Ally, the former GMAC, shifts focus back to auto loans.
Ally Financial Inc. the nation’s largest automotive lender, has placed its money-losing mortgage subsidiary into bankruptcy – a move that actually could free it up to stage a much-anticipated IPO.
The bankruptcy filing was part of series of strategic actions aimed at strengthening the company’s longer-term financial profile and accelerating repayment of the U.S. Treasury’s loans that bailed out Ally when it was still operating as the General Motors Acceptance Corp.
The subsidiary, known as Residential Capital, or ResCap, has been saddled with billions of dollars of so-called “toxic” loans generated during the bubble economy that came crashing down in 2008 and 2009, sinking a number of home lenders.
Ally’s plans are to now explore strategic alternatives that could involve an IPO, a sale to a private equity group or even an expansion of its operations through acquisitions. General Motors is meanwhile signaling it may be willing to purchase its former lending subsidiary’s international operations.
Along with the ResCap bankruptcy, such steps will enable Ally to further invest in and grow its leading U.S.-based automotive services and direct banking franchises and be best positioned to return additional capital to the U.S. taxpayer by year-end, according to Ally chief executive officer Michael Carpenter.
“The action by ResCap will enable Ally to achieve a permanent solution to its legacy mortgage risks and put these issues behind us,” Carpenter said. “This action, along with pursuing alternatives for the
international businesses, will allow Ally to focus 100 percent of its energies on further strengthening its already leading U.S. auto finance and direct banking franchises.”
Going forward, Carpenter added, Ally plans to concentrate on its automotive business. “The depth and breadth of our automotive services operation is unmatched in the industry, and we see significant opportunities to broaden and strengthen this business domestically,” he said.
Ally has paid approximately $5.5 billion back to the U.S. Treasury, which has enabled the taxpayer to recover about one-third of the investment made in the company. Upon successful completion of the announced strategic initiatives, Ally expects to have returned a total of two-thirds of the taxpayer’s investment.
Ally Financial, Ally Bank and all other Ally entities are not part of the ResCap Chapter 11 filing and there will be no change or interruption to Ally’s business operations as a result of ResCap’s action. In addition, ResCap and its origination and servicing platform are expected to operate in the normal course during the bankruptcy process.
GM originally acquired the mortgage business more than a decade ago to diversify GMAC’s operations. The strategy worked for a while but the mortgage unit became ensnared in the mortgage and financial crisis, producing billions of dollars that contributed to GM’s financial tribulations which ended with the automaker filing for its own bankruptcy in 2009.