Tags: Ally | bailout | loss | government

Ally Loss Widens After $1.6 Billion ResCap Settlement Charge

Wednesday, 31 Jul 2013 09:25 AM

 

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Ally Financial Inc., the auto lender majority-owned by U.S. taxpayers, said its second-quarter loss widened on costs from a mortgage settlement and higher provisions for soured car loans.

The net loss increased to $927 million from $898 million a year earlier, including a $1.6 billion charge for the settlement with creditors of its bankrupt mortgage unit, Residential Capital LLC, the Detroit-based bank said today in a statement. The core pretax profit, which excludes one-time items, fell 24 percent to $201 million from $263 million.

Chief Executive Officer Michael Carpenter’s goal of repaying Ally’s $17.2 billion taxpayer bailout has been delayed by lawsuits related to ResCap, which he once called a “millstone around the company’s neck.” The company filed to go public in 2011 before putting the idea on hold until ResCap’s fate was clear.

“We can now put that tumultuous chapter behind us,” Carpenter said in today’s statement. “Ally’s strategic transformation is nearing completion.”

Pretax income from auto finance fell 13 percent to $382 million from $440 million a year earlier as the company set aside more money for future loan losses, according to the statement. U.S. consumer financing originations fell 6.7 percent to $9.8 billion from $10.5 billion a year earlier.

Stress Test

Ally may raise less than $1 billion with a stock sale to help it pass the Federal Reserve’s annual stress test, a person with knowledge of the plans said earlier this month.

Formerly known as GMAC Inc., Ally was owned by General Motors until 2006, when the automaker sold 51 percent to Cerberus Capital Management LP, a private-equity firm. The U.S. government took a 74 percent stake in 2008 in return for a package of financial aid that kept the lender from collapsing under the weight of bad subprime mortgages.

“We’re very focused on what’s the exit strategy for the U.S. Treasury,” Carpenter said May 1 during a conference call with analysts. “If I had to put money on it right now, I would say the IPO is the best alternative.”

ResCap, based in New York, filed for bankruptcy last year partly to help it resolve claims brought by purchasers of bonds backed by home loans. The investors said the bonds lost value because many of the loans were bad. The settlement with ResCap creditors doesn’t resolve claims against Ally brought by the Federal Housing Finance Agency and the Federal Deposit Insurance Corp., as receiver for certain failed banks.

Repaying Treasury

“Except for those two lawsuits, all the claims will be settled once the agreement goes into effect,” Mohak Rao, an analyst at Fitch Ratings, said in a telephone interview. “I think the next step for Ally management will be to repay the U.S. Treasury.”

Ally sold most of its businesses in Europe and Latin America in April to General Motors Co.’s financing unit for about $2.6 billion. It sold its Mexican insurance business in May. Ally said today it completed the sale of French operations in June and plans to divest its Brazil unit and a joint venture in China later this year.

The government holds about $5.9 billion of convertible preferred shares paying 9 percent as part of the bailout. A share sale may help raise money to repay that debt, the company said July 16 in a regulatory filing. The Fed doesn’t count the preferred securities as capital and the auto lender had a capital plan rejected in March after financial ratios failed to meet standards.

“We don’t like the 9 percent dividend and we especially don’t like capital the regulator doesn’t count,” Jeffrey Brown, Ally’s vice president of finance and corporate planning, said during the May 1 conference call.

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