes sense to support ResCap?

You know, Bill, there's a lot of ways to look at the value of servicing, whether it's a $3.5 billion MSR or the $381 billion worth of loans serviced. Some of what you say makes sense, but you have to balance a bunch of different items. There is origination; there's servicing; there's our ability to kind of leverage Ally Bank. So it's not a straightforward piece of math as that. Having said that, we are watching the losses closely and we are no more happy about them than anyone else.

(Operator Instructions). Kirk Ludtke, CRT Capital Group.

Good morning, everyone. I was hoping to focus on where you are taking the business, the auto business in particular. I guess, last week or the week before, you announced you were going to get back into the leasing business. I was curious how -- if you could give us some color as to how you expect to ramp that up and how big a program you expect it to be.

That's a good question, Kirk. Obviously, there are a lot more questions on auto strategy than just leasing I think. But where leasing comes into the equation is we want to offer the best suite of products available to our customers, whether they be the dealers, the retail customers, and in effect to the OEMs so we can help distribute their product. Having said that, leasing is something we pulled away from for a bunch of reasons in 2008, not the least of which was our liquidity profile.

As we review the reentry into the leasing world -- and we are reviewing it -- we do that like every product we evaluate, and we want to do it with the right underwriting and the right standards. We are sitting on 1.1 million vehicles and $22 billion worth of lease assets. So even with the run-up in value in used vehicles, whatever we do on the leasing side will be entered into very carefully, but again always with a view to support our customer base, whom I alluded to before.

So I think it is a fair assumption we are looking very hard at leasing, and if we can find an equation that gives us the right return and the right risk, we will absolutely do it and, again, make it part of that critical suite of dealer floor plan, retail lending, and leasing and insurance products that we think is so valuable.

Okay. I know it's hard to say how big a portion of your volume it might be, but in the day, what was it? Maybe 20% of what you were doing?

If not more.

Yes.

And so -- but recognize, Kirk, we have not announced a hard reentry into the leasing world. We know there's someone providing limited space leasing business, U.S. Bancorp, to GM, and that's fine. Again, it's in sort of a handful of states. If we do it, we are going to do it the right way and put product in front of them that they can really use across their franchise.

Okay, that's helpful. Thanks. Then I was also curious if you -- what your plans were for maybe moving down the credit spectrum. I was hoping you could maybe refresh us on what kind of FICO scores you are lending to today, and where that may go.

You know, that is a mixed answer to that question, Kirk, as you can imagine, because what we do in the bank is framed by a regulatory framework, a set of parameters, sort of 660 and above. What we do outside could go lower than that.

But the main message here is we have a strategy of balancing the product we offer to offer our OEMs -- there are two in our stable now -- the ability to make loans not just to the high end of their customer base but down the continuum. We just don't want to get caught in a kick in a situation where we've created assets that aren't sufficiently or well underwritten.

So we are not going to be digging way down the FICO or credit spectrum or grading spectrum, but we do want to offer a suite of products across the continuum. We are committed to doing that for both of our -- of the OEMs whom we support.

Okay. Just to where you are today, you are doing 720 and above as I remember? Is that right, or --?

No, that's left over from when we shut down retail, by and large, as well as leasing, in the fourth quarter of 2008. That's no longer the framework here.

Okay, and then the last topic -- you were I guess remarketing the -- or marketing the GM stake in GMAC I guess as an ongoing process. I am just curious how active a process it is, and what the timeframe may be there, or conceivably I guess maybe the government has an idea that they will someday recombine GM and GMAC, and maybe it is not really moving forward at all. I'm just curious if you have any comment on that.

Sure, Kirk. So there were I think a couple of questions in there. Let me answer the last one first. This is really my view. I think it is highly unlikely that you would see GM and GMAC reunited. I think that's largely due to regulatory framework, Kirk. This is a bank holding company with $13 billion-plus worth of equity from the federal government, and we need to behave like a bank; that's what we are. So, I think it would be unlikely that a manufacturer would own a majority interest in this enterprise, any more than a dominant private equity firm would own a majority interest. Those were in fact conditions of our getting BHC on December 24 last year. So that is how I would address that.

On the other hand, you asked about the marketing of the GM shares. I will refer you to Page 26 of the deck. We talk about the -- we addressed the 9.9% that GM has outright plus the 14.6% that they owned as a beneficiary, right? The idea about putting that in trust was to separate themselves from it legally, other than the economic value that would flow from it.

The decision to market those shares is solely at the province of the trustee that sits atop those shares. While we will provide that individual information on GMAC Inc., we don't influence that decision in any way.

Maybe wait for things to stabilize a little bit?

Yes, and I think that's right. If I were the trustee for it, I would want to see the best value delivery to liquidate that position. I think that's something that time will bring.

Great, I appreciate it. Thank you very much.

Brian Lau, Columbus Hill Capital Management.

