ResCap Bankruptcy, Google Copyright Infringement
Ally Financial Inc. (ALLY), the auto lender
majority-owned by U.S. taxpayers, received Treasury Department
approval for plans to put its Residential Capital unit into
bankruptcy, an Obama administration official said.
The Treasury will support directors at Ally and ResCap if
they decide that seeking court protection from creditors is the
best course, said the official, who asked for anonymity because
the arrangements haven’t been made public. The approval is
conditioned on a review of final terms, the person said.
Chief Executive Officer Michael Carpenter is searching for
ways to repay federal bailouts exceeding $17 billion that left
the U.S. with a 74 percent stake. Administration officials have
concluded that addressing ResCap’s mortgage losses will put
taxpayers in a better position to recoup their investment in
Ally, the person said today.
“Treasury wants its money back,” Jody Lurie, a corporate
credit analyst at Janney Montgomery Scott LLC in Philadelphia,
said in a telephone interview. “This sign-off is an indication
that Ally has a good enough plan to prove they can eventually
pay back the government. The only feasible opportunity for them
to get their money back is to split up or sell Ally.”
Carpenter, who once predicted that a pending initial public
offering could value Ally at $30 billion, later said the sale
won’t happen until there’s progress on resolving the mortgage
unit. Detroit-based Ally, formerly known as GMAC, confirmed last
month that ResCap is considering bankruptcy and said Ally’s loss
tied to the action could be $400 million to $1.25 billion.
Matt Anderson, a Treasury spokesman, and Gina Proia, a
spokeswoman for Ally, declined to comment.
Ally’s first-quarter profit more than doubled from a year
earlier as mortgage results improved. Net income climbed to
$310 million and profit in mortgage operations, run by Thomas Marano and which include ResCap, almost quadrupled to $191
million. ResCap’s deficits had helped drive the unit’s loss to
about $792 million in the three previous quarters combined.
Earlier this year, Treasury officials told Ally that an IPO
is unlikely, and they were pushing the firm to split into at
least two pieces, people familiar with the matter have said. One
part could be Ally’s auto-finance subsidiary, which is among the
largest in the U.S., and the other would be its online bank,
which had almost $28 billion in retail deposits at year-end.
All options including the IPO or sale of business units
remain open, the official said.
“Treasury doesn’t want to be viewed as actively managing
the business,” said Kirk Ludtke, an analyst at CRT Capital
Group LLC, the Stamford, Connecticut-based broker-dealer. Still,
he said, “you need to have Treasury on board.”
Ally ranked No. 1 in financing U.S. consumer auto sales for
2011 with more than $40 billion in contracts for new or used
cars and trucks, or about 1.5 million vehicles. ResCap was one
of the largest originators during the housing bubble of subprime
and Alt-A mortgages until record defaults led to billions of
dollars in losses.
Rescap’s $2.12 billion of 9.625 percent notes due May 2015
rose 0.3 cent to 94.3 cents on the dollar at 4:42 p.m. in New
York, according to Trace, the bond price reporting system of the
Financial Industry Regulatory Authority. The debt, which has
risen from 56.9 cents in November, yields 12 percent.
Ally’s $932.5 million of 8 percent bonds maturing in
November 2031 climbed 0.5 cent to 115.75 cents on the dollar at
1:26 p.m. in New York. The company had about $101.6 billion in
debt outstanding at the end of 2011, according to its annual
filing. Ally employed 14,800 workers at the end of December, the
There are no publicly traded shares in Ally. Minority
stakes include 9.9 percent held by a trust for General Motors
Co. (GM) and 8.7 percent owned by Cerberus Capital Management LP, the
New York-based investment firm. GM was GMAC’s parent until 2006,
when Cerberus engineered a buyout. Cerberus then lost control
and its stake was diluted in the bailout that began in 2008.
To contact the reporter on this story:
Dakin Campbell in San Francisco at
To contact the editor responsible for this story:
David Scheer at