GM shares and GMAC bonds jump on bank holding status

DETROIT/NEW YORK (Reuters) - Shares of General Motors Corp and bonds of GMAC LLC jumped on Friday after the auto finance company won U.S. approval to become a bank holding company.

The Federal Reserve approved GMAC's status as a bank on Wednesday, giving the automaker's finance affiliate access to government lending programs, which may help GMAC avoid bankruptcy and continue financing of dealer and consumer loans for GM vehicles.

Shares of GM were up 19.38 percent, or 63 cents, at $3.88 on the New York Stock Exchange.

The news came less than a week after the U.S. government agreed to bail out GM and Chrysler LLC with $17.4 billion of emergency loans to provide liquidity and stave off collapse and massive loss of jobs.

"It's significant in terms of GM's ability to move cars," said Erich Merkle, an analyst at Crowe Horwath.

"Things are still pretty ugly out there (in terms of sales) but in terms of GM possibly filing for bankruptcy, in my mind that's not going to happen. The reason I'm saying this is what they (the government) are doing with GMAC right now."

GM Chief Executive Rick Wagoner said last week that GMAC's difficulties were "hammering" the carmaker's ability to sell vehicles.

The new bank status came ahead of a midnight debt swap deadline on Friday. GMAC, owned by private equity firm Cerberus and GM, is looking to swap $38 billion of outstanding debt for a smaller amount of new debt, as well as preferred shares and cash, to reduce its debt load and raise capital.

"This opens the door to invest in the senior and subordinated debt," which are trading "at very attractive yields," said Andrew Brenner, an analyst at MF Global Inc in New York.

GMAC's 5.625 percent notes due in 2009 climbed to 93 cents, yielding 26 percent, versus about 73 cents on Monday, its last significant trade, when the note yielded almost 104 percent, according to MarketAxess data.

GMAC has struggled as the credit crunch lifted its borrowing costs sharply and the value of many of its assets plummeted. It has lost $7.9 billion over the last five quarters.

The lender's difficulties forced it to severely curtail financing for dealerships and for consumer purchases of new GM cars and trucks in recent months. The cutback in financing compounded the sales slump at GM, the No. 1 U.S. automaker, whose sales fell an eye-popping 41 percent in November.

GM dealers have depended on GMAC, the largest auto finance company in North America, for financing of their own inventory and consumer purchases even after GM sold a 51 percent stake in GMAC to Cerberus in 2006 for $7.4 billion. GM retains the remaining 49 percent.

GM and Cerberus will have to trim back their stakes to no more than 10 percent and 14.9 percent, respectively, to comply with Fed rules that are meant to prevent companies from using banks to fund their businesses.

(Editing by Steve Orlofsky)