Buffett Said to Have Pursued ResCap Purchase Before Bankruptcy

Friday, 18 May 2012 08:37 AM

 

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Billionaire Warren Buffett sought to buy Residential Capital from Ally Financial Inc. before the government-owned company put the home lender in bankruptcy, according to three people familiar with the matter.

Buffett assigned former hedge-fund manager Ted Weschler to negotiate an offer with Ally, said the people, who requested anonymity because the talks were private. Buffett’s Berkshire Hathaway Inc. would have paid almost nothing upfront for the assets, while taking on potential liabilities such as mounting litigation costs and other claims, the people said.

Buffett sought to avoid a ResCap bankruptcy filing because Berkshire had unsecured debt in the mortgage unit, according to the people. Detroit-based Ally turned down the Weschler proposal after deciding that a bankruptcy filing and sale better protected the company from future liabilities, the people said.

ResCap’s board voted to declare bankruptcy and arrange a sale to Fortress Investment Group LLC and Nationstar Mortgage Holdings Inc. for about $2.3 billion, ResCap Chairman and Chief Executive Officer Thomas Marano said in an interview this week. Fortress and Nationstar won’t take on the liabilities that Berkshire had proposed assuming, according to the people.

“We are confident in the bankruptcy court-supervised bidding process, which is designed to ensure that the ResCap estate receives the best possible combination of price and terms for its assets in a court-approved transaction,” said Susan Fitzpatrick, a ResCap spokeswoman, in an e-mailed statement.

Buffett, 81, didn’t return a message left with an assistant at Omaha, Nebraska-based Berkshire seeking comment. Gina Proia, a spokeswoman for Ally, and the U.S. Treasury Department’s Matt Anderson declined to comment.

Losses Piled Up

ResCap sought court protection May 14 after losses piled up on subprime and Alt-A mortgages bundled into bonds during the credit crisis. The Chapter 11 reorganization is one of the biggest collapses of a home lender since Wachovia Corp. agreed to be acquired by Wells Fargo & Co. at the end of 2008.

Ally agreed to pay $750 million to ResCap to settle any claims against the parent company, such as those brought by bondholders or other third parties, CEO Michael Carpenter said this week. A Chapter 11 filing protects a company from creditors and allows it to operate while a turnaround is devised.

The U.S. Trustee, which monitors bankruptcy proceedings as part of the Justice Department, selected members of the unsecured creditors committee for ResCap’s bankruptcy, according to a filing in U.S. Bankruptcy Court in Manhattan. American International Group Inc., Allstate Corp. and FGIC Corp. were among nine members named to the committee, which will negotiate on behalf of unsecured creditors.

Missed a Chance

Buffett missed a chance to acquire ResCap’s home-loan origination business and mortgage-servicing assets on $374 billion of loans, which Nationstar, majority-owned by Fortress, agreed to purchase. Mortgage servicers handle billing, collection and foreclosures. Buffett may still bid on ResCap in the court-supervised process.

The billionaire has been preparing Berkshire for his eventual departure, in part by hiring Weschler and former hedge- fund manager Todd Combs to help oversee investments in the past two years. The two apprentice stock pickers oversee $2.75 billion each, Buffett said at the firm’s May 5 annual meeting.

Weschler, before joining Berkshire, ran hedge fund Peninsula Capital Advisors LLC and became one of the largest investors in bankrupt chemical maker W.R. Grace & Co. A 2005 regulatory filing shows he served as chairman of the official committee of equity security holders.

Berkshire joined Leucadia National Corp. in 2009 to buy bankrupt Capmark Financial Group Inc.’s loan-servicing and mortgage business for more than $400 million. Capmark, a commercial-mortgage firm, had been owned by Ally when it was called GMAC LLC.

Ally, 74 percent-owned by U.S. taxpayers after a $17.2 billion bailout, may divest more than $30 billion of vehicle- finance, banking and insurance assets in Canada and Mexico as well as in Europe and South America to help repay U.S. funds, according to a statement.


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