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Guest Post: Zombie Love: Barack Obama, GMAC and Ally Bank

Tyler Durden's picture




 

Submitted by Chris Whalen of Institutional Risk Analytics


Zombie Love: Barack Obama, GMAC and Ally Bank

Give me
Your dirty love
Like you might surrender
To some dragon in your dreams

Give me
Your dirty love
Like a pink donation
To the dragon in your dreams

I don't need your sweet devotion
I don't want your cheap emotion
Just whip me up some dragon lotion
For your dirty love

Frank Zappa
"Dirty Love"

Kudos to The Wall Street Journal, which scooped the rest of the Big Media last night by reporting that GMAC Inc. is asking for yet another $3 billion bailout from the US Treasury. If Citigroup (NYSE:C) is the Queen of the Zombie Dance Party and AIG (NYSE:AIG) the King, then GMAC is certainly one of the children. In relative terms, GMAC has received far more subsidies than any other zombie and seemingly has no access to the private markets in terms of raising new equity. Of the 19 banks subject to the Fed's stress tests earlier this year, GMAC is the only bank that has not raised the required private capital.

Looking at the latest 10-Q from GMAC filed with the SEC, the only question we have is why isn't GMAC already in bankruptcy? In Q2 2009, GMAC reported a net loss of $3.9 billion on $3.6 billion in net revenue. We can't wait to read the Q3 10-Q. Even if you back out the $1.3 billion in depreciation expense for GMAC, the picture remains pretty bleak. Revenue and total assets are down significantly from a year ago, a characteristic that GMAC shares with C and other zombie banks. Most important, the fact that GMAC as a whole is shrinking makes a lie of claims by the White House that this hideous zombie needs to be kept alive to provide credit to the US economy.

Looking at GMAC's bank subsidiary, Ally Bank, the picture is even more alarming. As of Q2 2009, Ally Bank was rated "F" by the IRA Bank Monitor. The chief reason for the poor rating is the negative score for ROE, but defaults are also elevated compared to the US industry average. The Q2 2009 Banking Stress Index is shown below.

Notice that Ally Bank has excellent scores for capital, but the bad news is that only your taxpayer dollars made that possible. While GMAC's total consoldiated assets are down, Ally Bank's assets have grown by nearly 25% in the past quarter, fueled by copious television advertising and federal subsidies. The term "moral hazard" comes to mind. By propping up GMAC and Ally Bank with taxpayer dollars, the Treasury is hurting sound, well-managed banks.

Virtually all of the readers of The IRA have seen the obnoxious television and print ads run nationally by Ally Bank, offering above-market deposit rates and no penalties for early withdrawal. Such tactics also are generally associated with unsafe and unsound banking practices, yet the Treasury and other regulators allow this dangerous charade to continue because of political pressure from the White House. And nobody in the Big Media wants to critizcize Ally Bank or GMAC because of the huge ad spend this zombie has been making during 2009.

The low score for lending capacity again illustrates that Ally Bank is actually retreating from the marketplace in terms of credit available for customers -- even as GMAC pyramid's the bank unit's investment book in a desperate bid to survive. Note too that as of Q2 2009, Ally Bank was funding more than 17% of its now $42 billion in assets via the Federal Home Loan Banks -- yet another subsidy and another striking indcator of growing moral harzard. Federal bank regulations generally identify 15% as the threshold for unsafe and unsound practices with respect to the use of FHLB advances for funding, but it seems that GMAC is exempt from these rules as well.

As we wrote earlier this year regarding the GMAC and GM, the political end game being played by President Barack Obama and the Democrats in Congress is to keep GMAC, the crippled automaker GM and the United Auto Workers afloat through next year's election. The Democrats know that if GMAC is forced into bankruptcy, then GM will be unable to finance their paltry auto sales and will likewise end up back in bankruptcy. In the event, the web of subsidies and co-dependency between the UAW and the Democratic Party will begin its final collapse. We can't wait.

We hear that Treasury Secretary Timothy Geithner and his minions at the Treasury have already blessed an additional $3 billion cash infusion to keep GMAC afloat for a few more months, this on top of the $12 billion in public funds already thrown into the furnace. But keep in mind that at the current burn rate inside GMAC, it looks to us like this dancing zombie will be back looking for another handout from Washington early in Q1 2010.

Given the above, we are initiating coverage of GMAC in the IRA Advisory Service with a "negative" outlook on forward operating results. Stay tuned.

Questions? Comments? info@institutionalriskanalytics.com

 

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Wed, 10/28/2009 - 12:27 | 113018 QevolveQ
QevolveQ's picture

 Bill Gross investment outlook letter...