It's actually Kevin Eng. I have a follow-up question that other people have asked. Can you clarify? There was a number of $5.6 billion that was thrown out from a capital raise standpoint. Can you clarify that number? I thought that the $5.6 billion was fresh capital and that did not include the ability to convert preferred. So is the total capital you have to raise $5.6 billion or $8 billion?

No, the total capital -- there are two different components to it. So the entire number got to $13.1 billion when you added $4 billion attendant to Chrysler. So back that down, you get to $11 billion and change. The $11 billion was to be new capital -- was to be capital; $9.9 billion and change was to be Tier 1 common, so was to be fresh capital in that equation.

The government's preferred at the time of issue and I believe going through this process can be treated as Tier 1 common for those purposes. That was all laid out in the stress test results.

So coming back full circle to your question, the $5.6 billion that has yet to be contributed here, as I said before, that is a dynamic number and so we look at it only from an historical sort of one point in time estimate by the Fed. But should we get it, it will have to be new, fresh capital. If they were still to stand by that, it would be new money coming inbound.

So you have to raise $5.6 billion of fresh capital? That does not include any conversion of like $2.5 billion of preferred?

No, that does not. The conversion of preferred will happen if our Tier 1 common drops below a certain threshold.

Okay. Is there a likelihood that the government backs off the amount of capital you have to raise, so the $5.6 you mentioned is a dynamic number? Is there a likelihood that number actually decreases if you have better performance? (multiple speakers)

You know, Kevin, that is sort of raw conjecture. What I would say is that, if our needs are less, I can't believe the taxpayer would want to put more capital in unnecessarily.

So you look at the tide of originations here and need, and you have to weigh that by losses we have pulled forward at ResCap. Again, they are not in excess of what S-CAP called for, but they are losses nonetheless. You decide whether those ins and outs of capital usage would call for more or less than $5.6 billion, because that's the decision the Fed will make.

Okay. What is the likelihood that the TLGP program gets extended past this fall?

Yes, I can't guess to that. That's the FDIC's decision exclusively.

Can you talk -- shed a little light on how July -- the auto dealers or the auto manufacturers from Chrysler to GM and Ford you know, your sales numbers have and the cash for clunkers program seems to have been pretty successful. Can you shed some light on how that affected your origination business?

Yes. We obviously can't talk to July; those numbers aren't out. Having said that, you can see, in the Journal this morning, that the clunker performance was an unbelievable driver. Obviously, they've taken SAAR up, a material amount in the first pop like that we've seen in some time. So I can't imagine that won't help us and everybody else, but I certainly can't speak to numbers in July and how they will go at this time.

Can we assume that you got your fair share of that business, that origination business?

I'm really not going to go there, Kevin, sorry.

Can you discuss -- you know, currently and in the past (technical difficulty) focused on the Internet banking strategy. Can you discuss whether you guys are thinking about or planning a branch network or branch strategy to supplement your Internet strategy? Is it a means of raising capital?

Good question, Kevin. Obviously, Ally Bank has no branches today, and so that $3 billion build of retail deposits in the quarter, which we are pretty proud of, was all driven by marketing efforts from our team running that unit. So I would just tell you that's a big part of our future strategy. Deposit gathering is something we think we do a very good job at. We have a lot of people with a lot of years of experience in some of the best shops.

If you asked me about bricks and mortar branches, that would be a big capital expenditure or an M&A trade, neither of which we would be prepared to talk to at this time.

Kevin, I'm sorry. We do have one other person in the queue we would like to get to before we have to cut off the call. So if you've got additional questions, why don't you give me a call and we can chat about it?

Antonio Davila, GBM.

Thanks for the call. I just wanted to clarify. Do you know how many ResCap bonds are still in GMAC that could be used to further capitalize the Company?

Yes, we do, but let me just -- it's fair to say, Antonio, it is not a material enough amount to really move the needle. It is less than $50 million at this time.

Okay. In the future, would you consider or has GMAC considered forgiving part of the other facilities that they have? I am referring specifically to the $3.5 billion credit lines.

Right -- which is now down to $2 billion. You know, I wouldn't want to say -- I mean, look, as I said earlier, support for ResCap is a dynamic decision. It's one based on the health of overall GMAC and our stakeholders. If we felt we needed to put incremental capital at some point in time, we would look at every currency source we have, whether it be cash or existing assets or receivables there. We have no plans to forgive those loans at this time.

Okay, just one final question -- are your origination platforms at ResCap secured (inaudible) origination and servicing platforms secured in any way towards the guarantees in the package constituted by the bonds and your direct credit facilities towards ResCap?

So, two pieces of that -- one is there are existing loans against our mortgage servicing asset for sure. There is a blanket lien across all those components attendant to the bonds issued.

Okay, thank you.

Thank you, everyone. I apologize but we are up against a hard stop. If you do have additional questions, please feel free to contact Investor Relations; we will answer them. Thank you all very much for participating in our call, and thank you, Rob, for taking us through the quarter.

Katina?

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.