M&A

GMAC Taking $450 Million Goodwill Charge

The 1999 acquisition of The Bank of New York's commercial finance business by the General Motors subsidiary reportedly cost it $1.8 billion.
Stephen TaubJanuary 13, 2006

General Motors Acceptance Corp., the financing arm of General Motors, will take a noncash charge of $450 million primarily for the impairment of goodwill related to earlier acquisitions at its commercial finance unit.

In an 8-K filing, General Motors stated that the impairment charge stems from GMAC’s 1999 acquisition of The Bank of New York’s commercial finance business. GMAC paid about $1.8 billion for the company, which offers asset-based lending and factoring, according to The Wall Street Journal.

Under the Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” companies are required to undergo annual impairment tests.

For its part, GM stated that it wouldn’t recognize the impairment charge in its own December 31, 2005, financials because the goodwill is recoverable by GM at the GMAC reporting-unit level. GM has been trying to sell a majority interest in GMAC, which has $314 billion in assets and about $20 billion in cash, according to published reports.

After the impairment charges are taken into account, GMAC’s 2005 net income is likely to track previously announced earnings expectations of about $2.5 billion, according to the GM 8-K. Earnings before those charges should well exceed that outlook, the auto giant stated.