Banking

General Motors seeks to avoid mistakes of last foray into banking

General Motors is once again seeking a bank charter, but this time around the Detroit carmaker is vowing to stick to its roots.

GM, which applied last week to open a Utah-based industrial bank, stated in its application with state and federal regulators that its bank GM Financial Bank will focus on retail auto lending and will not offer mortgage loans.

During the subprime mortgage era, GM’s finance arm, known as GMAC, was a major residential lender. After being spun off from General Motors in 2006, GMAC’s Residential Capital unit lost $9.2 billion in eight quarters between 2007 and 2009.

In 2010, Michael Carpenter, who was then GMAC’s chief executive, called Residential Capital “a millstone around the company’s neck” during a hearing on Capitol Hill.

If its bank application is approved, General Motors plans to offer high-yield savings accounts and certificates of deposit over the internet and through a mobile app.

Bloomberg

GMAC, which during the 2008 crisis converted from an industrial loan company to a bank holding company, received a series of bailouts from the federal government. Its mortgage unit eventually filed for bankruptcy protection and was liquidated. GMAC rebranded itself as Ally Financial.

In its recent application for a bank charter, the company vowed to keep its strategy narrowly focused.

The bank will primarily make auto loans to consumers through dealerships, though it could also originate some loans directly to consumers, with the goal of supporting GM’s growth, according to the application.

The bank will not be involved in commercial vehicle lending or fleet financing, and it will not engage in secondary market transactions, GM said.

“GM Financial Bank will directly support our business model by providing more stable, cost-effective funding,” Dan Berce, the president and CEO of GM Financial, said in a press release.

The proposed bank’s tight focus on retail auto lending could give comfort to regulators who have memories of the 2008-9 crisis. It could also help counter arguments from incumbents in the banking industry that oppose new industrial bank charters, contending that they blur the longstanding line between banking and commerce in the United States. Numerous automakers have operated industrial banks over the years.

GM, which does not plan to open branches, said that it will offer high-yield savings accounts, certificates of deposit and brokered deposits. The savings accounts and CDs will be available over the internet and through a mobile app.

William Donnelly, a veteran of the auto finance industry, will serve as president and CEO of the bank if it receives regulatory approval. Donnelly was president of Tesla Finance LLC between 2013 and 2017, and earlier was the president of BMW Bank of North America. He served as chief financial officer of the fintech LendUp between 2017 and 2019.

GM Financial emerged out of General Motors’ 2010 acquisition of AmeriCredit. Last year the unit reported revenue of $14.5 billion and net income of $1.6 billion.



 

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