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June 2009
A New Way of Doing Business
By Ellison Clary

     How hard has it been to keep GMAC afloat?

     “We’ve been engaged in hand-to-hand combat just staying alive,” says Al de Molina, chief executive of the financial mega firm which has undergone as many changes in recent months as reflections off a disco ball.

     “I’ve not spent a lot of time adding and deducting from the business lines and setting strategy,” adds de Molina of his days since taking the reins on April 1, 2008. “Just fighting tooth and nail to keep the thing going. That culminated in bank approval in late December.”

     A Christmas Eve decision by the Federal Reserve allowed the financing arm of General Motors to become a bank. It also made GMAC eligible for the Troubled Asset Relief Program (TARP) and the firm promptly accepted $5 billion from the U.S. Treasury.

     Then on December 31, GMAC consummated a bond exchange that produced an $11.4 billion gain, wiping out a huge loss for the year.

     “For 2008, we made money,” de Molina says with a head shake, “but we made money on December 31st. We lost $9 billion from January 1 to December 30. That debt exchange recapitalized the company.

     “We were hammered with massive losses all year,” he continues. “Mostly from the mortgage business, but a significant amount came from the auto business.”

     His prognosis for 2009: “We’ll lose money.” Indeed, the loss for first quarter 2009 was $675 million.


Banking on the Future

     Gloom isn’t pervasive, though. GMAC announced a new name for its online bank—Ally—in mid-May. The name change had been mulled for the past year, as the company tries to appeal to a broader range of customers.

     “We want a real word that powerfully portrays who we want to be,” says to Diane Morais, head of deposit and innovation of GMAC Financial Services, which is keeping its name.

     At a time when customers have become increasingly antagonistic toward banks, wary of hidden checking-account fees and mortgage fine print, and angered over bank bailouts and the financial crisis, Ally bills itself as just that: an ally. The transformation is billed as “taking the bank in a new direction,” developing new products and giving the customer more options while maintaining the highest rates.

     Just days earlier, a bankruptcy judge had ruled that Chrysler Corporation dealers and customers can get financing from GMAC, to fill a void left by moribund Chrysler Financial. Some even speculated GMAC could become the Freddie Mac of auto lending.

     Charlotte’s business and government leaders were overjoyed when de Molina and GMAC announced in March that the new bank with $200 billion in assets will more than double its workforce in the Queen City.

     In exchange for adding 200 new jobs to the 240 it already has, mainly in Ballantyne, GMAC will receive up to $4.5 million from the State of North Carolina and $237,000 from the City of Charlotte. That largesse reflects how welcome the news was for Charlotte, where Wachovia figures to shrink employment significantly now that it’s owned by Wells Fargo and where Bank of America is slogging through layoffs system wide that could top 40,000.

     GMAC has said its new jobs in Charlotte will pay an average annual wage of more than $96,000. State officials expect the company to invest $16.4 million in Mecklenburg County.

     GMAC sees Charlotte as the perfect recruiting ground for talent to transform it into a true bank holding company. Already, de Molina, a former chief financial officer at Bank of America (BofA), has lured bright stars from his alma mater. They include names such as Sam Ramsey, chief risk officer; Robert Hull, former chief financial officer at Bank of America’s Global Wealth and Investment Management Division, who took the GMAC chief financial officer post in late 2007; and Jeff Brown, ex-BofA treasurer who recently accepted the same title at GMAC.

     “We’ve hired probably 30 from Bank of America in the last couple of months,” de Molina says. “We’re talking to some others. We’ve hired some from legacy Wachovia. And hopefully our hiring won’t stop at 200, but we’ve got significant challenges ahead of us, so that’s dependent.”

     The bulk of top leadership is in Charlotte, but Detroit remains headquarters. GMAC has 2,000 employees there.

