GM's announcement last Thursday that it is delaying its Q4 earnings report illustrates the effect the travails of the U.S. mortgage market have had on GMAC Financial Services, a lending unit GM divested in November. Cerberus Capital Management purchased 51% of GMAC for $14 billion, but there is some question whether the $14.4 billion tangible NBV ascribed to GMAC at the time was appropriate. At particular issue is GMAC's ResCap mortgage unit, which has suffered the same pressures that have hurt lenders throughout the industry. Lehman Brothers auto analyst Brian Johnson estimates that "complications" at ResCap could cost GM $300-400 million in cash charges in H1. A substantial payout to Cerberus could be a great strain on GM as it struggles to maintain liquidity and fund its restructuring. GM is planning to restate results from 2002 through Q3 2006 because of overstatements of deferred-tax liabilities. The company is forecasting a profitable Q4 with record revenue and says it ended 2006 with $26.4 billion in cash.
Expect to see more news like this over the next year. More and more lenders have gotten into the mortgage game. More and more sub-prime mortgages are moving into foreclosure at a faster pace.