WASHINGTON: The US Treasury announced on Tuesday a 3.8 billion dollar fresh capital injection into ailing GMAC, the former finance arm of General Motors that became a bank to access federal rescue aid.

The capital infusion will give the US government a controlling stake in the company.

"Due to a variety of factors, including that the restructurings of General Motors and Chrysler were accomplished with less disruption to GMAC than banking supervisors initially projected, Treasury will commit 3.8 billion dollars of new capital to GMAC rather than the 5.6 billion dollars originally announced," the Treasury said in a statement.

It had previously injected 12.5 billion dollars in capital into GMAC.

The Treasury also said it was restructuring its investment in GMAC "to protect taxpayers and put GMAC in a position to raise private capital and pay back taxpayers as soon as practicable."

"These actions offer the best chance for GMAC to complete its overall restructuring plan and return to the private capital markets for its debt financing and capital needs in 2010," the department said.

The 3.8 billion dollar capital injection will be in the form of 2.54 billion dollars of trust preferred securities and 1.25 billion dollars of mandatory convertible preferred (MCP) stock.

Treasury said it would also receive warrants for both types of stocks, totalling 190 million dollars, which it would exercise immediately at the close of the transaction.

The Treasury, headed by Secretary Timothy Geithner, said it would convert 3.0 billion of its existing MCP, which was invested in May 2009, into common equity "to boost the quality of the capital supporting GMAC."

That move will raise Treasury's equity stake in GMAC to 56 percent from 35 percent.

Given the increased ownership, the Treasury will have the right to appoint two additional directors, in addition to the two it has, to the nine-member GMAC board of directors.

The department said it plans to nominate its new directors in time for GMAC's annual meeting at the end of April.

GMAC plans to step up the pace of its repayments to the government.

"By protecting the financial performance and strength of our core automotive finance operations, we expect to increase the pace at which we can fully repay the US taxpayer," Michael Carpenter, GMAC chief executive, said in a separate statement.

The smaller taxpayer-funded injection into GMAC will result in a 1.8 billion dollar reduction in Treasury's previously forecasted spending under the 700-billion-dollar Troubled Asset Relief Programme (TARP), the Treasury said.

GMAC was the only one of 10 banking holding companies deemed to have fallen short in efforts to raise enough capital to weather adverse economic circumstances, the Federal Reserve announced last month.

The Fed said in May that GMAC needed 11.5 billion dollars, to be raised through private investments, or through public aid under the TARP approved last year by Congress.

GMAC was the long-time financial arm of the largest US automaker until 2006, when GM sold a majority stake.

In December 2008, GMAC won permission to become a bank holding company to have improved access to Fed lending amid the global financial crisis.

On May 21, the US Treasury said it had injected an additional 7.5 billion dollars into GMAC to enable it continue providing loans to auto dealers and consumers.

The new investment came on top of an earlier five billion dollar injection as part of an effort to rescue the auto industry and the financial sector. - AFP/de