A board shakeup by GMAC’s of recent origin biggest shareholder, the Treasury Dept., is likely to dislodge Merkin from the apex make spots on, as well as several other board members

By David Welch

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GMAC Financial Services (GKM) Chairman J. Ezra Merkin, whose ties to disgraced financier Bernard Madoff gain led to several lawsuits, is expected to departure the finance circle in a diet shakeup that resoluteness nearly cut in half the number of directors.

Now that the federal government has stepped in with a $6 billion bailout bale, the Treasury Dept. will become GMAC’sitting biggest shareholder. As a product, the government resolution have a big employee in restructuring the GMAC board.

A Clean Sweep

That means in that post will be a clean curve that will convenient charge out Merkin, along by in the greatest degree of the executives who were appointed to the fare by owners General Motors (GM) and Cerberus Capital Management, say sources involved through the changeover. Day-to-day management, in whatever degree, may stay in place.

GMAC’s 12-member board of directors, of which Merkin is chairman, is expected to be clipped to seven directors. Cerberus has four executives on the current committee, but will get only human being voting instructor on the new table, says a source with direct scholarship of the new setup. GM will go from having four voting executives on the provision to just one, nonvoting executive. It likely will be GM President and Chief Operating Officer Frederick A. "Fritz" Henderson or GM Treasurer Walter Borst, sources say.

Merkin is improbable to remain under the new board erection. One source says that even before Merkin’s links to Madoff’session fraud plight became public, he had decided that he was not going to stay after the Treasury Dept. took a bigger workmanship in GMAC.

NYU Sues Merkin

Earlier this week, Merkin was sued through New York University for feeding funds from the college to Madoff’sitting investment firm, which is accused of defrauding investors. NYU also accused Merkin of concealing Madoff’s fraudulent practices from the university. One source close to Yeshiva University’s board of trustees says the college could sue Merkin as advantageous. As a university depositary and chairman of its investment committee, Merkin steered funds to Madoff. An attorney for Merkin did not return several calls.

Even if the regulation didn’t rule up a new board for GMAC, "Merkin would have left anyway," says Maryann N. Keller, an independent auto industry analyst who sits on the board of Dollar/Thrifty Rental Cars (DTG). "You can t be chairman of a finance firm when you have been publicly crucified for not doing right diligence."

GMAC spokesperson Gina Proia says the company has no board changes to set forth. But she confirms that the lender will rebuild the board due to the change in ownership.

Forty Percent Ownership for Treasury

Under the recently made known ownership structure, the Treasury Dept.’s $6 billion investment ($5 billion in preferred stock and a $1 billion loan) will make the government the largest shareholder. Cerberus’ economic ownership will drop from 51% to a greatest of 33%. But its voting ownership will be delivered of being less than 15%. GM’s stake will send down from 49% to a maximum of 10%. The Treasury Dept. will hold about 40%.

When the deal is completed, GMAC decision have about $25 billion in equity. Its new capital structure helped the lender get approval to grow a bank holding company. That gives GMAC access to Federal Reserve funds at more competitive rates so the company can bring into being more loans and help GM sell more cars.

GM will own other shares that would put its stake above 10%. But those shares will be held by a trustee, who will sell them on GM’s behalf sometime in the future. GM’sitting trustee will appoint the one board member. The Treasury Dept. force of will furnish two and Cerberus gets one seat, sources say. Then, those four entertainment members will appoint the remaining three directors.

For GM, Controlling Stake "Is Gone"

When it’s all done, GM will have almost no control of its finance congregation. Right now, the company has a 49% stake and four board members. All of that gets watered down and GM won’t wish much board influence. "It will subsist risk like a bank," says one GM executive.

GM will still have being able to run programs like 0% financing. But the company will have to compensate GMAC for the risk to any nonprime loans and incur all of the costs of any marketing program, Keller says.

There’s one other win for GM. The automaker may never have existence able to buy back GMAC. Federal regulations prohibit GM from owning a bank. When GM sold 51% of GMAC to Cerberus in 2006, the company hoped to be able to buy its stake back. But now, says Keller, "it’s gone."