     “When I give somebody my word, I stick to it,” de Molina says. “I told the governor of Michigan the headquarters would stay in Michigan. The functions that are going here are largely new functions that surround the control and management and leadership of a new kind of company, which is a bank.”

     De Molina, 52, joined GMAC in August 2007 as its chief operating officer, after retiring as BofA’s chief financial officer. He never left the Charlotte house he’s shared with wife Donna and their three children since 1995. Instead, he commuted from Charlotte to Detroit or to the GMAC offices in Manhattan.


More Hard Work Ahead

     Now he stays closer to home, but the work remains hard.

     “We have to build a safe and sound financial institution from scratch,” he says.

GMAC traces its origin to 1919 as the wholly owned auto financing arm of General Motors (GM). Over time, its products and services have expanded.

     In 2006, GM parted with its controlling interest to a consortium of investors led by Cerberus Capital Management, L.P. The company had diversified and entered the mortgage business big time. Bad home loans cost it about $10 billion during 2007 and 2008.

     General Motors still holds a significant stake, but GMAC is no longer controlled by GM or anyone else for that matter. Besides auto finance and mortgage, it specializes in real estate finance, insurance, commercial finance and online banking.

     “If you look at the balance sheet, our business is roughly two-thirds auto and one-third mortgage,” de Molina says. “We have a small commercial business, which is a good business, but it’s small because it has some competitive disadvantages, like the high cost of funds.”

     GMAC’s cost of money is high because it doesn’t have a deposit network, the country is mired in what de Molina calls its “greatest credit crisis in history,” and because of huge mortgage losses.

     The Ally Bank name is calculated to reflect more than that the company is a bank. The online entity will be unique in “treating customers with total transparency,” de Molina says.

     The bank intends for the brand to attract customers with its “straightforward” approach of being “open, accountable, and honest,” offering no-penalty certificates of deposit, online savings accounts and money market accounts with “no monthly fees, no minimum deposits, and no minimum balances.”

     “It’s based on three principles: talking straight, doing what is right for the customer and being obviously better than the competition,” says Sanjay Gupta, chief marketing officer.

     That new moniker could get plastered on the Charlotte skyline since GMAC is moving uptown. It plans to take more than 106,000 square feet at the 15-story office tower rising at 440 South Church Street sometime in the last quarter of the year.

     Many suspect de Molina’s former boss, retired BofA chairman and chief executive Hugh McColl Jr., a tireless proponent of center city, influenced that decision.

McColl lobbied for center city, de Molina says, but was never pushy. After long deliberation, de Molina concluded McColl was right.

     That’s not the only decision on which McColl has influenced de Molina, who joined BofA 20 years ago. He’s quick to acknowledge that the precepts he learned there have helped him through the last year.

     “Everything that I did with GMAC, I learned in my time with BofA,” he affirms. “I aspire to lead like Hugh McColl, who was the master at creating a great team and great culture.”


Putting Stock in Acumen

     McColl calls that a compliment, and praises de Molina’s ability to fix GMAC.

     “I’m sure Al has observed firsthand what has worked and what hasn’t worked in the financial sector,” McColl says. “My guess is he will need no advice or coaching to avoid the kind of problems he found when he went to GMAC.”

     Marc Oken, also a former chief financial officer at BofA, was head of accounting when he brought de Molina into the fold. He recognized right away that de Molina was “a very bright, clever deal guy.”

     Oken, now managing partner of Falfurrias Capital Partners in Charlotte, admires how de Molina has “taken advantage of the opportunities presented by the government assistance programs to make GMAC an independent bank holding company. The next chapter,” Oken says, “has to be that he finds a way to create distribution for his products. One way would be to find a bank to merge with.”

     De Molina agrees. “We have a great asset-generation machine,” he says. “We have a liability structure problem in that we don’t have the cheap deposits of a bank. One way to solve that is to combine or roll up a retail presence. First, we need to get our own act together. But that would be, in my mind, coming shortly thereafter.”

