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Ally, the former lending arm of General Motors, ran into trouble during the financial crisis as its mortgage loans soured, forcing the government to inject more than $17-billion (U.S.) into it in 2008-2009 to keep the company afloat. (Carlos Osorio/Associated Press/Carlos Osorio/Associated Press)
Ally, the former lending arm of General Motors, ran into trouble during the financial crisis as its mortgage loans soured, forcing the government to inject more than $17-billion (U.S.) into it in 2008-2009 to keep the company afloat. (Carlos Osorio/Associated Press/Carlos Osorio/Associated Press)

Ally Financial weighs sale of auto lending, banking units, sources say Add to ...

Ally Financial is weighing a sale of all or part of its auto lending and banking businesses as an initial public offering looks increasingly remote and the U.S. government seeks to recoup some $17-billion in bailout money, sources familiar with the situation said.

Ally, which is 73.8-per-cent owned by the U.S. government, is already in the process of selling its mortgage unit, Residential Capital, and sales of other assets could happen even as that continues, one of the sources said.

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The logical universe of buyers for Ally’s core operations includes big banks such as JPMorgan Chase & Co., Toronto-Dominion Bank and Wells Fargo & Co., as well as auto makers such as General Motors Co., the sources said.

The internal discussions on whether to sell the auto lending operations or its online bank are at very early stages, the sources said. They said no decisions have been made on what path to pursue, with an IPO also remaining a possibility.

It wasn’t clear what these assets would be worth in a sale. Last year, sources said Ally was planning to raise around $6-billion (U.S.) in common stock and convertible securities through a public offering, though the size of that offering was not disclosed.

The U.S. Treasury declined to comment. Ally spokeswoman Gina Proia said the company would not comment on speculation.

“We continue to be squarely focused on putting the legacy mortgage issues behind us and growing our leading auto finance and direct banking franchises,” she said.

TD Bank declined to comment, while JPMorgan, Wells and GM did not respond to calls for comment.

The talks about a potential sale of Ally come as the subject of bailouts has become a contentious political issue in an election year, likely mounting pressure on the U.S. government to show progress at Ally and other companies that received taxpayer-funded rescues.

U.S. presidential hopeful Mitt Romney has criticized U.S. President Barack Obama’s $81-billion auto industry bailout in 2009 as “crony capitalism” that rewarded unions and other political allies of the President.

Ally, the former lending arm of General Motors, ran into trouble during the financial crisis as its mortgage loans soured, forcing the government to inject more than $17-billion into it in 2008-2009 to keep the company afloat. Ally has said it has since repaid the government $5.4-billion.

The government took a controlling stake in Ally, and cut the stakes of its other shareholders. Private equity firm Cerberus Capital Management now owns 8.9 per cent of the company, General Motors Trust 5.9 per cent and General Motors itself 4 per cent.

Ally put forward a plan to go public in June last year, but it had to postpone the IPO as problems mounted at the ResCap mortgage unit and market conditions deteriorated in the wake of the European sovereign debt crisis.

The company’s problems include getting dragged into a nationwide furor over faulty housing foreclosures and the mishandling of requests for loan modifications. Earlier this month, it was among five big U.S. banks that agreed to a $25-billion settlement.

The market for IPOs – financial stocks in particular – also remains difficult, thanks in part to the euro zone debt crisis, leaving Ally and the Treasury to think about other alternatives.

Sales in recent months of companies such as ING Groep NV’s U.S. online banking unit to Capital One Financial Corp. and MetLife Inc.’s online bank to General Electric Co. are giving hope to the company that a straight sale may be an easier way to go than an IPO.

Ally has already started talks to sell ResCap through a process that could also involve a bankruptcy filing for the unit, the sources said.

Bidders interested in a deal for ResCap include Fortress Investment Group, Cerberus, and a consortium of Centerbridge Partners LP and Leucadia National Corp., the sources said, adding the process was moving forward quickly.

Centerbridge and Fortress declined to comment. Cerberus and Leucadia were not immediately available for comment.

Banks that are looking to acquire assets to match their growing deposit base and those with already sizable auto lending operations could make for ideal buyers of Ally Bank, which has been advertising aggressively to attract customers, and the auto lending business.

TD struck a deal late in 2010 to buy Chrysler Financial for $6.3-billion to become one of the biggest bank-owned auto lenders in the United States, while JPMorgan and Wells Fargo already have auto lending operations.

Besides these lenders, Ally’s assets could also draw interest from auto makers who want to increase captive lending capabilities.

“There’s a lot of strategic value in the pieces to many different potential buyers,” one of the sources said.

GM had been interested in buying some of Ally’s auto lending operations as it sought to boost its ability to provide financing for dealers as well as lease deals to lure new car buyers, the sources said. GM has since moved to increase its financing operations internally and it remains unclear whether it would still be interested in Ally assets.

In July, 2010, it bought AmeriCredit, now called GM Financial, for $3.5-billion, giving GM dealers a way to sell more cars and trucks by providing easier access to subprime loans for people with spotty credit records.

But that deal did not address a separate problem for GM; if its dealers are unable to secure access to credit or have to pay high rates, they risk being unable to obtain vehicles.

Other major auto makers, including Ford Motor Co. and Toyota Motor Corp., have financing arms offering loans to their own dealers, often at subsidized rates that amount to a marketing expense.

 
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