U.S. shrinks Ally stake to 13.8 percent

David Shepardson
The Detroit News

Washington — The U.S. Treasury said it sold another nearly 9 million shares in its Ally Financial stake, shrinking its remaining stake to 13.8 percent, and has begun the sale of its remaining shares.

The Treasury said it sold 8.89 million shares in the Detroit-based auto lender for $218.7 million under a trading plan announced in mid-August. It holds 66.2 million remaining shares; at that pace, the government might not complete its exit for another seven months or so.

Ally stock is down 1.2 percent to $24.37, down $0.29, a share and still below its $25 IPO price.

The U.S. Treasury also said it will continue to sell Ally stock through a second pre-defined written trading plan — though the plans aren’t made public to prevent Wall Street traders from profiting from the government’s sales.

“Treasury’s sale of additional common stock continues our effort to wind down the investment in Ally and the Troubled Asset Relief Program (TARP),” said Chief Investment Officer Charmian Uy. “The second trading plan will allow us to continue exiting the investment in a manner that balances speed of exit with maximizing the taxpayer’s return.”

Treasury — which gave the auto lender $17.2 billion in total bailouts in 2008 and 2009 — is working to completely exit.

Ally has said the government could exit by year’s end. It would mark an end to the government’s $85 billion auto bailout and a historic period of intervention to rescue the U.S. auto industry. The sale that started in August marked Treasury’s first sale of Ally shares since Ally’s IPO in April.

As part of Ally’s initial public offering in April, Treasury sold 95 million shares of Ally common stock at $25 per share for $2.375 billion dollars in proceeds to taxpayers. The underwriters of the IPO later exercised their option to purchase 7.25 million additional shares at the IPO price, recovering an additional $181 million for taxpayers.

Taxpayers have now recovered approximately $18 billion on the Ally investment, roughly $875 million more than the original $17.2 billion investment.

To date, taxpayers have recovered a total of $440 billion on TARP investments, including the sale of Treasury’s AIG shares, compared to $425.2 billion disbursed.

Treasury said there will be opportunities for smaller broker dealers, including women and minority-owned dealers, to participate in the sale of Treasury’s remaining Ally common shares pursuant to the plan.

Ally spokeswoman Gina Proia praised the latest sale. “Ally views these transactions as incremental steps toward ultimately exiting the Troubled Asset Relief Program and delivering additional value to shareholders, including the U.S. taxpayer,” she said.

In a July 18 letter to the Government Accountability Office, 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 that 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 government’s remaining stake is currently worth about $1.6 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.

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 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.