     De Molina and his charges fought market forces throughout 2008. “The hand of Adam Smith wanted to kill us,” he chuckles. “It tried and it tried and it tried. And it couldn’t kill us.”

     Resistance wasn’t easy. “It’s amazing how the markets are so effective at pointing out your weaknesses,” he says. “And we were nothing but a basket of weaknesses. We were plugging holes all the time.”

     The GMAC people, many of whom de Molina recruited, are the reason for survival, he vows, calling them smart, dedicated and creative.

     “How often do you get to walk into something this large and this broken?” he asks rhetorically. “And you work as hard as you can to fix it, surrounded by your friends both old and new. It’s a pretty cool situation.

     “This company would have clearly been dead,” he adds. “There would have been 20,000 less jobs. I was able to attract a group of dedicated professionals that helped save it. And it was worth saving. That’s both a motivating and satisfying thing.”

     He pauses and adds: “And it ain’t over yet. We’ve still got a battle to go.”


Structural Snags

     The most frustrating part of his job, de Molina says, is that GMAC doesn’t fully control its destiny.

     “There are structural impediments to GMAC’s full recovery that we are working on with the Federal Reserve Board, the FDIC and the Treasury,” he says. “We will fix them, but all of the agencies have many critical issues beyond GMAC, so it will take time.

     “In five years, if I could wiggle my nose, GMAC will still have a large auto component, because that is our strategic strength and competitive advantage,” he says. “I hope the auto business is well south of 40 percent. Another 20 percent will be in mortgage and 40 in other, which would include commercial. So I don’t see us morphing into the unsecured space, credit card or anything like that. We’re also not going to do anything in the large corporate space.

     “Asset-based lending, both commercial and consumer, is probably what we will stay close to,” he sums up.

     Internationally, GMAC will slim down, he says. It will be in dramatically fewer countries than its current 31.

     De Molina was 3 when his father, who was in the Cuban sugar business, defected in 1960. He’s a Fairleigh-Dickinson University graduate who built experience with PricewaterhouseCoopers and a healthcare firm in New Jersey. He worked with JPMorgan Chase in New York before joining BofA predecessor NCNB.

     All that attracted him to Charlotte, he says, is that his wife wanted to raise their family in the South. He’s grown attached to the city. He’s involved in some civic activities, usually working behind the scenes. He hopes his company can be a strong civic supporter, but warns that can’t happen until it’s able to repay its TARP money, an event not currently on the radar screen.

     On Charlotte’s prospects during the recession and beyond, he assesses both its positives and negatives.

     Obviously, banking job losses have buffeted the city, he says, but the word about the talented workforce is getting out. More companies will locate offices with between 200 and 400 workers in the area, he believes, and he thinks that can be healthier for the region’s economy long-term.

     Nationally, he has faith that General Motors can stop losing money if it makes drastic changes such as ditching some revered but poor performing brands.

     A devotee of German cars, de Molina bought a Cadillac when he joined GMAC. “I was very pleasantly surprised at the product,” he says. “They’ve got some really healthy brands. They just need to build on those strengths.”

     For the national economy, de Molina sees a long road to recovery. The country has lived largely on credit since the early 1980s, he feels, and much debt reduction must occur.

     “I think the Federal Reserve and the Treasury are doing some great things to take the edge off the correction,” he continues. “But that correction has to take place.”

     For GMAC, a wrenching reckoning has eased. “The interesting thing is,” de Molina says, “with the exception of some remaining pockets in the mortgage business, we don’t have an asset problem.

     “The problem is, our cost of funds is very, very high,” he continues. “So we’ve got to do a lot of restructuring on the balance sheet. That’s something that I’m looking forward to getting to work on.”

     His troops are anxious, too. “If you walk around here, you won’t see people moping,” he says during a tour of the Ballantyne office. “We’re all excited about the challenge.”


Ellison Clary is a Charlotte-based freelance writer.
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