Very bearish take, overall thesis speaks to the use of leverage and manipulation of asset prices in a paper economy:

 

"The U.S. and most other G-7 economies have been significantly and artificially influenced by asset price appreciation for decades."

 

 

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Midnight+Candles+Gross+November.htm

Wed, 10/28/2009 - 13:50 | 113123 Daedal
Wed, 10/28/2009 - 12:36 | 113031 Anonymous
Anonymous's picture

Funny that whil reading this story on a zombie bank, I see an ad for a Capitol One 2 year CD paying 2.3% APY with the slogan, "We'll put your money on the path to steady growth."

Wed, 10/28/2009 - 12:41 | 113035 Internet Tough Guy
Internet Tough Guy's picture

There are several ways to kill a zombie. The most satisfying is to drive a wooden stick through its' brain.

Or, in this case, stop pouring money into it.

Wed, 10/28/2009 - 12:54 | 113048 jswede
jswede's picture

another brilliant Whalen piece....  Obama would do anything to keep GMAC going til the election next fall... and will.   so wrong.

Wed, 10/28/2009 - 13:00 | 113052 Anonymous
Anonymous's picture

congress is the only authority capable of killing this leach but it will not do so....after all congress is part of the problem....

Wed, 10/28/2009 - 13:06 | 113066 DaveyJones
DaveyJones's picture

"this on top of the $12 billion in public funds already thrown into the furnace." 

Is this what you meant, in that other article Tyler, when you said the dollar was on fire? 

Wed, 10/28/2009 - 13:09 | 113073 Careless Whisper
Careless Whisper's picture

Geithner is a disgrace.

Wed, 10/28/2009 - 13:15 | 113079 DaveyJones
DaveyJones's picture

I was thinking these Zappa Lyrics (Time is Money)

From my couch-in-the-sky,
As my planet goes by,
I behold all your misery below there
I have seen all your lying,
And crying, and dying,
And, believe me,
Your planet is nowhere
Space is a very long time
and if the equation,
As set forth above,
Is proved when we get to
The bottom line...
The powers financial
I'll hold o'er your world
Will complete my fantastic design
And the whole 'equivalent earth' shall be mine

Wed, 10/28/2009 - 14:57 | 113208 Howard_Beale
Howard_Beale's picture

I was thinking:

Watch out where the huskies go
And don't you eat that yellow snow

Wed, 10/28/2009 - 15:10 | 113226 Dogfather
Dogfather's picture

Or....

He took a dog-doo snow cone and stuffed it in my right eye
He took a dog-doo snow cone and stuffed it in my other eye
And the husky wee-wee
I mean the doggie wee-wee
Has blinded me
And I can't see

Wed, 10/28/2009 - 18:07 | 113444 Veteran
Veteran's picture

Dumb all over, a little ugly on the side

Wed, 10/28/2009 - 13:56 | 113131 Green Sharts
Green Sharts's picture

Whalen is a great analyst and writer.  He should be the Treasury Secretary or head of the FDIC.  Or better yet, Czar in Charge of Cleaning Up the U.S. Banking System with dictatorial powers.

Wed, 10/28/2009 - 14:28 | 113164 Anonymous
Anonymous's picture

meanwhile these bastards pay above market CD rates and pay their CEO 8 mil THIS YEAR with approval of president empty suit. Unbelievable. Unions better be doing more than just saying thankyou to president roosevelt, oops, obama.

Wed, 10/28/2009 - 14:36 | 113172 brown_hornet
brown_hornet's picture

Davey j-

Are you sure it wasn't George Soros who wrote those lyrics?

Wed, 10/28/2009 - 17:23 | 113401 Anonymous
Anonymous's picture

Why must the FDIC control the interest rates being paid by banks? What happened to free markets and competition among banks? We give them our hard-earned money at less than 1% and they rake in record returns. Isn't this just another way of subsiding the banks. Just another bailout on the back of those that are trying to save.

Thu, 10/29/2009 - 00:18 | 113743 colonial
colonial's picture

Readers here should also not forget the following...In spite of the fact that he lost his chairmanship Big John Dingell is still a force protecting GM.  Also Levin is in leadership and the junior Senator from Michigan also has cover from the White House.  The money going to GM is huge!  Ally Bank is enjoying a tremendous competitive advantage over other institutions who do not have the same support.  Its akin to years where Freddie and Fannie had an advantage over other mortgage lenders...shameful really.

Sat, 10/30/2010 - 04:08 | 687720 Susancai
Susancai's picture

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Sun, 06/05/2011 - 07:56 | 1340851 sun1
sun1's picture

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