GMAC profit falls 63 pct as home loans weigh
Mon Jul 30, 2007 2:36PM EDT
reuters.com
NEW YORK (Reuters) - GMAC, the finance company in which General Motors Corp. (GM.N: Quote, Profile, Research) sold a majority stake, posted a 63 percent decline in second-quarter profit on Monday, hurt by losses in its home lending unit.
Results, however, improved from the first quarter's after the company reduced lending risks, and GMAC bond prices rose.
Net income for GMAC fell to $293 million from $787 million a year earlier, but showed improvement from the first quarter's $305 million loss.
Results included a $254 million loss at Residential Capital LLC, or ResCap, compared with a year-earlier $548 million profit, amid what GMAC called "severe illiquidity" in the market for subprime mortgages.
That loss, however, was 72 percent smaller than the first quarter's $910 million. Excluding ResCap, profit at GMAC more than doubled to $547 million from $239 million.
"I'm actually pretty pleased," said Pete Hastings, a fixed-income analyst at Morgan Keegan & Co. in Memphis, Tennessee, who favors shorter-maturity GMAC debt. "They've done a terrific job reducing exposure to subprime. The ResCap loss is roughly on the order of what we were led to expect."
Like many lenders, ResCap has struggled as falling home prices and rising interest rates made it tougher for many homeowners to keep up with their mortgage payments.
GMAC Chief Executive Eric Feldstein in a statement said efforts to trim risk "have reduced ResCap's losses, quickly and significantly, despite increasing challenges in the U.S. mortgage market."
He nevertheless projected that "widespread weakness" in housing and mortgages will persist this year. ResCap will reduce its subprime mortgage exposure and "right-size" its expense base as industrywide volume declines, he said. Continued... |
