Geithner: U.S. to give GMAC substantial support

U.S. Treasury Secretary Timothy Geithner said on Friday that the Obama administration will provide "substantial support" to troubled lender GMAC, a vital provider of financing for the domestic auto industry.

"We're going to provide substantial support to GMAC," Geithner said in an interview with Reuters Television. "It's likely, again, that GMAC will need to take additional capital from the government and we'll be prepared to provide that."

The Treasury and U.S. banking regulators said on Thursday that GMAC needs to raise $11.5 billion to fill a capital hole it could face if the economy were to deteriorate further.

After "stress tests" were performed on the 19 largest U.S. banks, the Treasury and the Federal Reserve concluded that 10 of them need to raise a combined $74.6 billion of capital to build a protective buffer and ensure they could keep lending even in the face of mounting losses.

Geithner said there were some signs that credit conditions were easing and fears of a catastrophic financial meltdown waning. However, he said there was still "a long way to go" before credit conditions could be considered normal.

GMAC (GKM.N), the former financing arm of General Motors Corp (GM.N), has taken $5 billion in capital from the government already. In addition, the Treasury Department has lent GM $884 million to support GMAC's lending activities. Under the restructuring of Chrysler Corp CBS.UL, GMAC is assuming the business of Chrysler Financial.

Chrysler has entered bankruptcy proceedings and GM has until June 1 to show it can come up with a workable restructuring plan, underlining the importance of GMAC to the struggling U.S. auto industry.

"Financing is critical to this (restructuring) process, and that requires that GMAC have the ability to provide loans that Americans need to buy cars," Geithner said in explaining the Obama administration's rationale for supporting the lender.

[Source: By David Lawder and Glenn Somerville, Reuters, Washington, 08May09]

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