Treasury exits Ally
Washington — President Barack Obama hailed the end Friday of the U.S. Treasury's historic six-year intervention into the U.S. auto industry, as it sold its remaining 11.4 percent stake in Ally Financial Inc., formerly known as GMAC.
"Today, our rescue of the American auto industry is now officially over," Obama said.
The exit — which netted taxpayers another $1.3 billion — ends the historic period of government intervention to rescue the auto industry launched under President George W. Bush and dramatically expanded by President Barack Obama. Friday's final exit comes on exactly the sixth anniversary of Bush's decision to rescue the auto industry. The bailout became a key part of Obama's re-election and remains a staple of the president's speeches.
Obama hailed the official end of the auto bailout at a year end press conference emphasizing that taxpayers recovered the full $60 billion in the auto bailout funds that his administration infused but didn't acknowledge that taxpayers lost at least $10 billion on the auto bailout —more in accounting terms. His administration has opted not to include the initial $25 billion invested by Bush.
Former Obama Administration auto czar Steve Rattner said the country has benefited mightily from the auto bailout and Ally's performance has been far better than expected. "Hard to imagine a better set of outcomes to what seemed like an intractable problem. Among other things, not many of us would have bet on a multi-billion dollar profit on Ally," Rattner said Friday.
Today also marks the near end of the $700 billion Wall Street and auto bailout fund approved by Congress in late 2008 known as the Troubled Asset Relief Program to stave off a financial collapse.
Taxpayers recovered more money than they injected into the bailout of the auto lender, but in accounting terms the government still booked a loss on the Ally bailout. The Treasury department recovered $19.6 billion, including dividends; that's roughly $2.4 billion more than the original $17.2 billion bailout of the company. The Treasury said it sold its remaining 54.9 million shares at $23.25 each, recovering $1.3 billion.
Losses on the overall $85 billion auto industry — including General Motors Corp., Chrysler LLC and Chrysler Financial — were about $10 billion, but they saved hundreds of thousands of jobs, the Obama administration argued.
"This program was a crucial part of the Obama Administration's effort to stop the financial crisis and protect the economy from slipping into a second Great Depression," Treasury Secretary Jacob J. Lew told reporters on a conference call. "This program worked."
The Treasury made the decision to swap much of what it was owed in the auto industry bailout — instead of requiring the companies to repay the money in full. In the case of Ally, the U.S. government at one point owned about 74 percent of the nation's largest new car lender.
"This marks another major milestone in Ally's journey," said Ally Chief Executive Officer Michael Carpenter. "We are appreciative of the investment the U.S. Treasury made in Ally and their understanding of how important available financing was to the U.S. auto recovery. Today, Ally stands as a stronger and more focused financial services company."
In late 2008, the Federal Reserve agreed to grant Ally — then GMAC — bank holding company status so it could qualify for loans under the Wall Street and auto rescue program. Ally got two additional bailouts totaling $17.2 billion, and Treasury tapped Ally to be the primary lender for both GM and Chrysler.
Since then, those agreements have expired and GM acquired its own lending arm, GM Financial, and Chrysler has a lending deal with a Spanish bank's U.S. unit Santander Consumer USA.
Ally — which shed most of its foreign operations — still remains a major lender for GM and Chrysler dealers and it operates a profitable online bank called Ally Bank.
Of the 700 banks and others in the $700 billion Troubled Asset Relief Program, Treasury holds investments in 35 small banks totaling less than $1 billion. Taxpayers have recovered a total of $441.7 billion on TARP investments, including the sale of Treasury's AIG shares, compared to $426.4 billion disbursed.
Taxpayers end up receiving more from Ally, a bank holding company, than they loaned, though much of that was in the form of dividends.
The Bush administration initially agreed to rescue Ally, General Motors Corp., Chrysler LLC and Chrysler Financial in the final weeks of the administration with $25 billion in bailouts, while the Obama administration forced GM and Chrysler into bankruptcy. The government initially held majority stakes in GM and Ally Financial, which it designated as the primary lender for GM and Chrysler.
The exit ends the government's oversight of pay by executives at firms that got large government bailouts. Initially, seven companies that received extraordinary assistance — GM, Ally, American International Group, Bank of America Corp., Citigroup Inc., Chrysler Financial and Chrysler — were required by Congress to get approval from Treasury for top executive pay. As companies repaid their bailouts — or the government sold their stakes — they exited. With the government's sale of its final shares of GM last December, only Ally remained in the program.
The Treasury ended its ownership stake in Chrysler Group LLC in July 2011, incurring a $1.3 billion loss on a $12.5 billion bailout.
Ally, General Motors Corp.'s lending arm, sold off most of its international lending operations to GM.
Ally disclosed Thursday the company has voluntarily agreed to extend the statutes of limitations to allow the Justice Department to continue its investigation that Ally may have made false representations about its former troubled mortgage unit Residential Capital LLC in connection with bailouts that Ally that received from the U.S. Treasury starting in 2008. Ally received three separate bailouts totaling $17.2 billion. It also said it has received a subpoena in connection with an industry investigation into securitization of loans.
At one point, the government owned a 74 percent majority stake in Ally. In 2011, the Treasury put its planned Ally IPO on hold because of investor concern about ResCap.
The sale in Ally also means the Obama administration is close to a final exit in the $700 billion program passed by Congress in late 2008 to prevent a collapse of the U.S. financial system, with only some small bank investments remaining.
Ally rose sharply on the news, up $0.80 a share, or 3.5 percent — to $23.55 — $0.30 more a share than the government sold its shares for.
The exit from Ally comes nearly a year after Treasury exited General Motors Co., selling its final shares in December 2013 as part of its $49.5 billion bailout, taking about a $10 billion loss.