* Ally is one of largest holdings left under U.S. bailout
* Treasury does not plan to intervene in mortgage unit
* IPO still an option down the road -source
By Rick Rothacker
Feb 8 The U.S. Treasury, under pressure to
quickly wind down its crisis-era bailouts, believes it cannot
rush the sale of auto lender Ally Financial because the
company's mortgage lending unit is in a messy bankruptcy, a
person familiar with the matter told Reuters.
Ally is one of Treasury's largest remaining holdings, but
the lender will be hard to exit as long as it is working through
the bankruptcy of its Residential Capital unit and is also
selling its international operations, said the source, who was
familiar with Treasury's thinking.
"There are particular challenges with Ally," he said. "There
is no specific timetable" for a sale or stock offering. Treasury
understands the company's difficulties and supports the
company's chief executive, Michael Carpenter, he added.
The source did not want to be named because he was not
authorized to speak publicly on the matter.
Not everyone wants Treasury to be so accommodating. In a
report last month, an internal Treasury watchdog said the agency
needed a more concrete plan for repayment of the $17.2 billion
it poured into Ally during the crisis.
Treasury has been exiting other high-profile investments
made through its crisis-era bailout fund, the Troubled Asset
Relief Program (TARP). Since December, it has sold remaining
stock in insurer American International Group Inc and
announced plans to sell its last General Motors Co shares
in the next year or so.
The government's difficulties in exiting Ally show how hard
it will be for Treasury to completely close down TARP. Treasury
has recovered 93 percent of the $418 billion it put in the
program, but remaining companies could take a long time to shed.
Ally, the former GM lending arm, will be the largest
remaining TARP recipient once the GM shares are sold. Treasury
has said it plans to recoup its investment in the auto lender
through a public or private sale of stock, or by selling assets.
An initial public offering "is one of the options that Treasury
has down the road," the person said.
As of Feb. 15, the lender will have paid $5.9 billion to the
government, including dividends. Treasury in 2011 sold off $2.7
billion in Ally securities, but it still owns $5.9 billion in
preferred stock in the lender. The company hopes to repay those
preferred shares soon.
Treasury also owns 74 percent of Ally's common equity. The
auto lender filed for an IPO in March 2011 but shelved the
offering amid turbulent financial markets and growing concern
about ResCap's mortgage liabilities. In May 2012, ResCap, once a
major subprime lender, filed for bankruptcy, and Ally announced
a plan to sell international operations in a bid to speed up
The company's book value was about $20 billion at the end of
SETTLEMENT IN DOUBT
It is unclear how much Ally will end up having to pay
creditors in the ResCap bankruptcy.
Ally agreed to make a $750 million payment to creditors in
exchange for a release of any possible claims against the
company. But in a letter sent to Ally's board in November, some
creditors said the settlement is much less than Ally's actual
liability and that the lender could face damages for stripping
assets from ResCap. A person close to the creditors told Reuters
on Tuesday that Ally should be paying "billions" to ResCap's
Speaking on a fourth-quarter earnings conference call on
Tuesday, CEO Carpenter said the lender was "extremely confident
that such claims are completely without merit." Ally could
withdraw its settlement offer and was willing to pursue
litigation, he added.
As part of the bankruptcy, Ally is participating in a
mediation process "in the spirit of reaching a timely and
appropriate conclusion to these matters," company spokeswoman
Gina Proia said on Friday.
"Ally's obligation is to return the full investment to the
American taxpayer. That is our focus, and we will not allow
that mission to be compromised by meritless claims," Proia said.
Treasury understands that a Chapter 11 proceeding can take
time and does not plan to intervene, the person familiar with
the department's thinking said. "Treasury is not going to lean
on Ally to agree on bad terms on that just to get this done
quickly," he said.
ResCap auctioned off assets for $4.4 billion in bankruptcy
last fall. A court-appointed examiner is expected to issue a
report on the bankruptcy in April and a reorganization plan
could be filed in May, according to a letter Treasury wrote in
response to the internal watchdog's report.
Ally reached agreements last year to sell its international
operations for $9.2 billion in proceeds, and the deals are
expected to close this year.