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ResCap tips the scales

In the past few years, GMAC's mortgage-related businesses have become increasingly stymied by the ill-favoured rating environment of their immediate parent and GM. It was time to find a way out.

GENERAL MOTORS ACCEPTANCE Corporation was established in 1919 as a wholly owned subsidiary of General Motors to finance dealers' inventories and help customers fund car purchases. Over the decades, though, it grew into a massive global firm that extended and dealt in finance for a broad range of services and products. Motor vehicles still figured strongly but residential and corporate real estate, insurance and mortgage business became increasingly important. For as long as the traditional core auto business of parent GM and GMAC was healthy, the other financial businesses could borrow cheaply on the strength of GMAC's investment-grade rating. But when the major US auto makers ran out of road, a restructuring of GMAC began to look increasingly attractive and even a necessity.

On June 24 2003 the GMAC board grasped the nettle, deciding to embark on a restructuring that took almost two years to complete. The board had realized that carving out a separate real estate finance holding company from the relevant GMAC operating companies would be essential for their long-term health.

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