August 5, 2014 at 1:34 pm

Treasury: No timetable to exit Ally Financial

Washington —The U.S. Treasury, which has shrunk its stake in Ally Financial Inc. to just 16 percent as part of its $17.2 billion in bailouts, is offering no timetable for exiting the Detroit-based auto lender.

In a July 18 letter to the Government Accountability Office made public Tuesday, Timothy J. Bowler, the assistant Treasury secretary who oversees the government’s remaining bailouts under the Troubled Asset Relief Program, said the government will exit “in a manner than balances the speed of recovery with maximizing returns for taxpayers.”

The GAO report said that “Treasury officials told us that Treasury does not have a specific date by which it intends to fully divest from the company.”

The Treasury has recouped $17.8 billion in Ally including dividends and interest payments, $600 million more than it gave Ally in three separate bailouts in 2008 and 2009. The government’s remaining stake is currently worth about $1.8 billion.

Ally, previously known as GMAC and General Motors Corp.’s in-house lending arm, sold off most of its international lending operations to GM.

The GAO report looked at Ally’s progress and challenges.

Ally suffered a net loss in 2009 of $10 billion — largely due to its mortgage business — but has reported net income for 4 of the last 5 years. Last week, Ally reported second-quarter net income of $323 million as consumer auto originations hit $10.9 billion in the quarter, the second-highest in Ally history.

GAO said Ally Financial representatives “told us that the company has been focusing more on increasing profitability than on market share — consistent with its goals as a publicly held company, which include maximizing return to shareholders.”

Ally faces competition from other large bank holding companies in consumer automobile financing. GAO noted that in the first quarter of 2014, Wells Fargo’s retail lending exceeded that of Ally Financial.

Ally Bank, the Internet banking arm, has had retail deposits continue to rise over the past year.

“The company expects deposits to continue to increase by about $5 billion per year for the next few years. Ally Financial representatives also told us that Ally Bank has high brand awareness and a high retention rate for products such as certificates of deposit,” GAO said. “Ally Bank also has been able to reduce the interest rates it pays on deposits, while retaining customers. For example, Ally Bank is no longer among the top seven rate payers, according to Ally Financial.”

In May, Treasury sold another 7.2 million shares in Ally. The Treasury said underwriters exercised their option to purchase 7.2 million additional shares at the $25 IPO price. Ally stock was down 1.4 percent Tuesday afternoon to $22.64, or 33 cents a share, and down nearly 10 percent since the IPO in April.

Treasury said it priced the shares at $25 each in the IPO, the low end of the $25 to $28 range that Ally had announced.

Profits from Ally will not be enough to offset the losses on bailouts of General Motors and Chrysler: $11.2 billion on GM and $1.3 billion on Chrysler. But including profits on the bank bailouts, taxpayers will see a net gain on the $700 billion Troubled Asset Relief Program.

In 2011, the Treasury put its planned Ally IPO on hold because of investor concern about Ally’s troubled mortgage unit Residential Capital.

Ally completed a bankruptcy restructuring of ResCap late last year. ResCap had $17 billion in losses in the years before the bankruptcy after the company made thousands of bad home loans.

In an interview in April, Ally CEO Michael Carpenter said he thought Treasury would pursue a secondary offering to complete its exit in coming months. “My own view is they will definitely be out before the November election and we are close to having Treasury and U.S. government ownership in the rearview mirror,” Carpenter said.

Carpenter said the exit takes away “a concern that people have — like other (automakers) and so forth — a concern that they may have in doing business with us. That’s one benefit,” he said.

He noted that Ally faces a “series of handcuffs that regulators put upon us — not because they don’t like us or our financial condition’s not good or whatever — but because we’re owned by the government.” Ally is the only bailout recipient that still faces government pay restrictions, which will lift when the government completely exits.