02 December 2009

GMAC Chief Forced To Resign

Wall Street Journal

In a surprise move, the head of GMAC Financial Services -- the giant, taxpayer-supported auto lender -- was ousted Monday.

The forced resignation of Alvaro de Molina after only 19 months as chief executive caps a series of clashes with regulators and mounting board frustration over his management of the Detroit company. GMAC, which finances inventory for thousands of car dealerships in the U.S., to date has received $12.5 billion in taxpayer money, giving the U.S. government a 35.4% stake and growing power over the firm's trajectory.

Government officials said they made no suggestion to GMAC's board to dump Mr. de Molina. "That was 100% GMAC's decision," Treasury spokesman Andrew Williams said.

The shakeup comes as GMAC talks to regulators about a third helping of federal aid. The U.S. is likely to inject billions more on top of the money already given.

GMAC said Mr. de Molina would be succeeded immediately by Michael A. Carpenter, a GMAC director who previously led Citigroup Inc.'s global investment bank. Mr. Carpenter joined the board in May as part of the government's toughened scrutiny of GMAC, following a second infusion of federal capital. The Treasury Department filled two of the seven board seats.

In recent months, Mr. de Molina faced directors who wanted increasingly assertive roles in day-to-day management, according to people familiar with the situation.By mid-October, the board had begun thinking about a new CEO, according to these people, and told officials from the Federal Reserve, Federal Deposit Insurance Corp. and Treasury Department of their thinking.

Mr. de Molina was told of his ouster around noon Monday in a meeting at the midtown Manhattan offices of law firm Davis Polk & Wardwell LLP, GMAC's outside counsel.

According to a person who attended the meeting, Mr. de Molina said he would leave without severance pay and didn't want to do anything that could expose GMAC to criticism. Mr. de Molina declined to comment.

His successor, Mr. Carpenter, has had a storied history in the financial world. In the mid-1990s, he was ousted as Kidder, Peabody Group Inc.'s chairman and CEO after the securities firm was hit by a bond-trading scandal involving a rogue trader, Joseph Jett, booking fictitious trades. He went on to help build Citigroup into one of the most powerful financial institutions in the world.

With Mr. de Molina gone, Mr. Carpenter and GMAC directors plan to resolve the problems facing GMAC's Residential Capital LLC mortgage unit, which will improve GMAC's ability to secure low-cost funding via the capital markets, and focusing GMAC on a core auto-lending mission.

The goal is for GMAC to broaden its focus beyond serving General Motors and Chrysler to include other brands. The company is likely to roll out an aggressive marketing strategy to lure new customers and auto dealerships.

People close to Mr. de Molina dispute the view that GMAC's strategy needs adjusting, saying he had a plan to return the company to profitability in 2010, pay the government back, cut costs, focus on the auto business and fund new lending via bank deposits. The blueprint that Mr. Carpenter laid out Monday, they said, was no different. Directors "did not give him the time to let this play out," said one person close to him.

What hurt Mr. de Molina in the end was the company's growing financial lifeline from the government and his deteriorating relationship with the board. In May, the seven-person board got five new members, including two appointed by Treasury: Former Fannie Mae chief financial officer Robert Blakely and former Lazard investment banker Kim Fennebresque. Mr. de Molina wasn't close to three other directors named in May, including Mr. Carpenter, said a person familiar with his thinking.

The board set a roughly six-month time frame to decide whether or not major changes were needed.

As time passed, some directors began to feel that Mr. de Molina had been focused primarily on stabilizing the teetering company but hadn't presented a clear strategy for the future.

"The company's focus was on survival mode," says one person close to the board. "That was very important. We're now at a moment in time where the focus needs to shift to, 'What will the company look like in the future and how do we make it sing operationally?'"

Some directors also complained Mr. de Molina wasn't keeping them fully in the loop about important matters facing the company. The frustration was a two-way street. Executives chafed under what they viewed as slow decision making on the part of the board, noting that many alternatives for Residential Capital had already been presented to directors.

Mr. de Molina was surprised by the board's decision, according to several people close to him, although there was a period earlier in the year when the CEO thought he might be removed amid disputes with regulators.

Mr. de Molina also has clashed with the head of Cerberus Capital Management, Stephen Feinberg, who had a seat on GMAC's board. Cerberus installed Mr. de Molina as chief operating officer in August 2007 and elevated him to CEO the following year.

The 62-year-old Mr. Carpenter, a U.K. native, has a long history in corporate America but hasn't run a major finance company in many years. He was a senior executive at General Electric Co. in the 1980s, before becoming Kidder's chairman and CEO from 1989 through 1994, before being pushed out after the scandal there.

Despite the black eye from Kidder, Mr. Carpenter was soon recruited by Sandy Weill as he built the sprawling financial conglomerate that became Citigroup. Mr. Carpenter was among those under consideration to succeed Mr. Weill as Citigroup's CEO, but he was passed over for the job.

Mr. Carpenter resigned from Citigroup in 2006, chafing under Mr. Weill's handpicked CEO successor, Charles Prince. He and another former Citigroup executive in 2007 launched their own private-equity and hedge-fund firm, Southgate Alternative Investments.

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