Bank of America Corp. (NYSE:BAC) and GMAC LLC are two wounded financial giants with mounds of debt, whose futures look cloudy at best. One scenario that the TheStreet.com sees is an unlikely merger between the two financial companies.
What are the benefits to such a deal, according to TheStreet's Gavin Magor?
The piece points out that the combined company would get an instant credible CEO in the form of GMAC's current chief executive Alvaro de Molina. Magor describes Molina, who happens to have been the former CFO of BofA, as "a
CEO with experience in managing an organization that has had to fight
its way through a financial crisis that threatened to sink it." There's no doubt Molina, so far, has shown himself to be a competent executive in dealing with GMAC's problems but the assumption he would get the job done in a combined company may be a stretch in this scenario.
After all, managing a combined BofA and GMAC would be a gargantuan task of overseeing possibly the biggest bank in the U.S., with double the trouble of the combined firms. Molina's only been CEO of GMAC since March 2008 and has never held the top position at any financial institution before -- unlike some of the other rumored outside candidates for BofA's CEO position. It's not to say that he's not capable, but more CEO experience would help. He's spent most of his career, 17 years, at BofA, the last 14 months of that tenure as CFO. Perhaps that's why in the real world BofA knocked off Molina from its current list of possible CEOs to replace Ken Lewis, according to The Wall Street Journal on Monday.
Meanwhile, TheStreet.com's piece argues another reason for a BofA-GMAC union: that the Charlotte, N.C.-based bank "would gain a substantial foothold in automotive financing, reducing its reliance on mortgage lending." That may be true, but that foothold in GMAC's automotive financing unit is not as strong as Magor would lead you to believe. Granted, GMAC's automotive finance posted a pretax profit of $395 million on Wednesday, but the reality is it's unlikely that the division would be able to sustain those numbers in the near term. The cash for clunkers program has ended, and the economy is showing stagnant growth. Even GMAC CFO Robert Hull warned analysts, "Credit conditions weakened with higher unemployment, causing 30-day delinquencies on auto loans to jump to 3.76 percent in the third quarter from 2.77 percent a year ago and 3.48 in the previous quarter."
So, a BofA-GMAC merger scenario, for now, is more fantasy than reality. Even TheStreet.com's main contributor and co-founder Jim Cramer may see it that way: "GMAC seems more of a liquidation to me, after a reorganization." And perhaps that's the way BofA would buy any piece of GMAC. - Gerald Magpily
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